Richard Simonelli - CoStar Group, Inc. Andrew C. Florance - CoStar Group, Inc. Scott Wheeler - CoStar Group, Inc..

Brett Huff - Stephens, Inc. Andre Benjamin - Goldman Sachs & Co. Mayank Tandon - Needham & Co. LLC Sterling Auty - JPMorgan Securities LLC Andrew Jeffrey - SunTrust Robinson Humphrey, Inc. Brandon B. Dobell - William Blair & Co. LLC Peter Christiansen - Citigroup Global Markets, Inc. (Broker) Patrick Walravens - JMP Securities LLC.

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, today's call is being recorded. Your hosting speaker Rich Simonelli. Please go ahead, sir..

Thank you very much, operator. Welcome to the call and greetings from Richmond. We're here for our CoStar Group's fourth quarter 2016 conference call. Before I turn the call over to Andy Florance, our CEO and Founder; and Scott Wheeler, our CFO, I have some important facts to convey to you.

Certain portions of this discussion contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements.

Important factors that can cause actual results to differ include, but are not limited to those stated in CoStar Group's February 22, 2017 press release on our fourth quarter results and in our filings with the SEC, including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar at the date of this call, and CoStar assumes no obligation to update these statements whether as a result of new information, future events, or otherwise.

Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all of the non-GAAP financial measures discussed on this call to their GAAP basis results (1:37) directly comparable GAAP measure are shown in detail along with definitions for these terms in our press release issued yesterday which is available on our website at costargroup.com.

As a reminder, our conference call is being broadcasted live and in color over the Internet on www.costargroup.com where you can also find CoStar's Investor Relations page. A replay will be available approximately an hour after this call concludes and will be available for approximately 30 days.

You'll be able to listen to that replay on 800-475-6701 within the United States or Canada, or 320-365-3844 outside the U.S. The access code is 417293. The other thing for today, just keep in mind, we'll take questions at the end. You will get one question and then if we have the time permitting, we'll allow a second roll to the questions.

So, with that, I'll turn it over to Andy Florance..

Thank you, Rich. Good morning. As you likely have seen our earnings release, we achieved outstanding financial performance in 2016. Our revenue of $838 million for the full year of 2016 was up 18% versus the full year of 2015. Our sales force added $126 million of revenue for 2016, and generated $112 million of net subscription bookings.

CoStar Suite revenue was up 14% year-over-year in the fourth quarter. Multifamily revenue for the full year grew 22% on a pro forma basis. We dramatically increased EBITDA by $125 million over the prior year to reach $215 million for the full year of 2016. EBITDA increased 139% over the full year 2015.

Adjusted EBITDA margins climbed to 31%, up 60% from the prior year's margins of 19%. CoStar and Apartments.com are very profitable business models, enabling us to expand our margins nearly 1,200 basis points year-over-year, while at the same time making important significant investments into future growth initiatives.

We continue to make significant and important investments, but we still expect EBITDA from our 2016 result of $215 million to grow to a range of $223 million to $229 million for 2017. For the seventh quarter in a row, we achieved net new bookings of greater than $25 million and the fourth quarter net new bookings increased to $29 million.

We had our best year ever selling CoStar Suite and Q4 was the second highest quarter ever for both CoStar sales and Apartments.com sales. Apartments.com's bookings were exceptionally strong in the fourth quarter and were up 62% year-over-year.

We prioritize subscription revenue streams because we believe the subscription revenue with high renewal rates and greater visibility is higher value revenue. Subscription revenue for the trailing 12 months climbed $162 million to reach $637 million for the full-year 2016 and now represents 77% of our revenue.

Our renewal rate for clients with five years or more business with us is steady at 98%. In 2016, we reached 101,000 CoStar North American subscribers, up 17% from 86,000 in 2015. We exited the fourth quarter of 2016 with a total of 691 sales staff and relationship mangers or a 30% increase of 158 people over the same time a year ago.

The investment in more salespeople is paying off as we're delivering 14% top line growth on our flagship product on a much larger base. Of the 158 net sales head count adds in 2016, 80 were CoStar customer relationship managers working in the field. They conducted over 53,000 trainings since we launched the program in April of last year.

And they're reinforcing the CoStar brand in every customer contact. We are seeing immediate results and heavier usage of our services, including those stickier services that entrench CoStar more deeply in the daily workflow of brokers.

In our focus groups, we hear from brokers that this service emphasis is a significant value-add to their CoStar subscriptions. Better training clients who get more other CoStar subscription are more likely to renew, recommend and spend more with us.

With the addition of these client managers, our experienced sales producers are freed up to spend more time selling CoStar. The primary motivation for investing now in these 80 new customer relationship managers is to support our efforts to upsell tens of thousands of LoopNet users to CoStar over the next two years.

In order to put many of our sales reps closer to our clients and prospects, we invested in opening 30 new sales offices across the U.S. in 2016. We believe the sales force is more productive when they work as a team in an office location, instead of working from home and that our local presence demonstrates to our clients a commitment to the market.

We believe this increases sales and retention. Our incremental investments in sales and customer service do not maximize margin in the short run, but they do deliver long-term competitive advantages and enhance long-term high margin revenue generation capabilities.

We continue to believe we will exceed $1 billion of annual revenue in 2018 with 40% adjusted EBITDA margin in the fourth quarter of 2018. In the second quarter of 2014, way back two and a half years ago, we began investing very aggressively to expand our platform into the multifamily sector.

The apartment sector has an asset value of $3 trillion to $4 trillion with more than 100 million Americans living in rental properties. We feel that we're competitively advantage in the apartment space for marketing and information dollars.

We also believe that the assets we are building to serve the multifamily side of commercial real estate are synergistic with our office, industrial retail, and landside of commercial real estate. As we close 2016, we've been working hard for seven quarters to make those investments a success.

And I want take a moment to take stock of how we've used our capital to create real value for you in the Apartments.com brand. First, look at the amazing revenue growth we've achieved in such a short time. In Q2 of 2014 when we acquired Apartments.com, it had $86 million of revenue.

As we exited 2016, our monthly revenue annualized for Apartments.com reached $240 million, an increase of $154 million. When you add the apartment-related information revenue we won because of this, we reached $278 million, an increase of $192 million from the start.

We have grown $86 million of annual revenue at Apartments.com to $278 million in three short years. At this level of revenue, we believe we're now the largest, most successful player in the online multifamily industry globally.

We did this by utilizing our information advantage, rebuilding the websites to refocus on the renter as the ultimate customer and we were the first to aggressively brand an apartment marketing side, as you would sensibly due with any mega consumer sector.

Our effort to draw more renters to our sites to create more value for our advertisers has been a huge success. In the month we closed Apartments.com, the site drew just 5 million unique visitors for its advertisers. By January 2017, that number had tripled to 22 million unique visitors on our apartments network.

As we have increased visitors in time, we have dramatically increased total page views from 23 million a month in Apartments.com at acquisition to nearly 250 million a month now, that's a tenfold increase.

We are still hard at work increasing our traffic for our advertisers, and visits to Apartments.com are up 42% year-over-year according to comScore. We have a clear number one position in this industry in visits, unique visitors, and time on site as reported by comScore for December 2016.

In 2016, the second full year of our operation of our new Apartments.com, we had 165 million more visits to the network than we had in 2015. More traffic is equal to more leads for our advertisers. In fact, the number of leads from the beginning of our acquisition of Apartments.com to now has increased 210% on a quarterly basis.

Again, we're still working hard to grow that lead flow, and leads have increased 62% year-over-year alone. As we grow traffic and leads, we have grown sales. In Q2 of 2014, total Apartments.com bookings were $1.1 million. That number has grown more than twelve-fold, to $13.7 million in Q4 of 2016. The impact on our overall business has been significant.

In Q1 of 2014, before we acquired Apartments.com, our overall CoStar Group bookings were $13.7 million for the quarter. That has now grown 114% to $29.3 million last quarter. When we acquired Apartments.com in Q2 2014, Apartments.com had 18,000 properties advertised on site. That number has grown 86% to 34,000 by the fourth quarter of last year.

In Q2 2014, the average advertising price per property was $441. That number has climbed 37% to $606 a month in the most recent quarter. As the number of advertised properties has grown, we have gained very valuable data for our information products.

There were no electronic – unit level fees connecting Apartments.com into the customers' property management systems in Q2 2014. Now we have over 20,000 plus electronic feeds, covering the majority of our advertisers' properties. Because of this high-speed flow of content, we have now collected 1 trillion rent points.

Jay Spivey, John Affleck, Robert Jennings and I were awarded best paper from an academic journal article on how to use this big data accurately model apartment rents. Our annualized revenue from sales of the information derived from this model is now over $38 million. We have worked hard to win clients to Apartments.com.

We held nearly 200,000 meetings with customers in 2016. And what we hear in focus groups is that they now consider us the best sales force with the best customer service. We conducted 22,000 surveys and asked, on a scale of 1 to 10, how likely are you to recommend Apartments.com to a friend? We scored 9.7 on average. That rounds to 10 on a scale of 10.

I believe this customer satisfaction and hard work has resulted in a 23% sales productivity increase of the average apartments rep in 2016. Clearly, our leadership position is strong and growing in multifamily, and we're still in the earliest phases. We intend to build on that competitive advantage. The Hispanic population in the U.S.

is approximately 57 million, 32 million of which are renters. This is the very fastest growing segment of the market, and could be as large as 128 million people by 2050. Hispanics represent 20% of the rental market, yet they are very underserved.

We launched Apartamentos.com at the beginning of February with high value content translated by humans and low value free content translated by a machine. As our customers put ads up in English, we automatically translate them into Spanish.

Renters can submit leads in Spanish and the site translates them on the fly for the leasing managers who don't speak Spanish. We plan to drive awareness of the Apartamentos.com launch with Spanish ads on stations such as Univision, Telemundo, and ESPN Deportes. In addition, we have a very aggressive SEM program in place to drive traffic.

The initial feedback to the site has been very, very positive and I'm proud of what we've done with the site. Launching Apartamentos.com was and is a significant investment. Westside Rentals has been the number one website in Southern California for finding small rental properties for 20 years. It has collected content from 350,000 landlords.

This unique content will give us a rich database of listings, availabilities, and landlords in a brand name that we expect will continue to draw massive amounts of rich content. Last year, Westside Rentals placed 71,000 branded For Rent signs in lawns and windows across the LA market, creating massive brand awareness.

In the first few weeks post acquisition, we have made all that content available on Apartments.com. By doing this, we have nearly doubled the small property content we previously offered renters in Southern California. It is our belief that if we have dramatically better content, we will draw more renters to Apartments.com.

More renters in the site will mean more leads for our advertisers and that, in turn, will drive more sales and continued share shift to Apartments.com. We expect the richer site will also drive increased organic traffic. We plan to capture what we learned from Westside Rentals and deploy those content lessons in markets across the U.S.

We will see the existing Westside Rentals subscription to fade down as we've put the content in Apartments.com, and we hope to replace that revenue with ad revenue growth on Apartments.com. We have an aggressive marketing campaign to drive even greater awareness of Apartments.com in 2017.

You will once again see Jeff Goldblum in the role of Brad Bellflower, the Silicon Valley maverick, as he shows renters from all walks of life a better way to find an apartment using the Apartminternet. We are filming five spots with him, including several Southern California spots featuring Westside Rentals.

Our advertising spots focus on general audiences, seniors, and students and will most likely be translated into Spanish – or most will be translated into Spanish. As you know, we did not run a Super Bowl commercial this year, but we will have 9,600 TV spots during a span of seven months, up from the 5,400 we ran over four months in 2016.

We hope to get better productivity and efficiency from our advertising dollars on this plan. We clearly have the most aggressive branding for online apartment rental listings ever executed. And we think this is an essential and wise investment.

By year-end 2017, we plan to have invested approximately $100 million branding Apartments.com in each of three consecutive years, for a total brand investment in excess of $300 million. It's getting a lot harder to find people who are not familiar with Apartments.com or Apartamentos.com.

There's a strong emerging profitability story for Apartments.com. In the fourth quarter of 2016, Apartments.com has swung from requiring investment to generating significant profits. We expect the profit profile of Apartments.com will fit the target margin investors expect from our core CoStar business over the years to come.

Today, our apartment sales team is almost at full capacity, with approximately 225 field reps. There are over 80,000 large properties that we're targeting to advertise an Apartments.com that are not currently doing so. So we have an enormous opportunity to continue to grow our EBITDA with high incremental margins on new sales.

Clearly, our investments over these two-and-a-half years of transformed Apartments.com into a very viable brand, we have become the clear number one apartment ILS on a combination of traffic, SEM, SEO, total communities, leased delivered, brand revenue and EBITDA. The focus for us in 2017 is up-selling and cross-selling LoopNet users to CoStar.

Turning back to CoStar. The overall majority of our CoStar clients are commercial real estate professionals. They're brokers, owners, lenders, developers, appraisers, major retailers, institutional investors and the like. In sharp contrast, 99.9% of our 60 million annual LoopNet users are end-users like tenants, retailers and small investors.

Only a tiny 2/10 of 1% of LoopNet users are commercial real estate professionals. Yet, 50% of the LoopNet product features cater to that small user base. Because the legacy design of LoopNet attempts to cater to both audiences, it fails to do a great job of meeting the needs of either. In 2017, we plan to change that.

The 99.9% of LoopNet's audience that are end-users are very valuable target audience for our brokers and owners, who must market their commercial properties. Post-integration, 100% of LoopNet's product design will target the needs of end-users, and the need professionals have to market to them. LoopNet will become a pure optimized marketing platform.

The first step is to migrate the small percentage of LoopNet users that are commercial real estate professionals trying to use LoopNet's information platform over to CoStar for their information needs. CoStar is a much better information solution for commercial real estate professionals.

When we say a small percentage of LoopNet users, we mean the 100,000 professionals using it as an information platform, generating just under $40 million of LoopNet revenue. By contrast, there are 100,000 professionals also subscribing to CoStar Suite, generating approximately $400 million revenue.

Many of the most intensive professionals using LoopNet pay nothing for the service at all. Obviously, CoStar information services capture a much higher price point. We believe that we can upsell thousands to tens of thousands of LoopNet information users to CoStar, generating tens of millions to hundreds of millions of net new subscription fees.

We have a great track record here. When CoStar and LoopNet first emerged, we made a concerted effort to upsell CoStar to LoopNet subscribers and we generated $80 million in upsell subscription revenues for about two years. Our software teams are working hard to integrate LoopNet and CoStar databases into one unified database by May of 2017.

We believe this unified database will be more comprehensive than either the two standalone databases. Post-unification all of properties listings, tenants, analytics and favorable sales and leases will be available only to the CoStar users. Going forward, LoopNet will only contain our advertisers' listings.

This is a big change where currently 32% of the listings in LoopNet are from brokers not paying us a dime. Because of this, today about 54% of all active listings are visible in LoopNet. That creates a material negative substitution effect between LoopNet and CoStar.

Once we eliminate the free listings, we believe that LoopNet's listing coverage will drop to 39% reducing the substitution effect, plus or minus. We believe that 28% reduction in listings will mean two things. First, the paid ads on LoopNet will get more attention, we'll not have to compete with the free ads.

Second, the information value of CoStar will surge relative to LoopNet making it even more compelling upsell solution for the commercial real estate professional.

Once the databases are unified, it will be a straightforward task to communicate clearly to brokers using LoopNet but they're only seeing a fraction of the market and they need to use CoStar if want to see the whole market.

We planned to convert LoopNet information users to CoStar with a combination of end product marketing, end product result comparisons, retargeting direct mail and direct sales. And I'm going to throw in telesales. As we have approached the integration of CoStar and LoopNet, we have stopped pushing sales of LoopNet information products.

We do not want to move a new customer into a product we know full well we're just about to discontinue. This product discontinuation creates a significant headwind to sales bookings in 2016, reducing our annualized net new bookings by $7.4 million.

$3.2 million of headwind occurred in Q4 of 2016, reducing $32.2 million in Q4 net sales bookings to the $29 million we were reported for Q4 2016. Post integration, we plan to keep and strengthen our LoopNet marketing solutions that are currently generating around $100 million annually.

According to Hitwise in January, LoopNet and our network of online commercial real estate marketplaces captured four times the unique visitors as the next 50 websites in that space combined, that's share.

That market presence is unprecedented and our customers tell us that LoopNet really generates the lease they need to lease and sell their properties. We believe that LoopNet's share of traffic of the top 50 U.S.

commercial real estate websites is greater than that of Zillow's, Rightmove, (24:58) Scout24, (25:00) or FINN.no's share of the traffic of the top 50 residential websites in their respective countries. These residential sites charge the average broker $7,000 to $33,000 annually for marketing services.

By contrast, LoopNet's only charging an average of $653 per agent, per year. Eliminating all those free LoopNet ads is the first step in increasing the average price. There's a lot of room to grow LoopNet's marketing revenue and we look forward to having that opportunity.

Over the next two years, we'll work to migrate tens of thousands of LoopNet users to CoStar potentially generating more than $100 million of subscription fees. Most of these prospects will carefully consider the accuracy and comprehensiveness of the information in CoStar before they make that investment to upgrade to CoStar.

In anticipation, we've been hard at work upgrading our research capabilities to ensure that our information is the best it's ever been when we begin this one major upselling effort this year.

In the fourth quarter 2016, we began expansion of CoStar research capability for this need by opening a new research headquarters in Richmond, Virginia, where we sit today in $27 per square foot space as opposed to the $50-some space in Washington – $60 space in Washington. After just four months, we already have 250 staff in place here in Richmond.

We're doing more than just adding more researchers. We're working to make all of our researchers more productive and more effective. Moving to Richmond, we've begun to reexamine how we position our research process with participants in our industry.

Historically, our researchers have reached out to brokers to "collect information" from them to update our database. Our branding was more about what we wanted from the interaction, a lot less about how they would benefit from the interaction.

We have turned that around and now when we interact with brokers, we're reaching out to make sure we're maximizing the exposure their properties are getting in front of our massive audience of buyers, brokers, and tenants so that they can sell their properties as quickly as possible and earn their fees. Not surprisingly, they're much more receptive.

Our audiences are very valuable to these brokers. 200,000 commercial real estate professionals use our sites to find properties for sale or lease. Our audience is responsible for up to $1 trillion in leasing and sales transactions each year.

We believe our audiences are responsible for the vast majority of all commercial real estate deals done in the past year. On a typical day our audience executes 8 million searches for properties on our sites. 93% of the top 1,000 U.S.

brokerage firms use our sites to search for properties for sale or lease, and that's just the CoStar site, we're probably 100% of the top 1,000 with all sites. Brokers are responding really well to this new branding and our researchers are much more productive.

On a per researcher basis, we're conducting three times the number of broker interviews per day than we were conducting in the fourth quarter of 2015. We believe that having more researchers that are more productive will translate to higher quality data and more successful LoopNet to CoStar upsells.

We are surging our investment in research this year, as we execute the final phase of the LoopNet to CoStar upsell process. We believe it will have a very high ROI, while reducing risks inherent in migrating so many clients to a new product. Research is the foundation of CoStar, in Wall Street parlance is the competitive motor on the business.

It's what has differentiated CoStar from all the rest and allowed us to achieve outsized returns over many years. I view our investment in research as an excellent use of capital as we look to strengthen our competitive advantage for many years to come.

Our research head count will continue to increase through 2017, but we expect some of the research head count to drop in the out years after we complete the LoopNet integration. As you know, we initially initiated a lawsuit against Xceligent for brazenly stealing and reselling CoStar's data and images on an industrial scale.

The Daily Mail Group, which owns the majority stake in Xceligent is a multibillion dollar company that has all the resources necessary to enable Xceligent to invest in the U.S. to build content honestly. Instead Xceligent has paid an army of low-paid workers in the Philippines and India to steal our content.

We filed this lawsuit only after an initial investigation revealed no fewer than 10,000 instances of CoStar's data and photos appearing on Xceligent's publicly accessible website. We believe that a comprehensive review of Xceligent's subscription database will reveal tens of thousands more – many more.

What we know so far is Xceligent and its agents in the U.S., Philippines, and India illegally created thousands of LoopNet accounts, made 1.7 million requests for copies of photos and property information and systematically cropped out logos and added their own logos to our copyrighted photos.

We also know that Xceligent has used listings and property information stolen from CoStar's subscription database in connection with its efforts to research and open new markets. We have amassed a significant amount of evidence of Xceligent's theft and we feel confident we will win in this case.

Apart from the evidence of widespread illegal access and copying that we've already gathered, Xceligent's own former employees condemn its business practices as unethical and have confirmed Xceligent's method of building its databases based on "stealing CoStar information." Also what we believe is an early indication of the merits of our case, judges in the Philippines and India reviewed the evidence gathered to-date and found probable cause and ordered the extraordinary search or seizure of hundreds of Xceligent's agents' computers.

Xceligent's public response does not deny that they have accessed LoopNet and CoStar without authorization a million times in aggregate in order to take CoStar content, or that they have copied or – and published thousands of CoStar copyrighted photographs.

We firmly believe that even though this litigation will be time-consuming and expensive, taking the necessary steps to protect our intellectual property is absolutely the right thing to do and serves the best interest of our shareholders.

Winning this lawsuit of course means securing a permanent injunction that will ensure Xceligent purges and stops stealing our content. We're also seeking monetary damages from Xceligent, including substantial damages for their infringement of our copyrighted works.

Courts have wide discretion towards statutory copyright damages depending upon the willfulness of the infringements, and in this case we believe we already have the overwhelming evidence of Xceligent's willfulness.

We know that despite having received hundreds of access denied notices and also having their IP addresses blocked by our security teams over 100 times, Xceligent rotated its IP addresses and used anonymizers and proxy services like Tor and HideADoor (32:36) to mask their identities.

A former researcher for Xceligent said, I quote, "Xceligent managers specifically instructed me and my colleagues to crop out the watermarks on any image that we copied from the Internet, including the CoStar watermarks on the photos we copied.

The removal of watermarks was part of the training I received at Xceligent." These are not the hallmarks of unintentional copyright infringement.

On the contrary, Xceligent is an information company that understands copyright law and its blatant widespread theft of its competitors' copyright content at the direction of management paints an overwhelming picture of willful copyright infringement.

Taking into account the number of our copyrighted photos we've already found on Xceligent's public website, we believe it's reasonable to expect that, once we conduct a comprehensive review of Xceligent's subscription database, we will find tens of thousands more.

We also know that one of our previous copyright cases, captioned CoStar Realty Information Group versus Field d/b/a Alliance Valuation Group, the court awarded us $14,000 per infringed image.

While we respect the wide discretion courts have in awarding statutory copyright damages and understand that it's almost impossible to predict outcomes, we believe the most likely scenario is a statutory damage award in the thousands of dollars per infringed image and the number of infringing images in the tens of thousands, resulting in very significant damages award.

Xceligent's owners have the financial resources to pay such judgment. You can find details of litigation at www.costar.com/xceligent. We continue to see strong demand for CoStar's analytic capabilities. Today, we generate approximately $140 million in annualized subscription revenue tied to commercial real estate analytics.

39% of our revenue now comes from owners, lenders, and institutional investors. The commercial real estate debt and equity sector is now one of our biggest growth drivers. We expect outsized growth in the debt and equity area in the future. We're prioritizing our investments in research, product development and sales in that area.

We have invested dramatically to increase the number of markets that our economists cover with quarterly written reports. We have built and are about to launch daily property level forecasting into CoStar, making this an even more powerful tool.

Building on the success and popularity of our multifamily underwriting reports, we just released the Office version of Underwriting Report. We also plan to release Underwriting Reports for industrial later this year.

We now show fantastic daily rental movements in our rent charts, and we added 50 new customizable real-time charts analysis to our products in 2016. In 2016, we integrated our CoStar and Portfolio Strategies into one unified platform. And we migrated all the remaining 200 client companies from the old Portfolio Strategies platform into CoStar.

This represents 1,800 individual users, plus or minus. The conversions have resulted in $4.6 million in net new annualized revenue. We believe that combining the best of the high level analytics from Portfolio Strategies with the granular, always-current on-the-fly analytics of CoStar, we have the best-of-breed analytics combination going forward.

This allows us to move away from a boutique offering servicing the top 1% of the potential clients, to a robust service that has tens of thousands of client opportunities, and potentially hundreds of millions of dollars of high-margin revenue.

Portfolio Strategies continues to sell excellent advisory services, which we will sell in tandem with CoStar Market Analytics. Lands of America, BizBuySell, and Commercial Real Estate Manager are three of our emerging high potential companies.

Over the past five years, the three in aggregate have grown revenues from $19 million to $39 million, and they've grown their EBITDA from $2 million to $9 million. We have solid leadership at each of these groups, and we believe they'll continue to grow profitably for many years to come.

CoStar Real Estate Manager is now managing a quarter of a million leases for our clients. It provides market-leading real estate management software to retailers and global companies, and was one of the first in its industry to market with its new lease accounting module.

The new module helps companies get in compliance with new FASB standards for lease accounting. The new standards require companies to include the value of practically all leases on their balance sheet. In November of 2016, we announced an alliance with BDO to help companies to get in compliance with the new accounting standards.

We're also working with PwC and other leading accounting firms here. I have to say, I wish Professor Ryan Hart, my accounting professor in college, could have been there as one of our multibillion dollar customers raved about how good my accounting software was. He would have fallen over dead if he'd heard that.

Release of the new leasing standards is already driving demand for our service, as net new sales of Real Estate Manager increased by 32% in 2016 over 2015. New customers in 2016 included major retailers and global companies such as GE, Adidas, Cardinal Health, Citi, State Street, Windham, Owens Corning, Five Guys, and many others.

Our recently acquired German commercial real estate information provider, Thomas Daily, turned in a strong initial performance, growing revenue 17% fourth quarter 2016 over fourth quarter 2015, as we grew their field sales staff from two to seven.

Our Spanish commercial real estate information provider, Belbex, is making strong progress growing its coverage of the Madrid market. At the beginning of 2016, they tracked 2,700 space available listings in Madrid. We have tripled or quadrupled their research team, canvassed the entire market, and have uncovered 26,000 potential new listings.

We can confirm these listings in the months to come. We could increase our coverage tenfold this year over the legacy Belbex databases.

So finally, to wrap up with commercial real estate markets, occupancy rates at year-end 2016 reached new business cycle highs for office, retail, industrial properties and rent growth for the industry as a whole averaged 3.9%, which is nearly double the 2.1% inflation rate. The real estate capital markets invested $600 billion in sales in 2016.

Although that was down 7% from the record set in 2015, it was still the second-highest volume ever recorded, and 90% higher than the average since the year 2000. There is broad strength in currency rates. More than half of the office and retail metros reported business cycle high in occupancy in Q4.

Furthermore, over 70% of apartment logistics markets have higher occupancy rates than the 2006 and 2007 average of their last market peak. So clearly, the key driver of investment returns, occupancy, is very strong right now. Analysis of the apartment market shows that it is becoming increasingly competitive.

Effective rent growth has dropped to 2.4% from 5% a year earlier. The slowdown stems partly from 209,000 new units delivered in 2016, which is over 50% more than the 10-year historical average. New apartment supply pushed vacancy up to 6.1% from 5.6% a year earlier. And 2016 marked the first year in this market cycle with higher vacancy.

But we believe that bodes well for Apartments.com, as owners will work harder to find renters for their properties. Office fundamentals remain strong. Occupancy hit a business cycle high of 90% in the fourth quarter of 2016, up 30 basis points over the levels in the fourth quarter of 2015.

Year-over-year rent growth of 3.2% marks the 13th consecutive quarterly period when annual rent growth exceed 3%. This story, high occupancy, well above inflation rent gains, and net absorption above historical averages, is repeated in other real estate sectors, including retail, logistics, light industrial and hospitality.

Real estate's broad strength has helped attract increased demand for CoStar's products and services. In summary, the fourth quarter 2016 was highlighted by solid revenue growth, strong sales in CoStar and in Apartments.com and huge margin expansion year-over-year.

At this point, I'll turn it over to Scott Wheeler, our CFO, for the really interesting stuff..

Great, Andy, thank you very much. 2016 was certainly an outstanding year financially for CoStar Group. As Andy mentioned, our revenue in the full year increased 18%, which translates into a 14% growth rate on a pro forma basis.

These pro forma results include the revenue from Apartment Finder for 2015, net of the revenue streams that we eliminated such as Finder Social. In the fourth quarter, we reported $218 million of revenue, increasing 13% versus Q4 2015 and 14% including the impact of foreign currency movements in the UK.

Looking at our revenue performance by services, CoStar Suite revenue growth accelerated throughout the year, exiting Q4 2016 at a 14% growth rate or 15% on a constant currency basis. This is a full 400 basis point improvement over the comparable 11% growth rate achieved in the fourth quarter of 2015.

The acceleration of the growth rate in 2016 is the result of continued investments in our sales force and analytics products as Andy mentioned earlier. As we move to 2017, we expect the CoStar Suite growth rates to moderate somewhat from the 2016 levels to be within a 12% to 13% growth range.

This moderation in the growth rate is a result of timing of large contracts in 2016, as well as the effect of continued strong revenue growth on a larger revenue base. Revenue growth rates in information services, which is approximately $19 million per quarter, turned negative in the fourth quarter of 2016 as expected.

This is a result of our decision to wind down the LoopNet information product ahead of the planned integration this year with CoStar Suite. We expect information services revenue to decline at mid to high single-digit rates in the first half of 2017, and low double-digit rates in the second half of the year.

We expect full-year revenue in information services to decline in the 9% to 11% range overall. Over time, as we move the LoopNet commercial real estate professionals to CoStar Suite, the related revenues will also move out of information services and into CoStar Suite services.

We do not expect this to be a material impact to CoStar Suite revenues in 2017, but rather in 2018. In multifamily, our 2016 revenue increased 40% year-over-year, which is 22% on a pro forma basis. For the fourth quarter of 2016, multifamily revenue growth was slightly below 20% as expected at 19%.

For 2017, we're raising our growth expectations for multifamily revenue to the 20% to 22% range, based on strong fourth quarter sales. This is driven by the rebuilding and the effectiveness of our sales force in multifamily.

We do not expect a material amount of revenue from the acquisition of Westside Rentals in 2017 as we transition this revenue model from rental subscriptions over to advertising revenue. Rounding out our service performance, commercial property and land grew 11% year-over-year, both for the full year and in the fourth quarter.

We expect these services to continue to grow in the low double-digits in the range of 10% to 12% for 2017. Over to margins, our gross margin came in at 79% in the fourth quarter. Vast majority of our cost of revenues relate to our research operations, which as Andrew mentioned, we're expanding with our new research center in Richmond, Virginia.

Accordingly, we expect our gross margins to moderate in 2017 into the 75% to 78% range as we scale up our team in Richmond. Our operating expenses in the fourth quarter were down $5 million sequentially versus the third quarter of 2016.

This is a result of our expected seasonality in our marketing spend, which was partially offset by legal costs related to the Xceligent litigation of approximately $5 million in the fourth quarter.

Operating expenses increased $13 million versus the fourth quarter of 2015, primarily due to increased sales and customer service investments, litigation costs and new product investments. Now, let's take a look at some of the performance metrics for the quarter.

As Andy mentioned, our expanded sales force delivered $29 million in net bookings in the fourth quarter of 2016 despite the negative net new bookings effect from information services. We expect this negative net new bookings effect to continue throughout 2017.

Our cross-selling of LoopNet users to CoStar is expected to result in increased CoStar Suite bookings in the second half of 2017, but it's not expected to have a noticeable impact on revenue growth until 2018. Net new bookings were strong in the fourth quarter as with annualized net new sales on annual subscriptions of $27 million.

Both of these metrics showed positive sequential trends with increases of 13% and 10% respectively. We believe net new bookings is the most relevant of the two metrics to indicate the overall direction of the company.

Accordingly, we plan to continue to provide net new bookings each quarter in the future, but we'll no longer provide the annualized net new sales on annual subscription metric. Renewal rates on annual contracts were 90.4% in the fourth quarter of 2016, equal to renewal rates in Q4 of 2015 and broadly in line with trends for the past six quarters.

I'll now turn to our outlook for the full year and the first quarter of 2017. For the full year of 2017, we expect revenue of approximately $935 million to $945 million or 11% to 13% year-over-year growth versus 2016 results.

Our revenue growth rates are modestly lower than the growth rate achieved in 2016, primarily as a result of the expected revenue decline in information services of approximately 9% to 11% that I mentioned previously.

We expect revenue for the first quarter of 2017 in the range of $223 million to $225 million, representing top line growth of around 11% to 13%.

In terms of earnings for the full year 2017, we expect non-GAAP net income per diluted share of approximately $4.18 to $4.28, based on 32.8 million shares, which is broadly in line with the results we achieved in 2016.

For the full year, we expect adjusted EBITDA to grow from $256 million in 2016 to a forecasted range of $260 million to $265 million with a margin of approximately 28% at the midpoint.

This represents a modest year-over-year decline of 200 to 300 basis points when compared to the 1,200 basis point increase in adjusted EBITDA margins we just delivered in 2016.

When taking the two years together, by the end of 2017, we expect to have grown our margins 800 to 900 basis points from the beginning of 2016 while also making these very significant investments to support the future growth and security of our business.

Our outlook for 2017 earnings and adjusted margins include two important initiatives since we last updated you on our October call. First, our full year forecast includes $50 million (48:46) or $0.28 per diluted share associated with the Xceligent litigation.

As Andy discussed, taking the necessary steps to protect our intellectual property is absolutely the right thing to do and serves the best interests of our clients and our shareholders.

We currently expect the 2017 cost of this litigation to be in the range of $10 million to $20 million, and have not assumed any potential outcomes in our forecast even though there is potential and precedent for material damage awards. We'll continue to provide updates quarterly as we progress throughout the year on this matter.

Second, our outlook includes the impact of the January 31 acquisition of Westside Rentals, the leader in content for small rental properties in Southern California. We expect this acquisition to create valuable content, traffic and advertising synergies when added to our Apartments.com network.

Accordingly, we need to transition the Westside Rentals revenue model away from rental subscriptions and over to advertising revenue, consistent with our existing multifamily business. This transition results in modest dilution of approximately $5 million or $0.10 per diluted share in 2017.

With regards to our plans for marketing costs, we anticipate total marketing costs for 2017 at the same level as 2016, but with a higher level of spending for direct marketing in our information business to support the LoopNet and CoStar integration effort.

Advertising spend is more heavily weighted in the first half, but the second quarter expected to be our largest marketing quarter, with as much as 40% of our annual marketing budget expended in that quarter. As a result, we expect the second quarter would be the low point for adjusted EBITDA margins for the year, as was the case in 2016.

With regards to margin progression throughout the year, we expect margins to decline in the first three quarters of 2017 on a year-over-year basis. The decline coincides with the ramp-up of our research investment and the timing of the vast majority of our annual marketing spend.

For the fourth quarter, we expect to exit 2017 with adjusted EBITDA margins above 35% and above our Q4 2016 margins. The high degree of leverage in our business model following periods of investments gives us confidence in achieving our goal of 40% adjusted EBITDA margin exiting 2018.

We expect first quarter 2017 fully diluted non-GAAP net income per share of approximately $0.92 to $0.97 based on 32.4 million shares. Our outlook assumes approximately $4 million in costs associated with the Xceligent litigation in the first quarter.

Overall, the company delivered an impressive and exceptional performance in 2016, and will continue to focus on investing to deliver this profitable revenue growth in the future. And we'll now open the call up to questions..

Thank you. Okay. The first question is from the line of Brett Huff with Stephens. Please go ahead..

Hey, good afternoon or good morning, guys.

Can you hear me okay?.

Yes, we can..

Yes. Okay, great. Thanks for taking my question.

Can you give us a little more detail – the detail you guys gave on kind of the tenor of the sunsetting revenue, the booking of the cross-sell revenue into Suite happening in the second half, but not hitting the P&L until 2018? Is there any more detail you can give us on that? A lot of the questions we got after the release last night was, is that the primary driver of what people thought was the lower guide or is there additional sort of incremental spending on research or things like that that we're not seeing or is it all just the timing of the Loop sunset?.

I'll let Scott answer most of that, but I would say that the LoopNet sunset does create a very material and significant headwind, and you saw a lot of it in the second half of 2016. We still perform very, very well, but it's just a significant headwind.

You're trading out $60 a month subscriptions for $300 a month subscriptions, but the $60 going out, and we haven't yet sort of seen the – we're seeing the money going out from the $60 ones being discontinued. We're not yet seeing the mass of the $300 ones come in and those come in the middle of the year.

So we're being conservative around that real and ugly sort of reality..

Yeah. And Brett, that played a lot into our thinking obviously as we came out with our numbers for the year. We certainly know that the direction of travel of info services, which we just talked about is $7 million, a 9% to 11% drag.

And then we fully expect there'll be good selling efforts in the second half, but as we've talked before, we don't intend to build those into revenue until we let those sales build and are taking a cautious approach that those will help us in 2018 and not materially in 2017.

With your question on investments, yeah, there's no new investments from what we've talked about before, we're putting a lot of our investment power this year into research. You heard us talk about obviously Richmond, we're also investing in further field research, we're investing in research in Canada and in our international markets.

And so when you take all of the grounded investments in research to put our data and our products on the best footing, it's all those things together that puts us into the guide that we came out with today.

And which when we talked about back in October, you'll recall we were concerned that 2017 was expected to have a significant margin growth, just like we had in 2016. And at that point we said, we need to caution everybody that wasn't going to be the case.

And so when we finally finished our planning this year and came out with our guidance, those are still the primary investments, and the uncertainty on the top line from the LoopNet conversion is the other factor in deciding where we wanted to come out today in our communication..

Next question is from the line of Andre Benjamin, Goldman Sachs. Please go ahead..

Thanks and good morning..

Hi, Andre..

I guess I just had a question on the margins as well.

If you guys maybe talk a little bit about 2018, I know you just put out 2017 guidance, but there's a lot of focus on the exit of 2018 at 40%, I guess, how do you think about the full year margin as opposed to just exiting at 40% given you just talked about the first three quarters of 2017 being down, but then obviously a huge pop in the fourth quarter exiting at 35%?.

Yeah, good question.

The reason I talked about the trajectory of margin this year is really to demonstrate when we finish a period of investment, which Andy mentioned a lot in Apartments as well, but as soon as you finish that period and obviously the sales continue to run up at that very high and predictable rate that we have, then the margin and the profit move up very quickly, which you've seen us do many times in the past.

So we still expect that in 2018 that we will see margins moving north for the entire year, and then as we have seasonally shown that in the fourth quarter is always going to be the highest. I believe if you look over the past couple of years, it's typically 5%-ish higher margin in Q4 than in the other quarters.

So that's going to change based on obviously sales pace and cost management, which is again in our control.

So, obviously, we're not giving any guidance on 2018 yet, but we can't say that, that we still expect to be able to deliver what we said in our commitments for the over $1 billion of revenue and the 40% exiting, and the full year will be higher as well..

Next question from the line of Mayank Tandon, Needham & Company..

Thank you. I just had a quick question around the acquisition pipeline, your expectations in terms of timing of future deals.

And then, also maybe some word on the international opportunities as you're looking at investments outside the U.S.?.

Sure. So, there is definitely a robust set of opportunities for us both in the – a lot of them are around the apartment space, but there are a number of things we're looking at. We're always talking to people.

The amount of work we're doing right now around this LoopNet to CoStar conversion, keeps us focused on that task at hand to big lever in the business. So, we're focused on that through for a long time like at least through May and really through the summer. But there are opportunities out there.

We obviously can't discuss specific things and some of those could accelerate sooner if the timing on the other side was such that if we had to move, but there's a broader range of opportunities. On the international front, I'm pretty happy with where things are shaping up there. The United Kingdom, which was our first foray overseas.

It was a lot of work, a lot of learning. It's been very successful. We have, I don't know, 97 of the top 100 brokerage firms there as clients. It's a profitable business. It's a very strong business. We've got a good management team there. Canada, our second material foray overseas, there was a competitor there, been there for many, many years.

Within our first two years, we outpaced them in the revenue, and I think we're really just at the starting point there. I think we have a lot of potential upside there in Toronto. We are investing a little bit in research out there to fill that out, make sure that we're covering all the markets there, Edmonton, Calgary, Vancouver, Ottawa, and Toronto.

We believe we now have the best databases for commercial real estate in Canada. And as you can see, as we're moving into the more language software, we will be doing a polyglot version of CoStar in the next 18 months or so. So then, Madrid has been a fascinating experience. It's like looking at data flow in 1980.

We've really gone to that market, and to increase the perceived amount of listing opportunities for brokers tenfold in the first year is dramatic. In – really that's our primary focus right now, is standing that up and making that happen.

And then Germany, we've got a good solid business there, but we think this is an opportunity to grow without changing anything, just to leverage the product further and drive more sales by just doing a different philosophy, more focused selling efforts there.

So, we are continuing to keep our eyes open for other opportunities overseas, but it's probably at about the pace that you're seeing right now, which is a country a year..

Good pace..

Yeah. There's not many countries..

It takes 140 years to cover the world and something like that..

Yeah. We'll be down to North Korea in 120 years..

Next question is from the line of Sterling Auty, JPMorgan. Please go ahead..

Yeah. Thanks. Hi, guys. You guys gave us a lot of data. I just want to make sure that I'm clear on a couple of things.

So, on the margin front, if we adjust back for the things that we didn't know the last time – last quarter when you talked to us, so the litigation costs, the acquisition, et cetera, would you say that the pace of investment that you're putting forth for 2017 is on par with what you talked to us last time, or is an acceleration? Because I think where a lot of our models where, we still had slight improvement in margin for 2017 and then the improvement to the goal.

So I think this – part of the reaction is, it's a departure from that, but again, there's moving parts.

So was that core investment in line with what you were talking to us about a quarter ago?.

Yeah. And this is a question, as we go through our planning process and again, back in October, we hadn't finished out what our investments would look like. Again, investing in research is the primary piece, and you heard Andy talk about other components of research that are important, like productivity of research.

So they need to put technology folks in to drive software productivity that can allow these 1,000 researchers to deliver productivity over time and create a better cost profile. And so, you put all these things in and then you come out with what your investment plan is here (1:01:36) for the budget, which we do in the early part of December.

I was actually pretty happy when we came to the end of that process and, on a $720-some million cost base, we came within 1% of where that cost would be when we finally ended up with our budget. So, I would rather – of course, had it been above the margin we said last time, but it was $7 million or so below.

So we're not unhappy with where it came out, it's still in line with what we're investing, and we still expect the same great returns on top of the money that we're putting back into the business here..

Really, we have a great business here, except for Jon Coleman, our General Counsel, spending way too much on legal..

Okay. Next question is from the line of Andrew Jeffrey, SunTrust. Please go ahead..

Hi, guys, thanks for taking the question, appreciate it.

Andy, I guess, high level question, and I think this is kind of what we're hearing today is, how do you talk to us in the investment community about the long-term growth and profitability of CoStar Group? You've made a lot of investments and, obviously, a pretty aggressive growth initiative, which seems to be working well in apartments.

But are we going to have this sort of sawtooth pattern into perpetuity, or is there a point at which CoStar kind of goes into harvest mode, has the right assets in place and really sustainably grows EBITDA, because I think that's critical for the stock from here (1:02:59)?.

Sure. Well, so I would say it's a very fine-tooth sawtooth blade. So you got real lumberjack stuff with big blades, real big sawtooth, and you got a real fine metal one, this is a fine metal one. So, when you really – unfortunately, I've been at this for 30 years.

So, when I look at it in the broader picture, it is a very actually, fairly smooth, consistent EBITDA expansion profile. So, $215 million was a pretty significant advance over each of the X number of years – with variation. So, we're having a lot of discussion around a couple of points this year.

We really frankly envision a much, much larger business than what CoStar Group is today. So, I would inspire more to what something like my friend Jeff Bezos has done, or Mike Bloomberg has done, something that is a lot. The goal of 2018 $1 billion in revenue is a important goal, we keep articulating it. The 40% EBITDA margin, that's not my goal.

We'd like to be talking about $5 billion in revenue some day, so we are definitely playing a little bit of a longer-term growth game, and that's a reality. And we see things like this LoopNet-CoStar conversion this year, where it basically impacts the entire commercial real estate industry throughout the United States in a very fundamental way.

We just approached that very carefully and we want to make sure that, whatever we do this year keeps us on track for our true long-term goals, which is building a business that's an order of magnitude larger than the business we have today..

Thank you. And our next question from the line of Brandon Dobell, William Blair. Please go ahead..

Thanks.

How do we think about the progression of the sales force this year? Do you have the right numbers or should we see a continuation of kind of mid-to-high or maybe even low double-digit head count growth? And if so, where should we expect those people to be concentrated in?.

I would say that we're largely stable where we are. Incrementally, mechanically, it could be plus 40, could be plus 20. Big picture, we have the sales force we need. Just finished our sales conference, you look at that sales force and said, oh, my gosh, that is an enormous sales force.

And it is an incredibly competent sales force and it is a great team to go to market with. So, we are very happy with it.

I think we are probably more focused on the fine tuning details, some organizational shifts here and there, minor things, and we might shift a little bit of focus to inside sales as we convert LoopNet clients and markets that are far away from one our field offices. But these are all pretty minor.

It's roughly – we're very happy with what we've got right there and to stand in front of 750 people at that sales conference and see the team we've amassed, you're like wow, it's impressive..

And in the last couple of quarters, you guys have talked about, I guess, let's call it a different go to market strategy with the apartments assets, just more points, better organization, et cetera.

How much more work do you have to do there nationally to get it to where you really think you've got the right go to market strategy or has there been many changes in the last ample of months based on what you saw kind of middle of 2016?.

I guess you get a different answer if you talk to me or some of the sales people. The sales people feel that we have them worked at 100% of capacity, and I think doing a fantastic job I'm really happy with the customer service ranks we're getting from people, the 9.68 or whatever it is. And so I think we're in a pretty good place.

We did institute the pure hunter role last year and so that's maybe four, five months old. We're fine-tuning that, but I think that's progressing well, where we want to have a little more touch point with our major accounts. We're selling more with the top 50 accounts than we do in the rest accounts overall.

We still think there's more room to do even better there. But again, big picture I'd say, fairly happy with what we've got there, and I definitely believe we have by far the best sales force in the industry.

I mean, there is some good sales people, some other operations out there that we compete against, but we definitely have the best sales force by a country mile..

And the proof is in that net bookings number in fourth quarter for apartments looks very good and you can see that the outcome of that hard productivity work in the mid part of the year is starting to come through..

Yeah..

Next question is from the line of Peter Christiansen, Citi. Please go ahead..

Good afternoon, guys. Thanks for having me part of the mix. Quick question, so....

Welcome..

Yeah. Thank you..

You're welcome..

You cover the LoopNet CoStar transition pretty well and extensively here, but just wondering if you can give us some color on some of the conversation that you're having with clients and how they view it and what's been some of the early indication so far?.

Well, we haven't hit the main thrust of this. So we're really waiting for that magical moment of when you have the unified database. At that point it gets – it's a very clean story, where there it's just there's 5 gallons in this bucket and 1 gallon in that bucket in terms of information. It's very literal and it's very clean story.

We're having a conversation with people basically saying, look, almost everybody using LoopNet's an end-user. It's no longer fair that we would be hampering our whole net system back by bringing along a 0.2% group of brokers trying to use this information system. That story's working pretty well.

But the other thing is that you have to roll back 5 to 10 years ago, where the industry really didn't – couldn't define differences between CoStar and LoopNet. They just thought they were two versions of the same thing and the picture has become clearer and clearer and clearer.

We just ran a whole slew of focused groups around the United States and it was really nice because you could begin to see an understanding that was not there before from the industry, where they're like LoopNet is an essential tool to market your listings. It is not an information system. And look, CoStar is an indispensable information system.

So we're actually just amplifying what the more knowledgeable people in the industry know, and then we're trying to push that out to the laggards and try to move them into the right slot. So I'm sure there will be – there's a little bit of folks, who have been getting a great deal for a long time.

They've been getting literally hundreds of thousands of advertising exposures a year for free or they've been servicing their information needs for free for a long time, but the way we're restructuring the products, we're looking for some sort of fair price from everybody, who is really an ongoing recurring participant in the industry.

And so and these are negotiators, these are brokers, the folks who are going to be – going from paying us nothing to $1 a month will make the loudest noise of all. But we're just going to work our way through it, and I think there is general acceptance to what's going on there.

I also have been – I was sitting with well the CEO of Cushman & Wakefield the other day, as he was – as we were meeting with a head of – a gentlemen that runs North America. We were meeting with the person that runs Canada and it was fascinating to listen to him explain our business to his Canadian leader.

And he talked as much about our distribution of – the importance of our distribution channel content from the marketing perspective and that was a new – personally I never heard a CEO or senior person actually clearly divide the two products as complementary both necessary working well together but very different functions.

So, big picture, I think there's a little bit of – there is going to be a little bit of noise and pain as people figure out they're getting a great deal, the gig's up or too good a deal, the gig's up. But we're very excited about what we got here going on this year. Salespeople are even more excited than I am. They're thrilled.

I don't know if I answered your question..

Thank you. Next question is from the line of Patrick Walravens, JMP Securities. Please go ahead..

Thank you very much for taking my question. I guess as you look to scale beyond $1billion in revenue longer term, what markets do you feel you need to enter and would you be open or would you consider expanding into the property management software market? That's it from me. Thanks..

Sure. Well, there's an awful lot of runway right here in the segments we're in right now, the analytics segment, international growth just penetration, like we only have 23% of the brokers signed up for CoStar property in the United States right now. A lot of opportunity to grow just right where we are for many years to come.

On the subject of the property of management software, there's some very high quality companies out there in the property management world.

The problem is as they each sit in a little high switch cost zone, sort of entrenched four to five positions that, we're little more interested in being able to work cooperatively across multiple zones and as soon as you acquire one of those property management companies, you sort of lock down into a fantastic relationship with 10% of the market.

And we're a sort of company that needs to have a fantastic relationship with 95% of the market. And we don't want to get into a trench warfare winter invasion of Russia kind of thing with those property management systems. That's more of a longer-term outlook, something you come back to after you are in a much bigger place..

Very helpful. Thank you very much..

Yeah..

So with that, I think that completes all the questions we can see here. And I would like to thank you all for joining us for the year end conference call. And we look forward to updating you next quarter..

(1:14:22).

Yeah. Thank you very much..

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining, while using AT&T Executive Teleconference. You may now disconnect. Have a good day..