Ladies and gentlemen, thank you for standing by, and welcome to the CoStar Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer period. Instructions will be given at that time. [Operator Instructions] Also, today's conference call is being recorded.

I would now like to turn the conference over to your host, Vice President of Investor Relations, Rich Simonelli. Please go ahead..

Thank you, operator, and welcome to CoStar Group's second quarter 2019 conference call. Before I turn the call over to Andy Florance, CoStar CEO and Founder; and Scott Wheeler, our CFO, I'd like to share some very interesting and important items that can actually make your day.

First of all, certain portions of our discussion 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 can cause actual results to differ include, but are not limited to those stated in our press release today, July 23, 2019, on our second quarter results and in our company's outlook and corporate filings with the SEC, including our most recent Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q, under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar 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.

Reconciliations to the most directly comparable GAAP measure to 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 in our press release issued today, along with definitions of these terms.

The press release is also available on our website located at costargroup.com. As a reminder, today's conference call is being broadcast live and in color on our website. So, please refer today's release to see how to access the replay of the call. I have a feeling, you're really going to want to listen this one again. So look up the recall number.

Just remember one question. So, make it a good one. I will now turn the call over to Andy Florance.

Andy?.

Thank you, Richard..

You're welcome..

Thank you for joining us for CoStar Group's second quarter 2019 earnings call. In this, the week is the 50th anniversary of the Apollo 11 million landing, a slightly more impressive feat than our second quarter earnings, slightly. In the second quarter 2019, CoStar Group total revenue was $344 million, up 16% year-over-year.

That's $7 million above the upper end of our guidance for the second quarter, so this is one of our biggest revenue beats. We had our best sales quarter ever, generating $59 million in the company-wide net new bookings, an increase of 32% year-over-year.

The primary driver behind our exceptional sales result was a much better-than-expected Apartments.com sales. Apartments.com net new bookings alone increased 122% year-over-year in the second quarter of 2019.

In each of the past three quarters, Apartments.com has beaten all prior sales records for a quarter, with the second quarter of 2019 and the first quarter, Apartments.com net sales bookings were up 44%. In my experience, there are very few times when you get the monthly sales close numbers and are stunned by how big the number is.

And this was one of those quarters repeatedly. The Apartments.com sales team is performing exceptionally well, is operating at the highest productivity level we've ever achieved. We expect to reach $0.5 billion annualized revenue run rate milestone for Apartments.com next quarter.

This is a major milestone for us, given that we purchased Apartments.com in 2014, with only $86 million of revenue there. From that point of acquisition five years ago to now, we have grown Apartments.com at over 40% compound annual growth rate. We believe that we have every opportunity to continue this exceptional growth rate.

CoStar Suite revenue growth was strong and crossed the $600 million revenue run rate in the second quarter. We now have over 150,000 individual subscribers to CoStar Suite. Net new bookings were up 26% from Q1 of this year.

Our core US CoStar Suite revenue growth of 3.5% and our year-over-year US CoStar Suite revenue growth of 15.1% are right in line with our 5-year averages. I find it valuable to look at the revenue generated by our core US sales force, our CoStar sales force, which is US CoStar Suite combined with LoopNet Premium Lister subscriptions.

The quarter-over-quarter growth for this combination was 3.7% and the year-over-year was 15.7%. The 3.7% quarter-over-quarter growth rate is exactly our 5-year average. The year-over-year growth number is above the 5-year average of 15.5%. We are growing the CoStar sales force, which we believe will support future acceleration in bookings.

We entered 2019 with 213 reps in production. We now have 262, and we hope to reach 300 reps selling CoStar and LoopNet by the end of the year. We hired approximately 50 additional sales reps that are going into production over the next three months. We believe that they will impact sales results about nine months after going into production.

We saw strong sales of LoopNet Premium Lister product in the second quarter, with net new bookings up 46% quarter-over-quarter. Real Estate Manager net new bookings dropped 40% quarter-over-quarter and 6% year-over-year because the booking increases of the prior year had reached so high level of 400%.

Overall, revenue growth was great for Real Estate Manager as total subscription revenue climbed 75% year-over-year and 24% quarter-over-quarter. Net new bookings for our land business was up 27% quarter-over-quarter and net new bookings for our business for sale marketplaces was up 36% quarter-over-quarter.

It's important not to overlook the tremendous value of these smaller or mid-sized businesses CoStar Real Estate Manager lands and BizBuySell. This quarter five years ago, those three businesses combined had annualized revenue of $28 million. This quarter, they combined annualized revenue of $108 million.

They have grown at a really impressive compound annual growth rate of 31% for five years. They're very profitable, and they have more than seven times or eight times the revenue that CoStar had in total the year we went public.

We continue to focus on prioritizing and selling subscription-based services with high renewal rates over selling one-off services with non-reoccurring revenue. Subscription-based revenue has grown to comprise 82% of our overall revenue.

As of the second quarter 2019, our trailing 12-month subscription revenue grew 25% year-over-year, which is faster than our revenue growth overall. And for the first time, we crossed a billion dollars of subscription revenue on a trailing 12-month basis. We continue to show strong growth in profitability.

Net income for the second quarter 2019 was $63 million, an increase of 44% over net income of $44 million for the second quarter of 2018. EBITDA for the second quarter was $94 million, an increase of 45% versus EBITDA of $64 million for the second quarter of 2018.

With strong cash flow, our balance sheet is stronger than ever, with $1.3 billion in cash and no debt. As reported by comScore, Apartments.com continues to pull further away from the competition as we increase our industry-leading position among Internet listing services by achieving all-time highs in unique visitors and number of visits.

In the second quarter, the Apartments.com network had 175 million visits, up 21% year-over-year. The huge renter traffic we have built there is very valuable, particularly the clients with newly construct properties in the lease-up phase. Today, 70% of apartments that have delivered in the last two years are advertising with us.

But some properties need more exposure and are willing to pay an additional fee to soar even higher up on our site to get more leads. To meet this demand, we have recently begun selling a new higher tiered advertising level called Diamond Plus, very creative naming.

This ad package guarantees the advertiser placement in the top three search results in a given submarket. In the second quarter, we sold $6 million in Diamond Plus ads at an average of approximately 3,600 per month, with apartment communities in some markets paying as much as $7,500 per month. That's a new exciting price point for us.

This stands in sharp contrast with our primary competitor, RentPath, who began advertising $99 a month ads if you bought [ph] social media with them. That price is 175th of our Diamond Plus price point. I think that tells you everything you need to know about the competitive landscape.

Given the success of our Diamond Plus offering, we have decided to introduce a plus option in each of our platinum, gold and silver categories. We plan to offer the plus ads at fixed price with little to no discounting. In June, we purchased Off Campus Partners, a leading online multifamily marketplace service for student housing in the United States.

There are over 17 million college students in need of housing near universities and they're paying approximately $100 billion in rent annually. Often their parents assist with these rent payments.

We believe Apartments.com has a unique opportunity to develop a long lasting connection with students as they move into other stages in their lives to become renters Off Campus.

Off Campus Partners enters into exclusive subscription agreements with universities to provide an Off-Campus housing listing service used by students, parents, faculty and staff. Currently, it has existing contracts with approximately 130 universities servicing over two million Off-Campus students.

These units of university partners include the likes of University of Michigan, Harvard, VCU, Clemson, Berkeley, University of Pennsylvania and most importantly of all, an exceptional University Princeton.

We believe that this massive market with tremendous opportunities for us to partner with more universities and attract more advertisers, especially small independent owners.

The majority of Off Campus Partners' advertisers are independent owners who are excellent candidates for our new online leasing features such as screening applications, digital leases and payments, which we plan to offer next quarter on Apartments.com.

We are also planning to release a student housing upgrade to our CoStar multifamily analytic solution. We believe this additional information will be very valuable to student housing, investors, property managers, lenders and developers.

We had a strong Apartments.com sales success at the National Apartment Association Annual Conference in Denver this year held in May. It was attended by over 10,000 property managers who are our prime targets and prospects and clients.

Once again, Apartments.com was front and center with an amazing presence, and we attracted more than 4,000 visitors to our booth. The Apartments.com sales force met with 916 property managers over the course of the two-day conference in Denver. As I mentioned, we bought Apartments.com in 2014, we had approximately 17,000 paying properties.

Nearly 90% of those properties were from communities of 100 units or more. Today, we have just over 50,000 paying communities and nearly 13,500 of those properties are in a smaller 1 unit to 99 unit property size range.

We have successfully grown our annual multifamily revenue from $86 million in 2014 to a run rate that we expect to reach $500 million later this year. During that time, we increased our penetration rate in the market six-fold from 2% to approximately 12%, or an average penetration growth of about 200 basis points per year.

This has truly been an amazing success story as we lead the industry in revenue, lead generation for our clients and traffic. In the last 18 months, our Apartments.com sales have been accelerating as we added more salespeople.

From the beginning of 2018 to today, we went from roughly 220 Apartments.com sales reps to 265, a 20% increase that generate a staggering 122% increase in net bookings year-over-year in the second quarter. This sales force is on fire and they have set all-time high bookings in the last three quarters in a row.

We want to build on that incredible momentum, and plan to reinvest some of our outstanding performance or our outperformance back into the business to capture more market share more rapidly.

With the current size of the Apartments.com sales force, they spend approximately 85% of their time with existing clients and only have about 15% of their time available to prospect for completely new clients. As a result, we estimate that our sales force has only made contact with 3.5% of our good new business prospects in the past 12 months.

This means there are hundreds of thousands of apartment communities we could sell to that our sales team has not yet had the bandwidth to reach. We believe that we can dramatically increase our 12% penetration and add billions of revenue by among, other things, growing the sales force.

It's obvious to us we need more salespeople, so we plan to add another 100 apartment salespeople into an outbound sales team based in Richmond, effectively increasing the size of our apartment sales team by nearly 40% to about 370 people. We do not believe this will require significantly more investment.

We have offset most of the additional headcount costs by eliminating 120 researcher positions this month from Atlanta. Those researchers were community callers and were tasked with finding properties with availabilities that we would place on Apartments.com for free. They added tens of thousands of units a year.

This was great for the property managers who didn't have to pay for these ads.

Given the enormous amount of traffic on Apartments.com, these free ads which would serve below our paid ads would often generate more leads to these non-paying property managers, then those property managers would see from their paid ads on competing Internet listing sites.

When we first relaunched Apartments.com, we needed to include this free content to draw renters in. But at this point, we have grown our content and traffic many times over and now no longer need to spend so much money giving valuable advertising away.

We believe by adding 100 salespeople, we will add tens of thousands of paid community ads maintained by the advertisers rather than by researchers. In effect, we are exchanging researchers for salespeople and we think we'll end up with more data and more revenue. We believe the opportunity is gigantic.

There are 345,000 mid-sized apartment properties in that 5 unit to 99 unit size range, and we estimate that we have less than 4% penetration in these properties. The opportunity is virtually untapped. The good news is that we've been successfully selling at this level, so there's a proven demand for our advertising solution.

We feel the online leasing tools we plan to offer will further the appeal of Apartments.com to these mid-sized apartment communities. Intensified marketing is the second area where we intend to reinvest our outperformance back into Apartments.com in order to accelerate our market share capture.

We see a clear path to providing even dramatically more lead flow into the industry than our competitors. And by doing so, we expect to achieve a compelling ROI and build a durable, long-term leadership position. Our primary competitors' balance sheet is the polar opposite of our balance sheet.

RentPath has more than $0.5 billion of debt and is handcuffed with tens of millions of dollars in interest payments, so they do not have the ability to invest and to drive more lease for their clients the way we do.

According to Debtwire, their first quarter 2019 adjusted EBITDA cratered, as it dropped 34.5% and it underscored their liquidity pressures. Their second lien has been trading below $0.20 on a $1.

Given roughly in a 11% coupon on that second lien, yielding about $0.11 a year, a likely go-way payment would be achieved in a default or bankruptcy from the first lien holders paying the second lien holders $0.05 to $0.10.

And yes, there was some option value and number of people believe that the RentPath's second lien debt holders think there's about a year until RentPath could default, but who knows. But it seems like a good time to accelerate our investment in order to increase competitive pressure and capture more market share.

LoopNet remains the clear number one site in commercial real estate for advertising properties for sale or for lease. In the second quarter, we averaged 5.8 million unique visitors per month, up 19% year-over-year. Historically, LoopNet has not materially monetized premium adds the way Apartments.com does.

We're hard at work deploying to LoopNet a number of viable successful lessons we've learned from Apartments.com. We believe that in the future, these significant enhancements to LoopNet will allow us to dramatically accelerate our revenue growth there. We are making our premium, gold, platinum and diamond ads even more valuable.

We're adding maps, demographic information, local transportation and more. We're also giving prominence and exclusivity to listing brokerage [ph] firm. Visually, we're featuring the premium ads with excellent photography, 3D walk-throughs and video.

In addition to our efforts from our 160 field researchers who create visual content for LoopNet listings, we're in the process of adding a number of highly skilled professional architectural photographers who will bring these buildings to life in our ads.

Our portfolio research team is helping to promote the LoopNet listings by adding original written content about the properties in the neighborhoods they're located. The landing pages continue to improve in functionality, appearance and content.

We're adding content we believe will be valuable to LoopNet's target audience of tenants and small investors. You should head over to LoopNet in a few months as new enhancements roll-out over the course of the next year. I've been fortunate to witness first-hand an amazing transformation of the commercial real estate industry over the past 30 years.

Digital marketing has moved from being virtually non-existent to being an absolutely essential necessity, a real critical part of selling or leasing properties. The good news for CoStar is that we own the most valuable digital real estate at the crossroads of commercial real estate and digital marketing.

We have the largest audience of potential tenants, investors on LoopNet and the largest audience of brokers on CoStar. The commercial real estate professional needs to market their properties where this audience is. In the past, our researchers' primary value proposition to our clients was the information they gathered for them.

While the data we gather is still the foundation of our business, the marketing opportunities our platform affords is becoming the prime value proposition we offer industry professionals. We used to reach out to brokers to collect most of our information. Now it's flipped and many brokers come online and bring listings to us.

Brokers continue to adopt our CoStar Listing Manager tool, allowing them to update listings directly into the CoStar database. It has been nearly two years since we initiated Listing Manager and usage continues to increase. 52% of all spaces were added online by users in the second quarter 2019.

We now have over 41,000 power users who are updating their listings monthly. CoStar Listening Managers are providing greater convenience to our clients and at a much lower cost to us than our historical data collection methods. Our move to Richmond has been an amazing success and is transforming how we collect and present data.

We're having more collaborative and productive conversations with our clients. This increases the quality of our data immensely and builds stronger relationships with our users. As a result, one of the recent changes we've made in the research department is updating the researchers titles to better reflect our marketing focus and expertise.

The researcher job title is now Marketing Research Advisor. Additionally, as we further establish Richmond as our marketing researcher headquarters, all East Coast research opportunities are being consolidated into our Richmond office.

We believe this will lead to better collaboration and synergies among the research teams and significant cost savings.

In addition, since the development teams that build our research systems are in Richmond, this consolidation creates more opportunities for our marketing, research and technology teams to work hand in hand to build the most efficient back-end systems.

We believe this will also create additional career growth opportunities for our Marketing Research Advisors. As a result, we are relocating the 145 Marketing Research Advisor positions currently in Washington DC and the multifamily research positions in Atlanta, to Richmond. We will soon have close to 950 people based in Richmond.

Commercial real estate activity continues to grow. Leasing volume and investment activity in the second quarter of 2019 rank among the strongest quarters on record. We believe the high level of interest to be justified given the sector's sound fundamentals. Vacancy rates are in the single digits across all sectors and supply remains limited.

And compared to low prevailing interest rates, returns in commercial and multifamily real estate offer compelling relative value. The US economy, at large, set a post-war record in the second quarter of 2019, reaching 105 months of consecutive job growth. And recent data releases show ongoing strength.

In turn, US commercial real estate has enjoyed 36 quarters of positive demand among the longest periods on record. In the property markets, apartment rent growth has accelerated once again, posting gains about 3%. We believe the ongoing health of the apartment sector relates to the broad and growing shortage of housing in the United States.

In particular, insufficient supply of new-for-sale housing units has limited homebuying and led to the unprecedented level of apartment demand. In response to this demand, the apartment construction has risen to levels not seen since the 80s.

CoStar tracked about 300,000 units delivered over the past 12 months and we're tracking nearly 675,000 apartment units under construction. The large majority of these developments rely on Apartments.com to market those units. In the office sector, the national vacancy rate has fallen below 10% for the first time since 2000.

In spite of the limited space available, leasing has consistently set new records as the large tech firms continue to expand beyond their Silicon Valley and Seattle footprints. New office construction has been limited but impactful.

Mega projects at Hudson Yards in New York, the Seaport in Boston, South of Market in San Francisco and the H Street NoMa quarter in DC and the West Loop in Chicago, have upended gateway markets and forced landlords of traditional CBD product to compete for signature tenants.

As a result, rent growth has trended at just 2%, despite the single digit vacancy rates. This is not to turn investors. Deal volume last quarter could set a second quarter record.

In the industrial sector, demand remains at historically high levels, driven by the ongoing trend among towards same-day delivery, which requires regional local distribution close to population centers. However, vacancy rates appear to have bottomed out mid-heavy supply and have edged higher from the 5% low.

Rent growth continues to trend above 5%, and investment continues to favor the industrial sector in [indiscernible] for the development or redevelopment potential for infill product. Based on our property-level value estimates, we believe industrial prices rose by 7% year-by-year, leading all property types.

In the retail sector, negative headlines around store closings in the shrinking share of brick-and-mortar sales obscures the sector's superb fundamentals. We estimate retail vacancies are below 5%, the lowest across the property types.

And construction underway amounts to less than 1% of current stock, with the record levels of interest in commercial real estate and multifamily real estate to continue.

To meet the complex needs of the industry, CoStar Group offers products and services designed to help owners, lenders, brokers, investors and property managers realize successful outcomes in any economic climate. We've had a tremendous start to 2019, with an exceptional second quarter.

I'm extremely excited about the rest of this year as we continue to execute on our long-term vision within a great company. At this point, I will turn the call over to our CFO, Scott Wheeler, who will among other things, hopefully reiterate that net income for the second quarter was $63 million, an increase of 44% over the second.

Our balance sheet is strong with $1.3 million in cash and no debt. And very importantly that we had our best sales quarter ever, with $59 million in bookings.

But what CoStar investors ever get tired of hearing about all of that?.

That's a great story. Thank you, Andy. We certainly didn't have a terrific first half of the year, but I am going to try not to repeat that our net income for the second quarter was $63 million, an increase of 44% over the second quarter of '18.

I also will not say again that our balance sheet is stronger than ever, with $1.3 billion in cash and no debt. And I'm certainly not going to tell people that we just turned in our best sales quarter ever with $59 million in bookings. That's your job. So, let me start with our revenue performance by services.

CoStar Suite revenue growth remained strong at 14% in the second quarter of 2019 versus second quarter of 2018. Revenue growth rate for CoStar Suite is expected to be in the 12% to 13% range for the full year of 2019, modest improvement over our expectations we told you last quarter.

Revenue in Information Services grew 33% year-over-year in the second quarter of 2019, primarily as a result of CoStar Real Estate Manager revenue growth of 57% year-over-year. This includes both the subscription revenue growth of 75% that Andy mentioned and the one-time implementation revenue growth of 25% for new customer implementations.

The first half 2019 growth of Real Estate Manager exceeded our expectations, as companies continued to implement our solutions for the new lease accounting standards.

As we move further past the lease accounting standard adoption dates, we expect growth rates for Real Estate Manager to slow in total for the second half of the year, as subscription revenues continue to grow but one-time implementation revenues will decline.

Information Services revenue is now expected to grow at a rate of 15% to 17% on a year-over-year basis in 2019, which is 400 basis points above the growth rate range we indicated last quarter. Multifamily revenue growth for the second quarter remained strong at 15% over the second quarter of 2018, slightly higher than our expectations.

As mentioned last quarter, we expected a lower growth rate in the second quarter as we have fully lapped the anniversary date of our ForRent acquisition and we have a negative effect of certain duplicative revenues and discontinued products from ForRent that were evident in our 2018 results.

With the strong sales results this quarter, I'm increasingly confident that the multifamily revenue growth rates in the third and fourth quarters of 2019 will meet or exceed 20%. The full year 2019 revenue growth rates for multifamily is expected in the 20% to 21% range.

Commercial property and land revenue grew 16% year-over-year in the second quarter of 2019. All of our marketplace businesses including LoopNet, lands and business for sale are delivering solid growth in the mid to upper teens, which we expect to continue and increase in the second half of the year.

Accordingly, we expect year-over-year organic growth in commercial property and land in the 17% to 19% range for 2019. Gross margins came in at 79% in the second quarter of 2019, slightly increasing from 78% gross margins we achieved in the first quarter of 2019. This is a result of very strong cost leverage.

Our revenues increased $15 million in the second quarter of 2019 compared to the first quarter, but our cost of revenue only increased $1 million sequentially. We now expect our overall gross margins of approximately 79% for the full year of 2019.

Our operating expenses were $197 million for the second quarter of 2019, which was in line with our expectations, including the higher seasonal marketing spend we experienced in the second quarter. Our second quarter adjusted EBITDA of $110 million represents a 29% increase compared to adjusted EBITDA of $85 million in the second quarter of 2018.

Second quarter adjusted EBITDA was approximately $8 million above the top end of our guidance range. Stronger revenue was the main driver of the positive variances.

The resulting adjusted EBITDA margins of 32% is 220 basis points above the midpoint of our guidance range and 340 basis points above the 25.9% margin we achieved in the second quarter of 2018. Net income for the second quarter of 2019 of $63 million increased 44%, or $19 million compared to Q2 2018.

Our effective tax rate in the quarter was 21%, reflecting benefits associated with share-based payment transactions and R&D credits.

Non-GAAP net income for the second quarter increased 35% to $82 million, or $2.23 per diluted share and includes adjustments for stock-based compensation, acquisition-related expenses and some restructuring costs associated with the organizational changes in Apartments.com and research that Andy mentioned.

Non-GAAP net income for the second quarter assumes a tax rate of 25%, which does not include discrete items such as the impact of the share-based payment transactions. We acquired Off Campus Partners in June for approximately $16 million subject to standard post-closing adjustments.

We're currently working our product integration plans with Apartments.com as well as business and financial integrations. Although strategically important, the impact of the acquisition to our financial statements for 2019 is not material. Now, we'll look at some of the performance metrics for the quarter.

As Andy noted, we absolutely crushed it in sales this quarter, with net new sales of $59 million. That's for Andy to talk about. This was exceptionally strong in multifamily.

Also contributing to the big sales numbers this quarter were our two biggest industry conferences of the year, the ICSC Real Estate Conference and the NCAA Apartments Conference, both were in the second quarter.

As you know, we don't provide guidance on future sales, given seasonal and other fluctuations quarter-to-quarter, but we're very focused on reinvesting for long-term sales and revenue growth. Suffice it to say, we're very happy with the sales results across the business and the direction in which we are heading.

At the end of the second quarter of 2019, our sales force totaled approximately 779 people, reflecting growth in the CoStar Suite field sales force that we talked about last quarter. We expect to continue growing the CRE sales force this year, with the productivity of new sellers typically ramping up over the next nine months or so.

The renewal rate on annual contracts for the second quarter of 2019 was in line with the same rate we achieved in the first quarter of 2019 at 90%. The renewal rate for the quarter for customers who've been subscribers for five years or longer was 95%, slightly below the renewal rate of 96% in the first quarter.

This is the first quarter that we've included multifamily 5-year subscribers, which is a reason for the modest dilution from Q1. Subscription revenue on annual contracts accounts for 82% of our revenue in the second quarter, up from 77% this time last year.

The improvements are primarily the result of successfully migrating the ForRent customer base to our Apartments.com network, strong sales and annual contracts. I'll now discuss the outlook for the year and the third quarter of 2019.

Based on the strong second quarter revenue and sales results, we are raising our revenue outlook for the year by $11 million at the midpoint to a range of $1.382 billion to $1.390 billion for the full year of 2019. This outlook reflects revenue growth for the year between 16% and 17%, up from the 15% to 16% we indicated last quarter.

We expect revenue for the third quarter of 2019 in the range of $350 million to $354 million, representing top line growth in the range of 15% to 16%. We expect adjusted EBITDA to be in the range of $498 million to $505 million for the full year of 2019, which is relatively unchanged from our previous guidance.

As Andy discussed, exceptionally strong results and the market position of our multifamily business has us convinced that now is the time to reinvest increased revenue back into the business. [Indiscernible] we increased our marketing spend in the forecast for Apartments.com in the second half of 2019 by approximately $10 million.

Consistent with our previous guidance, we expect adjusted EBITDA growth of approximately 20% year-over-year, adjusted EBITDA margins for the year of approximately 36%, up around 110 basis points in the midpoint of the range. For the third quarter of 2019, we expect adjusted EBITDA in a range of $123 million to $127 million.

Margins are expected to increase sequentially in the third and the fourth quarters. In terms of earnings, we expect full year non-GAAP net income per diluted share of $10 to $10.14, based on 36.6 million shares.

Certainly great to see the $10 per share numbers coming into view this year, which if achieved would present compounded EPS growth of over 30% per year since 2016. For the third quarter of 2019, we expect non-GAAP net income to diluted share in a range of $2.44 to $2.52, based on 36.6 million shares.

Overall, our CoStar team delivered a phenomenal first half of 2019. We're very well positioned to continue our strong revenue growth trajectory, to increase the level of growth investments for the future and continue to expand margins. With that, we will now open the call for questions..

[Operator Instructions] Our first question is from Peter Christiansen with Citi. Please go ahead..

Good afternoon. Thanks for taking my question. And Rich, you are right about that replay. I had a question about the -- Andy, I think you were talking about, there is a portion of the Apartments.com network that is getting free ads, that is shutting off now, obviously, because of the success you've had on driving lead growth.

Has that happened? Is that going to happen? And then when is that going to happen? What's the timeline? And what are you kind of expecting for those free ads turning into paid ads?.

So it's happening in phases. Some of it has happened. When we first relaunched, we were running free ads for communities at all sizes on, up to 250 units, be it [indiscernible] properties over 100 units.

And as we started building up more and more content and more and more traffic, we started eliminating free ads above 200 units at above 150 units, at 100 units. And we just keep on bringing that level down. And as we do that, a significant number of those folks decide to go ahead and sign-up for Apartments.com and not lose that lead flow.

So the communities below 100 units, that will roll out over the course of the remainder of the year and we will be trying to build up that inside sales force fast quickly enough to be able to pursue the leads that, that generates. So it will be flexible, but it will be six months to 12 months to eliminate the freeze below 100.

Now we won't -- we will continue to carry the very small communities for free for quite some time. So the condo for rent, to the house for rent, the real small stuff. And I also want to reiterate that our second quarter had $59 million in bookings..

And our next question is from Brett [ph] with Stephens. Please go ahead..

Good afternoon, guys. Congrats on a nice quarter..

Thank you, Brett..

Great to see the bookings power that can be generated. I know that this had some real positives in the conferences and things like that helping. But one of the questions we get a lot is, as we look forward, the bookings should kind of trend higher. They've been kind of around the $50 million range, up until this quarter.

As you look out in order to sort of think about supporting the growth rate that you guys have talked about over your long-term guidance, the Street is sort of baked in what looks to be, you need maybe $65 million or so a quarter starting sometime next year in order to drive the kind of revenue in the out years.

How should we think about the sustainability of this $59 million number? Or should we expect it to come down a little bit because it was particularly good? And then just continue to rise.

And if it rises, can you tell us what the drivers of that? Because I know some sales, some pricing, give us some sort of view into how those bookings probably rise over time? Thank you..

Sure. So, I'm very excited about the Street expectations for bookings in the 60s next year, and I look forward to those earnings calls. It will be exciting. And we will repeat successful results throughout the earnings call. But the -- there are a number of different things that give you tailwinds as you go in to try to achieve those higher numbers.

Like, we obviously don't know small fluctuation nuances from quarter-to-quarter. So the bookings next quarter, it could go up a little bit, it could go down a little bit. And it's not necessarily terribly material, which way it goes of slight increments. But the trend, I feel comfortable with expectations that it goes up.

Again, growing the CoStar sales force materially, yes, it is a big driver. There is no shortage of opportunity. So, penetration rates for the advertising on LoopNet, new products in LoopNet, taking owner product out there, new multifamily product, student housing, analytics on the CoStar side, a lot of opportunity there.

Adding a 100 salespeople to Apartments.com, the expectation is that they would sell something and that would also drive the opportunity. And as we increase the marketing, we will increase the lead flow.

And then looking at the numbers, our ability to successfully sell product to 200 unit communities, 100 unit communities, 75 unit communities, 50 unit communities, 40 unit communities, 30 unit communities, 10 unit communities, means that we've got a huge marketplace to sell to, and adding additional salespeople is going to give us that ability to go address that opportunity.

And then the land business, the BizBuySell business and CoStar Real Estate Manager continues to hit on all cylinders. So, there is a lot of good tailwinds there and so we're not really shy of those expectations next year..

Our next question comes from Bill Warmington with Wells Fargo. Please go ahead..

Good afternoon, everyone. So, I wanted to ask on the apartment side. If you could talk a little bit about the end-to-end digital solutions for the small landlords.

Specifically, what services you're going to be providing there? The beta testing, how is that going and then what will the Q4 roll-out look like?.

Thank you, Bill. So, we're -- I'm actually on my way up to -- I'm just in from Tokyo, if you can't tell that I'm a little jet lagged. Heading up to Chicago for focus groups on that over the next couple of days, we're going to be interviewing small landlords tenants on that whole new products.

So, that new product is providing an end-to-end leasing solution within Apartments.com, where someone marking their property at Apartments.com can elect for online leasing, which means renters can apply directly, digitally using our applications on Apartments.com for an apartment. We screen them for credit, criminal and prior evictions.

If the landlord wants to move forward with the tenant and wants to move forward, they can enter into a digital lease on Apartments.com and then we can facilitate the rent payments on Apartments.com. We believe this will be particularly appealing to the smaller landlords that don't have these sorts of solutions.

We also think it will be appealing to the renters because our price points for doing an online application is typically half of what the normal fees are and we are providing portability to the applications. So, a renter who applies to one property on Apartments.com can use that same application nearly instantly for any other community within 30 days.

So, it's pretty exciting and we are going to be looking at how that reaction is going. But it's early. We're just rolling it out this quarter. We'll know more after the focus groups.

But one of the things that I'm -- we're looking at now is we think it will have a big impact not just on the folks running a single house or condo, but we think it will be really helpful in helping us to sell more advertising to the middle-market, the folks with 20 units, 40 units, 50 units.

And that will be sold through our inside -- the new inside sales force where they'll be really aggressively going after that sector. So it's -- it's rolling out in four, I think we added one more markets. I think it's rolling in five markets in the third quarter.

And based on that, we will gear it up to additional markets in the fourth quarter, but we haven't really finalized how many. And one of the things we want to do is build up that inside sales team.

So, we really focus our energy on the markets we're rolling it out in intensely, so that the -- there is enough people participating in the program that, that renter application portability between multiple communities has enough scale and mass that's particularly valuable. But we will tell you more -- we'll report in on the third quarter call.

On the year-end call, we'll have more color on it. It's still little early. But man, it was a lot of work..

Our next question comes from George Tong with Goldman Sachs. Please go ahead..

Thanks, good afternoon. Commercial property and land revenue growth in the quarter decelerated to 16% year-over-year from 17% in 1Q despite easier year-ago comps.

Can you discuss reasons for this moderation and maybe elaborate on your efforts to go after the institutional customer channel at LoopNet marketplace?.

So the -- so the sales outlook, George, is still strong for the LoopNet business. The differences you're talking about, we only moved the forecast to $1 million or $2 million in any quarter and you get a percent change on this business because the numbers aren't really that big.

What we're still seeing is really good sales through the CoStar sales force or LoopNet, and Andy mentioned some of these Premium Lister sales that we're getting. And we continue to sell the signature ads. You get different fluctuations in cancels from quarter-to-quarter, which sometimes does get a little higher or then they back off.

So depending on the timing of those, we tweak the forecast and tend to take a more cautious approach going out. But we're still very positive about the changes we're making and how that sales force can create momentum in the second half..

Also, our big initiative there, which is really the premium gold, platinum and diamond levels, has not effectively rolled out and that will be coming in the next couple of quarters. So, we're having a big conference pulling together.

Our senior sales leaders are beginning to walk through the sales process for selling those Apartments.com like ads on LoopNet. And you're not seeing any revenue associated with that right now and that's a future revenue stream, so there will be upside..

Our next question comes from Tom -- I'm sorry, Ryan [ph] with KBW. Please go ahead..

Hi, everyone. Thanks for taking the question today. Andy, just in terms of LoopNet rebranding on your recent comment and the owner focus, can you give us some color on what the go-to-market strategy will be in the education process? Will this be more of a gradual education process, or are you targeting more of a focus launch.

And if so, do you think that the sales force is rightsized following the year-to-date growth? And if there are perhaps any efficiencies in partnering with your existing broker clients for a sales effort to align interest and more quickly reach this very valuable owner client?.

Sure. So, one of the things I did not mention, going into detail on was, we have been reorganizing the CoStar sales force a bit in order to get ready for selling these premier LoopNet owner-oriented ads, the sort of upper end ads.

And what we've done is, we've identified about 65 sales people across our network, who are the more senior folks and were assigning the top owner prospects to them. We're pulling them together for a couple of days of training. So far we haven't really -- we haven't done that. We're just beginning that process. It's relatively straightforward.

The value proposition is pretty straightforward. And I think that we will get adoption or the sales force will pick, the specialist salespeople will pick this up pretty quickly and we really be relying on them to take that forward.

I would expect that over time with success there, we'll feel that 65 is not quite the right number and we'll probably want to grow that team a little bit. But I think we'll take one step at a time. A little bit of success with the 65 people would be a lot of success to our bookings numbers.

The second part that you mentioned there about partnering with our broker clients is exciting. In the past, we have partnered with our broker clients to basically wholesale or resell advertising to their owner clients and allow them to offer discounts and give them some rebates for volume.

And we've had some discussions with some of our brokerage clients about allowing them to resell those LoopNet ads owners. It's a win-win for everybody, the broker, the owner and us. And it is similar to what happens with Apartments.com.

So, often when we're selling an advertisement for an apartment community, Greystar, Greystar is acting on behalf of an owner who we don't really know who they are. But they're just authorized to make the purchase and Greystar through volume gets a better price for their owner.

So, we'd be looking for the same thing to happen in CoStar, LoopNet, but it will be something that would be happening next year. But we've gotten really positive feedback from folks like CBRE and some others on that opportunity. And it's not unprecedented.

Again, not only on the Apartments.com side, but also CoStar Real Estate Manager where a lot of our sales there are -- is white labeling from folks like JLL and CBRE and Cushman & Wakefield, who basically steer their clients into CoStar Real Estate Manager..

And thanks for joining us, Ryan. Glad to have you. Thanks for starting coverage..

Our next question is from Andrew Jeffrey with SunTrust. Please go ahead..

Good afternoon. I missed that bookings number. So….

It was $59 million..

We'll get to the offline..

Thank you for asking. Just under $60 million. So, we're not saying..

Yes. In all seriousness, one of the things that strikes me is the success you've had building out your sales force without -- from we can tell from the outside looking at really sacrificing productivity. Can you speak a little bit about what the gating items are to continuing to build sales? I mean, we're in a full employment economy.

These are not sort of simple products as I would think. It's a fairly sophisticated sale.

I mean, kind of what's the secret sauce and what do you worry about in terms of being able to continually expand the sales organization?.

Well, for me, my primary concern is typically, we are an organization that changes a lot. So, as we -- we don't stay the same. Most sales organizations do exactly the same thing for 10 years in and out. They don't change a lot.

Things like refocusing the sales team against the smaller communities to an online leasing, refocusing the info salespeople towards a new ad opportunity in the LoopNet side, that's a lot of change and that requires a big organization to adopt change. And that's just -- that's heavy lifting, that's probably our single biggest gating item.

I was meeting with a couple of tech people yesterday. We were at CES and some other companies and they were talking about having challenges hiring salespeople. Knock on wood, we've been able to keep a really good pipeline of high-quality salespeople coming in the door and we have not seen problems with being able to find those folks.

So, you can see that in the 50 plus recent hires on the CoStar side. And then I also -- we're going to be -- and hiring in Richmond. I feel confident there. We invest a lot into the Richmond marketplace. We have a big brand there and we've been successful in meeting our hiring requirements there.

So, we're always looking to try to improve our sales training and try to give them more experiences and developing ongoing training. But we like the productivity numbers we're seeing, the productivity numbers per salesperson. Apartments.com is exceptional right now.

And if we can keep that through -- going through an inside sales team, we'll be really happy with that result. So the main issue is just continuously reshaping the organization, things like dividing the Apartments and the CoStar teams into separate management lines. That's the main challenge..

Our next question comes from Stephen Sheldon with William Blair. Please go ahead..

Great, thanks. This is actually Josh [ph] on for Stephen. Over the last few quarters, you guys have provided some helpful data points on the Apartments upsell and LoopNet 2.0. But I was hoping you could frame for us what you view is the bigger opportunity over the next two years or three years.

And if there's time, what you see are kind of the main factors driving demand for the higher-priced ads in a high occupancy environment? Thanks..

Yes. I would like -- and you ask, which of my children are my favorite and that's a tough one. So, I'd like to say that Apartments.com is awesome and LoopNet is awesome and they both have trends of upside. But you have to say, you have to respect Warren Buffett. And one bird in the hand is better than two in the bush.

And Apartments.com is on fire right now and it's happening. What's driving demand for the up-sell, when you see folks adopting rapidly, price points at $3,600 and $7,500 a month where the average had been $770, what's going on there is we are just delivering the traffic and the lead flow. We've got massive traffic in lead flow. It's working.

And we're hearing, like in a focus group, I was in two weeks or three weeks ago in Dallas, property managers who are building a lot of new -- putting a lot of new units out there are finding that everybody in say, Dallas Uptown is now buying our Diamond ad and it's hard to stand out.

Like in -- they're looking to spend more to stand out more when they're in lease-up. And so with so many people buying in Apartments.com, people with higher demand are willing to pay more.

And when you think about what's at stake for them as they launch a $200 million community in the lease-up, they don't really care if our ad cost a $1,000 or $10,000. They're in a nine-month lease-up period and we are the source for the majority of their communities.

So, we've kept our -- frankly, we've kept our pricing very aggressive and our price per lease and our price per lead is very low. And they're very happy with it. And if they want more, they're willing to fork out money.

So the upside is, we are -- these plus categories where within silver, gold, platinum and diamond, we're going to enable people to pay to sort higher within the categories, I think we will generate a lot of revenue. And then again just bringing out the online leasing tools and going after the mid-market will be big.

LoopNet, I'm highly confident about, but it's -- it is still in development. It's still early days. But we're very familiar with everything about that LoopNet area and feel like it's a clear opportunity and remain very optimistic about it..

Our next question comes from Sterling Auty with J.P. Morgan. Please go ahead..

Yes. Thanks. Hi, guys. And -- we really appreciate all the detail that you gave on the call. So, thank you very much. Quick question on the CoStar Suite. When you look at the growth year-over-year, how would you characterize? I know you gave us a rough estimate of the number of subscribers.

But how much of that growth is coming from increases in user count versus maybe the best way to put it is increase in average revenue per subscriber?.

Most of it is new subscribers. There is a little bit more. There is a slight increase in average price point per user. So, we're getting -- we're being a little more thoughtful about looking at some of the dramatically underpriced accounts and bringing them up a little bit closer, not all the way in the list, we are bringing up a little closer list.

So, I'd say the shift is mixing -- the mix is shifting a little bit between price point. It's a little bit more of that than there has been in the past but nothing crazy. We're talking about instead of 3% average price increase, it might be 6% or 7%..

Got it. Thank you..

Our next question is from Pat Walravens with JMP Securities. Please go ahead..

Hi, this is Joe Goodwin on for Pat. Just a quick question. Andy, how's the environment for CoStar to do more M&A? Any commentary you can provide us there. And then I have another question after that..

So the question was what does M&A environment look like? So, we're -- it's very active. There's a lot going on there. We are -- at any given point, we're looking closely at probably a dozen companies. We are being selective, continue to be selective. So if valuation doesn't appear to be rational to us, we're not doing any sloppy deals that way.

But we do have a pipeline and we are working through it. And some of it is smaller deals like Off Campus Partners and then there is some -- there are some larger things in the pipeline. But again, they don't occur until they occur because we have a great track record across 20 acquisitions, 30 acquisitions of not having any big goose.

And we will continue to be very careful as we go forward. But we're not going to change our ways of continuing to make good acquisitions..

Our next question is from Scott Buck from B.Riley FBR. Please go ahead..

Good afternoon, guys. A bit of a follow-up there. I'm watching the cash balances continue to climb quarter after quarter, how are you prioritizing uses? And will we see at some point maybe some repurchase activity or a potential dividend? Thanks..

Thanks, Scott. Our priorities right now are the acquisition pipeline that we just talked about, putting money back into organic spend as much as possible. Clearly, we're still going to generate net positive cash, but our intention is to put that back into acquisitions.

We'd love to see some more rational price discussions in the marketplace on deals right now. But we know they're out there and they're big enough to use that cash. So, it's just a matter of time, I think we'll do that.

Right now we're not considering any share buybacks or dividends as there is still so much opportunity in this growing digital marketplace transformation, that it is better to be holding it for some of the near-term and then using it when we have those opportunities..

[Operator Instructions].

Great. Well, thank you all for joining us for the second quarter call and we look forward to getting together with you again in the third quarter. And thank you very much..

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T. You may now disconnect..