Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2018 Earnings Call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the conference over to your host, Rich Simonelli. Please go ahead, sir.

Thank you, operator. Welcome to CoStar Group’s third quarter 2018 conference call. Before I turn the call over to Andy Florance, CoStar’s CEO and Founder; and Scott Wheeler, our CFO, I'd like to share some interesting and important items that can actually make your day. Certain portions of our discussion today may contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated today in our CoStar Group October 23, 2018, press release on third quarter results and our company's outlook and in CoStar's filings with the SEC including our most recent annual report on Form 10-K and our subsequent quarterly reports on 10-Qs under the heading Risk Factors. All forward-looking statements are based on information available to CoStar on the date of this call, and we assume 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 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 in our press release issued today along with definitions for these terms and you’d also find that press release on our website located at costar.com. As a reminder, today's conference call is also being broadcast live and in color on the website. So please refer today’s press release on how to access the replay of the call. Remember one question, make it a good one. I'll now turn the call over to Andy Florance. Andy?

Rich on behalf of all of our shareholders, I want to thank you for those inspirational words.

Welcome.

Thank you for joining us for our third quarter 2018 earnings call. We achieved another excellent quarter of solid revenue growth, exceptional margin expansion and continued strong net bookings. Revenue for the third quarter 2018 was $306 million, an increase of 23% compared to revenue of $248 million for the third quarter of 2017. I'm excited to report that we flew past our first $300 million quarter. Our annual revenue run rate now exceeds $1.2 billion. We had strong CoStar Suite revenue growth of 19% in the third quarter of 2018 compared to the same period last year. Some of that growth is attributed to converting LoopNet Premium Searcher and heavy searchers to CoStar Suite. Today, we have worked through approximately a quarter of the initial 100,000 leads we identified and have seen approximately 11,200 conversions. We have now reached $64 million in annualized revenue from this conversion list. Earlier this quarter, we identified an additional 30,000 commercial real estate professional leads from LoopNet that were previously not on our active lead lists. As we have seen time and again since the LoopNet acquisition closed in 2012, LoopNet is a great source for identifying and refilling our lead list of commercial real estate professionals that we can sell CoStar Suite too. I still believe that over time we can generate hundreds of millions of incremental annual subscription revenue by upselling LoopNet users to CoStar Suite. Apartments.com grew 45% year-over-year in the third quarter of 2018 as we continue to expand our leadership position in this space. Our multifamily annual revenue run rate is now $420 million and we expect to continue to achieve solid organic revenue growth in the fourth quarter and through fall of 2019. I should clarify I mean the fourth quarter of 2018. Our profitability continued to…

That’s big.

Okay, good.

Correct.

With a continued strong growth and huge potential of Real Estate Manager, the President of Real Estate Manager, Andy Thomas now reports directly to me. We believe that there are a number of very interesting opportunities to accelerate the momentum of Real Estate Manager and expand the scope of this very impactful and successful business. In August 2018, we completed the closing of our research centers in Glasgow, Scotland and Columbia, Maryland. Our centers in London, Richmond, Washington and San Diego have absorbed the workload and the transition has been very smooth. We continue to see more and more brokers and owners entering the quality data directly into CoStar’s self-service Listing Manager. During the quarter, approximately 36% of the millions of updates made were made directly by the broker or owner listing the property. We estimate this represents more than 100 researchers worth of work saved. This trend has the potential to materially reduce the amount of labor we need to invest in order to keep our databases current. In July, Listing Manager was also released in the UK. Today most of our revenue from commercial real estate is – most of our revenues from commercial real estate investors, operators and lenders. Our single largest client is now an owner, who used to be a large brokerage firm. A number of our top ten clients are now investors or owner operators. These clients need accurate and timely data with powerful models to help them understand market opportunities and risks. We are completing an important cultural shift at CoStar, improving our approach to best serving this massive opportunity. Historically, the large component of our analytics solutions were consulting based. We would meet one on one with large investors and lenders and one-off provide them with analytics. This process engaged costly personnel…

Nice, well, thank you, Andy.

You’re welcome.

Quite a nice build up although I must say talking about the numbers that’s just doesn't get any better than this.

Yeah.

I am just a warm up actually. Well, that’s good to hear that none of the tariffs are affecting our revenue nor our outlook…

I keep watching those TE use…

No trade war here. All right, so another strong revenue growth quarter and improving profitability and continued solid operational execution in the business. And as Andy said, we're entering the fourth quarter. We're increasingly confident that we'll exceed our 40% adjusted EBITDA goal, which we committed to investors four years ago way back in 2014, well before my time. As Andy noted, we delivered a solid sales quarter with $40 million in net new bookings, which were up 16% from the third quarter of 2017. All told, we now have three of the last four quarters in which we have achieved net bookings of $40 million or higher. During both the second and third quarters of this year, a significant amount of our sales force time was expanded on converting the ForRent customers to combined apartment contracts, which took our sales teams focus away from new sales. As a result of these conversion efforts, we saw a reduction in net bookings of almost $4 million in the third quarter, which represents net sales erosion upon conversion to the combined contracts. Thankfully with substantially all our conversion efforts complete. We believe the related drag on net bookings is now behind us. The LoopNet marketplace sales were strong in the quarter, which is a result of our continued efforts to improve the product to increase our market coverage through the CoStar field sales force and eliminate historically discounted price levels. As a result gross sales for the LoopNet marketplace grew 45% in the third quarter of 2018 compared to the third quarter of 2017. Overall, as Andy mentioned, when we look at our bookings in our net sales, it's good to see that we don't see any connection to these numbers with the commercial real estate market, which remained strong. Switching over…

Okay, thank you. [Operator Instructions] And our first question will come from the line of Andrew Jeffrey with SunTrust. Please go ahead.

Hey, guys. Good afternoon.

Good afternoon.

Good afternoon, Andrew.

Appreciate taking the question. Lots of moving parts, pretty much all positive now ForRents behind you and you have made good progress on LoopNet integration and cross-sell. And Andy, appreciate as always the macro comments on the CRE market. Just stepping back maybe big picture, given all that, do you think you can give us a sense of what you think the sustainable organic revenue growth is at CoStar as the business sort of stands today?

And just to clarify, are we talking long range, short-range?

Yeah, I mean, through the – I guess through the cycle recognizing that we're in a bit of an elongated cycle perhaps by historical standards.

Yeah, I would say more of the same. There is no shortage of people to sell to. There is no shortage of product opportunities. Probably, we have the capital to support our initiatives. So we aren't seeing any sign of saturation anywhere. So we're just working the levers of growing the sales force, improving product, optimizing our pricing. I think I think that word is a euphemism. And so, I think it's – I think it's sustainable more of the same. And in the 32 years, I've been doing this. I think 98.5% of the quarters we've grown. We anticipate more of the same. Do you want to add something to that or just say more specific?

No, the only variability is how fast we can deploy the capital and build the team, grow internationally and then when we get those acquisitions that come in [indiscernible] of integration and then be able to grow on the backs of those. But I mean those are a little more cyclical and lumpy, but we have plenty of opportunities to go after and we just need to keep working hard.

And then another thing to just remind everybody is that when we acquired ForRent, I sat down and had a chance to talk to the President of ForRent, we'd really been negotiating with Dominion not with leadership of ForRent directly. And I asked the President of ForRent, what is it – what is it like I've never been a cycle running a large ILS. And I said what's it like when you are in a negative cycle and he was surprised and he said well, Andy, we are in a negative cycle. You just don’t see that because you guys are killing it. When vacancy rates are low, ILS spending is down. When vacancy rates are high, ILS spending goes up. So there's some degree that there could be some cyclicality that's inverse on the apartment side and especially when you look at the fundamentals looking like I say Atlanta, Georgia. Interest rates coming up, the Case-Shiller for Atlanta has housing pricing up 76% in five years like it's going to the multifamily. So we feel really quite good about it with a lot of legs to go. More worried about a Black Swan, a thing you can't anticipate.

Maybe some counter cyclicality in multifamily…

Yeah.

Okay, thank you.

Okay, thank you. Next we go to the line of George Tong with Goldman Sachs. Please go ahead.

All right, thanks. Good afternoon. You’ve redirected your CoStar Suite sales force to focus more on existing clients rather than focus just on the LoopNet conversion. Can you talk about how you envision LoopNet conversions progressing from 3Q levels? And then the flip side of that your progress was engaging with your existing customers to prime them for future pricing increase?

Well, here we are in this public call. So – yes, so we have – it's really just – it's not so much dramatic change. It's focusing on some of the fundamentals that worked well for us for a long time. I think the one big change is that we had to make a fundamental decision. We're going to have two different large national sales forces meeting with exactly the same customers. So the people that buy ads from LoopNet are commercial estate brokers and commercial estate owners. Buying an ad from LoopNet is fairly basic. We generally can hire a new sales person and get them up and running and successfully selling LoopNet, the vast majority of the time, within a matter of months. So the clients expressed to us that really, we don't like being called by fifteen different people and it makes sense that we just have one point of relationship management. So we shifted our sales efforts to teach the CoStar sales force to sell LoopNet into that CoStar customer base rather than having two different sets of people calling in. The CoStar sales force would naturally be in a better position to price more effectively and to sell the higher end ads. And it's – and the numbers show, it's working out well. The other thing is that you're always tweaking, you never want to take your customer base for granted. And when we are in a very strong market, sometimes there is a temptation for the sales force to just be looking to churn the next piece of business. And it’s a huge industry, but it's a small industry and it's important that our sales force continues to build relationships with our clients. And my experience in the industry is that the salesperson that builds relationships long term sells twice as much net as the person that doesn't. So we're really just sort of optimizing the sales force and this positions us for sustained long term growth and good client satisfaction. We do not run every quarter to how can we get the single highest booking this quarter because I'll be gone next quarter since I've been here for so darn long, I tend to think the next year, the next year and the long term right answer. So sometimes we do the hard right instead of the easy wrong.

Makes sense. And then the LoopNet conversion piece?

How are we going to proceed with that? Well, we are going to – I mean the numbers are obviously spectacular so far. And they keep – I guess we’re – if you take the first and the second round, Rich, would this be about $167 million of upsell. And as fast as we upsell these things, they seem to replenish themselves. So it will – we've been doing a number of initiatives with our marketing department buildings, some online videos where we try to figure out who we’re targeting and then we present value proposition based on who they are. So we’re doing a little more digital selling and preparation. But we're continuing to focus on it. And you know as we stated earlier, I think it is a multi-year effort. I think it’s something that will be work in this LoopNet conversion list for at least another three years and then it will move into a long term sustainability where five million people coming in a given month often. And some percentage of them, they'll begin their customer journey with us in the LoopNet interface. And then when they keep returning, we can identify the market to them and then migrate them up to CoStar. 99.5% of the people coming to LoopNet never see any upgrade messages, any upsell messages. They don't know there's a CoStar because they’re end users. We want to keep it that way. And we really are sort of laser targeting the folks we really think are consuming at a level they should move up to professional product. So I hope that answers the question.

All right and thank you. Next, we'll go to the line of David Ridley-Lane with Bank of America. Please go ahead.

Sure. I was wondering if you could discuss the reasons for the deceleration in the multifamily revenue growth. Maybe if you could quantify the revenue drag from the products you are discontinuing within ForRent, just trying to get a little bit more clarity on that.

Yes, obviously, the – let’s just keep our bearings here. Obviously, the growth is excellent in the multifamily space and continues to be very strong and exceptional, so historical – all-time highs for anyone in the space. And we anticipate that we've got a lot of exciting stuff for years to come here. As we brought in ForRent, we bring in that revenue slug upfront. It does not pass through our sales bookings numbers. We upfront when we acquired them we never had any expectation that we would retain 100% of the revenue. Often you'll have someone buying a top paid top level ad on both sides. And if someone's you know they will we expect that there will be some churn off where they won't buy top level ads on two sites from us. We can retain a lot of that, but not all of that and we sort of anticipated that. And as that that burns off, you have – it comes out in our sales booking. So it goes in silently, but it comes out in the sales booking number. So that creates 4 million some drag in the quarter against the multifamily bookings roughly. And then the other thing is that when you're bringing in two sales forces and taking your message out there, your number one goal is to solidify the revenue and solidify the relationships. You want to get out there, make sure that you are visiting every one of these new customers coming to Apartments.com network and that you have them in there. And I don't have the exact cancellation numbers for ForRent, but I would imagine they were probably 400%, 500% higher than ours…

Definitely higher than ours, yeah.

And so we want to take that revenue, bring it in and bring it long term into the super low industry leading cancellation rates or the super high renewal rates we enjoy. So that's what this – as they do all that, they're not going to simultaneously be out, go into another customer base at the same productivity level. So now we move into the fourth quarter, they've got all that stuff behind them largely. I think there is 200, 300 out of 7,100. But now, they'll be focusing back out on the opportunity. And again one of the big opportunities right in front of us is there are still, I guess, 7,000 some firms that are buying only products from RentPath, which is a huge opportunity for us. And then the other things that that these firms have been losing share to us have shown us and that we've learned is that there is a ton of share below 100 units. That's where most of the market is. And so we're focusing on that opportunity. So a positive outlook, feeling good about it.

Thank you. Next we'll go to the line of Bill Warmington with Wells Fargo. Please go ahead.

Good afternoon, everyone.

Well, good afternoon.

Good afternoon, Bill. We’ve been expecting.

Excellent, since I – I only get one question. I have to make sure I'll let you know that I'm expecting spectacular inspiring in next gen answers from you on that question.

Sounds like compound question coming.

So the $40 million in bookings, you've alluded to $4 million in ForRent revenue that went away for the quarter. I want to make sure that because I believe that was also one of the offsets in Q2 that was about $4 million in ForRent revenue and about $1 million in LoopNet Premium Searcher cancellations that netted against last quarter's figure. I wanted to just get a sense for whether there – that $4 million is in this quarter? And then if there are any other offsets that are worth highlighting for this quarter.

Yes, so Bill you've definitely got the fact straight there. We had about $4 million of this erosion that we saw as we're converting each quarter. No other offsets or ad backs, the LoopNet info run off is down at negligible amount. It's not really enough to talk about. So nothing really left for there. I think what you're seeing too is a little bit of what we saw last year in Q3 where in the CRE business, you come into July and August and you just see a slowdown in activity and slow down of flow through, which you saw last year in the CoStar and some in the LoopNet bookings. So we saw that again in the third quarter of this year. And when you dig on to that and you look at what the sales force is selling to some of the stats Andy gave, we're encouraged that they're – year-over-year the sales people are selling 35% more this year in net than what they were selling last year in commercial real estate as CoStar LoopNet combined. We simply need to get some more of them in-house, so we can keep selling more. And we didn't see as you heard the sales force numbers were down slightly, sequentially here lot and apartments, but some in CoStar as well. So we'll need to keep pushing those back into the sales force and that will help us continue on the good productivity piece that we're seeing, but I think you got the ad backs right there.

Okay, thank you. Next we go to the line of Pete Christiansen with Citi. Please go ahead.

Hey, guys.

Hey, Pete.

Andy, I want to compare kind of your M&A thoughts from two or three quarters ago. It seemed like you thought valuations were a little unjustified and we kind of – the M&A was going to be put off for a while. I don't know the Realla be isn’t that large, but just wanted to see where you are you are right now in terms of thinking M&A. Are there more opportunities perhaps overseas versus domestic? Just a sense would be helpful.

Sure, it’s a good question because probably the temperature is changing a little bit here. And so we did the Realla deal. And that's an example of a deal that is not a big deal. It's not the size of an Apartments.com. It's a much, much smaller deal. But what we're interested in there is the technology of the people and the positioning. And there are – we probably have 10, 12 deals right now that we're very interested in. And so, it's probably a little bit more aggressive now than it has been. But if you are – in particular if you are looking at some of these companies that bring technology that are operating at relatively small basis that you can leverage into a much bigger platform. The relative value is the issue not where you are in the cycle. So when you do a deal like Realla, it doesn't matter it’s the top of the cycle or bottom of cycle, the cycle is the cycle and it probably – where we are in the cycle probably matter, more when you are looking at billion dollar deals. And there we have to think hard and carefully, but we still consider those. So we are not seeing again reiterate, there's – I look at our younger commercial estate analysts and economists and they talk about rent growth slowing as a disaster and like you should see what's like when rent growth falls, this is actually really good environment, the best of ever good, so we don’t see anything falling off right away. So we continue to look at very aggressively at smaller deals right now and we probably will have news there and probably at a much greater pace than you've seen in the last year or so.

Thank you. Next we will go to the line of Brett Huff with Stephens Incorp. Please go ahead.

Good afternoon guys how are you doing?

Good, hi Brett.

Hi Brett.

Good. Thanks for taking the call. Bookings question part two. I know a couple have asked about this. General question is one of the reasons, I think, investors at least have told us – they have told us they really like how things are going is that the bookings kind of quarterly annualized net new have just kind of gone up in a pretty steady fashion and that’s driven confidence in the future organic growth. Can you articulate to us kind of the main five, six or whatever the number is, the reasons you are thinking the net new bookings will be up next year or year after, whatever it is. And that’s the main thrust of my question. And the second is, Scott you mentioned that there were 35% more sales going on. I just wanted to make sure I understood what you mean for that. And I'll leave you guys there. Thank you.

Yes so I think people sometimes look for – obviously this is a great business with a strong track record and continues and has the ability to sustain these high growth rates for a huge period of time, why? Because it is a $50 trillion, $70 trillion global asset class and we’re the largest player in that space. And we’re just at the early days of creating those solutions. And clearly, we’ve shown that we’re able to build compelling products that have a huge advantage – that have just a huge advantage over some of the slower competitors. So now we – if we just kept going up every single quarter like clockwork, you might say, hey, are these made of returns? But they're not, there is some volatility and we do things periodically like buying ForRent that create noise in the number so and so forth. But the market is strong, our competitive advantage is unquestioned. We have shared some news with you that should be exciting to you on other competitive fronts. I don't want to do schadenfreude but it's a reality. And then we have a really robust product pipeline. There are a lot of opportunities out there. There's also a lot of M&A opportunities out there. And virtually, everything we're looking at in M&A is not about picking up the revenue of the company we're buying, it's about building out the platform. It's about picking up one of these companies and building a solution that reaches a much broader audience and also as an interconnected solution, so that the inputs already exist in our system and outputs feed another part of our system. So there's a lot of good stuff here, it's a great company. And while bookings sequential stair-step precision in the bookings growth is important, it's not everything, so.

And then to your question on the 35% Brett, when we look at it on a per rep basis for the CoStar sales force, now that they're selling both CoStar and LoopNet on a year-over-year basis in the third quarter, on a per rep basis, they're selling 35% more in net bookings than they were selling last year. The biggest piece of that growth is in LoopNet is where they've been directed in selling a lot more and still growth in CoStar, low double digits on individual productivity and the rest have been LoopNet.

Thank you. Next we go to the line of Sterling Auty with JP Morgan. Please go ahead.

Yes thanks. Hi guys.

I just fairly recognize you there.

Wanted to circle back to the ForRent item, because I wasn’t clear. Some of the questions you referred to is $4 million hit to bookings. Another question was it was a hit to revenue. I just want to clarify and make sure understand was there hit in bookings and revenue in the quarter? And if so, did you guys realize it was going to be that magnitude when you give the guidance coming into the quarter? And how do we think about kind of the bounce back as you kind of convert it? So in other words, is there kind of a de-bounce in that productivity so you get may be some tailwind here in the fourth quarter?

Great, yes thanks Sterling. Let me clarify the pieces there. The $4 million drag that we talked about was a bookings drag that was in the net new sales bookings number. There is a parallel drag, I'll call it to revenue, and that has to do more the our products that were sold by ForRent previously that we chose not to continue. Those we never count in our bookings at all, those are revenue that comes with the acquired company that will tradeoff of over the course of the year. And it will offset the growth in our bookings. So that's why when you saw the revenue in the Apartments multifamily growth rate slowed in Q3 because you picked up a bigger chunk of that in Q2 right after the acquisition, and then this sort of non-bookings revenue that we're not selling anymore that erodes as people’s contracts come up. So that's the revenue drag, which goes parallel to this bookings conversions issue. So hopefully I’ve cleared what those two pieces are. And yes, we did expect that to happen early in the quarter, the that bookings came out fairly strong that we were happy with how the sales force actually sold a great amount of new product even while they're doing the conversions. So we're happy with how the ForRent and the Apartments combined forces are selling together and they are working together in their own individual territories. And now the former ForRent sales folks are ramping up their productivity and are about 75% to 80% productive as our historical Apartments reps in selling new business. So we're seeing really good progress there.

Yes, and it's really important that people keep their eye on the big picture, which this acquisition has exceeded our expectations. And it's difficult to put a precise revenue number on what revenues actually attributable for ForRent today. But our senses is that this deal was a – ultimately ends up being a single-digit EBITDA acquisition, multiple EBITDA acquisition that has tremendous strategic advantage to the company. So these are the kind of deals we love, and they set the stage for long-term growth of the company. So as we beat the expected burn off revenue numbers, it would be a mistake for people to take those as negative.

Good, thank you. [Operator Instructions] We’ll go to the line of Mayank Tandon with Needham & Company. Please go ahead.

Great, thank you. Andy, does the acquisition in the UK set the stage for more of a focused on the international market? And if so, could you maybe give us a sense of how do you view the expansion? Is it going to be more organic, more M&A, a combination of both and, of course, the time line on any future expansion internationally?

Sure. So yes, it does show our willingness and our commitment to continue growing the platform. I don’t want to get into too much detail for competitive reasons on exactly what we plan to do. But we do think that there is opportunity to expand our footprint internationally pretty quickly using some technology and methods that reduce the initial cost of going to market in reducing an initial risk. So we think it's possible to take couple of hundred people and add 50 countries with some footprint. So we're looking at that we're looking at companies that will support that. I do feel that the more I’m in the business the more you're out there looking at the different players. You do feel that a company that is building up all these different software sets, and models, and customer bases and interactions between these different components, this is a game of software and software is about scale and its global scale. So I think the future is providing us an international level. We don't want to be measured about it because our EBITDA growth in the United States is awesome. And you want to keep harvesting your EBITDA in the United States, but then keep our eye on the fact that 10 years from now, we could have half of our EBITDA being global. And we would never want to give that up. It's just very similar to when we were making a lot of money in Washington, in New York, there was some skepticism about taking it out to the whole country. And the numbers in the secondary markets in the United States in the earlier years as we expand our New York and Washington were de minimis, but they're not de minimis now. And we're excited about the technology is changing a little bit, and the market is changing little bit, opening up some new opportunities for us.

Thank you. I’m sorry.

No, go ahead.

Thank you. We’ll go to the line of Stephen Sheldon with William Blair. Please go ahead.

Yes hi guys. Good evening.

Hi, Stephen.

Wanted to ask you about margins by business, you noted, I think, that profit in multifamily will likely be up. I think you said close to 100% in 2018, which is pretty significant. So I guess, can you help us frame where adjusted EBITDA margins in multifamily could roughly end up this year? And how you're thinking about continued margin expansion in that business over the next few years post kind of ForRent integration?

Sure. We're pretty happy to see the expansion that we're seeing now, especially when you're going to big integration like that, and the acquired business was making little of any margin. And so we took on a big slug of cost and had to rationalize that and keep the revenue at the same time. When you look at the progression [ph] through the year, it's really improved obviously as we've taken those out. And when you look at the associate the average margin for the business in the fourth quarter, you see that multifamily is going to be right there broadly in line with where the total business is going to be the fourth quarter. Now you could say okay, yes but that’s real low real marketing spend, which is true. So that business is still not going to be in the profitable range of the entire business for the year. But I think when you see us at least hitting one quarter now on average, we’ll hit more of those as time goes on. We still believe that the margin profile of multifamily can be equivalent to the average margin of the entire business on an overall basis. We've got to scale a little bit more.

We got to take a look at it like loop net margin, or a…

Yes those are much higher.

Buy sell margin, or those sorts of margins, they’re much higher. And that’s where this business…

50 to 60.

Difference in this business does that goes through a $1 billion.

Yes it’s a very high scale. So hopefully that gives you some clarity. We're happy with the way we're pacing and the business is performing well.

Yes thank you. Next we go to the line of Pat Walravens with JMP Securities. Please go ahead.

Great. Thank you. Thanks for the detailed discussion so far guys. Can I go back to pricing around the CoStar Suite. I would love to understand better. I hear this concept of waiving the escalations. And just does that ring a bell, by the way?

We are familiar with all these terms by time to time.

Did someone wave your escalation?

Yes that’s not happy to deal.

But for this year, how are you thinking about that? And what were you doing this year in sort of in 2019 and beyond, how is it going to work?

Yes, when we started this at the very end of the first quarter, beginning of the second quarter, we really eliminated the discounting in many forms. Some of it was in bundle discounts some of it was in just manager discretionary discounts; some of it was in just selling partial products, which really resulting in discounts; and then some were in annual escalations that we had, which resulted in essential discounts. So this was all happening at the same time in the early second quarter where we said, we're done with the discounting programs anymore, all of those go away. And now we manage the business to a very defined rate card. We have very defined escalations on an annual basis. And then now we're starting to take some of the very deepest of the discounts on a combined product basis, and go back to those clients, look at the value proposition. And those that have strong value propositions are now signing up for three years escalations or three-year increases to get up to rate card over a multiyear time frame. And we probably did about 30-or-so of those deals in the last month and a half to start to get our feet wet on that. So those are all part of this, first, firm up your pricing, firm up your rate card and now go start to take the deeper discounts historically and move them up to rate card because you've seen the investment we put in the product with all the analytics, with all the new research centers and all these things over time and we're seeing clients are willing to step up to that as they recognize that value.

Yes, I just can't help but chime in here.

Please do.

So the word waiving escalations is completely foreign to me and I don't understand it. So we went through a phase where you had all of these LoopNet folks who were getting really marginal product and paying very little. And you want to bring them over to the CoStar platform. And we stretched down in pricing to include them in the business. Then you had Xceligent out there operating for an extended period of time. And we estimate that for every dollar they were charging someone, they were spending $5 to produce it. So they created this artificial price point out there. And again trying to bring people into the system, we extended discounts for a period of time. The reality is our products on the commercial real estate side provide an owner, or broker, an appraiser, irreplaceable huge value. And they are a major bargain. And our renewal rates would instruct any economist that we are under pricing these products. And the difference between – only a junior salesperson who doesn't understand the market sells these lower-priced things, you have the more senior salesperson who comfortably signed a much higher point. So over time, you would expect to see the pricing growth continue to reflect the value we are providing folks. And the ROI on investment in our products, half of our clients is phenomenal no matter what we do with escalations of a couple of points to each year or more. So the era of trying to meet Xceligent's pre-bankruptcy pricing is behind us. And yes, enough said, we feel strongly about that one. And let's get Pete in here for cheating second question.

Pete how do you slip back in there?

Okay, let’s go back to the line to Pete Christiansen with Citi. Please go ahead.

Thank you very much. I appreciate that. Very quick question, I promise I won't hold up anyone much longer. But you talked about headcount going down, attrition and then you're actively hiring. Just generally, how is hiring going, has it been to upper lately?

Hey that’s a good question because always you’d expect at 3.7% unemployment you get some problems. I'm very grateful that we moved to Richmond with a research center we did because that's probably where a lot of competition would occur. We went into – like the engagement surveys in Richmond show that that center is working really well, folks are pretty happy there, I think, its great feel and energy down there. That offsets our huge sort research hiring needs. I would not want to be hiring in some – the researchers in some U.S.A. right now. On the sales front, I think, I have no indication that our hiring is not going well. It is just a question of we've been really busy and a lot of change and we're not afraid of change. So you put two big competing sales forces together in the apartment industry, we're experienced enough to fully expect churn and reactions and we manage and at the best we can and then you just deal that and going keep on hiring. I think we communicated that earlier. The other thing is that I always believe it’s good to be real straightforward the sales force about what the expectations for the job are. And it's to sell the correct solutions to the right people and to maintain a good positive relationship with those customers, and we don't yield on that. And if that causes 10 people in the CoStar sales force to leave, we'll be better off next year. And so it's on track. I think we probably need to continue sort of tweet the organization structure to be able to do with the growth but I would say it's going well. And next year is probably easier than this year in terms of the number of changes happening in the sales force, which even when no change occurs one year in the sales force, all sales forces believe lots of changes occurring.

And it’s just difference for those.

Yes. But anyhow thank you Pete.

And so with that, I think, we will conclude the earnings call. And please stay tuned, the suspense is palpable, will CoStar reach its 40% margin goal and the adjusted EBITDA margin goal in the fourth quarter? Please standby and we'll talk to you at the yearend earnings call. Thank you.