CoStar Group, Inc.

Thank you. Ladies and gentlemen, welcome to the CoStar Group's 2012 third quarter conference call.

On the call today are CoStar Group's Founder and Chief Executive Officer, Andy Florance; Chief Financial Officer, Ryan Radecki; and myself. [Operator Instructions] Certain portions of this discussion contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements.

Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's October 24, 2012 press release on the third quarter results, and in CoStar's filings with the SEC, which include our annual report on Form 10-K for the period ended December 31, 2011; and our 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.

As a reminder, today's conference call is being broadcast live and in color on the Internet at www.costar.com. A replay will be available approximately 1 hour after the call today is completed, and will be available until November 25, 2012.

To listen to the replay, call (800) 475-6701 within the United States or Canada; or (320) 365-3844 outside the United States. The access code is 266046.

A replay of the call will also be available on our website soon after the call concludes.

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

Good morning, everybody, and thank you all for joining us. I'm very pleased to bring you news this morning of solid financial performance in the third quarter.

Driven by both strong organic growth, along with the acquisition of LoopNet, CoStar's revenue for the third quarter increased 50% year-over-year to $96 million.

Third quarter EBITDA increased 227% year-over-year to $19.6 million. I would love to be able to say that every earnings call.

In the third quarter, we added 948 new subscription customers, which is the largest number we have added in any quarter, so that's organic sales. This is the result of our sales team ramping up to take advantage of the opportunity to cross-sell CoStar into the LoopNet client base.

Following our successful acquisition of LoopNet on April 30 this year, our single greatest priority as a company right now continues to be aggressively integrating the resources of LoopNet and CoStar together to capture what we see as a once-in-a-lifetime opportunity.

The combined company now has nearly 2,000 employees, and I believe that they see the potential these combined companies have, and they and we are all very excited about it.

The commercial real estate industry is massive, with over 10 trillion in assets in the U.S. and the scale we need to address this opportunity is great.

One of the best things about the merger at LoopNet is that it has enabled us to team up with several hundred new gifted colleagues who have the skills we need to succeed in our mission.

I think it is safe to say that we all feel pretty lucky to be here in this company right now with this opportunity. And that's a good thing because right now, we have an awful lot of work to do here.

Prior to the merger, these 2 great companies were structured top to bottom to optimize the ability of each company to succeed, given the environment that existed before their merger.

With this merger, that environment has been turned upside down and inside out for the better. But that means that our staff has to embrace a tremendous amount of change in order to ensure that we put the right talent in the right place doing the right job.

I'm really proud to say that our team is doing a great job embracing the change and working through the inherent challenges in order to build the best company to serve the industry.

I think it is remarkable how quickly this integration is coming together. I've seen a dozen-plus mergers up close, and this one is progressing at a faster pace than just about any I have seen before.

A lot of credit for that definitely goes to a great leadership team on the LoopNet side.

I have the entire LoopNet team to thank for supporting the vision of the inspiring potential of this combined company.

Let me give you just a few examples of the level integration occurring. LoopNet had perhaps 2 dozen researchers tasked with finding commercial real estate listings to load into the LoopNet Marketplace, in an effort to drive greater participation.

After the merger, that task made no sense because CoStar already had the vast majority of those listings in our database, and there was no need to collect data twice. The LoopNet research team spent several weeks in training, both in Washington and California, learning how to do research to support the CoStar information products.

In addition, several experienced CoStar managers and researchers have moved to LoopNet's offices in California to further train and support these former Loopsters as they begin doing CoStar research. This was not easy, or a completely painless transition for all involved.

But it has happened and it is working.

The company has eliminated around $1 million of redundant cost in this area alone, has retained good talent and is improving our products in doing so.

Over the past quarter, the entire research team, with the support of our software team, has come through the entire LoopNet database and added 50,000 listings to the CoStar information products that have been missing prior. This should make our products even more valuable to our customers.

Total listing count grew to 1.6 million in the third quarter from 1.5 million in the prior quarter.

The newly combined companies now have significant telephone customer service teams in London, Washington and San Francisco. Each, separately, can effectively service customers in an 8-hour window, given that 2 of these centers support 5 time zones.

00 in the morning, their time, until 9:00 at night, their time. Our goal is to have that 6 days a week.

In addition, by increasing the pool, you need less standby staff to handle call searches. This means that through attrition, we can have fewer customer service reps, providing high-quality support over greatly expanded hours.

CoStar has a multiyear pipeline of detailed product development specifications that we believe will become industry-leading tools that will drive even higher sales results in the future.

Now that the companies have merged, LoopNet will be devoting even greater software resources to its innovative and profitable Internet marketing solutions, but will not need as many resources working on fledgling redundant information products.

Both LoopNet and CoStar developed in the .net environment and have very similar technology stacks. More importantly, both companies have top flight software talents and management.

Our technology teams have spent many hours post-acquisition briefing one another on how our respective companies' technology solutions are built. I think, it's probably not hours.

I think it's probably days and weeks of briefings.

This has been a great 2-way learning experience for the staff. This also means we can use some of the LoopNet software teams to bring CoStar products to market faster and vice versa.

Several weeks ago, as we were attending a regularly scheduled half-day CEO software briefing session, when it dawned on the other side in that, I was listening to a LoopNet senior executive, Jerry Rodgers, brief me on the timing of the next major CoStar product release. So in several short months, people have taken cross responsibilities across the companies.

It was a great briefing.

Another area where I believe we are realizing extraordinary value is in the integration of our sales teams. Remember that we have very roughly about 80,000 to 100,000 good prospects currently using LoopNet that we want to cross-sell CoStar information products to.

We have just started on that effort, but in addition, we have a similar scale craft -- similar scale task of crossing LoopNet Internet marketing solutions to CoStar users.

Any way you look at it, we need a very large sales team to take advantage of this large opportunity. When we closed the deal, we had just over 200 CoStar sales reps, and now combined with LoopNet's team, we have almost 350 sales reps.

The problem is that most of these salespeople were not tasked with selling the cross-sell products, the highest value products, which have the highest revenue potential post the merger.

LoopNet was devoting a large number of sales resources to selling premium searcher property comps and property facts on monthly terms to individuals. These products have lower renewal rates and lower price points, so each unit sold is ultimately worth only several hundred dollars.

That stands in sharp contrast to sales of CoStar information products, which have higher price points, firm level purchasing instead of individual purchasing, annual contracts instead of monthly and extraordinarily low cancellation rates.

We believe that each subscription of CoStar Property sold can be ultimately worth approximately $50,000 to the company over time.

Some of LoopNet's Premium Lister plans can be worth several thousand dollars per unit sold. I believe that LoopNet's Premium lister plans sold on annual contracts at the firm level might approach tens of thousand dollars in value per unit sold.

It may have made sense to devote resources selling low-priced products to individuals when the companies were standalone, but it makes no sense now, when we believe that we have tens of thousands of potential sales with long-term values approaching $50,000 per unit.

Obviously, there's a great opportunity to shift sales resources from the lower quality products to higher value ones.

Often, within merging cultures, that is much easier said than done now. In this case, I think our sales organization is committed to doing the right thing and is making phenomenal progress.

LoopNet has a number of strong sales professionals, and we have already promoted approximately 20 of them from selling these lower price subscriptions to field sales where they're selling CoStar and LoopNet Premium Lister at the firm level on annual contracts.

In order to bring them up to speed as quickly as possible, we teamed them with senior CoStar sales professionals across the West Coast. We believe LoopNet Premium Lister has a higher value per unit sold than showcased, so we've trained 24 Washington based salespeople on selling LoopNet Premium Lister, and that is their primary role today.

This is really significant because we are now successfully selling LoopNet from CoStar headquarters in Washington, as well as LoopNet's headquarters in San Francisco and their Glendora office, and throughout the field, too.

We have also promoted an additional 21 sales staff from our centralized group in HQ to field account executives and teamed them up with East Coast account executives, where they're now -- more senior East Coast account executives who have been in the field for a while, and they are now focusing on cross-selling our higher value products.

We had 15 advertising salespeople, who, prior to the merger, only focused on selling enhanced marketing exposure within our CoStar products. They have now been trained in selling LoopNet Premium Lister and are selling it on annual contracts at the firm level.

In total, more than 100 CoStar and LoopNet salespeople have seen their sales responsibilities change significantly since the merger closed 6 months ago, so that we can take advantage of the higher potential that we have in cross-selling LoopNet and CoStar services.

So with that, let's talk about actual cross-selling results to-date in these first number of months. In August, we began distributing LoopNet user lists to our sales team for cross-selling.

Of the approximately 100,000 information cross-sell leads we're focusing on, we have only distributed about 16,000 to-date.

The sales force has made contact only with a portion of those first leads, but they've already closed 723 deals selling CoStar information products to LoopNet users.

Most of the LoopNet users we convert to CoStar contracts were premium users. They were paying nothing to LoopNet.

The others, which were the minority, were paying LoopNet a total of $37,000 a month for various combinations of information and marketing services, that they, in essence, could drop at any time.

They were not annual contracts. These people are now purchasing CoStar information services and LoopNet marketing services for $381,000 a month on annual contracts.

That is a monthly billing increase of 930%, which is clearly a home run. Go, Giants.

These clients' prior commitments was -- their prior commitment was only to pay LoopNet $37,000. Now, they have committed to annual contracts with us, with an aggregate commitment of $4.6 million.

You can do the math, it's about 120-fold increase in contracted revenue from these users, much more stable, predictable revenue.

The $381,000 of monthly revenue was comprised of $58,000 of LoopNet Premium Lister and $323,000 of CoStar information services.

I have participated in a number of these sales, and these new customers appear to be very pleased with these new combined services.

We are at just at the beginning phase of this effort. We currently expect the number of demos will increase significantly in the fourth quarter of 2012 and beyond.

I know that we already have 500-plus scheduled out into the future. The company's sales force spent much of the third quarter of 2012 training, developing sales tools, reorganizing the sales force and forming new teams by an HQAEs.

We look forward to reporting a full quarter of cross-selling activity in the fourth quarter, that we expect will improve on these initial numbers. Just to put some pressure on our sales management.

While we have put a lot of focus into selling CoStar information products in this quarter, we also believe that we have significant growth ahead in LoopNet premium memberships. LoopNet's core business is performing extremely well in the quarter, with premium memberships up 2,783 during the third quarter to 80,062 premium members.

That is the strongest membership growth LoopNet has seen since the third quarter of 2007.

The growth in members is a 91% increase quarter-over-quarter, and a 112% increase year-over-year. I think one of the exciting things happening here is that for each of the 723 LoopNet users we upsold, we replaced them with 3 new ones that perhaps could be future upsell opportunities.

It is a gift that keeps on giving.

Historically, LoopNet experiences significant sales cycles with the first quarter being the best, and then each successive quarter moves downwards until the fourth quarter is normally LoopNet's most challenging quarter. That's sort of a long-term pattern with LoopNet.

This quarter's result is significant, though, because we broke that historical downward trend in the third quarter. CoStar sales people and Washington HQ based centralized sales helped achieve that upward trend, along with the LoopNet traditional sales team, but that HQ team that was prior selling SHOWCASE in Washington, along with some East Coast star field sales reps, sold 555 premium memberships -- LoopNet premium memberships in the quarter that would not historically have happened for LoopNet.

And the pace of that contribution is picking up. On top of the 555 units sold in the third quarter, CoStar sales people have already sold an additional 369 units in the first weeks of this month.

LoopNet turned in its best-ever August, based on growth sales, and best since the March 2007 peak, based on net sales growth.

We are now only selling CoStar's traditional Internet CRE marketing platform, SHOWCASE, as a bundled add-on to LoopNet's Premium Lister product. The LoopNet Premium Lister product will be our lead product going forward in this area.

So SHOWCASE is being packaged with LoopNet and Cityfeet and national newspaper distribution plan, which includes 225 publications, like the Wallstreet Journal and the New York Times. So this becomes the LoopNet Premium Lister Gold package or combination package.

24% of our new Premium Lister subscribers are now subscribing to enhanced bundle, which we've only very recently started selling.

Overall, we believe we are very well-positioned to continue to drive sales and conversions of LoopNet and CoStar customers.

I'm really, really pleased to be able to announce a major milestone in the U.K. We have now completed the migration of our U.K.

property database to the same research system we use in the U.S., and we have now completed building CoStar Property Tenant comps and CoStarGo Go for the U.K. and will have completed it before the 10th anniversary of our being in the United Kingdom.

This is a completely new product offering for the U.K. market, and we believe it'll be a huge competitive advantage for CoStar that will drive penetration of new customers and will lead to upgrades and increased retention among existing clients.

We are doing a 2-stage launch of the products in the U.K. with the first release occurring in a 2-week series of marketing events across the U.K., starting November 5.

The first release is a soft preview release available to 2,000 users at our higher revenue clients and is available to them at no cost. We're giving away a large number of iPads as we did in the U.S., in order to spur fast adoption and create buzz for the broader market.

The official complete national launch will be on January 2, 2013. At that time, our remaining 10,000-plus users can upgrade from our existing focus software platform, the new CoStar platform, by paying a reasonable premium to their current monthly price.

We believe that this release of our integrated international CoStar software platform will enable us to significantly accelerate our revenue growth rates in the U.K. and move us towards profitability there.

In other news, in September, we launched our multifamily product, our apartment product. Multifamily is PPR's #1 property type by number of page views and report downloads, indicating that there is a lot of interest in this sector.

It is one of the biggest asset classes of commercial real estate. We've dedicated approximately 40 research analysts to the multifamily team.

The database includes over 50,000 multi-family properties with effective rent data and is growing really quickly. We have hundreds of thousands of apartment buildings in our database that we're enhancing with this current rent data vacancy data, et cetera.

We believe that this is significantly more properties than anybody else in this space offers by a wide margin.

The potential target market for this product at both the CoStar and PPR levels is vast. We believe this offering will give us deeper penetration with current and prospective clients, including banks, government agencies, CMBS investors, investment managers, REITs, municipalities and many others.

We expect to release the enhanced multifamily data in our CoStar platform as well and in that sales channel in the first part of 2013.

For the past 2 years, we have had research resources canvassing buildings in Toronto, Canada. In total, they have thoroughly documented 38,000 commercial properties for a total of 1.7 billion square feet of Canadian inventory.

We have met with the major players in Toronto, and when they saw the technology we had to offer, they were very impressed.

We are fairly confident, we do not believe -- or extremely confident, and we do not believe there's anything comparable covering commercial real estate in Canada. We believe we will launch the Toronto service in the first quarter of 2013.

I want to stress, we have no current plans to expand any other markets in Canada or outside the U.S. right now, and we do not believe the Toronto expansion will materially negatively impact our margin expansion.

This is a controlled expansion.

Current commercials estate market conditions remain positive for CoStar and most of our clients. While the economic recovery remains weak and we've not gained back all the jobs we lost in the downturn, office job growth is up over 2%, better than the overall economy and is positive for commercial real estate, whereas leasing activity is high due to inexpensive office space out there.

Overall, the third quarter of 2012 looks very similar to the second quarter of 2012. In the office market, year-to-date, net absorption has been focused on top-quality buildings.

It is still running fairly close to long-term averages. Net absorption for the quarter was 15 million square feet, which is in line with the current trends in the market.

Across the nation, rents are only up 1% from the bottom, and actually showed a slight downward trend in the quarter; however, rents in some markets are up significantly, particularly, in technology and energy cities. Say, San Francisco rents, as an example, have risen by 20% from the bottom, which is accelerating from last quarter's 16% increase.

Overall, the commercial real estate economy is creating an acceptable business environment, in which we can pursue our top priority of cross-selling CoStar products to LoopNet users and LoopNet tools to CoStar clients.

The cross-selling opportunities from the LoopNet acquisitions are now proven to be real and are driving significant new customer sales. As we move towards the end of the year and into 2013, we expect to continue to see the benefits of the LoopNet acquisition continue to unfold.

We believe that our employees, clients, and most importantly, shareholders, will benefit as we continue to integrate the 2 companies. Grow profitably and move towards our goal of $500 million in revenue and 30% or more adjusted EBITDA margins as we exit 2014.

I will now turn the call over to our Chief Financial Officer, Brian Radecki.

Just take a breath. Thanks, Andy.

You're welcome.

We're very pleased with our performance in the third quarter of 2012. This is the first full quarter we have LoopNet included in our consolidated financial statements, and the progress we're making in integration has already translated to synergies, showing up in both our revenue and earnings.

Today, I'm going to principally focus on year-over-year comparisons for the third quarter of 2012 and also on our outlook for the remainder of the year and into next year.

Now to review the results for the third quarter, beginning with revenue. The company reported $96 million of revenue in the third quarter of 2012, an increase of $32.2 million, or 50%, compared to revenue of $63.8 million in the third quarter of 2011.

CoStar's organic revenue growth remains strong in the 12% to 13% annual growth range during the third quarter of 2012; while LoopNet business, excluding purchase accounting adjustments, continued to achieve year-over-year revenue growth in the 10% to 11% range. Therefore, the combined businesses are operating in the 11% to 13% range.

We're excited about the performance of the combined business and continue to look for ways to maximize our future revenue growth, as we re-prioritize our sales efforts and aggressively pursue cross-selling opportunities.

Our non-GAAP net income earnings reached an all-time high in the third quarter for several key metrics we report, including EBITDA, adjusted EBITDA and non-GAAP net income. We believe the earnings potential for the combined businesses is evident, as I expect to see strong earnings growth year-over-year, as we take further actions to capitalize on synergies from both the LoopNet acquisition.

EBITDA increased 227% year-over-year to $19.6 million in the third quarter, up $6 million -- up from $6 million in the third quarter of 2011. Adjusted EBITDA of $25.6 million from the third quarter of 2012, which is an increase of $11.6 million, or 83%, from the third quarter of 2011.

Adjusted EBITDA margins increased to 26.7%, up from 21.9% in the third quarter of 2011.

Non-GAAP net income for the third quarter of 2012 was $13.1 million or $0.47 per diluted share, which is an increase from $7.2 million in third quarter of 2011 or 82% year-over-year. Net income increased to $6.8 million in the third quarter of 2012 or 196% year-over-year.

Reconciliation of non-GAAP net income EBITDA, adjusted EBITDA and all non-GAAP financial measures discussed today to the GAAP basis results are shown in detail, along with definitions for those terms in our press release issued yesterday and is available on our website at www.costar.com. And if you have any questions on those in detail, you can e-mail Rich Simonelli at costar.com.

Cash and investments increased $22.7 million to $151.8 million as of September 30, 2012, up from $129 million at the end of the second quarter. Cash flow from operating activities was very strong at $26 million for the third quarter of 2012, and $56.6 million for the 9 months ended September 30, which demonstrates the strong cash flow profile of our business.

Short- and long-term debt totaled $170.6 million as of September 30, 2012.

At this point, I'm going to give some operating metrics for the combined business, which highlight our strong performance in the third quarter. As we further integrate the businesses, we may adjust or introduce some new combined metrics.

Annualized net new subscription sales totaled $9.3 million in the third quarter of 2012. We have slightly refined this metric to include only net new subscription sales from annual contracts but does not include the monthly or quarterly sales.

Revenue from subscription services on annual contracts in the quarter was $68.3 million for the third quarter of 2012 or 71.2% of our total revenue. This represents an increase of 14.2% organically from the $59.8 million in the third quarter of 2011.

If you look at it on a trailing 12-months basis ended September 30, 2012, subscription revenue would have totaled $261 million, up 14.3% from $228 million for the 12 months ended September 30, 2011.

Renewal rates for annual subscription revenue remained very high during the third quarter. The 12-month trailing renewal rate for annual subscription revenue increased to 94%, actually up 0.3 percentage points from the 93.7% during the second quarter, which is a new record.

The 94% is also a 1.4% improvement from 1 year ago.

The renewal rate for CoStar subscribers who have been with us for 5 years or longer remained at a remarkable 99%, matching that all-time high we reported last quarter.

As we discussed previously, we expect the cancellation of the RMS contract, a DMGI-owned company, to have a onetime impact on our revenue and renewal rate of approximately 1% in the fourth quarter of 2012.

In addition, the ultimate resolution of the Grubb & Ellis contract, currently still in bankruptcy court, may impact our revenue renewal rate as we've discussed in the past few calls.

At the end of the third quarter, the CoStar business had approximately 95,568 subscribers, up from 91,010 in the third quarter of 2011, and down slightly compared to the second quarter of 2012.

While subscribers to our U.S.-based information services increased in the quarter, the small decline quarter-over-quarter is primarily attributed to the change in Showcase subscriptions. As Andy mentioned, we have combined our marketing services, are no longer selling Showcase as a stand-alone service.

We are now providing Showcase as a part of the expanded national distribution option for the LoopNet Premium Lister subscribers, and we expect the former existing CoStar Showcase subscribers to migrate into the subscriber counts of the LoopNet marketing subscriptions as we upsell them to this premium bundle.

As we have discussed in prior calls, we expect to continue to make some moves to rationalize our combined portfolio, and this decision to stop marketing Showcase in the stand-alone basis is an example of that.

The former Showcase sales force is now assigned LoopNet Premium Lister, both on a stand-alone basis and bundled list Showcase or national distribution.

At this point, we have approximately 71% of our revenue coming from 1-year subscriptions, while the remaining 29% is primarily made up from marketing services, including LoopNet's premium membership, CoStar Showcase, as well as revenue, advertising across both platforms. As we continue to make progress cross-selling some of the LoopNet subscribers onto 1-year contracts, as Andy talked about, we expect an increase in the amount of marketing revenue to be included in our subscription revenue metric.

For all the Loopsters on the call, the LoopNet Marketplace continues to be the premier website for marketing commercial real estate. The number of LoopNet premium members during the quarter, third quarter of 2012, increased to 80,062, up approximately 6,800 compared to the third quarter of 2011.

The average revenue per paying subscriber, or ARPU, per subscribers is approximately $65.91 for the third quarter of 2012.

Unique visitors to each of the LoopNet-owned websites tallied 5.9 million during the third quarter of 2012, according to Google Analytics, up approximately 30% from 4.6 million in the third quarter of 2011. LoopNet registered users, including basic and premium users, totaled 6.4 million as of September 30, up 22% from the third quarter of 2011.

I will now provide the outlook for the fourth quarter and the full year 2012. Our forward-looking outlook reflects current expectations as of today, takes into account recent trends, growth rates, renewal rates, which may be impacted by economic conditions in commercial real estate or by the overall economy.

Actual results may vary from these results. Call your doctor if you have any issues.

As discussed last quarter, throughout the LoopNet integration process, we've planned to consider alternatives for certain services from the 2 companies that overlap or create confusion among customers. We may reduce sales efforts in some areas or discontinue certain services within the boundaries established by our consent decree.

We would undertake these changes only if we believe they are accretive to the business in the long term. But this could lead to some negative impacts in the short term.

The change to our Showcase marketing services is one service, and we intend to continue to evaluate other services, like LoopNet property comps and property tax. We believe the revenue and earnings guidance we are providing accounts for these possible changes.

Based on strong earnings results in the third quarter of 2012, we are raising our estimates for non-GAAP net income per diluted share to a range of $1.59 to $1.64 for the year. This increase in guidance range is a $0.16 increase from the previous midpoint, $0.16.

We are clearly seeing the benefits of integration activities associated with the LoopNet acquisition, trends like the cost reviews, as reflected in our higher non-GAAP net income. For the fourth quarter of 2012, we expect non-GAAP net income per diluted share in the range of $0.40 to $0.45.

The marketing programs accompanying our ongoing cross-selling activities I discussed last quarter are still expected to be -- to have an impact range of $0.10 to $0.12 on our non-GAAP net income per diluted share; however, the timing of these activities has changed slightly. We expect to align these marketing activities with our cross-selling activities from the sales force throughout the fourth quarter and into the first quarter of 2013.

The first quarter of 2013 non-GAAP net income per diluted share is expected to be lower than the fourth quarter, as a result of the marketing activities, as well as seasonal higher expenses in this first quarter, which we always see. After the first quarter of 2013, we expect earnings to increase at a healthy pace moving forward.

We expect to publish more detailed guidance for 2013 as we discuss our 2012 year-end results, and we expect to continue to grow earnings year-over-year each quarter on our path to 30-plus percent adjusted EBITDA margins by the end of 2014.

Included in our earnings guidance, as we discussed last quarter, the company expects to launch CoStarGo and CoStar Suite in the U.K. in the fourth quarter, and we expect to incur launch-related costs in the fourth quarter of 2012 and as Andy mentioned, into the first quarter of 2013.

While this is expected to impact profitability in our U.K. segment for the next 2 quarters, we expect these new products to accelerate revenue growth in the U.K.

and to begin to drive improvement in the U.K. EBITDA margins in 2013.

In terms of revenue, we are raising the low end of estimates for our range to approximately $347 million to $349 million for the full year. The fourth quarter 2012, we expect $97 million to $99 million in revenue, but we are pleased with the strong sequential revenue growth rates so far this year.

We do expect a more moderate growth rate in the fourth quarter, mostly due to the seasonally weaker sales quarter that LoopNet has seen for years and years, coupled with the expected impact of RMS and the Grubb contracts, which we've discussed.

In summary, I'm very pleased with the third quarter results, which include the first full quarter of LoopNet operations that begin to provide insight into the strong earnings potential of this combined business. With our integration activities already directly contributing to earnings, we are well on our way to delivering the synergies we expected when we announced the deal.

More importantly, based on our early cross-sell success and realignment of the sales force, we remain confident that revenue opportunities are achievable by integrating these great businesses. We see an enormous opportunity for growth as the industry-leading platform with the most complete and growing set of services for commercial real estate.

Based on the revenue and earnings results for the quarter, I believe we are well on our way to achieving the medium-term goal we introduced last quarter of $500 million in run rate revenue by the end of 2014, with adjusted EBITDA margins in the low to mid-30% range.

More now than ever, we believe it is an achievable benchmark that sets us on a realistic path towards our long-term goal of $1 billion in high-margin revenue.

As always, I look forward to sharing this progress with you in coming quarters. And with that, I'll open up the call for questions.

So I wanted to ask first if you could talk to us about where you are relative to the cost synergies for the merger. We've been talking about a $20 million target over a 24-month period.

It sounds like you're probably running ahead of that.

Bill, it's Brian. Yes, I think clearly shown in the numbers that we're just barely 6 months into the integration, but I think we're probably ahead of where we thought we would be.

And you are seeing that directly in our earnings numbers and us raising earnings guidance along with still being able to invest in the marketing for the cross-sell. So I think we're extremely happy where we are on that metric.

And I think we're, again, well on our way to getting there, more than halfway. And I think that we've already held other things in place that we believe will be there on time or sooner.

Okay. And then I wanted to just ask if -- you were very helpful last time in terms of -- last quarter, in terms of giving some color around the organic growth.

I know you gave some figures on the subscription-based portions, specifically. If you look at it for total growth there, I know that you have some adjustments there for the LoopNet revenue in terms of deferred revenue write-offs.

How do you look -- how do you manage those pieces in terms of what you calculate for organic growth in the third quarter? And then how does that play out in the fourth quarter?

Yes. I try to give everybody a little bit of clarity on that.

I mean, if you were to look at the CoStar business, we're sort of in the 12% to 13% range. If you look at LoopNet, sort of taking out all the adjustments, they're sort of in the 10% to 11% range.

So again, I'm sort of giving a range of 11% to 13% for the business. I gave a new metric.

People will go back and look at the transcript this time of what the subscription base revenue is, it's now about 71% quarter-over-quarter, and that's growing at 14%. So what does that tell you?

It tells you the other 29% is growing at below 14% and sort of the one-off marketing stuff. So obviously, one of the big goals is to, as Andy talked about, is to constantly go out there and sell people annual contracts for those marketing services and moving them over to that bucket.

So I would expect to see that 71% grow next year, which, as that grows, you'll see higher growth rates. So I think until then, you're going to sort of be in that 11%, 12%, possibly 13% range, probably a little bit more conservative in there as we combine the 2 companies.

Okay. Any specific thoughts on the fourth quarter organic?

Sure. Yes.

I mean, I think we talked about -- in the fourth quarter, if anyone goes back and looks at LoopNet's numbers, they've always had -- that's always sort of been their worst quarter. So it's always a seasonally weak quarter for them.

So I think, obviously, that will moderate sort of our organic revenue growth. And we do have the RMS contract and the Grubb & Ellis, which is still in bankruptcy court that keeps getting extended, but we don't know.

So I would actually expect to be in the middle of the revenue range. Now again, there's a lot of factors.

We've reversed the trend last quarter. There's a lot of other things that can happen.

But I think with their seasonally weak quarter, knowing that these other contracts are definitely coming out in the fourth quarter, I'm expecting sort of a midrange, in the middle of the range of where we're at. And then I expect, obviously, to move back to what we've been seeing prior to that, into the first quarter.

Got you. And then I wanted to ask, where are you seeing -- it sounds like you're seeing a lot of success with the cross-selling.

I just want to know if you can give us some color in terms of particular market sizes, particular geographies, particular firm sizes, type of product, something that where you're having particularly strong success.

Sure. That's a good question.

And I would actually say that, at this point, a couple of markets stand out, like the California markets are doing extremely well. In particular, Los Angeles, where both LoopNet and CoStar Group have very large customer bases down there, and some salespeople are having some great success there.

But another area would be Chicago, where they've seen a lot of success. But I actually think that the biggest determinant of the kind of numbers we're seeing and where they're coming from is individual sales professionals, skill set and what they've learned and how they approach the upseller conversion sale.

So I'm seeing individuals who clearly get it. And our -- I think we've got individuals who've done 20 to 30 upsells on their own.

And then we have other individuals who haven't yet figured it out, and we are providing continuing ongoing training support to help them figure out how the sale works. And I guess that's ultimately good news because, eventually, we'll get everyone up to speed, and it should be fairly consistent.

But the -- over the short term, in Chicago, where we first started to trial the process and those salespeople did a lot of exposure with the cross-selling. Southern California, where we just have a bunch of good salespeople, and they've got a big pool to work.

But over the intermediate term, it will probably be heavily focused in California, Texas and Florida. And a lot of activity everywhere else in the country.

And the other thing we've seen is that in the initial rounds, we've done extremely well with the 1- to 5-person shop at LoopNet. So someone with -- just a handful of brokers, a relatively small shop, which has never historically been CoStar's greatest strength and now, this merger has given us that entryway there.

And that's doing really well. The 35- or 40-person shop who might have been using LoopNet before, they're facing a very significant cost increase to go from LoopNet to CoStar.

So where the 2-person shop may be paying $400, $500 more per month, and they can do that, the larger shop may be facing $10,000-plus more per month. And I think that has a longer sale cycle.

So we'll see those start to kick in later in the process. But the typical size of the leads we're looking at, or the LoopNet users are looking at, are 3 to 10 users in the shop.

And I'm encouraging the sales force to work that sub-10 list because if we have a lot of success in the sub-10 list, they'll just give us a stronger position in the plus-10 user area over time. Also, the biggest misperception out there in the marketplace, prior to merger, which we're now able to correct, that we merged, we can actually compare databases and show that to people, and people take it face value when you share it with them.

The biggest misconception is the relative strength of the CoStar retail progress and the LoopNet retail information service. And a lot of retail-oriented brokers are going, "Wow, customer's got a phenomenal retail database."

And so we're getting a lot of little retail shops coming over, which is good news. Now so far, the -- so far, we really, to be honest, have not achieved what our potential's going to be in the selling LoopNet Premium Lister to the CoStar clients.

And that's just a function of training. It's just -- we try to do a lot, as you can tell, really quickly.

And probably, at our sales -- annual sales conference in January, we'll exert a lot more effort to cross-sell the other way where we'll start selling LoopNet's subscriptions to the CoStar information clients. And I actually think that, that is going to be -- I'm very optimistic about the potential for that because I think it just -- it makes so much sense for these firms to be marketing their listings on LoopNet, and many of them just started taking advantage of it.

And I think we'll get dramatically better economics when we start selling the LoopNet Premium Lister to firms, with collections or brokers on annual contracts, rather than one-off monthly contracts to individuals. So all that bottom line, as a way of saying, it looks good.

We're moving really fast. I'm very impatient for the future.

One quick follow-up to what you said before, which is very helpful, Andy, sort of the 3% to 5% target, and they were paying it sounds like an incremental $400 or $500. Is that -- I'm assuming that's per month?

That's per month. So the average deal size is -- I mean, you can calculate it, but somewhere in the $500 a month is the average deal size there.

And is that -- that's the incremental? Or is that the new bundle that replaces the $60 a month on average or whatever or maybe $100 or $120 a month on average?

Actually -- and I haven't done the math on the numbers I have. So these numbers are moving pretty quickly, like it's ramping up, so they're moving quickly here.

But what I've been observing is that the -- when someone was paying LoopNet $80 for some combination of marketing information services, they're typically now paying us about $500 a month for CoStar information services alone, and then they're paying a little bit more in addition to get pure LoopNet marketing services. So we're -- not in every case.

But in overall, we're capturing a little more LoopNet revenue, but it's on the marketing side, on annual contracts, and we're getting about $500 average for CoStar information services, again, on annual contracts.

Yes, that's helpful. And then of the -- I think, 948 was the new sales.

Congratulations on that, by the way.

Thank you. I was trying to pull the number.

I didn't get it fast enough. One of the significant things there that you should catch in there is we've gone for about 10 or 15 years with a 50-50 balance between selling to new customers and existing customers.

So it's been 50% adding additional services to existing customers -- find new customers. The first time in the last 6 months, we shifted dramatically to the new customer side.

So we're picking up -- I heard different numbers in the quarter, but it was moving towards a 70-or-some percent.

Correct. Yes, moving towards 70%.

Wow, that's helpful. And then the 948 number, that's net new sales.

Is that just new customers or new customer sites? Or is that additional modules to existing customers?

That's new customer sites.

Okay. And then of those...

And part of the surprise here, for us, is that the people who are upgrading the fastest in the LoopNet world are the people who weren't paying anything at all.

That's interesting. Of the 948, in that 948, are you counting people who were Loop users and who are now buying this $500 CoStar on average?

Is that counted in the 948? Or is it -- are Loop customers now existing customers, and so don't count in the 948?

They don't count in the 948. So they've got to be a new customer.

But if they were a premium LoopNet user, it would count. They were just using the LoopNet site.

The question is that, were they paying or not? And I think what Andy was saying before is that the surprising thing is that it's "premium," more heavily weighted towards premium people that actually weren't paying anything.

They are using the LoopNet system, but they weren't paying, that were signing up here.

And I think that mix will change. But I think that's, to me, almost -- it's an amazing statistic.

And then last question on the 948, can you tell us how many were those kind of upgrades or the premium type deals, premium to paid?

I'm giving you a very -- I looked at it, and I'm giving you sort of a recollection from memory, so I could be wrong. But it was, I believe, somewhere in the 400 to 500 were premium.

That's helpful. And then lastly, the $1 billion goal that you all have talked about for a while, could you give us an update on the broad strokes of which segments or products or however it's easiest to divide that up, what percentage of that $1 billion kind of comes from different things?

Like for example, I know Loop was a big cog in that wheel in terms of marketing services. But can you -- is there any sort of granularity you can give us on what the split might look like at various product once you get to $1 billion?

It's -- I'm sure a lot of things will evolve, and we'll see the world differently over the next several years. But we often look at it by not so much by specific product, but by industry segment.

So if you look at -- in the most simplistic way, if you look at brokerage firms, owners -- and owners are really just institutions. They can be debt, equity, private, public, whatever, and then banks, who are more towards the regulatory side, and it's a little different there, and then other.

We believe that the potential in the banking side of the business, remember these banks keep a very large percentage of their commercial real estate on their books. So they're particularly sensitive to it and trying to evaluate, understand and look at credit risk, default and the like.

And we were meeting with the CEO of Wells Fargo earlier in the week, and he was talking about how the fact that in the residential world, he's presented with a lot of very hard numbers and quantitative analysis of what's occurring. And historically, in commercial real estate, it feels much more like an art and an opinion.

So we think that on the banking inside, there is a $200 million-plus opportunity. And currently, that is probably something in the $20 million to $30 million range for us.

So we think that could grow tenfold-plus overtime. And then we also think that we are relatively lightly penetrated in the owners segment.

And we see, in some cities, among owners that we think are a certain scale, we might be 17% penetrated plus in the older cities; and then newer cities, we're single digit. So we think that's also another couple of $100 million-plus segment.

And then you can just mechanically look at -- one of the things that the LoopNet merger has done is it has clearly, in very vivid color, reinforced for us the size of the brokerage community out there doing deals, making a living in commercial real estate. And we feel like 1/2 of them are using -- LoopNet marketing as a solution, 1/2 are using CoStar information, and you can cross-sell both.

And we believe that's several hundred million of potential. So it's -- I sort of look at it as those 3 legs stool.

And then I'm sure the other category will be really fascinating. All the bizarre, never expected uses of the information products, from cellular towers to taxi dispatch, to package routing, to power planting, so on and so forth.

But I don't see that ever being more than a $50 million, $100 million space, the other category. Except I was thinking the other day that Apple could use some help with their maps.

I hope that gives you some help.

And Brett, just to put that in context, I mean, by the first quarter of 2013, we're going to be in $100 million range for a quarter. So it will be in the $400-plus million range.

We set out a $500 million target out there by '14. So I think, if you sort of add up -- I mean, Andy is doing this off top of his head, but $200 million here, $100 million there, $200 million there, you sort of quickly get from the $500 million to the $1 billion.

So I think that gives people a pretty good road map. I also think in there, you're going to have a couple of hundred million dollars from just marketing across all the platforms.

So I think it's a pretty clear path to the $0.5 billion. I think people can see the clear path on the earnings side, too, which is, for me, really exciting, and then I think from there, a run to $1 billion.

Okay. And then last question is on how the comp works for the cross-sell, Andy.

I know you pay a lot of attention to how your sales force is working and have in the past. What kind of insights can you give us on how you're incenting your folks during these trainings and sort of reprioritizing?

What's the -- so what's the key comp driver?

You just made Brian hit the floor laughing.

I was trying to keep it to myself.

So the -- it's probably a little bit of a view into how the sausage is made. It may not be terribly interesting.

But the reality is that you've got a couple of sales people here who are putting in some really good numbers on this cross-selling. Once they figure it out, they're doing extremely well.

And it's just the traditional sales plan there, and the other sales people are responding to that. But the other key here is that we've initiated this teaming effort, where we're taking more junior accounting execs and more senior accounting execs and building teams, where the juniors are keeping the demo flow going and handling installations, and where seniors are handling presentations and close activity.

We have set a number of incentives where -- at different tiers where someone gets their first 120,000 of cross-sell annualized. They get a bonus that might be $10,000, and then there's some bigger prizes.

They could escalate up to the $100,000 mark for the teams and individuals that hit these volume goals -- escalating volume goals. And then the one thing we've done last 2 years is we have given a market goal to the sales teams that has a very low 7-digit number to a set of team of 10 or 12 people split up.

So you get both team and individual focus on trying to win these prizes, as well as just the traditional commission plan, which is quite adequate. On the flip side, the U.K., we're focusing on the rest of the year very heavily on deployment and usage objectives.

And then in 2013, they'll be on the same plan as the U.S. On the LoopNet side, we have made some pretty significant changes and I really, really, again, stress I'm very pleased with the way they've sort of seen the big picture and are working toward this.

But we are now -- we used to pay -- we did some calculations. And looking at the lifetime value, as I mentioned, selling premium lister to someone versus selling property comps.

These are dramatically different lifetime values for the company, and yet they've often paid very similar commission values. We have dramatically shifted the commission plans to reward the sales teams for selling the premium lister products, which we think have longer staying power and more solid revenue.

And we've kept stagnant or soft in the commission on the -- or actually, completely eliminated commission on things like property comps and property facts. So there's a fair amount of movement in all kinds of areas here occurring.

Just a quick follow-up on the 948 customers you added in the quarter. Was there anything onetime in nature here?

And how should that trend kind of going forward absent from the seasonality you might see in Q4?

Well, it's a good question. The beautiful thing about this is -- I'm probably seeing, I don't know, maybe 20 of these sales, I'm not sure.

But I've seen a lot of them where I've gone in just different parts of the country and gotten a feel for what we're -- what it's like. And overwhelmingly, in my view, these are absolutely real career commercial real estate players.

And when you migrate these players into CoStarGo and they adopt an inventory system with dramatically higher-quality content, research-verified, much more comprehensive, I believe that this is very sticky revenue. And I would expect that it would be in the same 90% renewal area.

And so it's not that I have seen no indication that any of this stuff is onetime in nature, and some of the sales that you are seeing are things like Resolve, Virtual Premise in other areas. And that, by its nature, is extremely sticky, where you're doing lease managements and portfolio management with big implementation cost.

So this is a continued philosophy of the company to pursue the long-term stable revenue and swear off things like telecom and vendor revenue, which comes and goes with the wind.

So would it be unrealistic to kind of see that number trend up kind of through 2013? I mean, so could we see another record in terms of customer adds as we...

I would be disappointed if we didn't.

Okay, great. In terms of the U.K., I think you had kind of touched on how gross rates could accelerate on the heels of some new products launched out there through next year.

So what actually would be the kind of range of expectation for 2013 in terms of growth rates out of that region? And maybe help us understand kind of what that could look like as you exit next year.

Well, this is -- it's difficult to give you any sort of precise number just because the situation is new, and we would be able to give you a clear view of this after the first couple of months of selling activity. But the simplest terms, the product that's being offered in the United Kingdom is basically -- it's called FOCUS.

It is described by the U.K. leadership as deeply unsexy.

It is based upon, I believe, cold fusion. It was designed and built in late 1990s, early 2000, and I've been struck by what a piece of garbage it is.

And so we're taking -- that's what people are going to be on. That's what people are on right now.

And we're basically coming in with the iPad app, which some of our clients describe as they love -- I use the word "love" in that relationship with the CoStarGo. And so we've got book ends of product here.

We've got radically different products. And so we're going to go in there, and we're going to look for -- they typically are paying dramatically less per person in the U.K.

for our services, this old FOCUS system, than we are able to capture in the United States. And we're not going to try to get the U.S.

pricing. If we did, we've would be wildly profitable in the U.K., I mean, like with very good penetration there.

But we're trying to get reasonable, not overly aggressive, upgrade prices, and we'll be able to report the end of the first quarter. When we report first quarter numbers, we'll have some really good color on that.

But I'm expecting a good result, but we'd see what it looks like with actual experience on the ground.

And just to add just a few things to that. I think that, as Andy said, we're actually going to be focusing on training in the fourth quarter, so we would certainly not expect to see a lot from the U.K.

on the sales side in the fourth quarter. Again, as we said, as we start selling in the first quarter, you'll get a better shot of what that looks in the second quarter.

But just to give you some rough numbers, the U.K. has traditionally, for the last 2, 3, 4 years has run behind CoStar Group at sort of growth rate percentages.

So in 2010 and '11, they were flat or up or down just a tiny bit. In 2012, they're sort of in single digits, where CoStar has grown in double digits.

So our goal for 2013 for the U.K. is to get them up to double digits.

I mean, one thing we've been doing -- and so it's -- in the U.K., it's looking at the marketing services, which is growing at smaller growth rates at 10% to 11% versus the subscription businesses in the higher percentage rates. It's to look at all the pieces of the business and say, "How do we that?

How do we get all the other pieces up to sort of where the big subscription thing is." So that applies to the U.K.

So my goal is for the U.K. -- Paul Marples and Matt Green, if you're listening, is double-digit revenue growth, which we haven't seen in years and then, obviously, to continue that moving forward.

And it's the same thing, I want to get the marketing piece up. I want to get the land sites and the BizBuySell.

I mean there's a bunch of smaller pieces of our business, Virtual Premise, and I want to get them all up to sort of the higher growth rates. So anyways, I hope that gives you a little more color.

Awesome. And then just last question for you.

I think you had mentioned that you've only distributed kind of 16,000 of those LoopNet leads to your sales team and have only contacted a portion of those. So when would you expect to kind of strip it out that the balance of those leads and kind of contact that broader audience?

I mean -- and what does that imply to sales headcount growth through next year?

What you'll see is probably more of a -- about shifting resources from headcount being allocated to -- shifting headcount allocation from approximately have lower value to approximately higher value. So 350 salespeople, still a pretty significant number.

We will accelerate the distribution of those leads, particularly to those people who get it and are closing -- converting them sales. We'll accelerate those through the year.

But realistically, there's no conceivable way that the sales force can actually get to all these people over the course of the next 3 years. And there will be also -- I mean, you can take your traditional Geoffrey Moore, Crossing the Chasm kind of adoption curve.

You're going to have your innovators early, early adopters, the early whore, that kind of thing. And it's going to be a 3-year process, I think, to sort move through these things at the very best.

Brian, on a go forward basis, you guys kind of narrowed down what the kind of consistent metrics are going to be that you're going to give us. It sounds that there's going to be a subscription revenue number.

But in terms of users added or user count or things like that, you guys narrowed it down to what we should kind of expect and how we're going to start to build the model. A little more granularity?

Yes. And I think -- again, it's a -- I think we're still evolving that, but I think you guys heard some of the metrics here in this one.

And it definitely will be on a subscription basis. It will be on premium members.

So we're going to continue to give some metrics as -- some of the other metrics. But as they evolve, we'll evolve more.

But I think that's where you look at -- 71% of the business is about the subscription-based services, and we want to move more of it there. So I mean, I want to see that number increase to 75% or 80% over the coming years.

So I think those will be the metrics that we'll focus on, but we will still give user metrics and explain, "Okay, well, here's what's happening in those user metrics," for example. The CoStar numbers and what we're doing with Showcase, we explain that.

So I think -- I always tell people, "You have to understand what's happening in the metrics based on the decision we're making. I wouldn't necessarily take the metrics at face value."

The other thing, just to point out, I'm glad to see that I'm not the only one up at all hours of the night when I saw your note there. But that -- I was pretty clear, I mean, as far as the revenue range, though I actually do think we're going to be in the middle of the revenue range.

I know I saw your note that said, "Hey, they should be in the high end because they always beat it." We give a range so that we can be in the range and we definitely -- when you look at LoopNet historically, Q4 has always been very tough for them.

We do have something that we know about as far as our RMS and small things. So we actually do believe we'll be in the middle of the range, and so that should be the expectation from people.

I just want to throw that one in there because you're on the line.

Yes. Fair enough.

I appreciate that.

Did you make that like it's directed to someone?

It seems like it but I got to go back and listen to it again. Brian, your comments about the transition from Q4 this year to Q1 of next and then expectation for EPS to increase, I think you said, at a healthy pace going forward.

I wanted to make sure I understand the semantics between quarter-on-quarter or year-on-year and that increase at a healthy pace. Should we expect every quarter have a greater EPS number than the first quarter and kind of be at that stair step up?

I haven't given 2013 guidance. But maybe I'll try to be a little more clear on that is that we gave $0.40 to $0.45 in the fourth quarter.

If you look at 8 of the 9 or 8 of the 10 for CoStar Group transitions from Q4 to Q1, Q1 is always down and that's because we do the annual sales conferences. That's when everyone gets raises.

You all have the high benefits. So that's sort of a given.

So if my range is $0.40 to $0.45 in the fourth quarter, people can expect it to be lower by a few pennies in the first quarter in addition to the marketing service that we had. That should still be up, and I expect that to be up year-over-year when you compare it.

And I expect each quarter next year to be up year-over-year. And I definitely expect going from Q1 to Q2, as I said, a healthy pace, expect to see growing net income.

But the first quarter, if you just take -- if someone just says, "Here's number for the year," and I divide it by 4, you're going to be off in the first quarter because of that seasonality. So I was purposely pointing that out because I noticed models where people sort of just divided the number by 4.

I think the annual numbers are -- I think people are sort of getting there. But I think that, that first quarter, I was trying to purposely point that out to people.

Okay. And then...

It's similar with the revenue on the LoopNet. If people weren't paying attention on SIG [ph], why does Q4 look softer and it's not just -- it's a seasonality thing that's in their business.

So I'm just trying to point those out people.

Okay. And then, I guess, in a similar fashion from a kind of staging perspective, the U.K.

business, how far away are you guys from profitability? And was there -- is there a timeframe in which you'd say we're 100% certain we're going to get there?

Or is that kind of the range to where it starts to make a difference so we can see in the model? And then, I guess, as the add-on there, can this business be as profitable as the U.S.

business? Or is it just a scale issue so it's not going to get there?

So the business -- I remember that we acquired -- it was a pretty small business. We acquired a number of very small businesses.

There was a long period where we're migrating multiple software platforms together into one common U.K. platform.

And then we embarked upon investing -- and as the business was profitable, we're sharing good margins in the U.K. And then we made the investments to quadruple the research in the U.K.

-- quadruple the investment research in the U.K. in order to get up to the same standards of products we produce in the US.

And then the next phase was to transition the old, tired software into the much more competitive, consistent international U.S. software platform with CoStarGo.

Those were 2 very significant investments, which did not have an immediate return post Lehman Brothers. So now what happens is you launch these new products, you're going to begin to get -- you would expect -- you certainly would expect accelerating revenue.

You also get declining expenses now because you have a surge of research that was occurring. You had dozens of additional researchers surging, and that temporary staff surge is coming off.

And then you also have dozens of software developers who are allocated in the U.K. that start phasing off.

And we would expect to have a very clear picture of the road to profitability. As you move halfway through the year, we can start talking about it.

And it would happen -- and if you're familiar with the company over time, often when these things switch from investing mode to margin expansion mode, it surprises everyone how fast it goes. And I would absolutely expect the U.K.

to have the same margin potential as the United States. It is a very sophisticated, intensely focused commercial real estate industry over there.

And I don't -- and despite the fact that's $2 trillion-some GDP and there's a $14 trillion, $15 trillion GDP, your scale is in your software, and it becomes sort of like a California operation. And so I think it will have -- I still believe it will have good potential in the long run.

And just to throw us some numbers on that trend, and I think that if you sort of look at the 9 months ended with allocations, we're at $6.6 million loss versus $2.8 million. I think once we release the product in the fourth quarter, we get through some of the marketing in the first quarter.

I would expect to see the losses 1/2 over the next 4 quarters, which at least gives everybody a little something to model to. And then I think, obviously, based on the revenue growth, we'll be giving people more clarity on what the target date of breakeven.

And yes, just like Andy said, I thoroughly believe it can be just as profitable as the U.S. and that's what we expect.

I expect nothing less. So I mean, we will definitely put a time period on that.

Probably, we'll have more clarity by the end of next year. But I think once we've sort of finished these initial marketing things, I think you'll see the cost get cut in 1/2 the following few quarters, just because product development sort of rolls off of that.

And then we'll give you guys clarity on sort of the rest.

Just following up on the U.K. there.

The corporate allocation of $2.3 million in the last quarter, is that literally just corporate overhead? Or does that include the cost of -- you mentioned dozens of developers allocated to the U.K.

to transition the technology?

Yes, it is. There's a lot of development allocation in there.

And so once that stops at the end of this year, obviously, those loss numbers will be paired back fairly quickly. We do have some marketing that we've talked about that's going to be happening there.

But that's why I would definitely expect by the time you get to the second quarter, third quarter, fourth quarter, those numbers will be 1/2 of what you saw this year. And I think improving with revenue growth.

You only have temporarily transferred personnel and increased travel expenses.

Got you. Okay.

And then I just wanted to go back and revisit the numbers you mentioned earlier, Andy, with regards to the cross-sell sales results to date. 100,000 leads, 16,000 distributed.

Some of those have received demos, and 723 deals closed for, I think, a monthly contract value of $381,000. Is that $381,000 attributable to all of the 723 closed deals or just the portion of the 723 that had prior monthly commitments with LoopNet?

That's the entire set.

Okay. All right.

And then I was curious about the 100,000. Do you have a breakdown in terms of the number of those leads that are paying LoopNet something now versus sort of the premium category that you guys mentioned?

Sure. We actually have analyzed that list to death.

So you start out with a 6 million sum and you filter it down to 100,000 you're focused on. So we developed a whole -- we built and rebuilt that database, added all kinds of fields, doing characteristic usage patterns, the sorts of listings they have, the dollar-valued listings, estimate their commission earnings, all that kind of stuff.

We developed scoring systems where -- for consistent, continuous use, plus having listings, plus time periods between accessing the system, all kinds of things, campus scoring system. We scored them from negative -- they ended up getting scores from -- the 6 million from negative 20 to positive 50, positive 50 being the most promising.

And we were just focusing on the 100,000 are really the ones that are in the, I can't think exactly, maybe the 6-plus or 5-plus category. And of those, I think it's about 50/50, roughly 50/50, they're paying something or who have paid something over time.

And we -- the leads we've been distributing to sales force to date are random. So we have not been -- we have intentionally not distributed the ones we scored 20s, 30s, the higher score onces, because we want them to confront the 5s and 10s and 11s and 12s first and learn what they're doing and then start to go to the higher value ones.

Okay. So if I understand what -- correctly what you just said, there may be a greater yield opportunity in the leads that you tackle next year or the year after that and the year after that?

Yes. And that's a combination of just continued to put more higher -- more of these higher scored leads, plus the salespeople figuring out how to do it.

Okay. And then -- so the $381,000 that you have on the monthly contracts, I think the incremental annual revenue opportunity there is somewhere around $4.1 million, if I did the math correctly.

Is it fair to assume that there's about $1 million in LoopNet cross-sale revenue synergies baked into the fourth quarter revenue guidance?

You're sort of plucking that out of the air. Obviously, all of the sales numbers -- I mean, as Andy said, a lot of the core people were spent sort of training and cross-training and putting people on teams.

So by the time they sold -- and I would say it was in the back half of the quarter so, of course, you'd only get the back half of the quarter revenue on that. So that number, maybe it seems a little bit high to me, but you're sort of plucking that one out of thin air.

So G&A was a little bit lower than I had expected and probably included a portion of the $2 million of integration costs. So I was just wondering, if we look at $18 million, plus or minus, per quarter, excluding seasonality, is that sort of a sustainable run rate for G&A?

Or was there a reason that this quarter was lower?

No. I think it's sustainable.

And obviously, the goal is to continue to get more synergies and to obviously improve upon that. I do have the general counsel sitting next to me.

So with the caveat, as long as there's no lawsuits coming in the future, but -- because that's where all the legal costs would go. But yes, I think -- he's laughing at my comment.

But yes, I mean, I think, obviously, synergies, we're definitely -- somebody asked -- I think Bill started out with that question. We're doing much better on synergies than we anticipated.

We're moving much faster on things. So obviously, we're seeing positive results that we think will continue, again, unless something else comes up that we're not aware of.

Okay, great. And you mentioned that some of the marketing that you plan to do on cross-selling will be pushed into the first quarter of '13 instead of doing it all in the fourth quarter.

And I just wanted to find out what -- like what was the decision-making behind the delay.

A number of different factors. We have done several ways on -- like one of the things we're trying to do upfront is we're trying to differentiate or begin to reeducate the industry on what the key attributes of the brands are.

So we're trying to reidentify LoopNet with marketing and CoStar with information. We did a series on marketing pieces.

We've done several marketing pieces on the LoopNet side, some good pieces. But we just decided that the pace at which we could do all these changes to the sales force, we wanted to time some of the marketing programs closer to when they would actually be able to go out and meet with people and demo with people.

So we -- the information branding pieces are being staged to go out just before the salespeople contact them to try to do the upsell rather than all at once in the fourth quarter. Also, we shifted a major marketing event from 2012 to early 2013, just because of -- schedules weren't working out.

We wanted to make it a little more efficient. So it's nothing -- it's more a shift to several months.

And again, Toni, I think what is was is aligning it. Exactly what Andy said, it's aligning with the sales activity.

So we talked earlier about we have 350 salespeople, and Andy talked about moving over 100 of them to doing new things that they hadn't done before, teaming people up and training them. So I think the idea is, obviously, to have the marketing pieces going out and making sure that the salespeople are in place to capitalize on those activities versus just setting a bunch of marketing it out.

But you're still then reorganizing sales forces and teaming people up. So it's just -- I think it's aligning the 2.

And obviously, we think we'll see a much higher IRR and return on those investments by having the 2 aligned.

Okay, great. And just lastly, on that point of the sales reps shifting, how long do you think it takes for a full ramp-up?

Obviously, they're in training now. But in order for people to get to sort of the full run rate capacity, how long does that normally take?

Yes. The vast majority of the people we're talking about here are already experienced commercial real estate information and marketing services salespeople.

So it's more a question of them picking up new roles. And I would say that's probably a 3- to 6-month time period to really get where they're really up to speed and optimized.

Hey, guys, just one thing. I missed this earlier in the call.

What was the average new rev per customer site, that number you guys usually give?

8,314.

A chance to bookend the call here.

You guys are competing. He just thought he had you, too.

A quick question on the -- I just wanted to make sure I follow the math on the initial cost that the uplift you got this quarter, third quarter, from the -- for the cross-sales.

I don't think there was math. I think Todd asked the question if we thought there was $1 million in there, and I don't think we actually know the exact number.

But as we talked about either the majority of the quarter was reorganizing the sales force and cross-training them. So I think a lot of the sales came in towards the back half of the quarter, which would mean only a small portion of revenue when they came in then, too.

Got you. But the annualized revenue for the 948?

The annualized revenue for the 948. Yes, it looks -- $7 million or $8 million, somewhere in that range.

So you can figure, probably a couple of million next quarter from that group.

Correct. Correct.

Thank you. And with that, we will conclude this call, and thank you for joining us.

And we look forward to hosting you on the next earnings call, which, I believe, is our CoStar Group's 50th earning call. So we look forward to talking to you then.