Ladies and gentlemen, thank you standing by. And welcome to the CoStar First Quarter Financial Results Call. At this time, all lines are in a listen-only mode. And later, we will conduct a question-and-answer session with instructions being given at that time. [Operator Instructions] And as a reminder, today's call is being recorded. I would now like to turn the call over to our host, Rich Simonelli. Please go ahead sir.

Thank you very much operator and welcome to CoStar Group's first quarter 2019 conference call. Before I turn the call over to Andy Florance, our CEO and Founder; and Scott Wheeler, our CFO, I'd like to share some very interesting and important items that could 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 in CoStar Group's April 23, 2019 press release, on our first quarter earnings and our company outlook and in our CoStar filings with the SEC, including our most recent Annual Report on Form 10-K and our subsequent Q reports on Form 10-Qs under the heading fasters – 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. A reconciliation to the most directly comparable GAAP measure to the non-GAAP financial measures discussed on this call including non-GAAP net income, EBITDA, adjusted EBITDA and forward-looking non-GAAP items are shown in detail in our press release issued today along with definitions for those terms long definitions. The press release is available on our website located at costargroup.com. As a reminder, today's conference call is being broadcast live and in color on our new investment-improved Investor Relations website. Please refer to our press release today to how to access this call going forward. Remember, one question so make it a good one. And I'll now turn the call over to Andy.

Thank you, Rich. So let's move to this call quickly so that we can all get to this long definitions of key financial terms in our press release. Thank you for joining us for CoStar Group's first quarter 2019 earnings call. It's just eight weeks ago that, we reported superb year-end results and we are pleased to be back so soon reporting another strong quarter with solid revenue growth and even stronger profitability growth. In the first quarter of 2019, CoStar Group total revenue was $320 million -- $328 million, up 20% year-over-year. We generated $55 million more revenue in the past quarter than we did in the same quarter one year ago. Apartments.com led the way with 30% year-over-year revenue growth. LoopNet's revenue increased 17% year-over-year. CoStar Suite revenue grew 13%, which was at the upper end of our guidance. Our rural lands marketplaces grew 21%, and our business-for-sale marketplace revenues grew 12% year-over-year. CoStar Real Estate Manager continues to be a tour de force and major contributor with 95% year-over-year revenue growth. With high incremental margin on each dollar sold, our strong revenue growth continues to translate into even higher earnings growth. In each of the last two quarters, we've generated the highest quarterly net income in our history. Net income increased to $85 million in the first quarter, up 63% from $52 million in the first quarter of 2018. We generated $113 million of EBITDA and $125 million of adjusted EBITDA in the quarter. When annualized that's consistent with our expectations of generating $0.5 billion of adjusted EBITDA in 2019. Our $55 million year-over-year increase in revenue in the quarter generated a $43 million year-over-year increase of EBITDA. Effectively 78% of – $0.78 of every incremental dollar sold translate into EBITDA. In the first quarter of 2019,…

Well, I thank you Andy. A flattering introduction. Here comes the lively portion of the call. I'm going to call it call plus. Okay. All right. Well, we did have a great start to 2019, great sales numbers, produced great revenue growth and these both allow our leverage model to give us increased levels of profitability and strong cash generation. So, as Andy mentioned, revenue in the first quarter of 2019 increased 20% over first quarter of 2018, which was near the high end of our guidance. Looking at revenue performance by services, CoStar Suite revenue growth was 13% in the first quarter of 2019 versus first quarter of 2018. The growth is primarily driven to both brokers and owners, and it's evenly balanced between existing clients and new logos. As previously communicated, the revenue growth rate for CoStar Suite is expected to be in the 11% to 13% range for 2019. Revenue in the Information Services group grew 25% year-over-year in the first quarter, primarily as a result of CoStar Real Estate Manager's revenue growth of 95%. The adoption of the new lease accounting standards created strong demand for our Real Estate Manager product, which we do expect to continue although, slightly moderated throughout the year as we move past the peak adoption date of the new lease standard. Information Services revenue is expected to grow at a rate of 11% to 13% on a year-over-year basis. Multifamily revenue growth for Q1 remained strong at 30% over the first quarter of 2018 just in line with our expectations. Going forward, the second and third quarters of 2019 are expected to reflect lower growth rates than the first quarter of 2019 for two reasons both related to the ForRent acquisition. First, we've now lapped the anniversary date of the ForRent…

That's definitely call plus.

Thank you. Let's open it up for some questions.

All right. Thank you. [Operator Instructions] And our first question comes from George Tong of Goldman Sachs. Please go ahead.

Hi, thanks, good afternoon. Your 2Q guidance implies about 120 basis points of year-over-year EBITDA margin expansion at the midpoint, which compares with 740 bps of margin expansion you just delivered and your full year guidance suggest the rate of margin expansion will narrow relative to the first half. Can you discuss the factors that are driving a more conservative back-end margin outlook?

Yes. I think what you see George is certainly the timing of investment costs. Second quarter is primarily driven by all the marketing that we're spending and we expect that to be our strongest quarter, but still up when comparing to the fourth quarter over the prior years. I think you also see a lot of benefit in the first quarter as we passed the ForRent acquisition annualizing and so all those benefits are now into the numbers as we lap the margin improvements we got last year from ForRent. So those are pretty much the biggest factors I would call out.

All right. Thank you. And now to the line of Bill Warmington of Wells Fargo. Please go ahead.

Good afternoon everyone.

Welcome, Bill.

Welcome, Bill.

So is it true that you're handing out free Teslas to all the sell-side analysts? Is that what I heard something about that?

It depends on the nature of the report.

That was a good question Bill. Thanks.

All right. Now the real question. The -- so I was...

These are for top performers.

The -- I was hoping for an update on the LoopNet marketplace in two ways: One being the build-out of the LoopNet marketplace site and how that's going and second is maybe to talk about some changes in the sales force structure moving to a more of a national account coverage model that might help the sale of that product.

Sure. So definitely a lot of effort, a lot of work going on, on LoopNet 2.0. And actually it was -- I was about there for a week or so last year -- the development the last week. Two weeks ago, I was with the development team for the week out in California going over the product, a very productive meeting. And we hope to make strong releases in the third and fourth quarter around that product area. I picked up a customer service call this morning randomly and the customer was complaining they wanted two major features in LoopNet that we have already put into the new design, so in the right top of the list, so stronger and easier searching for restaurants and being able to highlight things with broker comments. So I'm feeling good about that where that's going. We're also -- I spent last week with our photography team making sure they have the right to support the new elements of that product. And you can see the growth begin to click up and we remain very excited about it. You also see it beginning up an effort going on in Spain and in United Kingdom to match the effort that we're doing here. And so all in all, it remains on track and we're excited about it. In terms of the major accounts or the national accounts, the sales force, we took the -- we had last year quotas on what the sales force needed to sell of LoopNet in order to make the higher commission rates. We removed that this year, so they could focus on general customer service and set their own allocations and priorities. And the nice thing is the sales results have continued to come in for LoopNet naturally without the commission focuses. So we think that's been good. And we will be structuring the LoopNet major national accounts the same way we structure Apartments.com in the near future. So it's a lot of software work going on and a lot of operating work that needs to be done to position for it, but it's on track and it's a top priority.

All right. Thank you. And now to the line of David Ridley-Lane of Bank of America. Please go ahead.

Sure. Two questions on the impact of the ForRent product cancellation. One, do you have some sort of quantification for the impact on net bookings in the first quarter? And two, did I get my sort of the math right around your guidance for the second quarter that it's about $3 million of revenue that was canceled through the second quarter? Is that in the ballpark? Thank you.

No. We don't have a number on the bookings side David. There was -- there's certainly effects running through last year, but we didn't talk about that on the booking side effect. But on the pro forma side, let's see the -- let me look for the Apartments pro forma for you. Just a second, I will get it. I know it's here somewhere. So, yeah, we had somewhere between $3 million and $6 million per quarter throughout the year that are going to effect us and the biggest effect would have been in the second quarter for 2018. So hopefully that help give you some idea of how big those discontinued revenues are.

All right. Thank you, and now to the line of Peter Christiansen from Citi. Please go ahead.

Good afternoon. Thanks for the question. On the 40% bookings growth in multifamily, do you have any sense of what portion of that is coming from competitive takeaways versus just normal wins, new wins? And then my follow-up is with $1.2 billion going on $1.3 billion in cash on the balance sheet, what's your sense for deploying that capital as we look forward the next couple of quarters?

Good questions. So on the first one, I was -- I ran into our Head of Apartment Sales last week, Deb Richmond, and she couldn't wait to tell me about some huge competitive wins we just had. I think she was talking about some community with 135 properties moving over something or some organization 135 properties moving here. So my sense is that there is a lot of competitive shift going on. We are having some success with the Diamond Plus ads as well, but a lot of it is competitive shift, and the numbers are really quite impressive. Like when I look at the total accounts, I won't recall exactly what the number was the last time I looked, but they are very impressive competitive wins. And for good reason, because the traffic numbers are so compelling, the lead advantages are so compelling in Apartments.com, and the benefit of having invested well over $1 billion in Apartments.com has resulted in a huge competitive distancing going on there. I also got an e-mail today from the Apartments regional sales manager with someone moving a bunch of properties over, and they specifically cited the quality of our customer service. They said the fact that we were in their communities every month or every 1.5 months, briefing them on what was happening in their local market, and the fact that they had not seen the competitor in four years was a major factor in shifting all their purchasing over to us. So on hard numbers, I've seen the last two months, I would say a major competitive shift. And anecdotally in the last two weeks I'd say, a continuation and possible acceleration in competitive shift. In terms of our petty cash of $1.2 billion to $1.3 billion, we remain active in looking at a number of potential acquisitions, but we remain selective. And we devote a significant amount of effort to that ongoing. And those things will happen in time, but our track record over the last 20 years of acquiring 30-plus companies, it's sort of hard to imagine that won't continue. And so that -- we would expect that capital would be put to good use in transformative ways, and we look forward to that day.

Thank you. And now to the line of Andrew Jeffrey from SunTrust. Please go ahead.

Hey, guys.

Hi, Andrew.

Thank you for the update today. Andy, one of the areas that has come up over the years is international. And you just kind of mentioned big markets, but maybe not a whole lot of companies with critical mass or maybe different market structures. It sounds like maybe you're getting closer to monetizing that opportunity now. Can you kind of frame that up, and what might it mean over the next few years for your growth?

Sure. So we're -- I mean you're right. There are some acquisition opportunities over there that are midsized that could be interesting, but that -- really what we're focusing on is just organic growth in those markets. So we have been ratcheting up our investment in the last 18 months in the United Kingdom. We're in Germany and Spain. We see some exciting -- some good opportunities in France, availability of lower cost digital data, machine learning to harvest data on the Internet. So we're in an investing period. And we saw -- on a small scale, we saw a huge growth in the first quarter in the United Kingdom in our bookings, but still modest by comparison to the United States. And we think that we had our expectation that that growth will payoff in the next couple of years. The nice thing is now we're getting a multi-country footprint and we'll be -- I think it’ll be transformative when we can put three or four European countries into one consistent platform. So that's one of our big goals in the next three years or so, and I think that will move us up to parallel growth rates with the United States.

Thank you. And now to the line of Stephen Sheldon from William Blair. Please go ahead.

Hi, guys good evening. On bookings, it seems like you're continuing to see broad-based momentum, but I wanted to ask how bookings activity in the first quarter compared to your expectation. So just excluding the LoopNet runoff in the year-ago, $48 million this quarter was down some relative to the $54 million in the year ago period and $50 million in the fourth quarter. I know there's some seasonality relative to the fourth quarter, but anything else that we should consider when making the sequential and the year-over-year bookings comparisons?

Not really. I think I was -- we were very happy with the bookings. I was upwardly surprised as the Apartments.com bookings were extremely strong and continue to be extremely strong. We are running the business looking nine months a year or so out. So we're working a lot of things that are not month-to-month. And there is always volatility as you look at the numbers like what land might be doing one quarter, what farms might be doing one quarter. Things shift around they're all generally really strong, but there is -- since they're real returns and real sales results, there's volatility to them. If they were ever perfectly linear that would be a made-up situation that's not happening. And so they move around but they're strong. I think we got the payoff from last year's customer service and conversion efforts with ForRent when you see the surge in productivity there. The investment in additional face time with customers with CoStar will probably pay off in the next two quarters. So, all-in-all, great quarter, very happy with the results and phenomenal results.

Thank you. And now to line of Mayank Tandon from Needham. Please go ahead.

Thank you. Andy or Scott, is there a way to think about revenue growth in terms of the pricing uplift you expect this year and over time and the contribution from new clients plus increased penetration from current clients? How should we think about the growth profile if you break it down that way? I do realize it's going to be difficult across different segments, but just maybe for the company overall.

I'll turn some rocks and you can do as well. So a lot of the pricing lift we're seeing is we are not driving aggressive price increases against our core customers for the same price -- same products with the exception being on our marketplaces demand is really strong. So at LoopNet, you're seeing super strong demand in markets like Southern California and Southern Florida, so you get some saturation on advertisers. So we're eliminating big, big steeply discounted contracts. So if someone was getting 60% price breaks or discounts, we're eliminating those consistently and bringing people more up to a standard pricing level that looks -- that gives you that 49% year-over-year price lift on PL. It's not so much we're taking all -- everybody up. We're eliminating low-end discounts. Then you're getting product transformation. So as we rebuild LoopNet to really effectively showcase mega properties, super high-end properties those will be sold at dramatically higher price points, but to new customers for new product. So, that will bring the ASP up dramatically but not because we're doing across the board increases for the same product. They will be more incremental prices. The -- this continues as we go into more analytic products for CoStar. You're selling to higher utility institutional clients. You get higher ASPs there as well. But delivering product to the one or two person brokerage shop in Oklahoma City remains just as high a priority. We're not taking those prices up beyond roughly inflation. So it's a mix. Do you want to…?

Yeah. We track the price/volume mix equation into the big groups. And as you just said the only place we really had price increase was in the LoopNet, getting rid of some of those discounts. And then as we moved people in the ForRent acquisition to the broader network then you saw this other effect of moving to a broader network contract, which would have higher revenues per property than what we had before. So it's not really a price increase. It's a broader package increasing. So it's those types of things and the other one that Andy mentioned that are really driving what we call price, which really is accounting for a good half of what our revenue growth is in many quarters because of those effects.

All right. Thank you. [Operator Instructions] And now to the line of Pat Walravens from JMP Securities. Please go ahead.

This is actually Joe Goodwin on for Pat. Thank you for taking my question. Just curious, if you talk about the salesperson…

Securities?

Yeah, JMP Securities a little mistake there. Yeah, as a former software salesperson myself as I was looking at the Net Promoter Score that you guys shared earlier and they seemed really high. And from my experience people don't always love speaking with software sales reps. I guess that would imply. So I guess just really curious how do you guys go about calculating those scores? And how and when do you collect that data?

Yeah. So what happens is there is a independent team that works in a different group from sales based out of Atlanta, Georgia. And each day they look at meetings that occurred four to 24 hours prior. And they randomly sample the people that those meetings were held with. And I won't get the wording exactly right. But they say based on your meeting yesterday and your overall impression of Apartments or CoStar, how likely will you recommend CoStar or Apartments.com to a friend or colleague. So it's the recommended question. And that gets us a 9.02 on CoStar, and gets us to 9.8 on Apartments.com. And there was one woman sorry I can't remember her name or where she was, who for the year last year star scored 9.98. So she is just a little bit of a stronger salesperson than you were. But the -- I'd have to hand it to her like if you get a 9.98 -- and I'll try to get her name for the next earnings call. But I won't actually because I might sound as a recruiter. You're right, that people don't want to talk to -- typically don't want to spend their day with software salespeople but we try to make sure that we're showing them some new benefit to them. We also talk to them about the general market. I also believe we delivered over one million tchotchkes last year. A – Scott Wheeler: …the cookies and the candies.

The cookies, candy, a charger cable, a cozy. We delivered so many little minor gifts. We do have all kinds of strategies for building those relationships. And that tends to work.

Thank you. And now, to the line of Sterling Auty from JPMorgan, Please go ahead. Q – Sterling Auty: [Indiscernible] A – Andy Florance: Sterling we're having a hard time hearing you. Q – Sterling Auty: Is that any better? A – Andy Florance: Better. A – Scott Wheeler: That's Better. Q – Sterling Auty: Okay. I was saying that, in your prepared remarks you had the commentary obviously in the strength of the multifamily, but also the deceleration in commercial real estate. Just from a high level does that mean that you -- as you look throughout the rest of the year that the focus of the investments will continue to be on the strength in multifamily housing? And just to this quarter did you invest in the level you thought you would in the commercial real estate part of the business? A – Andy Florance: I would think that we did invest in the commercial real estate side the way, we'd expect to. And investing -- I think the question is reinvesting into the strength of multifamily. In the prepared remarks, I've noticed that and I thought, yes, there's a lot of upside in commercial real estate right now as for the whole economy. And yes, the statistics, the market indicators are all as the best I've seen in my career, for sure. I hate that I'd admit this. But I also -- we noted earlier $1.2 billion to $1.3 billion in cash. Downturns are good too because we bought some amazing companies in the downturn. And we are not terribly cyclical as a company. We typically are able to grow through downturns. And there is actually both a cyclical advantage to strengthen the apartment industry for us. As people are building a lot of new developments, they are ready to invest in getting faster lease up on those new buildings. Conversely when the wheels come off and vacancy rates drop what they spend on, lead generation with Apartments.com is peanuts or any other call for term you want to use compared to the amount of money at risk in these communities. So when someone's spending $1,100, $1,200 a month on getting the majority of their leads to keep their $250 million property leased and solvent they don't cut back on that $1,100 a month. So, I think that's one of the nice things about our business is we are pretty -- we benefit in the up cycle and we're very resilient on the down cycle, but still today no indicators showing a down cycle.

Thank you. We have no one else in queue. Please continue.

Well, with that, we're going to wrap up the call. Thanks everyone for joining us. And thank you Scott for a fantastic call plus. And thank you Rich for a really fascinating read on the risks and the definitions. And I look forward to hearing you -- hearing -- spending time with you guys again at the end of the second quarter.

All right, thank you, and ladies and gentlemen, this call will be available for replay after 7:30 p.m. Eastern Time today through midnight May 23 2019. You may access the AT&T replay system at any time by dialing 1-800-475-6701 and entering the access code of 466402. Again that’s 1-800-475-6701 and international participants may dial (320) 365-3844 with the access code of 466402. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.