Richard Simonelli - VP of IR Andy Florance - CEO and Founder Scott Wheeler - CFO John Coleman - General Counsel.

Brett Huff - Stephens Bill Warmington - Wells Fargo Brandon Dobell - William Blair Jackson Ader - JPMorgan Peter Christiansen - Citigroup Andrew Jeffrey - SunTrust Pat Walravens - JMP Securities Sameet Sinha - B. Riley.

Ladies and gentlemen, thank you for standing by. Welcome to the CoStar Group Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Simonelli. Please go ahead..

Thanks, operator. It's wonderful to be here. Welcome to CoStar Group's Second Quarter 2017 Earnings Call. We hope you enjoy the call. Before I turn the mic over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I have some very interesting and important items for you to consider.

Certain portions of our discussion 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, but are not limited to, those stated in our July 2016 -- or 26, 2017, press release, on our second quarter results and at CoStar's 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 on 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 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, which is also available on our website located at costargroup.com.

As a reminder, today's conference call is also being broadcast live and in color 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 of this call. Remember, one question, make it a good one and you can always re-queue if we have time at the end.

I'll now turn the call over to Andy Florance.

Andy?.

Thank you, Rich. Thank you for joining us today on our second quarter earnings call. We achieved an excellent first half of 2017 as our investments into the business, along with tremendous execution on all levels by the CoStar team, resulted in remarkable increases in sales and revenue growth.

We have excellent momentum heading into the second half of this year. We delivered strong performances across the board as revenue in the second quarter of 2017 accelerated to $237 million, which is an increase of 15% year-over-year. For the second quarter in a row, we generated our best sales quarter in our history.

Company-wide net bookings were $37 million, a 39% increase compared to the second quarter of 2016. CoStar Suite sales bookings were the strongest they've ever been, with a 23% year-over-year increase. Overall, CoStar Suite turned in solid revenue during Q2, with a growth rate of 13% year-over-year.

Revenue growth in commercial property and land rose 17% year-over-year. Multifamily revenue was up 24% over the second quarter of last year. We are particularly pleased with that strong growth in the second quarter with mid-20% growth rate of Apartments.com.

Apartments.com sales climbed for the third consecutive quarter as we reached our second best multifamily sales quarter. We continue to reap the rewards of our investments in our advertising campaign and strong presence at last month's National Apartment Association Conference in Atlanta.

We once again set company records for both booth visits, leads captured, demos delivered and client appointments. More importantly, millions of dollars of net new sales came from this important annual event. We had an excellent quarter in commercial property and land as the sales team turned in second-best quarter of sales.

We have a robust sales of LoopNet Premium Lister, tiered advertising sales to owners and excellent sales numbers from our land and business-for-sale teams. We've had a strong start to 2017 in sales as we've achieved $71 million of net bookings in the first half of the year, up 26% from the same year-to-date period in the year prior.

We're clearly benefiting from the impact of our investment into our larger sales organization, which increased in size by 40% compared to the beginning of last year. The sales management team, very well led by Max Wellington [ph] is experienced and in place and helping this larger sales force to mature.

We believe that maximum productivity levels are still ahead of us and that we have a huge runway of more than 100,000 clients to sell to. Forbes recently recognized our strong performance in growing revenue by naming CoStar Group to the Forbes Fast Tech 25 list. The list recognizes technology companies with the highest 3-year sales averages.

The 2017 list has CoStar placed at number 16 with 29% average sales growth for the past three years. Salespeople sell best when they have excellent services to sell. We continue to deliver new services, tools and top-flight marketing websites.

This includes services like CoStar Analytics, Lease/Sale Analysis and tools like the mobile app for iPhone and our iPad mobile app, CoStar Go. Great new marketplace sites like Apartamentos.com and tiered advertising on loopnet.com are also having a positive impact. We continue to look for ways to innovate and build upon our tremendous platform.

As we've spoken about on our previous earning calls, we're in the process of completing an overall CoStar Suite user interface. This will include a groundbreaking new listing management tool that will allow our clients to both -- to more easily manage their listings for both CoStar and LoopNet from one simple-to-use interface.

We believe this will result in faster real-time data updates and overall, better data quality. This will free up our researchers' time to focus on other valuable commercial real estate research subjects, ultimately delivering even more value to our subscribers. Innovation drives growth.

We are dedicated to driving the technology revolution of commercial real estate that we began in the 1990s. And more recently, the multifamily industry by delivering world-class services and solutions for our clients and the more than 37 million unique visitors that came to our family of websites last month.

As a proof point, I'm very pleased that in 2017, for the fourth year in a row, CoStar has been named in the Forbes' world's most innovative growth companies' list. Our marketing efforts in multifamily have raised consumer awareness and driven huge numbers of unique visits and total visits.

Once again, we remained the clear number 1 Apartment Internet listing service based on a combination of traffic, SEM traffic, SEO, total advertised communities, leads delivered, brand recognition, leases signed and revenue. Our aggressive and effective advertising campaign continues.

Our new consumer advertising campaign hit its peak media weight in the second quarter of '17. We launched a total of 10 new spots and have already run 8,400 commercials this year, reaching 90% of U.S. households and delivering 1 billion impressions.

Our goal is to reach renters at home, on the go, on mobile devices, on their computers and through social media. We also ran significant ad campaigns for Apartamentos.com and Westside rentals this year. Overall, our multifamily advertising campaign has been a major success and is leading to break-away results.

According to Hitwise, in June '17, when compared to Apartment Guide, rent.com and ForRent, the Apartments.com network was number 1 in visits in 96% of the top 210 U.S. local markets. This includes number 1 in markets such as New York, Los Angeles, Chicago, Philadelphia, Houston, San Francisco and Washington, D.C.

According to comScore, Apartments.com has been number 1 in visits for 28 months and number 1 in unique visitors for two years. In the second quarter of '17, visits and unique visitor traffic reached all-time high for Apartments as we continued to expand our lead over the competition.

Adding to that success, we're pulling away from the competition according to comScore. Apartments.com unique visitors increased in each month in the second quarter of 2017 and for June, are up 32% year-over-year.

Apartment Guide and rent.com unique visitors declined in each month in the second quarter and are down 12% and 17% -- 7%, respectively, year-over-year in June. We now have 25% more unique visitors than Apartment Guide and 185% more unique visitors in rent.com.

In visits, our advantage is even more pronounced as our network averaged 42 million visits per month in the second quarter. In June, Apartments.com had 22 million more visits than Apartment Guide and 24 million more visits than rent.com.

Apartments.com visits were up 29% year-over-year in June, while Apartment Guide was down an astonishing 37% and rent.com visits were down 11% for the same period. Interestingly, ForRent.com has moved ahead of both Apartment Guide and rent.com in visits in June of 2017. ForRent's progress is impressive.

Clearly, our investments in the multifamily space over the past 2.5 years have transformed Apartments.com into a very strong business with fantastic traffic and consumer engagement, but even more impressive for our paying clients is our ability to drive quality leads that result in signed leases.

That's what property managers are ultimately paying for. For June, our leads in Apartments.com are up 49% year-over-year. On-Site and LeaseHawk are two third-party providers that provide information on leads in the apartment industry. They looked at 3.7 million leads in the first 6 months of '17.

LeaseHawk found that Apartments.com generate more leads than our top three competitors combined. In that same period, On-Site showed Apartments.com generate not only more leads but more importantly, more leases than our top three competitors combined. Also, On-Site show that Apartments.com is the most efficient lead source.

Their data show that it took Apartment Guide 17 leads on average to generate one lease. It took ForRent 16 leads to generate one lease. It took Zillow 15 leads to generate one lease. But Apartments was, by far, the winner requiring only 9 leads to generate one lease.

Since Apartments.com needs about half as many leads to result in a lease compared to RentPath and ForRent, it follows that our clients can save a lot of time, money and hassle by using Apartments.com. So we're delivering more leases and at a lower cost leasing process.

During the first half of '17, we've delivered twice as many leases as Apartment Guide, 5x more leases than ForRent and 5x more leases than Zillow. Apartments.com has taken a completely different approach than our competitors have.

We focus on generating informed inquiries from legitimately interested potential renters while other companies frankly design their software to generate the most leads possible as their primary scorecard.

As a result of this lead spam mentality of our competitors, many apartment leasing offices have to wade through and process thousands of unnecessary, unqualified, useless leads. That costs them both real money and significant opportunity costs. Our secret shoppers contact apartment leasing officers millions of times each year.

The typical apartment community, we call, only answers its leasing office phone about 30% of time. The largest property management companies don't do much better, only answering the phone about 40% of the time. Obviously, they're a little overwhelmed and they're missing many potentially highly qualified renters when they do not answer the phone.

In addition, they're creating a negative customer experience, which, I think, prevents them from building a positive brand image. I think the spam mentality of many of our competitors is directly responsible for this problem. Our clients are beginning to give us credit for driving the most efficient leasing process.

We think that over the course of the next few years, we can make the apartment leasing process even more efficient for both the renters and the landlords. Renters have reported that the apartment hunting process is stressful.

One of their very real concerns is that once they give notice to move out of their existing apartment, they must find a new apartment quickly. And if their credit's not perfect or their income is not high enough, there is no guarantee that they will qualify for their next apartment.

Two things happen to renters who are rejected at one or more apartments they apply to. First, they typically lose more than $50 and valuable time at each community they unsuccessfully apply to, depleting their limited financial resources when they would need them most.

Secondly, when they're rejected, they tend to panic a little bit and dramatically accelerate the number of inquiries they put out there. This means that poorly qualified renters tend to generate many more leads than do highly qualified renters. This frustrates leasing officers and drives their costs up. Neither renter nor landlord likes this situation.

It does not have to work this way. We intend to create a free premium renter service so that renters can confidentially establish their renter qualifications with Apartments.com at the beginning of their apartment search. We will collect their income and debt information, run a simple credit eviction criminal screen on them.

Apartment leasing officers could confidentially enter their qualifications standards into Apartments.com. When renters search, they can see exactly which communities they prequalify for as they search. It will no longer cost them $50 each time just to learn they don't qualify.

They would have the confidence and ability to find the apartments they're qualified for easily and quickly. When the leasing office receives leads from premium renters, they will see immediately that a renter is prequalified and has a very high chance of successfully completing their screening process.

The leasing agents' limited time is best spent focusing on these higher probability leads. A number of our clients have indicated they would extend special offers to these highly-qualified and low-risk renters to bring them to their communities, making our premium membership even more valuable to our highly-qualified renters.

More highly-qualified renters are drawn to Apartments.com and we could offer our advertisers an even greater flow of highly-qualified renters. Renters that fail to prequalify are still able to apply to a community even if they initially fail to get a positive indication on Apartments.com.

In the home mortgage world, mortgages are often price adjusted for risk. This is not yet happening in the apartment world but could and perhaps should. There could be an opportunity for us here in this area as well. To help facilitate these goals, earlier this month, we acquired a California-based company called The Screening Pros.

They have over 25 years of applicant screening experience, and we believe that they're an excellent fit for Apartments.com. They have been developing a prescreen tool for some time, which we plan to enhance and incorporate into Apartments.com.

Their process does a soft credit inquiry on the applicants, which does not affect the applicant's credit rating like a hard inquiry does at the time of application.

Data points such as, does the applicant own a -- I'm sorry, does the applicant owe a previous landlord money? Do they have past unpaid utilities? Do they have an eviction filing? Or has a judgment been rendered? And can the applicant afford the rent? All are taken into consideration.

For property managers and landlords, this could make listing their apartments on Apartments.com even more valuable and allow us to win over even more apartment communities to Apartments.com. Investments in sales, technology and marketing have played an enormous role in driving top line success in CoStar, but frankly, it all begins with research.

We're a research operation at our core. Our highest value proposition is the high-quality and comprehensive commercial real estate information we curate.

The CoStar research team collects, investigates and analyzes the in-depth market data necessary to help clients and consumers make the best decisions and drive connections between millions of properties and the hundreds of thousands of companies that need those properties to grow their businesses.

In 2016, 83% of all commercial real estate transactions involved a CoStar Group user. We believe that today, CoStar presents listings with potential deal value of about $1.5 trillion.

As of June of 2017, our researchers and technology resources were presenting about 1 million available apartment rentals, making Apartments.com the most comprehensive marketing site for millions of consumers looking to find an apartment. Last year, an estimated 4 million people found their homes in Apartments.com.

Back in October of '16, we announced our intention to build a new Global Research Center in Richmond, Virginia, to support our core commercial real estate research operations. I'm really amazed at how well our team has cycled up a major and very productive research center in such a very short period of time.

With 600 researchers and software developers in the Richmond Center, it's now, by far, our largest center. Already, the Richmond Center is responsible for 60% of our U.S. research activity. This time last year, we were still only visiting cities to determine where to locate our new research center. So this has gone really quickly.

Through our Richmond Center, we have proactively improved the way we do research. We are building new software tools to streamline the research process. We're better branding the company through our substantial communications with the commercial real estate community.

We've rebuilt our training processes to better equip our researchers to do the best job they can. We've launched a new 233-person tenant research team in the Richmond Center to enhance and improve the highly-valued tenant information we provide in CoStar.

Productivity has grown in all of our research centers across the U.S., as our team of over 600 professionals in Richmond are pushing the bar even higher for excellence in research.

The increased amount of information we're collecting by consistently making more frequent contacts with commercial real estate professionals is having a huge positive impact on data quality.

Last month, we achieved a major milestone in research when we successfully found and interviewed representatives of 80% of the active commercial real estate players in North America and United Kingdom during the course of just one month. This is a huge accomplishment we have aspired to but have never before achieved.

I want to congratulate our Vice President of Research, Lisa Ruggles, and the entire research team on achieving this milestone on behalf of our hundreds of thousands of clients. There is no doubt in my mind that our investment in stronger research has been a significant factor in our sales booking growth in the first half of 2017.

I want to give you a quick update on LoopNet and CoStar conversion. We're on track to integrate CoStar and LoopNet databases early this fall. As an organization, after many months of hard work and preparation, we're ready to move ahead. Our data has never been better.

Our software teams have integrated the LoopNet and CoStar databases into one unit by database on the back-end. We haven't deployed it yet, but work is largely done. We have launched a B2B advertising campaign, clearly branding CoStar and LoopNet and differentiating the brands.

We expect to begin notifying some customers in September of the upcoming integration. We believe this will generate meetings and sales in the fall, but the fourth quarter is expected to be the first full quarter of sales resulting from this effort.

I'm just back from visiting our offices in Spain, Germany and Scotland and England and want to update you on what we have going on in Spain right now. We launched a completely new public commercial real estate website for Madrid in June at Belbex.com. Check it out. Belbex will be similar to loopnet.com.

Belbex is a listing site that lets brokers and owners publish their office, retail and warehouse listings for lease or for sale in Madrid to both the brokerage community and end users. It's free to list and search as we look to expand content and build traffic.

We plan to initiate advertising opportunities on the site later in the year, similar to those that you find on Apartments.com. Belbex continues to offer their legacy robust information solution on a subscription basis. Once we've collected more content, we expect to launch CoStar in Spain probably at about a year or so.

We've invested this year building up our research strength in Madrid. We quadrupled the size of the research team there and launched a major field research effort. We inspected tens of thousands of properties and discovered tens of thousands of new listings we've not known about.

We have nearly tripled the number of listings we present there from the beginning of the year to now. We anticipate double the number of active listings again within the year. We believe that we'll be able to offer by far the most comprehensive commercial real estate marketplace ever offered in Spain.

The commercial real estate markets remain healthy, with occupancy rates at or near business cycle highs across the apartment office, industrial and retail property types. That said, as new construction deliveries have ramped up, occupancies have softened a bit in many areas.

As job growth is healthy, the market can easily withstand this new construction, and these construction jobs are part of why the economy is healthy today. As this new supply hits the market, rent growth in the apartment office sectors has also slowed from cycle peaks, especially in segments exposed to new construction.

At the same time, recent strong job growth bodes well for commercial leasing as a household formation that drives the apartment sector. These factors, rising supplies, day job growth, create a good situation for CoStar since we're an integral part of the leasing and marketing program for building owners and managers.

In the office sector, vacancy rates were essentially stable at 10.3%, that's up slightly from 10.2% in the prior quarter but down from 10.4% a year ago, so it's flat. Completions are now outpacing the absorption for the first time since 2010. The vacancy rates are expected to inch up a touch in the near term, but still be in the healthy territory.

Recent activity is in-line with our expectations with net office absorption totaling 25 million square feet over the past two quarters compared to 37 million square feet of completions. Similarly, rent growth in the office sector softened to 1.8% compared to 4.4% a year earlier, but basically in line with inflation.

As we reported in prior quarters, the apartments market is normalizing and that means slightly softer occupancy rates. Effective rent growth has dropped to 2.4% from 3.7% a year earlier, and lease-up on new construction is slowing a bit. That stems partly from the 220,000 new units delivered over the past 12 months.

That's a bit more than 187,000 units of net absorption. This rush of deliveries has pushed vacancy up to 5.9%, which is still right in-line with historical averages.

Since apartment advertising spending is highly correlated with weaker apartment markets, a more competitive apartment market with a lot of construction is actually good news for Apartments.com ad sales.

Investment sales activity declined slightly in the first half of 2017, a trend that has started in '16 and annual real estate trading volumes fell about 10% from a year earlier. Investment sales are running at about 10% above historical averages, though, of the past 10 years.

I have to say, we've had an excellent first half to 2017 in all aspects of our business. Our sales success that we're able to report to you today is driven by the fact that all of our core elements for our business are performing at full speed, and we're really happy with the progress we're making.

At this call -- at this point, I'm going to turn the call over to our Chief Financial Officer, Mr. Scott Wheeler..

Thank you, Andy..

You're welcome..

Certainly, had a strong first quarter. Thanks for those highlights. Great to see the benefit of our investments showing up really in a big way in our results this quarter. So as Andy mentioned, the revenue in the second quarter of 2017 increased 15% over the prior year. Organically, our revenue growth rate in the second quarter was 14%.

This is after normalizing for the acquisitions of WestsideRentals and LandWatch, both of which closed earlier this year and the THOMAS DAILY acquisition, which we completed in the mid-second quarter of 2016.

The second quarter organic revenue growth increased from 13% in the first quarter, reflecting continued strong momentum in sales, particularly in our online marketplace businesses. Looking at our revenue performances by services. CoStar Suite revenue growth was 13% in the second quarter of 2017 versus second quarter of 2016.

Because of our strong sales performance, we expect CoStar Suite growth rate to continue at 13% through 2017, which is at the upper end of the 12% to 13% range we previously discussed. Revenue growth rates in information services remain negative in the second quarter of 2017, as expected.

So we continue to wind down the LoopNet information products ahead of the planned integration with CoStar Suite.

The revenue decline from the LoopNet information products in the second quarter was moderated a bit by strong double-digit growth in our other information services areas, which includes portfolio strategies, real estate manager and our THOMAS DAILY operations in Europe.

We've no change to our expectations, Information Services revenue will decline at low double-digit rates in the second half of the year. This will leave us with expected full year revenue and Information Services declining around 8% to 11% for the year.

We had a very strong second quarter in multifamily as revenue increased 24% year-over-year and 22% on an organic basis, adjusting for the acquisition of Westside rentals in January.

Approximately three quarters of the organic revenue growth is driven by the addition of new paying properties, while the remaining 25% of the growth is a result of existing customers selecting more valuable advertising packages.

Revenue contribution from Westside Rentals of approximately $1 million in the quarter was not particularly material as expected. We continue to expect this will wind down as we complete the transition of WestsideRentals to the Apartments.com advertising model.

Based on continued strong sales performance, we expect our full year 2017 growth for multifamily revenue to be at the top end of the 21% to 23% range we communicated previously. Rounding out our services performance, commercial property and land grew 17% year-over-year in the second quarter.

Organic revenue growth, adjusting for approximately $1 million in revenue from our recent LandWatch acquisition, was 15% in the second quarter and continues to accelerate above the 11% revenue growth we reported in 2016.

This improved growth rate is a result of our increased focus on selling LoopNet Premium Lister and tiered advertising to property owners. We expect this organic growth trajectory in the business to improve to a range of 13% to 16% for the full year of 2017, an increase from our previous guidance range of 12% to 14%.

When we include the revenue from the acquisition of LandWatch, we expect commercial property and land services to grow in a range of 16% to 19%, which is an improvement from the 15% to 18% we discussed last quarter. On to gross margins, we came in at 77% in the second quarter, also consistent with the first quarter of 2017.

We expect gross margins to remain at approximately this level for the rest of the year. The vast majority of our cost of revenues relates to our research operation, and as Andy mentioned, we're very pleased with the productivity improvements we've seen from our investment in the new research center in Richmond, Virginia.

The center now houses more than 600 employees, is ahead of schedule with regards to this year's resourcing plan. Operating expenses for the second quarter of $154 million were favorable to our forecast, primarily due to the timing of our marketing spend and other investment initiatives. We expect this to reverse in the third and fourth quarters.

Accordingly, adjusted EBITDA of $54 million in the second quarter exceeded our guidance range by $11 million. It was only $2 million lower than the second quarter of 2016. Adjusted EBITDA margin was 23% in the quarter, approximately 5% above the high end of our previous guidance range.

Net income for the quarter ended June 30 was $22 million, ahead of both expectations and prior year, aided by a reduction in our effective tax rate from 40% in the second quarter 2016 to only 14% in the current quarter.

This change in the effective tax rate is a result of adopting a new accounting guidance for share-based payment transactions, which we implemented at the beginning of the year.

Under this new guidance, the tax benefits related to stock price appreciation on share-based payments are now recognized as an income tax expense rather than as an adjustment to stockholders equity on the balance sheet. This new accounting guidance is expected to result in increased volatility in our GAAP income tax rates from quarter-to-quarter.

Cash investment balances were approximately $575 million as of June 30, 2017, just down slightly from a balance of $582 million after the first quarter. The reduction in the cash investment balance is a result of the acquisition of LandWatch and timing of income tax payments.

Beginning this quarter, you'll notice we included a cash flow statement in our press release for the first time ever in response to requests from our investors. Now let's take a look at some performance metrics for the quarter.

As Andy mentioned, our sales force, which totals approximately 715 sales reps, delivered an all-time high of $37 million in net bookings in the second quarter of 2017, despite continued negative net new bookings from Information Services. Certainly, a high point for the quarter.

We saw strong sales performance across all three of our growing revenue sectors. We're making great progress towards our planned integration and cross-selling efforts of CoStar to LoopNet users, which we expect to commence before we talk again in the fall.

Consistent with the guidance we provided previously, the cross-selling of LoopNet users to CoStar is not expected to have a material impact on our 2017 sales and revenue results.

The renewal rate on annual contracts was 90.6% in the second quarter of 2017, up very slightly from the 90.5% achieved in the second quarter of 2016 and 30-basis points above the renewal rate we achieved in the first quarter of this year. The sequential increases in the renewal rate is a result of improvements in our multifamily business.

The renewal rates for CoStar Suite remain strong and in-line with recent quarters. The renewal rate for customers who've been subscribers for five years or longer was 97.1%. Subscription revenue on annual contracts accounts for 78% of our revenue in the quarter, up from 77% this time last year.

I'll now talk through our outlook for the full year in the third quarter of 2017. Based on the strong sales and revenue performance in the second quarter, we're raising our top line outlook by $7 million at the midpoint.

We now expect revenue in the range of approximately $954 million to $960 million for the year, representing an increase in the expected growth rate to 14% to 15%, up from a range of 13% to 14% communicated previously.

We expect revenue for the third quarter of 2017 in the range of $243 million to $245 million, representing top line year-over-year growth of around 15% at the midpoint. LandWatch is expected to contribute approximately $2 million in revenue in each of the third and the fourth quarters of this year.

In terms of earnings, we're raising our guidance range for the full year 2017 to approximately $4.42 to $4.52 for non-GAAP net income per diluted share based on 32.7 million shares. This includes an increase of $0.12 per share related to the strong projected organic revenue result, substantially all of which is expected to convert to earnings.

As I mentioned earlier, our second quarter EBITDA results were favorable to our published guidance ranges, partially a result of the timing of expenses for marketing and various investment initiatives.

We still expect our full year 2017 investments to remain at the levels consistent with our prior outlook, although the quarterly timing has shifted somewhat. For the third quarter of 2017, we expect non-GAAP net income per share in the range of $1.09 to $1.15 and adjusted EBITDA in the range of $67 million to $70 million.

Margins are expected to increase sequentially through the third and the fourth quarters. Costs associated with the Xceligent litigation were approximately $3 million in the second quarter, and we continue to expect costs in a range of $10 million to $20 million for the year.

Our guidance range for this litigation has not changed from what we communicated previously and includes $15 million in legal costs for the year and $5 million in the third quarter related to this matter.

Overall, I'm very pleased with our sales performance and the success of our investment programs in the second quarter 2017, and we remain on track to reach our stated goal of achieving a 40% adjusted EBITDA margin exiting 2018. With that, we will now open the call for questions..

[Operator Instructions] Your first question comes from the line of Brett Huff from Stephens..

My question is on Spain. This sounds like the first sort of major ramping up of investment following, I think, you guys did a small inorganic deal and kind of thrown some effort behind that. It seems like it is both a LoopNet-like expansion as well as a curated research-type expansion.

Can you kind of walk us through, if that's true? And if this is going to be a model - if Madrid is going to be a model for other cities across Europe? And give us a tenure for that kind of investment?.

Sure. So from your perspective in terms of any impact in next two to three years, I think the impact is de minimus on our EBITDA expansion. So it might involve the addition of 20, 25 staff something like that for Madrid. But what we're doing is, it's a robust and significant market. There is, in our mind, no material competition.

There is a huge opportunity. It's a trillion dollar economy. And the market needs information on what's happening in commercial real estate. The brokerage firms there don't have as big a presence as they do in other countries. I mean, they're there, but they're not as prevalent, don't have the same market penetration.

So what we've seen is that the owners there are bigger drivers of what's happening in the market. And that's true in Germany as well. So we think there is a lot of potential to sell advertising to owners who take real pride in their properties and are more motivated to spend marketing dollars to try to bring in tenants.

We will - we think it's also less expensive from a sales and marketing perspective, if we start with just generating - a marketplace, generate a lot of eyeballs that drives content.

And then, as we watch the content grow and the buyers will see the marketplace grow over the course of a couple of years, we'll build up analytic histories that are quite valuable, and we'll build up those research relationships, and then, we'll migrate into a CoStar platform. So it's something that we'll - we're going to watch it here in Spain.

And if it goes the way we want it to, we'll use that model in other markets. I think it makes sense, and - I think in the first three or four months - three months of Belbex, we got a 0.25 million visits to the sites. So actually, it's working well.

We're getting some good traffic there so - and I also believe, we're now the #1 information source for - we're the best information for Madrid and that will be worth something at some point..

Your next question comes from the line of Bill Warmington from Wells Fargo..

So one question. I was really trying to decide whether to ask about revenue or the safe harbor statement. So I think I'm going to go with the revenue..

Well, thank you for asking about our safe harbor statements first up because, as you noticed the Beatles references, Bill..

Well, the - so I wanted to ask my question about the conversion up-sell and how that's going to work? Meaning that, of the 715 sales reps, how many of those are actually going to be working on the leads? How many leads are they going to get each month? What kind of close rates should we think about? And how long does it take for the bookings to basically flow through?.

I would - I'll give you some general guidelines, you know, plus or minus. But the - it will really be the focus of the CoStar field sales team, the customer relationship managers and the inside CoStar sales team. So that is roughly a little more than half of the sales force, 350, 375, something like that.

And initially, we will not give them the better leads. We'll - we will target some of the - unfortunately, one of the - I won't name the company, but one of the best prospects I was the most excited about converting signed up last month and so I didn't even get to move them through the ringer.

So - but we're not going to give them the best - I mean, I'm actually very excited about it, but it was supposed to happen during the integration process. But the - we're going to initially give the salespeople about ten leads per month per rep - ten leads per rep. And then we'll gauge how effectively they work those.

The leads are - these leads are pretty valuable, and we want to give them time to work them properly. There is no rush. There's nothing about these two months versus those six months or this year.

We want to do it properly, want to handle our communications with them well, answer their questions, move them into process - move them through the process at the right pace. But right now, it feels like about ten per month per rep and I think - and then we might pick that up a little bit.

We will again start with the intermediate priority ones and then we'll - later in the year, we'll ramp up to the higher priority ones and into 2018, we'll approach the higher priority ones.

Was there another component to that question?.

Bookings effect?.

Bookings effect. Yes, so probably more material in the fourth quarter, first, second, third quarter of next year..

And we haven't assumed a significant amount of bookings in this year, Bill, in our outlook..

Your next question comes from the line of Brandon Dobell from William Blair..

As we think about the progression of net new through the balance of the year, maybe some color around the puts and takes versus last year? As well as how some of these - as a lot of efforts going on here on a lot of different products, how those are going to flow through into it, the balance of this year?.

Yes, so when you look at the strength we've seen in the second quarter, obviously, we've got a great quarter in CoStar and multifamily, strong. And commercial property and land is very strong as well. We expect those trends to continue into the second half of the year.

We'll have a seasonality that will decline a little bit in multifamily as the rental season declines, but that's difficult every other year.

When we talk about the LoopNet CoStar integration, as that thing starts to come on board, we should see more bookings move into the CoStar Suite factor of the business and decline faster in the info services component. But that's - there'll be a net wash over time as those come along.

And then really in commercial property and land, like I mentioned, we expect that to continue strong for the rest of the year, and we're focusing a lot on adding sales force there on the sales-to-owners, we're seeing that become very effective.

So that mid- to high double-digit rate that we're going now, we expect that to be sustainable as we go forward with commercial property and land.

Any other color, Andy, you want to add to that?.

I think that covers it..

Your next question comes from the line of Sterling Auty from JPMorgan..

This is Jackson Ader on for Sterling. Question from our side.

How much of the shift in OpEx - and I guess, more specifically the sales and marketing expenses - were directly due to the pushing out of the LoopNet integration versus maybe some other factors?.

I'll take a shot at it. But I think it's nominal. I just checked with the CMO this morning and I think we pushed $1.3 million of marketing expenses over the quarter with CoStar [mill] at $2.7 million. So it's $1 million or $2 million pushed into the next quarter. So it's not that much..

We also had some - in the launch of Belbex, we had some marketing in the second quarter for that, which we decided to actually save and spend a little later in the year. And then, we also had such favorable results in Apartments that some of our SEM spend, we decided to save a little bit for the next part of the year.

And so those were a couple other small components giving us about $4 million favorable in total in the quarter that we'll expect to spend later in the year. I once heard a wise saying from my son, Abe, says, "Dad, you are really aggressive accountant, but you got to save some stuff for the second half though.

Please hold back and be ready to spend as something comes up." I listen, sometimes..

Your next question comes from the line of Peter Christiansen from Citigroup..

Thanks for the cash flow statement. I appreciate that..

Somebody noticed, and you're welcome..

So two things real quick. I think you called out 25% of the multifamily growth was attributed by existing customers.

Any sense if that's pricing or lifting volume or vacancy rate kind of related or not? And then, my follow-up would be in the last quarter, I guess, multifamily kind of just started to break even, I was just wondering if you could comment on the trajectory of profitability there if the trend is continuing?.

I think a big part of that 25% is basically people who are looking for more lead flow or pushing their ad priority up higher, so they're going from a gold ad up to a platinum ad or diamond ad.

So that's something - that's - a nice thing about that business is people are constantly cycling up, looking for - the more ads we sell, the more firms that need higher lead flow, need to spend more to be more prominently featured on our site. So I think that's the single biggest driver of that.

And I guess - and that could be related to some vacancy growth. And then the second part of the question is....

What was second part of the question?.

Multifamily profitability?.

Yes, multifamily profitability. We mentioned in the last quarter that we swung the profitability in multifamily and when we've moved in that business, it moves a material amount, so we're in double-digit profitability is expected in the multifamily business already by the second half of this year.

So it really does swing quickly once we move into that territory. So we expect that to continue in the second quarter when we spend a bulk of our marketing, obviously, that dips down but for the rest of the year, we expect it to be pretty strong..

Your next question comes from the line of Andrew Jeffrey from SunTrust..

So it sounds to me like the investment you've made in research is really paying off in a meaningful way.

I wonder, Andy, if you could comment a little bit on sort of the next step is? I heard your world-class IR guy, Rich, tell it, in terms of allowing brokers to perhaps begin entering some of their own data into maybe a combined CoStar LoopNet front-end, enhancing or maybe in some ways outsourcing the research gathering function.

Does that provide potential scale, revenue growth opportunities? I'm going to be just kind of frame that out for us..

Sure. So what's happening here is, for the - in the fall, for the first time, people will be able to - brokers, owners will be able to edit some of their information on our system directly. So if they want to change their rent, put a new suite on, they will do it directly.

It's really going to be something that's available to known listers, people that we know who they are and we know that they're legitimate.

As they do that, we think they'll be at the positive customer relationship benefit because very often they wanted to do like, make a simple quick change themselves, they don't want to have to have a conversation with the researcher.

At the same time, focus group after focus group, lots of market research says that the industry really wants those researchers curating that data and being aware of what is being placed out there and making sure it accurately reflects and positions their properties to their prospective customers. So there will be a combined role there.

We think it will allow us to accelerate the velocity of data through our system. It will be a little bit of a learning process because we're going to have to learn how we interact with those brokers. As we're doing some of the research, they're doing some of the input.

But it creates the opportunity to reduce our research costs, accelerate our update frequencies and quality of our data. I think it - but I think the biggest impact will just be improved data and faster response times. And I think that's going to be a pretty positive thing.

I think it will have more positive impact than we're prepared to talk about now because we just want to know more about any unknowns before we start counting the benefits real loudly..

Your next question comes from the line of Pat Walravens from JMP Securities..

Great and congratulations on the new bookings, guys.

Can I ask about this Xceligent litigation? And I know there is going to be some real limits on what you can say given that it's live, but how long will this level of spending go on? And then, maybe, Andy, at a high level, why is it so important that you're willing to spend this kind of money?.

I am so excited to answer that question. I'm going to turn that over to Jon Coleman, our General Counsel..

Thank you, Andy..

You're welcome, John..

So the case is ongoing. It's at the relatively early stages. We're about seven months in. And we don't have - beyond 2017, we don't - are not really giving any information on the budget, but - I mean, we expect - we don't have a trial date, and we expect it to go well into 2018. So we expect the spend to continue as it's been going.

And what was the other part of the question?.

So why is it important that you're willing to do that?.

Well, I mean, we think it's extremely important to protect our intellectual property, and we think it's just not fair that Xceligent has - we have evidence that we think demonstrates that they've been stealing our content on an industrial scale.

We believe when we filed the lawsuit that we had extremely strong evidence that, that was occurring and that evidence has only gotten stronger as we've gone forward. As for the counterclaims that they filed, we think that they are smokescreen and an entirely predictable reaction to our lawsuit.

We think that they're extremely weak and have absolutely no merit. If anything, we think their recent filing is more of an admission of guilt that helps our case as opposed to anything else. So the update on the Xceligent case is that we very much look forward to proving our claims in court..

Your next question comes from the line of Mike Crawford from B. Riley..

This is Sameet on for Mike. So a quick question on the - and thanks for the statement of cash flow. A quick question on M&A. I think it looks like from your statement of cash flow that you provided, you spent about $30 million on acquisitions in Q2, which I'm guessing is for LandWatch.

I know it's still pretty early, but you could talk about how that acquisition has been going so far? And part two of the question is, given that you have $574 million cash in the balance sheet right now, like what's the view on potential future M&A?.

Sure. So LandWatch is still - so first of all, is it just LandWatch, it's also....

Just LandWatch?.

Yes, so it's still early, but we're basically executing on the business plan we had laid out prior to the acquisition of LandWatch, which is integrated in the two platforms, rationalizing where the staff is and how many folks we have. Our goal is to eventually flow all the content of all these various sites into a new URL that we own, land.com.

But at this point, we think we're capturing about 57% of the search traffic on the Internet around that land in real land space of those companies that are actually engaged in that. So this gives a real strong market position. And again, it's two months in, but it's going well and going as expected. So it's an exciting beginning for us.

In terms of the balance sheet and other M&A activity in potential, there - there remains an awful lot of opportunities out there.

We are, at any given point, looking at a dozen companies and looking at potential combinations that will move our platforms forward, either giving us more scale in one of our core areas or a parallel area where we think we would be competitively advantaged because the assets we have in information, our sales force or software.

So there is a lot out there, and it's good to have a strong balance sheet, so we can approach those opportunities and be constantly ready to move for the right acquisition. But we are cheap we're looking for good values..

And at this time, there are no further questions..

Well, thank you very much for joining us for the second quarter earnings call, and we look forward to updating you on our progress in the third quarter. And again, congratulations to the sales team on a fantastic acceleration in sales bookings and to our research management team for quadrupling the number of contacts with our customers year-to-date.

Thank you..

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect..