Costar Group Inc (CSGP) — Q4 2017 Earnings Call Transcript

Thank you operator, appreciated. Welcome to CoStar Group’s Fourth Quarter 2017 Conference Call. Before I turn the call over to Andy Florance, CoStar’s CEO and Founder; and Scott Wheeler, our CFO, I have some very important items for you to consider. Certain portions of our call today may contain forward-looking statements, which involve many risks and uncertainties that could cause actual results to differ materially from such statements. Important factors that could cause actual results to differ, include but are not limited to, those stated in our February 21, 2018, press release, on fourth quarter and year-end results and at CoStar’s filings with the SEC, including our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q under the heading Risk Factors. All forward-looking statements are based on information available to CoStar at the time of this call. CoStar does not assume any obligation to update these statements whether as a result of new information, future events, or otherwise. Reconciliation to the most directly comparable GAAP measure to all of the non-GAAP financial measures discussed on this call, including but not limited to, non-GAAP net income, EBITDA, adjusted EBITDA, and forward-looking non-GAAP guidance are shown in detail on our press release issued yesterday, along with definitions which have been updated for those terms. The press release is available on our website located at costargroup.com. As a reminder, today’s conference call is also being broadcast live on our website where you can also find CoStar’s Investor Relations page. Please refer to yesterday’s press release on how to access the replay which will be available about an hour after the call. Remember, one question, make it a good one. I’ll now turn the call over to Andy.

Thank you, Richard. I appreciate that, that was an excellent preamble. Thank you for joining us today on our year-end 2017 earnings call. Four years ago, on a similar earnings call in which we reported a $476 million revenue run rate, we set a goal of reaching $1 billion in annualized revenue by the end of the fourth quarter of 2018. I’m very pleased to announce that with the fourth quarter 2017 revenue of $254 million, we have met our $1 billion in revenue run rate goal an entire year ahead of target. And I’m even more pleased that we crossed the $1 billion milestone with a stronger sales momentum than I have ever seen in this business. In the fourth quarter of 2017, we generated $43 million in net new bookings, a sales increase of 47% year-over-year. For the year, we added $127 million in revenue and achieved our best sales year ever with $148 million in net new bookings, up 32% over 2016. Leading the strong momentum, CoStar Suite net new bookings increased 100% in Q4 2017 versus the same period in 2016, not that the same period in 2016 was weak. Quite literally, sales of our flagship service were off the charts in the fourth quarter. We added more new companies than ever before, with 3,100 net new North American clients added to our CoStar subscriber base, which is nearly triple the number from the same quarter a year ago. We added 5,863 new users to CoStar in the fourth quarter of 2017. For all of CoStar, December was our best sales month ever by a wide margin, and January was our second best ever by a wide margin. As a company, we sold more in December 2017 and January 2018 than we did in the entire year of 2011. In the fourth quarter of 2017, Apartments.com had its best net new sales bookings quarter ever. Apartments.com sales were up 36% year-over-year in the fourth quarter. This was a particularly strong performance since historically, the fourth quarter for Apartments.com and all the ILS companies is normally a seasonally weaker quarter. For the full year of 2017, CoStar's revenue growth was 15% year-over-year compared to 2016. Four years ago when we set that $1 billion revenue run rate goal, we also set a goal of reaching a 40% adjusted EBITDA margin for the fourth quarter of 2018. We are making good progress towards our EBITDA margin goal and remain focused on achieving those very strong margins by the fourth quarter 2018 as we stated. Net income for the full year 2017 grew 44% year-over-year and EBITDA increased 10% year-over-year. Our unprecedented sales successes in the fourth quarter of 2017 drove unprecedented commission paths for our sales force in the fourth quarter, that’s a good thing. The ROI on these sales are fantastic and clear. This continued into 2018 with high commission expenses in January. This suppressed our EBITDA growth in the fourth quarter, but in the intermediate term, this exceptional revenue growth is expected to enhance margins. We are in the middle of a seismic shift in the U.S. commercial real estate information, analytics, and marketing landscape. In the middle of December 2017, our major competitor, Xceligent, suddenly and unexpectedly filed for Chapter 7 bankruptcy and liquidation. Xceligent had been in business since 1999 and was operating in over 40 major U.S. cities. We believe that Xceligent had well over 5,000 commercial real estate customers. We believe that various investors over the years had poured over $200 million into Xceligent. When we acquired LoopNet, we agreed to divest LoopNet’s partial interest in Xceligent as part of an FTC consent decree to replace any lost competition in the merger. At the time of Xceligent’s bankruptcy, we were engaged in a major lawsuit with them. A former employee of Xceligent's had tipped us off that Xceligent was stealing and reselling our data on an industrial scale. We investigated and found that this was true, that Xceligent had created thousands of fake passwords that accessed our servers millions of times, in fact, even 10 million times, to copy content from us. We found tens of thousands of our copyright photos shot by our employees that were copied and resold on the Xceligent site. We had statements from many Xceligent employees that the theft was a widespread practice at Xceligent, supported by senior executives directing their employees and contractors to steal CoStar data and photos and use them to build their own Xceligent products illegally. We believe we had a clear, strong case. If our lawsuit contributed to Xceligent’s demise, the real underlying cause of death was Xceligent’s massive and sustained financial losses. We believe that Xceligent failed to make any profit for years. In fact, we believe over the course of two decades, Xceligent never made a profit or even approached breakeven. We do not have exact numbers, but we believe that by the end of 2017, they were spending roughly $5 million a month and losing about $5 million against approximately $2 million of monthly revenue. So $2 of loss per $1 of revenue roughly. Immediately after Xceligent’s bankruptcy, the recently fired CEO of Xceligent launched a brand-new company called Intrepid, which claimed to have roughly the same data coverage and software that Xceligent had in the prior weeks when it closed its doors. The bankruptcy trustee appointed to Xceligent’s Chapter 7 filing shut the startup down relatively quickly. With Xceligent’s failure, somewhere around 5,000 companies suddenly found themselves without a commercial real estate information system. This left us with an unprecedented opportunity to act quickly to pick up tens of millions of dollars of orphaned business, an important moment. We pulled out all the stops to respond at the maximum level of effort. I personally worked around the clock on one weekend in December loading up every credit card I had to send holiday gift baskets to almost every former Xceligent customer. I literally was debating with folks at customer service centers in India at 4:00 a.m. telling them I was good for an increase in my credit line. In the weeks that followed, we hand-delivered thousands of gift baskets. Getting our salespeople to the doors of thousands of these people immediately was a good investment. On short notice in January, we launched a 33-city roadshow to market where Xceligent had a presence. We hit the road with all of our senior executives, personally visiting 1,500 of Xceligent’s former clients to let them know all about the valuable CoStar service we had to offer them. We visited markets big and small, from Houston, Atlanta, Miami, Minneapolis, Little Rock, Northwest Arkansas, Oklahoma City, Kansas City, Columbus, you name it. Our objective was to meet as many former Xceligent users as possible, to educate them on the depth and breadth of our service offering. More importantly, we wanted to demonstrate the substantial investment we had made and were making to cover local markets with real quality and why having great data and technology costs what it does for a subscription. Our service costs more than Xceligent’s did, but it’s well worth it and it’s sustainable. All told, about 1,000 CoStar staff were involved in these meetings in person or via video conference, with hundreds of flights. I believe January 2018 was likely our highest travel expense month ever. In order to get 1,500 companies into rooms on one week’s notice, we gave Apple iWatches to highlight our very cool upcoming CoStar for Apple iWatch product. Remember that the potential net present value of signing up each one of these clients typically can be $50,000 and much, much larger. So giving them an Apple iWatch to get them into the door for a sales pitch, where you have about a 30% to potentially 60% close rate, is a no-brainer. The effort has already resulted in signing over 1,000 former Xceligent client firms. Additionally, this has already had a dramatic effect on further improving our data as these clients are regularly contributing updates and sharing information with our research team much more proactively than they had been before. I believe that the more of these clients we sign up now, the more we will eventually sign up. I believe this Xceligent development represents a $50 million plus annual revenue opportunity for us. Many of the former Xceligent customers who have yet to sign up for CoStar were relying on LoopNet or LoopNet Premium Searcher as a low-cost alternative to CoStar. So updating you on LoopNet, it was another driver behind our fourth quarter sales achievement and the successful integration of CoStar LoopNet database made that possible. Prior to the fourth quarter of 2017, LoopNet.com and CoStar.com were each supported by their own separate databases. They were linked, and the information flowed back and forth between these databases somewhat imperfectly. But by definition, it could be improved. The separate databases drove higher costs for both CoStar and our clients while degrading data quality. CoStar’s service is our highest quality professional information tool used by more than 100,000 industry professionals. LoopNet, as a marketing platform, has an unmatched audience of approximately five million monthly end-users shopping for commercial real estate each month. Both services are well-regarded for their respective brand strengths. There is brand confusion, however, significant brand confusion, because LoopNet also had three legacy information products that were, frankly, inadequate for professionals. They were Premium Searcher, Property Comps, and Property Facts, low-cost information solutions that were not proactively researched like CoStar is. So the information they presented was notoriously incomplete and inaccurate. Premium Searcher was the largest LoopNet information product and allowed users to pay a monthly fee to see both the advertised listings on LoopNet as well as the ones that brokers had listed for free. This means that a Premium Searcher could see 20% to 40% more listings on LoopNet than a free LoopNet user could see. As long as LoopNet remains both a great marketing platform and an inadequate information solution, there was too much brand confusion, which prevented us from optimizing the marketing solution potential of LoopNet or the information solution potential of CoStar. With the pre-integrated LoopNet and CoStar, half the commercial real estate world updated LoopNet and the other half updated CoStar, making neither one the clear and simple go-to solution. That increased research costs and degraded quality. Several years ago, a number of LoopNet unlimited listing plans were sold, which allowed brokerage firms to market large numbers of listings on LoopNet for as little as a few dollars of listing, which is just inadequate. These plans were misused and cannibalized both LoopNet and CoStar revenue. As part of the integration, we’ve been discontinuing these unlimited listing plans in addition to Premium Searcher itself. There’s a little bit of a headwind created for our sales as we wind down those unlimited plans. We notified the client base in the early fall of 2017 of our intentions to discontinue these products. Almost immediately, a large volume of the LoopNet Premium Searchers began migrating to CoStar. As these users began voluntarily migrating from LoopNet to CoStar, we lost the revenue they were paying LoopNet for information but typically gained four times that revenue for CoStar subscriptions. Just a few weeks ago, we notified Premium Searchers that their service will be discontinued this month. There are a small number that will be discontinued throughout the year, but the overwhelming majority are discontinued as of this month. As we discontinue Premium Searcher in February 2018, we expect to lose approximately $1.8 million in monthly revenue immediately, but expect to more than make up the lost revenue within the year as we convert many of these clients to much more powerful and profitable CoStar information solutions. We expect to see a sales headwind in February 2018, but with offsetting gains through both 2018 and 2019. This clearly suppresses margin expansion in the first two quarters of the year but drives really valuable, potential intermediate and long-term EBITDA expansion. There is never an easy time to intentionally eliminate $22 million of annual revenue. But the current timing seems to be the best I believe, and I believe it will help us sell more CoStar information and more LoopNet marketing. With LoopNet Premium Searcher and Xceligent gone, I believe there is more market clarity as clients migrate to CoStar. Through the end of January 2018, we converted over 5,400 LoopNet Premium Searchers or heavy searchers to annual CoStar subscription users at nearly $520 net new per month. Many of these LoopNet users upsold to CoStar were paying nothing before, and those paying were paying about $145 per month on average. So the blended average LoopNet price was $49 prior. That successful conversion drove the massive surge in CoStar sales in the fourth quarter of 2017. We’re not done with that. We have really just begun this conversion process. There are approximately 80,000 more discontinued LoopNet Premium Searchers or heavy LoopNet searchers who now have dramatically less access to free content, and we’re focused on upselling them to CoStar this year. This is a great investment for these prospects to make in CoStar, and it’s the most important revenue opportunity I believe we’ve ever had. It is our number one priority. We believe that we will continue having success upselling LoopNet accounts. The amount of information a broker gains by upgrading from LoopNet to CoStar is impressive and clear. In a market like Phoenix, previously, a broker using LoopNet may have access to about 75% of available listings on Premium Searcher. Now that broker can only see 45% of those listings. In addition, only CoStar for Phoenix provides details on tens of thousands of tenant sales comps, lease comps, market analytics, industry news forecasts, and a lot more. We feel it’s also a compelling investment many will make. We also believe that they will renew at a very high rate; that's been our experience. Such a major shift in the competitive landscape prompted us to commission a third-party research firm to conduct extensive market research and focus groups during this past December, January, and February. We wanted to understand better in real-time how commercial real estate firms were reacting to events so we could better tune our sales and marketing messages. One preliminary result you might find interesting is the response from more than 1,000 CRE professionals surveyed had the following question: A CRE information service is, which one do you turn to first? 56% said CoStar, 31% said LoopNet, 3% said Catalist, 1% said LoopNet, 1% said Real Capital Analytics, 1% Pierce-Eislen, 1% AIRR, less than 1% Reis, less than 1% CompStak, less than 1% Axiometrics, less than 1% Proptylink, and 4% said other. So that 87% said that is CoStar Group, and 3% for the next closest player. There was one moment of humor in one of the focus groups when the moderator asked, "With Xceligent, what’s the greatest weakness?" and there was a long pause. Then one of the participants offered up that they’re bankrupt. In addition to operating an information service at Xceligent.com, Xceligent operated a marketing website that competed with LoopNet called Commercial Search. When Commercial Search was up and running, LoopNet captured 23 times more traffic. Now LoopNet captures more than 40 times more traffic than the second closest CRE marketplace competitor. These developments are possibly the best news for CoStar Group in a decade. Not sure what the better news was in the prior decade, but we’ll just leave it there. As we move to capture all the potential value now open to us, we have made significant investments in discontinuing significant revenue faster than planned earlier, thereby driving down margins in the first half of the year. I believe trading a few hundred basis points of margin for several quarters in order to jump on a potentially once-in-a-lifetime significant long-term revenue and competitive gains is an obvious choice. This is a business, not a spreadsheet. Even so, we’re not moving away from our 40% adjusted EBITDA margin goal for the fourth quarter of 2018. We are more confident than ever in our ability to reach the goal because of all these recent market developments. One of the key factors that made all of these sales possible was our investment in our Richmond global research center. In a little over a year, we elevated the industry’s best database and analytics offering to new heights of excellence. We are now proactively updating 92% of our over 1 million active listings every 30 days in person or over the phone while vastly improving our tenant data with our new nearly hired 250 tenant researchers. With the addition of CoStar Listing Manager featured in October 2017, our clients and users are adding hundreds of thousands of updates directly themselves each month in real time. In the first four months, they’ve averaged over 700,000 updates to listings per month. That’s a lot of work now being done directly by the folks listing the properties that used to be done by our researchers. Our investment in people and technology made this possible, and our data products have never been better as a result. With an integrated and easier to maintain database, the new ability for brokers to update their own listings, and greater industry cooperation, we believe and expect that research costs will begin trending back down within the year. As you know, we were recently pleasantly surprised by the timing and receiving approval from the FTC to move ahead and close the ForRent acquisition. We closed the acquisition yesterday morning, and there was a little bit of use of our capital there. This is the largest acquisition we’ve done to date, measured by revenue and the number of employees in the acquired firm. I met with our new colleagues in Norfolk, Virginia yesterday to welcome them to CoStar and to thank them for joining forces to strengthen the number one multi-family marketplace network in the United States. I see a number of our colleagues are on the earnings call today. Welcome, everybody, again. ForRent has 16,000 advertised properties on its network of multi-family sites. In addition to the primary site ForRent.com, they also offer targeted sites like AFTER55.com, CorporateHousing.com, and ForRentUniversity.com. Similar to ApartmentFinder, we plan to run ForRent as a separate website with its own distinct and different website experience and user interface. I believe, as we have demonstrated, it is valuable to have multiple leveraged consumer brands in the apartment rental website space. With the acquisition of ForRent.com, our multi-family sales force increases by nearly 15%. I’m expecting an incredible year for this bigger team in 2018. Just like ApartmentFinder, we’re not planning to do a specific branding campaign or TV campaign for ForRent as we did with Jeff Goldblum for Apartments.com. We’re focusing all of our efforts on Apartments.com. We’ve planned to focus on online marketing for ForRent. However, there’s no doubt that advertising and brand work for Apartments.com will benefit ForRent because it gives our salespeople better access to buyers because of the power of the unprecedented Apartments.com marketing reach. We intend to move with all possible speed to connect and drive ForRent from the same content-rich back end that powers Apartments.com and CoStar. We are also moving as quickly as we can to give ForRent customers additional exposure on the existing Apartments.com network. We believe that this will reduce customer churn at ForRent.com pretty quickly. The timing of the closing will reduce margins over the next two or three quarters, but we expect to expand margins significantly in the quarters beyond. Apartments.com continues to grow in strength. In less than three years, we’ve transformed the industry. We’re extremely proud of what we’ve done since they’re on the market side of the multi-family business in 2014 when we purchased Apartments.com. The acquisition of Apartment Finder in 2015 and WestsideRentals.com in 2017 were awesome, and we’re looking forward to ForRent’s contribution beginning today. A lot of companies, it’s a mouthful. Multi-family marketplace revenue has grown to $280 million in 2017, up from $86 million in 2014. With revenue of $76 million in the fourth quarter of 2017, we finished the year with an annualized revenue run rate of $304 million. I believe that is by a wide margin the largest revenue run rate of anyone in the space. Adding ForRent’s pro forma revenue to that, in 2018 our multi-family market revenue approaches $400 million, and we expect to exit 2018 with over $440 million of revenue run rate for our multi-family marketplace business. It’s a lot of progress from the $86 million. The business is solidly profitable, and we expect we will continue to expand margins as we add revenue. In 2017, we had the most traffic of any apartment listing website. In the fourth quarter of 2017, according to comScore, our network attracted over 44 million unique monthly visitors in aggregate, which is an increase of 44% year-over-year. While our closest competitor, RentPath, had 21 million unique visitors in aggregate, which represents a 7% increase year-over-year. In January of this year, with the new ForRent-enhanced Apartments.com network, we would have almost three times the number of visits that RentPath had. For the 27th consecutive month, Apartments.com was the most visited apartment listing network. We had more than 468 million visits for the year, up 25% year-over-year. This is 2.5 times the number of visitors that RentPath apartment sites received. With the acquisition of ForRent, it was no longer necessary to renew our two-year agreement with Move.com. We expect to be adding millions of additional unique visitors and visits from ForRent. We will save millions of dollars here by discontinuing that relationship. Throughout 2017, our Apartments.com network was ranked number one in traffic in 206 U.S. markets or 98% of all markets tracked, number two in just a small handful of markets. With the addition of ForRent, we’re now ranked number one in every U.S. market tracked. Our active rentals increased 31% in 2017, and we now offer 1.1 million apartment availabilities that have incredible value, bringing consumers and property managers together. In 2017, we delivered tens of millions of leads to apartment property managers and owners, resulting in more than 5.1 million leases that were executed because of our sites. 5.1 million Americans moved into homes they found through Apartments.com in 2017. We are delivering meaningful traffic with real renters better than anyone else in the industry by far. Our lead-to-lease conversion beats all others by far. Apartments.com had an excellent first year as we generated nearly 8 million visits to the site, resulting in 15 million property views. Our PR campaign generated 4 million impressions. Apartamentos.com is the only exclusively Spanish-language rental listing site in the United States, with 20% of the U.S. renter market speaking Spanish; this is a tremendous market. Using Apartamentos.com, property managers can receive inquiries in Spanish and translate them into English. We’ll begin our new advertising campaign for Apartments.com on March 12, 2018, featuring Jeff Goldblum as Brad Bellflower. I genuinely think Jeff Goldblum is absolutely loving this role. In 2018, we expect to reach 95% of U.S. households with over 5 billion impressions with another robust national campaign, which will run from March through September. Our TV campaign is expected to conclude with 8,000 commercials. We plan to use a combination of broadcast, cable, and syndication television, so it will be on top prime time shows, season premieres, major sports events such as NBA playoffs and college football. We will also reach the cord-cutting audience with on-demand video such as Hulu, and streaming video on devices like Roku, PlayStation, and Xbox. Even my kids will see Jeff Goldblum. We’re going everywhere renters are, including print and social media. Digital rental rate retargeting through social media generates millions of visits and hundreds of thousands of leads a year. You will also be hearing Brad Bellflower on local radio. We plan to run an estimated 18,000 spots across 10 major markets. We will also have a strong presence on streaming audio platforms such as Pandora and Spotify; we expect the number of impressions to exceed 100 million. With the addition of ForRent sales teams, we now have nearly 350 people, salespeople in our multi-family sales force who are actually producing line folks. Looking ahead, with the best salespeople in the industry, we expect to continue to penetrate the market opportunity faster and provide unprecedented client service in the process as a top priority. Once again, CoStar Real Estate Manager continues to shine. It turned in another magnificent quarter of sales as companies continue to move to compliance with FASB ASC 842, a pretty exciting regulation, which requires them to include the value of practically all leases on their balance sheets. In 2019, we estimate that over 3,500 U.S. issuers will be required to comply. In 2020, another 1,500 private companies will be required to comply. It’s basically a Y2K scenario all over again for commercial real estate, and we believe we have the best accounting solutions management solutions in the business. We only have about 5% at this point of total clients, so we have a lot of room to continue to grow here. I expect that sales will remain strong from this group for the next couple of years at least. CoStar Real Estate Manager turned in its best year ever with a magnificent fourth quarter sales and a fantastic December. Looking at the chart, it pretty much just goes right through the roof in the last part of the year. In 2017, net new sales were up 183% over 2016. A CoStar Real Estate Manager salesperson, Jerry Brink, set the record for the highest subscription sales month ever in CoStar company history in December. In addition, Real Estate Manager turned in another solid quarter of notable client signings including nationwide Citibank, KeyBanc, Ingersoll Rand, Priceline, BNY Mellon, and one of my favorites, Ryder Trucks. This business is profitable, and we’re investing in it to drive what we believe is significant long-term growth unique opportunity. A number of these folks who subscribed to CoStar Real Estate Manager also subscribed to CoStar. Over the past few quarters, we’ve released powerful new analytic capabilities into the CoStar product. Our proprietary same-store rent series fully controls for the changing composition of the properties and spaces on the market and offers the most accurate view of rent trends at the property, submarket, and national level. We have also pioneered property-level forecasts to take into account every building's recent performance, future leasing, and current vacancies and rents. Finally, all of our analytic reporting is now truly real-time. Any time any of CoStar's 1,850 researchers updates information on the property or when one of our 100,000 brokers who are putting in listings directly updates something, that new information is immediately reflected in the forecast, reports, and data export. We believe these features provide our clients with the best tools to analyze the state of the commercial real estate market and gauge the outlook. To harness the full potential of this analytic toolkit, CoStar has assembled the largest team of real estate analysts and industry experts, led by a seasoned team of senior economists. Our data shows a broadly healthy marketplace. Commercial real estate vacancy levels are at cyclical lows, and pricing has reached all-time highs. In the office sector, vacancy has stabilized at 10.3%, where it stood during the second half of 2017. It’s a pretty healthy level. New construction remains subdued, with overall construction numbers running at half of last cycle's peak. Fortunately for owners of existing buildings, leases rolling over now had typically been signed three to five years ago, and new lease rates are higher than those rolling over. Therefore, net operating income growth in the office sector is prime for good news since 2018; I think that’s true with several asset classes. However, rent growth has slowed over the past year; the strong growth of 2015 and 2016 has given way to more typical gains, about 1.5% year-over-year for office, 2% for multi-family, and 2.5% for retail. Industrial, on the other hand, continues to post extraordinary growth in excess of 5%. Other signs also point to a maturing cycle. REITs have underperformed the broad market over the past year. However, supply for industrial, multi-family, and office will put pressure on tight fundamentals. The homeownership rate has risen for four consecutive quarters, heralding the end of an unprecedented era of moving one way towards apartment demand. Commercial real estate transaction volume, which reached all-time highs in 2016, was lower in 2017. And CoStar’s analysis of transaction data shows flattening prices. Cap rates also appear to have risen marginally in response to interest rate increases. That said, the string of good economic news, three quarters of healthy GDP readings, strong job numbers, as well as the passage of the Trump tax cuts, should provide some fresh tailwinds to real estate fundamentals. However, the encouraging economic data has also put the Fed on notice, and the FOMC raised the policy rate three times last year with future hikes expected this year, as you know. The prospect of higher interest rates could erode an essential value proposition of commercial real estate this cycle, which was the widespread of risk-free rates. For the multi-family sector, on the other hand, high interest rates may support more demand as would-be homebuyers are priced out of the mortgage markets and continue to rent. If you have inflation as the primary discussion topic of 2018, it should be good news for the commercial real estate market, which is viewed as an effective inflation hedge. Best of all, for the hospitality sector, which reprices daily. That said, when hot markets stabilize, some bad deals can get done; that’s why we’re building out new analytic offerings and strong news organizations to give our customers, brokers, property managers, and owners/developers the tools to navigate these more volatile waters. Taken together, we see a healthy but maturing commercial real estate multi-family sector. If you have investments in commercial real estate, debt, equity, or any CRE-related companies, we recommend you subscribe to CoStar as the best source to keep abreast of market developments as they happen. Also, let your friends, colleagues, and even vague acquaintances know. So 2017 was a fantastic year for CoStar, and we feel that we have more opportunity than ever. Recent developments, like investments to capture share following Xceligent’s bankruptcy and the opportunity to close the highly potential accretive ForRent acquisition have created margin pressure for the first half of the year. But we believe we’ll dramatically expand EBITDA generation in the immediate term and remain on track for our 40% adjusted EBITDA margin goals in 2018. And at this point, I’ll stop talking and turn the call over to our CFO, Scott Wheeler. Thank you, Scott.

Thanks, Andy. It certainly was strong momentum exiting 2017, which, of course, sets us up for a very strong financial year in 2018 and beyond. As Andy mentioned, the revenue growth in the full year 2017 increased 15% over 2016, while our revenue growth rate in the fourth quarter of 2017 was 16% versus the prior year. Organically, our revenue growth rate in 2017 came in at 14% for the year and 15% in the fourth quarter, after normalizing for the three small acquisitions this year and the THOMAS DAILY acquisition in 2016. Let’s look at our revenue performance by services. CoStar Suite revenue growth increased to 15% in the fourth quarter of 2017 versus the fourth quarter of 2016. This came in above the top end of our 13% to 14% guidance range and accelerated from the strong 13% revenue growth rates in the first half of 2017. The strong revenue growth is, in large part, a result of our investment in Richmond in our research capabilities and in our success in converting the LoopNet information users to CoStar. We expect CoStar revenue growth rates to improve further in 2018 as we accelerate the LoopNet conversions and we reach more of the former Xceligent customers that are in need of commercial real estate information. Revenue growth rates for CoStar Suite are expected to be in an 18% to 20% range in 2018, which is a significant increase from the approximately 13% revenue growth rates over the past two years. Revenue growth rates in the Information Services sector remained negative in the fourth quarter of 2017, as expected as we continue to wind down the LoopNet information products. As Andy discussed, we’ve decided to accelerate this conversion actively, effectively discontinuing the vast majority of our LoopNet Information Service offering by the end of February 2018. LoopNet information revenue is expected to drop from $32 million in 2017 to just $4 million in 2018, a reduction of almost 90%. Conversely, revenue from strong sales in our Real Estate Manager business and our other Information Services product lines are expected to increase from approximately $40 million to around $52 million, a growth rate of almost 30%. As a result, we expect the total revenue from Information Services to decline at a rate between 20% and 25% negative on a year-over-year basis throughout 2018. Given our success to date upselling these LoopNet information customers to CoStar, we expect to more than offset all of this revenue decline with sales of CoStar Suite in the coming quarters. We had a very strong fourth quarter in multi-family, as revenue increased 26% year-over-year and 23% from an organic basis. As a result of continued strong sales, we expect organic revenue growth to continue at over 20% in 2018. With the addition of ForRent, we expect multi-family revenue growth of between 40% to 45% for the full year. Consistent with our initial estimates, we continue and expect the revenue contribution from ForRent to be in the range of $75 million to $85 million on an annual basis post-integration. Finally, our commercial property and land revenue grew 19% year-over-year in the fourth quarter of 2017. Organic revenue growth, adjusting for approximately $2 million in revenue from the LandWatch acquisition, was 12% in the fourth quarter. Strong revenue growth continued in our LoopNet tiered advertising products, growing over 60% in 2017 versus 2016. While our LoopNet Premium Lister revenue growth moderated somewhat in the fourth quarter of 2017, as a result of temporary disruptions from the CoStar LoopNet integration and our decision to discontinue certain non-subscription advertising products. We expect organic revenue growth in commercial property and land in the 12% to 14% range for 2018, with growth rates at the lower end of our range in the first half improving towards the upper end by the end of the year, as our planned improvements are implemented and our sales force efforts accelerate. Gross margins came in at 77% in the fourth quarter, broadly in line with last quarter, down 200 basis points from the fourth quarter of 2016, reflecting our increased investments in research. The vast majority of our cost of revenue is related to our research operations, which are now broader and more effective than any time in the past. The related improvement in data and product quality is certainly producing the strong CoStar Suite sales growth we've been experiencing. Operating expenses for the fourth quarter of $145 million were unfavorable to our forecast, primarily due to the higher commission expenses related to our outstanding fourth quarter sales performance. This was noted in the 8-K that we filed on January 17, 2018. In addition to the higher commission costs, we increased our marketing and other sales-related costs, as Andy described, late in the fourth quarter, following the Xceligent bankruptcy in order to reach customers that were suddenly without information solutions. Although unplanned, we expect these investments in the fourth quarter and early in the first quarter of 2018 to generate significant returns in revenue growth this year and beyond. Finally, our costs associated with the Xceligent litigation and bankruptcy activities were $4 million in the fourth quarter, bringing our total spend on this matter to approximately $13 million for the year, in line with our expectations. Our fourth-quarter adjusted EBITDA of $78 million is approximately $9 million below the midpoint of our guidance range due to the higher commissions, CoStar marketing, and selling expenses just mentioned. The resulting adjusted EBITDA margin came in at 31%. Our EBITDA of $237 million for the full year of 2017 represented a 10% increase versus the full year 2016, while adjusted EBITDA of $280 million increased 9% versus 2016. Net income for the full year of 2017 was $123 million, 44% ahead of the prior year and $9 million higher than we had expected. This $9 million of additional net income is primarily the result of lower income tax expenses, along with the reduction in interest expense related to the recent debt restructuring. There are a number of positive developments impacting our tax numbers this year, so let me walk you through the individual components. First, we recorded a $7 million tax benefit related to the change in accounting rules during the second quarter of 2017 for share-based payment transactions. Second, we recently completed a study of our research and development costs over the past five years, and we were able to recognize $8 million of research and development tax credits in the fourth quarter. Finally, we revalued our deferred tax liabilities in the fourth quarter to reflect the lower corporate tax rates prescribed in the new U.S. tax law that was passed in December 2017, resulting in a $7 million benefit. Altogether, these items reduced our effective tax rate to 26% for 2017, down from the rates that were in the high 30s previously. Non-GAAP net income for the full year of 2017 was $154 million and includes our traditional adjustments for stock-based compensation, acquisition-related expenses, as well as adjustments for the write-off of prior debt issuance assets related to our Q4 debt restructuring. Our cash investment balances were approximately $1.2 billion as of December 2016, and we currently have no outstanding debt and maintain an undrawn revolving credit line with $750 million of capacity. Yesterday, we used $350 million of our cash to close the ForRent acquisition, and we’ll continue to evaluate investments in strategic acquisitions in line with our growth strategy. Now let’s take a look at some of our performance metrics for the quarter. As Andy mentioned, our sales force, which totals approximately 725 sales reps at the end of 2017, delivered $23 million in net bookings in the fourth quarter of 2017, increasing 47% versus Q4 2016, an all-time high for the company. This $43 million of net bookings includes a negative $9 million in net bookings in LoopNet information services. You recall, we stopped selling LoopNet information products when we integrated the CoStar and LoopNet databases in October. In the first quarter of 2018, we will discontinue the vast majority of our LoopNet information products. As a result, we expect almost $20 million of negative net bookings from LoopNet info products in the first quarter, as we terminate substantially all of our agreements with the month-to-month LoopNet information subscribers. Over time, we expect our sales team will continue to sell these customers our flagship CoStar Suite products for a net positive revenue result but expect lower total net new sales in the first quarter of 2018 when compared to the $42 million of net bookings we delivered in the fourth quarter of 2017. Renewal rates on annual contracts were 91.3% in the fourth quarter of 2017. These were up 90 basis points from the 90.4% in the fourth quarter of 2016 and 30 basis points above the renewal rate achieved in Q3 of 2017. The sequential increase in the renewal rate is most notably a result of improvements in our multi-family business. The renewal rate for customers who have been subscribers for five years or longer was 97%. Subscription revenue on annual contracts accounts for 87% of our revenue in the quarter, up from 77% this time last year. I expect this number may temporarily decline as we add the ForRent revenue to our metrics in the first quarter of 2018, similar to the impact of prior acquisitions in the space. I’ll now discuss our outlook for the full year and the first quarter of 2018. We expect revenue in the range of $1.17 billion to $1.19 billion for the full year of 2018, which includes partial year ForRent revenue in the range of $65 million to $75 million. Excluding the ForRent acquisition, we expect revenue for the existing organic business to be in the range of $1.105 billion to $1.12 billion, which implies an annual growth rate of 15% to 16% over 2017. When we complete the integration of ForRent, we continue to expect full-year revenue in ForRent in the range of $75 million to $80 million, with eventual adjusted EBITDA margins in the range of 45% to 55%. Currently, ForRent's EBITDA margins are around 15%. We believe it will take 12 to 24 months to fully integrate the business. Accordingly, we expect the acquisition to be dilutive to our expected 2018 adjusted EBITDA margins by approximately 200 basis points. We expect revenue for the first quarter of 2018 in the range of $269 million to $272 million, which includes our assumption of $7 million to $8 million in revenue from ForRent, representing approximately one month of revenue. Gross margins for 2018 are expected to remain at approximately the same level as 2017 prior to any purchase accounting amortizations from the ForRent acquisition. The amortizations related to acquired intangible assets will impact our cost of revenue and this will likely increase. We’ll be able to provide more clarity on gross margin after our Q1 earnings release when we complete the purchase accounting for the acquisition. We expect total marketing costs to increase approximately 5% in 2018 prior to the ForRent acquisition, which is the first increase in our marketing spend level since 2015. The focus of our spending will shift towards increasing brand reach in our multi-family business, as Andy mentioned, because in prior years, the advertising spend was more heavily weighted in the first half with the second quarter expected to be our largest marketing quarter, with as much as 40% of our annual marketing budget expended in Q2. As a result, we expect the second quarter to be the low point for adjusted EBITDA margins for the year, as was the case in 2017. In 2018, we expect to continue to invest in growth initiatives while, at the same time, growing our adjusted EBITDA margins. Our investments are focused on taking advantage of these unique growth opportunities that Andy mentioned, in both our CoStar and multi-family businesses. For CoStar, we continue to build our product capabilities by expanding our field research, improving our tenant products, building on our news content. We’ll also add to our commercial real estate sales force to improve both the reach and market coverage of that team. In addition, we’re expanding our research capabilities in London. For multi-family, we’re investing in new software capabilities to benefit renters in Apartments.com, and we’re expanding our sales capabilities, primarily through inside sales. Additional investment initiatives are planned that will capitalize on these unique market opportunities. Overall, we expect approximately $25 million of spending in 2018 against these initiatives. Additionally, we will continue to incur legal fees related to the wind-down of the Xceligent litigation matters in order to protect our stolen data through the bankruptcy process as well as to conclude the open litigations that were ongoing in both India and the Philippines against the subcontractors. We’ve assumed approximately $4 million for ongoing Xceligent-related fees in the first quarter of 2018 with this cost diminishing in the second quarter and beyond. Considering these investment initiatives and before the impact of ForRent, we expect our adjusted EBITDA margin to increase by around 350 basis points over 2017’s adjusted EBITDA margin. This equates to full year 2018 adjusted EBITDA margins of around 33% at the midpoint of our range. Adjusted EBITDA margins for the year, including the ForRent acquisition, are approximately 31% at the midpoint of our guidance range. We expect the adjusted EBITDA to be in a range of $365 million to $375 million for the full year of 2018, which includes approximately $5 million to $7 million of adjusted EBITDA associated with ForRent. Regardless of the near-term margin dilution associated with the ForRent acquisition, we remain confident that we’ll achieve our goal of a 40% margin exiting 2018. In the first quarter, we expect adjusted EBITDA in the range of $70 million to $74 million, which includes the negative impact of approximately $2 million from ForRent. The ForRent results are negative as a result of typical purchase accounting adjustments. In addition to the dilution from ForRent, as in prior years, the first quarter expenses include seasonally higher costs related to payroll taxes, our annual sales conference and annual standard increases for personnel. Our marketing costs also increased in Q1, as we increased spending ahead of the apartment rental season. Finally, we’re discontinuing the LoopNet information services in February, which has a negative impact on both revenue and EBITDA; again, we expect we will recoup this as we continue to upsell these clients to CoStar over the coming months. We expect 2018 non-GAAP net income for diluted shares in the range of $7.01 to $7.21 based on 36.5 million shares. For the first quarter, we expect non-GAAP net income per diluted share in the range of $1.32 to $1.40 based on 36.3 million shares. These ranges include a revised non-GAAP tax rate of 25%, which is well below our previous 38% non-GAAP tax rate. This is primarily the result of the tax law changes enacted under the Tax Cuts and Jobs Act passed in December 2017. This rate reduction has the effect of increasing our non-GAAP net income by approximately $44 million or $1.22 per diluted share at the midpoint of our guidance range. In addition to the tax changes, CoStar will conform to the new accounting standard for revenue recognition in 2018, known as ASC 606, beginning in the first quarter. Impacts to revenue expenses are not material and are included in the 2018 outlook. Overall, I believe we are well positioned in 2018 to continue the acceleration of our revenue growth rates while managing cost and investment to continue expanding our margins. I look forward to updating you on our progress as it goes throughout the year. With that, I will now open the call for questions.

Hi, thanks. Good morning. I’d like to dig into your margin outlook. You’re continuing to target 40% EBITDA margins exiting 2018, but you’re elevating your investment spending in the first several quarters of the year. Out of the categories of investment spending that you’ve outlined, how much of that investment do you expect to be temporary in nature, thus giving you confidence that you can actually hit your 40% target?

Yes. Hi, George. This is Scott. When you look at what we’re investing in, I listed a number of things: the expansion of our sales force, improvements in research, to continue expanding a little bit internationally. All those things are intended to go after these revenue growth targets that we have and also increase the revenue pace as we go forward. So what we’d rather do now is going forward, unlike 2017 where we made significant investments and didn’t grow our margins. As we go forward, we want to keep pacing in these smaller investments as we go and keep raising the margins, like we’re doing now, the 350 basis points. So we balance the investing we need to fuel growth in the future with the margin improvements that we need to make to bolster our commitments and to give the returns that we committed to. So I don’t think I would call them temporary. The litigation costs we had in Xceligent, obviously, were temporary, and we’ll see those moderate as we go through the year. But the rest of these things are worthwhile investments for the business.

For things like integration of ForRent are temporary, or the roadshow are temporary, or the unusually high commission costs are temporary, or the $5 million of chocolate baskets for former Xceligent customers are temporary. High budgets are temporary. There’s a lot of temporary stuff in there that is spent in the first half.

Definitely in the first part of the quarter, we had at least $5 million of those types of things.

A man with kids is impressed when I said I bought $5 million of chocolate over the weekend. I won’t do that ever again.

Thanks, guys. Super helpful commentary here. I know that you haven’t given us margins by segment in the past. And I was just wondering if you could just at least give us a sense of what the margin trajectory has been like, I guess, the last 12 to 18 months in the multi-family side. And as you scale that to cover your fixed costs, how has that progressed generally?

I can provide a general overview, although we're not detailing it at that level. Recently, I created a simple chart showing our investments as large negative bars and our four-wall profits as positive areas. In 2015 and 2016, we made significant investments to enhance our national brand advertising. Sales increases were evident in 2016, leading to a significant reduction in net investments as revenues grew. I was pleased with the clear profitability from Apartments.com in 2017. Even with the complexities of completing a major acquisition, we are seeing stronger margin growth. The margins from Apartments.com are performing very well and are significantly higher than what we achieved with the individual company we acquired. Overall, we are very satisfied with these results.

Good morning, everyone. I want to confirm what you mentioned regarding the additional amounts generated from the new LoopNet users. You indicated that the average rate for both non-paying and paying users is approximately $50 per user each month, resulting in a net gain of $500. I want to ensure that I understood that correctly. Also, is this data aligned with what we've received so far regarding the 5,400 users? Do we anticipate that the pricing increase will continue at this rate, or is it expected to decline? Are we currently capturing the most valuable leads, which might diminish over time in terms of pricing? Could you elaborate on that?

Sure, you're correct. This situation is similar to what we experienced a couple of years ago. Many individuals switching from heavy searching on LoopNet are now subscribing to CoStar for better information. A significant number of users currently pay nothing to LoopNet, while the ones who do pay are at $149. The blended rate stands at $49. When transitioning to CoStar, we are acquiring them at around $520 to $540 net, resulting in a tenfold increase in value. In response to your question, we certainly did not solely capture the easiest users at first. Over the past month, I have visited numerous cities and participated in many focus groups, observing user interactions. The distinctions between the various products are becoming clearer. LoopNet operates as a marketing platform, while CoStar serves as an information platform, and understanding these differences takes time. The main competition for CoStar comes from users heavily searching on LoopNet or previously reliant on Premium Searcher. Due to recent changes in our integrated back-end, users accessing LoopNet can now see CoStar listings that are unavailable to them under their current LoopNet accounts, which is a strong incentive. However, users won't instantly commit to long-term CoStar contracts; they need time to evaluate options, and our salespeople need to engage with them. We have a larger opportunity than our current sales team can accommodate, but we are realigning our resources accordingly. There remains a significant influx of individuals we expect will upgrade to CoStar. In February, we will adjust some of the pricing we implemented in December and January, enforcing stricter pricing controls. Overall, we anticipate a steady flow throughout the year into 2019 as the value proposition remains compelling; however, switching isn't instantaneous and requires time for users to adapt.

So LoopNet had roughly 1,700 paying customers. You had another 80,000 pretty intensive users. Given the conversions to date, you converted just 5% of the base. I’m curious what drove the decision to accelerate the conversion, particularly because you had the Xceligent bankruptcy, which is obviously a large opportunity that you need to capitalize on as well.

I believe the number of subscribers is close to 32,000 when you consider those who are using Premium Lister with a subscriber element or unlimited listers. The actual figure is likely higher than 1,700 and is closer to 32,000. Additionally, there are another 50,000 to 60,000 users we categorize as heavy searchers on LoopNet. Initially, we had planned to roll out the Premium Searcher over a 12 to 18-month time frame to extend the rollout period. However, many users are relying on LoopNet to compensate for the deficiencies of the Xceligent system, indicating they are effectively using both resources simultaneously. The changes at Xceligent mean that offering a Premium Searcher product to users we aim to convert to CoStar is counterproductive. By providing a low-cost, low-value product, we inadvertently prevent them from deciding to switch to CoStar. We intended to eliminate this offering and had communicated this intention prior to the Xceligent bankruptcy. Moving forward, we need to adhere to a higher standard in customer treatment due to our strengthened competitive position. We did not want to selectively remove Premium Searcher from specific markets or clients, so we decided to end it universally. This included difficult decisions, like eliminating Premium Searcher for some users who are also CoStar subscribers, as it aligns with good customer service principles. Ultimately, these actions are interconnected, stem from the same decision-making process, and will lead to better outcomes overall, though it demands additional effort in the first half of the year.

So I want to go deeper into the conversions and the price. So you’re netting out $500 out of lease conversions. Given that huge untapped base that you still have yet to convert, based on the focus groups that you’ve done, what do you think is realistic in terms of how much that you can bring over and at what price point? Because I think, at the beginning of the process, you’ve talked about maybe doing a $200 level of functionality, and maybe a $400 level of functionality in CoStar. Has that kind of pricing approach or strategy evolved as you’ve done more work in the space?

Yes, there has been some change. Initially, we were focused on the $200 and $400 price points. However, we're seeing limited interest in the $200 option. Many customers who are unfamiliar with our offerings sometimes mistakenly purchase the $200 product. This is their profession, and the $400 solution is very powerful, providing them with valuable information and numerous revenue-generating opportunities. The $200 product is sufficient; it fulfills all the functions of LoopNet Premium Searcher and more. I estimate that for every $400 option, there are about 19 choices for the $200. This trend appears to be shifting, and I expect that the lower-cost option will represent less than 5% or even 3% of our customers’ selections. The focus groups have been revealing, as they are trying to navigate the options available. Customers encounter various products, such as Xceligent, board systems, LoopNet Premium Searcher, Premium Lister, and CoStar, and this can create confusion. Our goal is to simplify their decision-making process, which will take time as we guide them to the appropriate products. We believe that a significant number of these customers will eventually utilize CoStar for information and LoopNet for marketing. Notably, focus group feedback highlighted that our clients still see LoopNet as a vital tool for marketing their listings to end-users, while CoStar is regarded as an essential and valuable resource for informational solutions. Overall, the marketing aspect of LoopNet is stronger than ever, and the information capabilities of CoStar have also never been more robust. However, there is considerable confusion regarding our various information products, and resolving this will take years.

This is Oscar Turner on for Andrew. I was wondering if you could provide more color into line of sight to the 40% exit rate margin target by year-end. And how should we think about the likelihood that sustained strong sales momentum leads to higher-than-expected marketing expenses through the fourth quarter?

So when you look at the progression, we expect – as we commented on it, as our marketing ramps up into the second quarter, margins seasonally go down and then they pick up in the third and then go up higher in the fourth. We’ve seen that same pattern in the last couple of years, and our spend is concentrated around the TV and the broadcast for the apartments marketing in the summer months. So we really don’t see that kind of pressure coming into the fourth quarter unless something unusual happens. Like this year, with the bankruptcy of Xceligent, we went around and spent quickly and mobilized. That put in a few amount of dollars. There’s not enough time there to spend than the whole lot. So we don’t see a whole lot of unexpected spending.

There’s a lot of competition, but there’s no Xceligent there.

That’s right. So we feel pretty confident with where we’re pacing the marketing spend. And we don’t think it will cause any issue as we go towards the margin at the end of the year.

So a serious question for you. So on the ForRent acquisition, you mentioned you’re going to be bumping the size of the sales force on the multi-family side by 50%, which is a real positive. But last time, with Apartment Finder, when you had a big bump in the sales force, we ended up with a number of issues. What gives you confidence that those issues are not going to repeat this time?

Bill, just remind me again, when you talk about issues, what sort of things come to mind?

When you started to put the sales forces together, there were a lot of salespeople on the Apartment Finder side that you were changing around the commission structure, the sales territories, and a number of them left and had to be, either voluntarily or not, had to be replaced and that set us back.

That's a good question, Bill. We have expanded our sales team over time and have periodically reorganized it globally, as there is a significant opportunity to reach new customers on both the CoStar and apartment sides. On the apartment side, one major driver is that smaller communities are increasingly investing in advertising on the Apartments.com network. We aim to reach 95% of our customers every quarter for service, but we currently only connect with about 10% to 15% of our prospects each quarter. Our goal is to engage with all of them regularly, and having a larger sales force will help us achieve that. There are certainly cultural challenges that arise from any acquisition. When someone has been with a company for 15 years and faces a merger, they may reconsider their decisions, which is a natural process. Some will find the opportunities at Apartments.com to be quite appealing, as we believe being part of a successful team is exciting. There will undoubtedly be greater earnings potential for them with the Apartments.com network. Other individuals may feel that their experience at ForRent has been fulfilling and choose to pursue different paths. Both choices are acceptable. We do expect and have planned for some people to opt for a different route, which may reduce our numbers somewhat over the year. Eventually, we will rebuild steadily, and in the end, we will have a valuable influx of talented individuals who choose to commit to this as their long-term home. While not everyone from the initial group will remain, we will still have a significant number. They will also contribute valuable knowledge and culture, which is important for enhancing our overall team. Change influences career decisions, and we're pleased to have this opportunity.

So a question for you, Andy, I think, which is how long do you think it will be until you’re ready to make your next major acquisition?

31 days, six hours, and two minutes. Why do you ask? There’s a lot out there, as you know, right? This is a significant moment, and we have to keep in mind that right after closing ForRent, we are dedicating a considerable amount of time and effort to explore various opportunities. There is a wide range of options available. While we want to ensure we focus on ForRent and execute that properly, it's essential to acknowledge that after finalizing one of the largest acquisitions by revenue and headcount, we need to handle it with care and avoid overconfidence. Part of the challenge lies in choosing among the many excellent opportunities to pursue. We are being selective and mindful of valuations, so we will not rush the process. However, if you are betting against CoStar's pursuit of acquisitions, you would not be making a wise wager.

Hi guys, thanks for taking my question.

Stephen, we’re really excited to have you on the phone.

Thank you. So yes, you talked about seeing research costs starting to trend down some this year. So a few questions on that. First, is that commentary on an absolute basis or as a percentage of revenue? And second, as we look out over the next few years, how much leverage would you expect to see in your research budget? I mean, do you need to add much more headcount to research at this point? Or just given the database integration and the improvements in data quality and automation from products, like Listing Manager, could you keep your research headcount relatively steady over the next few years?

I believe this is an evolving situation. Research, when viewed as a percentage of revenue, represents a relatively modest investment. However, it serves as a significant competitive advantage in the market, and this is often underestimated by those trying to compete with us. When Xceligent failed, they joined numerous competitors who have collectively invested over $1 billion against us without success. The primary reason for this is their lack of investment in research. Consequently, research remains a long-term competitive strength for us. Nonetheless, the landscape is changing quite quickly. Our network has grown substantially, and many individuals prefer to maintain long-term relationships rather than input data electronically, and they do this effectively. We approach this cautiously, not rushing to implement major changes to our research process following the introduction of new features in CoStar. We are deliberating, examining it carefully, and the focus groups have provided valuable insights. We will only make resource shifts when we are confident that product quality will not be compromised. There is a constant demand for different types of research, but I anticipate that as this year progresses, a significant portion of our traditional workload may become automated. This would enable us to maintain our current headcount while addressing new initiatives without needing to hire additional personnel. However, this perspective is based on a very cautious operational strategy.

Well, thank you very much for joining us on the call. And we look forward to updating you on our progress towards our 40% adjusted EBITDA margin goal in Q4 of 2018, as we promised you in April of 2014.