CoStar Group's (CSGP) CEO Andy Florance on Q3 2018 Results - Earnings Call Transcript

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About: CoStar Group, Inc. (CSGP)
by: SA Transcripts

CoStar Group, Inc. (NASDAQ:CSGP) Q3 2018 Earnings Conference Call October 23, 2018 5:00 PM ET

Executives

Rich Simonelli – Vice President-Investor Relations

Andy Florance – Chief Executive Officer and Founder

Scott Wheeler – Chief Financial Officer

Analysts

Andrew Jeffrey – SunTrust

George Tong – Goldman Sachs

David Ridley-Lane – Bank of America

Bill Warmington – Wells Fargo

Pete Christiansen – Citi

Brett Huff – Stephens Incorp

Sterling Auty – JP Morgan

Mayank Tandon – Needham & Company

Stephen Sheldon – William Blair

Pat Walravens – JMP Securities

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2018 Earnings Call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

And I would now like to turn the conference over to your host, Rich Simonelli. Please go ahead, sir.

Rich Simonelli

Thank you, operator. Welcome to CoStar Group’s third quarter 2018 conference call. Before I turn the call over to Andy Florance, CoStar’s CEO and Founder; and Scott Wheeler, our CFO, I'd like to share some interesting and important items that can actually make your day.

Certain portions of our discussion today may contain forward-looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated today in our CoStar Group October 23, 2018, press release on third quarter results and our company's outlook and in CoStar's filings with the SEC including our most recent annual report on Form 10-K and our subsequent quarterly reports on 10-Qs under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar on the date of this call, and we assume no obligation to update these statements whether as a result of new information, future events or otherwise. Reconciliations to the most directly comparable GAAP measure to all of the non-GAAP financial measures discussed on this call including, but not limited to, non-GAAP net income, EBITDA, adjusted EBITDA and forward-looking non-GAAP guidance are shown in detail in our press release issued today along with definitions for these terms and you’d also find that press release on our website located at costar.com. As a reminder, today's conference call is also being broadcast live and in color on the website. So please refer today’s press release on how to access the replay of the call. Remember one question, make it a good one.

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

Andy Florance

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

Rich Simonelli

Welcome.

Andy Florance

Thank you for joining us for our third quarter 2018 earnings call. We achieved another excellent quarter of solid revenue growth, exceptional margin expansion and continued strong net bookings. Revenue for the third quarter 2018 was $306 million, an increase of 23% compared to revenue of $248 million for the third quarter of 2017. I'm excited to report that we flew past our first $300 million quarter. Our annual revenue run rate now exceeds $1.2 billion.

We had strong CoStar Suite revenue growth of 19% in the third quarter of 2018 compared to the same period last year. Some of that growth is attributed to converting LoopNet Premium Searcher and heavy searchers to CoStar Suite. Today, we have worked through approximately a quarter of the initial 100,000 leads we identified and have seen approximately 11,200 conversions. We have now reached $64 million in annualized revenue from this conversion list.

Earlier this quarter, we identified an additional 30,000 commercial real estate professional leads from LoopNet that were previously not on our active lead lists. As we have seen time and again since the LoopNet acquisition closed in 2012, LoopNet is a great source for identifying and refilling our lead list of commercial real estate professionals that we can sell CoStar Suite too. I still believe that over time we can generate hundreds of millions of incremental annual subscription revenue by upselling LoopNet users to CoStar Suite.

Apartments.com grew 45% year-over-year in the third quarter of 2018 as we continue to expand our leadership position in this space. Our multifamily annual revenue run rate is now $420 million and we expect to continue to achieve solid organic revenue growth in the fourth quarter and through fall of 2019. I should clarify I mean the fourth quarter of 2018.

Our profitability continued to expand in the third quarter of 2018. Net income increased 72% year-over-year in the third quarter to $59 million. We generated our best EBITDA quarter in our history as EBITDA jumped 42% sequentially in the third quarter of 2018 versus the second quarter of this year. Our adjusted EBITDA was $110 million in the quarter, up 29% over the prior quarter, reaching a 36% adjusted EBITDA margin, so close to 40%.

We are confidently on our way to surpassing our goal of 40% adjusted EBITDA margin in the fourth quarter of 2018. Unless you do not know about four years ago, we set a long range goal of research reaching a $250 million revenue quarter by the fourth quarter of this year and adjusted EBITDA margin of 40%. Clearly with $306 million quarter, this quarter, we are on track to smash through the revenue goal and with the strong margin expansion we're showing we're clearly on track to beat our profitability goals. Should we beat our fourth quarter financial target as we fully expect to, we plan to set brand new equally spectacular inspiring next gen long range revenue and margin targets designed to delight our investors.

Company-wide net new bookings were $40 million in the third quarter 2018, an increase of 16% year-over-year over the $34 million we generated in the third quarter of 2017. While net new bookings are up 16%, the number understates the true sales productivity achieved in the quarter. During the quarter and for most of the year, our Apartments.com sales force, which is about half of our sales force, spent most of their time, vast majority of their time, transitioning over 7,100 new ForRent customers to the Apartments.com network.

The large amount of revenue we added when we acquired ForRent never appeared in our net new sales numbers, but the previously communicated and expected reduction of duplicative spend between the two sites was counted as negative net new sales in this quarter's bookings numbers. So while we're adding a lot of great revenue and picking up humongous strategic advantage this year, the results show up as somewhat misleading slower bookings.

We finished the majority of the conversion work. So going forward we expect the sales booking numbers will reflect to true productivity. There's been a significant accomplishment in the CoStar sales organization this year. Historically, our field sales force sold CoStar predominantly in a combination of an inside sales team and a separate field sales team sold LoopNet ads. The clients really expressed dissatisfaction with so many different points of contact.

There is no good reason for doing it this way. It’s just how the go to market strategy evolved historically from the merger of LoopNet. It was a huge learning and behavior shift for the traditionally in for sales force, but it's worked out spectacularly. In total, gross LoopNet sales bookings contribution from the CoStar’s sales force was up 2.8 million for Q3 that’s year-over-year. This is up 261% year-over-year. On a per rep basis, gross LoopNet sales bookings contribution from the CoStar’s sales force was 39,000 for Q3. This is up 249% year-over-year.

So they are learning some new things, focusing on customer service, selling LoopNet, but still yielding good productivity and we are aligning the sales force where we wanted to be long term. We announced earlier this month that we had acquired Realla Limited; the UK's largest public portal specializing in commercial property has got the largest collection of publicly available property listings in the United Kingdom. Combining Realla with the CoStar information solution is expected to offer the best of tools for marketing properties, valuations and facilitating transactions. Realla’s business value focuses on providing brokers a broad range of channels to market their listings.

Using Realla a broker can create a microsite, generate a PDF, do a blast email distribution, and syndicate their listings on various sites, report leasing progress to owners and market to millions of potential lessees or buyers on realla.com. We are very impressed with these tools and Realla’s strategy for very cost efficiently gathering and managing large volumes of listings. We intend to corporate a significant amount of Realla’s technology into CoStar across Europe and North America.

Overall, our Apartments.com numbers are extremely impressive in getting better. In the third quarter of 2018, we generated our best traffic quarter ever with the most unique visitors and leads in a quarter. Our leads, which have proven to be the highest quality leads in the industry, are up 50% year-over-year, which translates into more leases and a better return on investment for our advertisers on the Apartments.com network.

According to comScore, the average monthly unique visitors, year-to-date, are up over 37% for the Apartments.com network. This excludes the Move network from both periods. During that same time period, RentPath’s average monthly unique visitors are actually down. Let me repeat, their unique visitors are actually down and then one can assume so as the return on investment of their advertisers. As a standalone site, Appartments.com had more unique visitors than Zillow Rentals in August and September of 2018.

Even more impressive Apartments.com network year-to-date visits sit at 404 million according to comScore, up 105 million from 2017, again excluding Move network during both time periods. We have increased the Apartments.com network visits gap over RentPath by almost additional 100 million to a gap of 239 million visits for the first three quarters of 2018.

On October 5th, Moody's Investor Service downgraded our primary competitor RentPath. They took the rating Caa1 and it's probably a default rating to Caa1-PD. Moody's has also downgraded the company’s senior secured first line credit facilities to B3 from B2, the second lien term loan was downgraded to Caa3 from Caa2. They revised the outlook for RentPath from stable to negative. Moody's said that the downgrade reflected challenging competitive dynamics in the apartment rental market and a material increase in marketing spend required to compete against a larger and better capitalized competitor. I assume and hope Moody's is referring to Apartments.com there.

They also stated they expected the December 2017-2019 maturity of $15 million in the under on revolving credit availability will further pressure the company's financial position and the competition remains challenging. In contrast, Apartments.com has exciting and robust plans for next year and beyond. The outlook for Apartments.com is positive and moving to very positive. The profit contribution from Apartments.com continues to gain strength. Incremental direct profit from our apartment business in the third quarter is up 60% year-over-year.

We expect total profit contribution from the apartments business to be up approximately 100% year-over-year. This is double the expected year-over-year revenue increase of 40% to 45%. Net listing detail views are up 32% year-over-year and each listing is being viewed 69% more times year-over-year. With LoopNet our primary priority remains building higher impact Power Ad opportunities for clients, who have very viable properties and want to drive more leads or create a stronger brand presence than our basic ads offer. The new Power Ad placards that drive increased exposure would live in Q3 with significant Power Ad updates ahead in Q4.

Typically, these ads are sold to the owners of the properties, who have a much greater stake in economics and are willing to pay a higher price. We have introduced new market based pricing that correlates pricing to the value of the real estate in given market and to some extent also the demand for the ad space. You might find a vacancy in Manhattan with a total lease value as high as $0.5 billion, in Toledo the largest vacancy might be worth one hundredths of that.

Accordingly, a top ad New York might sell for 6,500 a month, while an ad in Toledo might price ad at $450 a month, sort of common sense, but we think it will help us to optimize revenue. This fall we plan to rollout market based pricing as well on Premium Lister, our basic advertising placement. Some markets are oversold or saturated and we want to actively manage our inventory. In fact in southern Florida, 82% of all office properties from small to large now advertise.

The price per pay listing on LoopLink increased to $46 in Q3 of 2018 versus $31 in Q3 of last year, a 48% increase year-over-year. This has been a result of our proactive price management on LoopNet. CoStar Real Estate Manager continues to be a Toledo force growing revenue, 141% in the third quarter of 2018 compared to the third quarter of last year. Is that number actually correct, Scott? That seems really high.

Scott Wheeler

That’s big.

Andy Florance

Okay, good.

Scott Wheeler

Correct.

Andy Florance

With a continued strong growth and huge potential of Real Estate Manager, the President of Real Estate Manager, Andy Thomas now reports directly to me. We believe that there are a number of very interesting opportunities to accelerate the momentum of Real Estate Manager and expand the scope of this very impactful and successful business. In August 2018, we completed the closing of our research centers in Glasgow, Scotland and Columbia, Maryland. Our centers in London, Richmond, Washington and San Diego have absorbed the workload and the transition has been very smooth.

We continue to see more and more brokers and owners entering the quality data directly into CoStar’s self-service Listing Manager. During the quarter, approximately 36% of the millions of updates made were made directly by the broker or owner listing the property. We estimate this represents more than 100 researchers worth of work saved. This trend has the potential to materially reduce the amount of labor we need to invest in order to keep our databases current. In July, Listing Manager was also released in the UK.

Today most of our revenue from commercial real estate is – most of our revenues from commercial real estate investors, operators and lenders. Our single largest client is now an owner, who used to be a large brokerage firm. A number of our top ten clients are now investors or owner operators. These clients need accurate and timely data with powerful models to help them understand market opportunities and risks. We are completing an important cultural shift at CoStar, improving our approach to best serving this massive opportunity.

Historically, the large component of our analytics solutions were consulting based. We would meet one on one with large investors and lenders and one-off provide them with analytics. This process engaged costly personnel could not be scaled in any way and was not a material contributor to margin and never would be. We have completely restructured and clarified the leadership and mission of our analytics team. Jay Spivey, who has been in leadership with us for 25 years, now leads all of our analytics solutions.

We have a clear mission now to devote our best talent to building leverageable digital analytics solutions that serve tens of thousands of clients or millions of clients rather than just a few. My hope is to see an exponentially growing suite of analytics solutions providing insights into risk, CMBS, REITs, portfolios, underwriting valuation, geospatial trends, benchmarking capital markets and more.

We just held a three day analytics leadership some at our Richmond research headquarters. About 50 of our best and brightest gathered to plan our potential product roadmap to best serve the industry through innovation. We were focused on solutions that can be delivered during calendar year 2020 or before. Appropriately, we called the session vision 2020. The participants lead 30 presentations focusing on key opportunities for CoStar.

I think it'd be helpful to share with you some of the wrap up survey quotes from the SurveyMonkey that our participants did. One said a lot of confidence that this team of people can make some amazing advances between now and 2020, another excitement appreciation for a talented team understanding of growth opportunities, path to grow in revenue from $1 billion to $5 billion plus, another – the motivation to create and build these products is a full 360 cycle, i.e., owner portfolio, lender analytics, investment transaction platform, property evaluation, there is so much opportunity, the sense that I'm not working for a 30-year-old company, but a new startup with best year still in the future.

Complete all at the talent across CoStar, we have some of the greatest individuals in commercial real estate. Another noted slightly less helpfully, I gained five pounds this week. And another more productive comment excitement, huge potential for CoStar across many areas in markets, impressed by the quality of the team, happy to be part of the team. Another quote huge appreciation for the amazing talent we have at CoStar. Another one enthusiasm, optimism, commitment and energy. Another one, great optimism for the future. We have some amazing talent here.

This was an incredible opportunity to share ideas, check out other groups we’re working on and build relationships with key stakeholders involved in improving the CoStar product. The passion that everyone brought to the meeting was tangible and factious and helps to reinforce while we're far and away the leader in our field. And the best quote, now the real work begins.

When update you on the commercial real estate economy, first the good news CoStar has very limited exposure to trade issues with China, 20-foot equivalent units are not an important factor in our business. The third quarter of 2018 ended with commercial vacancies near all time lows. Prices and rents are at all time highs and leasing and transaction volumes setting new records. The ongoing health of the asset class is a result of a durable national economy that tenures into the third longest post-work expansion continues to reliably add 200,000 jobs per month, despite a 3.7% unemployment rate. A low yielding investment environment, which historically low cap rates offer, attractive relative value and restrains – very importantly restrain on the prior developers.

Recent rate hikes by the Fed have yet to dent commercial estate’s relative value proposition though CoStar’a analysts and clients are closely watching interest rate movements and CoStar data shows some pricing weakness in gateway markets. Industrial continues to outperform other property types in terms of rent growth and price appreciation. Thanks to national economy and an ongoing shift to consumption patterns towards e-commerce.

This disruption consumption patterns has weakened demand somewhat for traditional retail space and rent growth and retail sector has lagged the other property types. However, there's very limited development of new retail space and that's kept retail fundamentals broadly in balance in fact really quite healthy. Trends in the multi-family sector have also been positive. Thanks to shift in home ownership patterns, below trend production of housing units in aggregate and strong employment growth. Apartment rent growth remains above inflation and multifamily product remains in high demand with deal volume set to reach a new record this year despite really aggressive pricing.

With office vacancies at record lows and rents at record highs, the rate of office absorption has slowed and rent growth has decelerated, particularly in coastal markets. Investors are growing more cautious and are seeking higher yield deals in secondary markets. Still capital is plentiful and despite interest rate increases by the Fed, cap rates have held steady at record lows across all property types. The path of interest rates will likely determine the fate of the cycle, higher interest rates may erode the relative attractiveness of the asset class, especially for highly priced low cap rate assets in gateway markets.

Moreover, tightening by the Fed has always, generally well – always herald the end of economic expansions and slower growth will outright recession will reduce demand particularly for office retail industrial space. For the multifamily sector, however, rising mortgage rates will keep many would be home buyers out of the homeownership market and in rental units.

CoStar base case forecast calls for minor weakness in rent growth and price growth, but still growth as demand falters and interest rates rise. [Indiscernible] capitals markets cataclysm, however, we do not anticipate severe rental price losses and we expect commercial real estate to broadly hold its appeal as an alternative asset class. My favorite early warning gauge on market cycles in commercial real estate looks at the thousands of sub-markets for the aggregate percentage with increasing vacancy. Above 50% represents a commercial state recession and concern.

The average value of the last seventeen years is 48%. The most recent reading is 41% and that puts us in the lowest quartile of values in the last twenty years. All major sectors in aggregate numbers are strong and surprisingly good data. In fact it's probably about the best commercial real estate fundamentals I've seen in my career.

So in conclusion I'm really pleased with our financial and operational results of the three quarters of 2018. I'm excited about getting close to reaching our four year goal. Our team is committed to constant innovation and deployment of new technology to the commercial real estate industry. We approached the business by putting the needs of our clients and users first and then work hard to service them by continually enhancing our comprehensive platform. The good news is the most exciting part of the call is about to begin as I turn it over to our CFO, Scott Wheeler.

Scott Wheeler

Nice, well, thank you, Andy.

Andy Florance

You’re welcome.

Scott Wheeler

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

Andy Florance

Yeah.

Scott Wheeler

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

Andy Florance

I keep watching those TE use…

Scott Wheeler

No trade war here. All right, so another strong revenue growth quarter and improving profitability and continued solid operational execution in the business. And as Andy said, we're entering the fourth quarter. We're increasingly confident that we'll exceed our 40% adjusted EBITDA goal, which we committed to investors four years ago way back in 2014, well before my time. As Andy noted, we delivered a solid sales quarter with $40 million in net new bookings, which were up 16% from the third quarter of 2017.

All told, we now have three of the last four quarters in which we have achieved net bookings of $40 million or higher. During both the second and third quarters of this year, a significant amount of our sales force time was expanded on converting the ForRent customers to combined apartment contracts, which took our sales teams focus away from new sales. As a result of these conversion efforts, we saw a reduction in net bookings of almost $4 million in the third quarter, which represents net sales erosion upon conversion to the combined contracts.

Thankfully with substantially all our conversion efforts complete. We believe the related drag on net bookings is now behind us. The LoopNet marketplace sales were strong in the quarter, which is a result of our continued efforts to improve the product to increase our market coverage through the CoStar field sales force and eliminate historically discounted price levels. As a result gross sales for the LoopNet marketplace grew 45% in the third quarter of 2018 compared to the third quarter of 2017. Overall, as Andy mentioned, when we look at our bookings in our net sales, it's good to see that we don't see any connection to these numbers with the commercial real estate market, which remained strong.

Switching over to our revenue results, our growth rate was 23% in the third quarter of 2018 over the third quarter of 2017 coming in at the midpoint of our guidance range. For the year, we expect the consolidated revenue growth to continue at approximately 23%. Looking at revenue by services, CoStar Suite revenue growth was an outstanding 19% in the third quarter of 2018 versus third quarter of 2017, a significant increase from 14% annual growth rate we reported just a year ago. In the fourth quarter, we expect the CoStar Suite revenue growth rate to moderate to around 15% year-over-year as we start to lap the accelerated revenue growth period in the fourth quarter of 2017 from the LoopNet conversions and the Xceligent bankruptcy.

Accordingly, we expect the growth rate for full year 2018 for CoStar Suite to be approximately 18%. Revenue growth rates in info services were negative 6% in the third quarter of 2018 as expected. This was due to the shutdown of the LoopNet Information Services in the first quarter this year. Excluding the LoopNet Services, our Real Estate Manager and other services in this group grew a stunning 64% in the third quarter over the third quarter 2017. With the shutdown of LoopNet Premium Searcher substantially complete and the strong growth in Real Estate Manager, we expect information services revenue in the fourth quarter to be in line with information services revenue from the fourth quarter of 2017. In other words, flat. That's an improvement.

For the full year 2018, we expect info services revenue to decline at a rate of negative 10% to negative 12%, which is a modest improvement from the negative 12% to 15% range we forecast last quarter. Multifamily revenue grew 45% in the third quarter of 2018, including the impact of the ForRent acquisition. Third quarter multifamily revenue of $105 million was essentially unchanged from the revenue of $105 million from the second quarter of 2018 as revenue from the new sales was offset by the planned reduction of certain legacy ForRent services.

As Andy mentioned, we made significant progress on both sales and technology integration in the third quarter and now expect to complete this integration by the end of the year. Our expectations for full year growth in multifamily revenue remained in the range of 40% to 45% for the year. Rounding out our services performance, commercial property and land grew 12% year-over-year in the third quarter of 2018, which is consistent with the commercial property and land organic revenue growth from the second quarter of this year.

We’re now more than a year passed acquisition of LandWatch, so the total growth rate and organic growth rate for commercial property land earn-out the same. LoopNet sales remained strong and we expect organic growth in the commercial property in land sector in the 13% to 15% range for 2018. Turning to profits, our gross margin came in at 76% in the third quarter of 2018, broadly in line with last quarter. Gross margins in the fourth quarter of 2018 are expected to improve following the closures of our Columbia, Maryland and Glasgow, Scotland research facility in the third quarter.

Our outlook also includes some modest savings in facilities and stuff cost associated with these closures. Operating expenses of $163 million for the third quarter of 2018 were estimates and down from $186 million in the second quarter of 2018, primarily on lower third quarter marketing spend. Net income for the third quarter of 2018 of $59 million increased an impressive 72% compared to Q3 3017. Our effective tax rate in the quarter is 24%. Third quarter adjusted EBITDA was $110 million or 36% of revenue. This was approximately $4 million above the top end of our guidance range and 175 basis points above our projected margins. We’re pleased we’re able to maintain this high level of adjusted EBITDA margins throughout the third quarter.

Non-GAAP net income for the third quarter of 2018 increased 70% to $79 million or $2.16 per diluted share, and include adjustments for stock based compensation and acquisition-related expenses. Non-GAAP net income for the third quarter assumes a tax rate of 25%. Now we'll take a look at some of the performance metrics for the quarter. At the end of the third quarter of 2018, our sales force totaled 733 people. The decline from the 775 sales people at the end of the second quarter is primarily related to attrition in our multifamily sales team. We expected increased turnover following the integration of the ForRent sales force and are now actively hiring in both the Apartments and the CoStar field sales teams. The renewal rates on annual contracts was 90.2% in the third quarter of 2018, slightly below the 91% rate in the third quarter of 2017.

The renewal rate for customers and subscribers for five years or longer was an impressive 96%. Subscription revenue on annual contracts accounts for 80% of our revenue in the quarter, up from 77% last quarter as we successfully migrated many of the ForRent customers to annual subscriptions, which we have done with prior acquisitions.

I'd like to provide a little more operational color on the ForRent integration. I noted earlier, we continue to make great progress converting ForRent customers to the Apartments network service thereby stabilizing the acquired revenue base. We've converted approximately 7,100 customers this year and as expected we lost some revenue in the process. In addition, we continue to wind down some legacy ForRent services we're no longer selling.

While bookings are difficult to project, we expect to see multifamily bookings move back up later this year and into 2019 as we get past integration and refocus our teams on new sales. In terms of cost synergies, today, we reduced approximately $30 million in annual costs, which include staffing reductions of approximately 290 people and elimination of other duplicative operating cost. In addition to costs elimination, we successfully migrated the ForRent customer database and fulfillment systems to CoStar's platform during the quarter.

We accomplished this in less time to connect our previous multifamily marketplace acquisitions. Our database of information is now feeding and fulfilling all our multifamily marketplace sites and every one of our sites are feeding critical data like availabilities and rents back into our database. This is a very important step integration process and we're thrilled to have completed it so quickly. Back in September of last year when we announced acquisition of ForRent, we said we expected acquired revenue to stabilize in the range of $75 million to $85 million with long-term EBITDA margins of approximately 45% to 55%.

I am happy to report that despite having to delay the closing of the acquisition in order to get through the FTC regulatory review, we expect to achieve all of our acquisition objectives at or ahead of schedule. As Andy mentioned, we completed the acquisition of Realla earlier this month, which we expect to be important strategic acquisition UK business. While we have big plans for the platform, we don't expect meaningful revenue contribution in the fourth quarter.

We anticipate we'll add approximately $1 million to $2 million of operating cost in the fourth quarter as we begin some early marketing efforts, all of which are included in our outlooks. I will now discuss our outlook for the full year and the fourth quarter of 2018. Based on strong revenue and sales results for the first three quarters, we're narrowing our revenue guidance range for the full year to $1.183 billion to $1.189 billion. The midpoint of the range is in line with our prior guidance. This revenue range implies an annual revenue growth rate of approximately 23% compared to 2017. We expect revenue in the fourth quarter of 2018 in the range of $307 million to $313 million, representing top-line growth of around 22% at the midpoint.

In terms of earnings, we’re raising our guidance range for the full year of 2018 by $0.14 at the midpoint to a range of approximately $7.95 to $8.03 for non-GAAP net income per diluted share. This is based on 36.5 million shares. We expect adjusted EBITDA to be in the range of $404 million to $408 million for the full year of 2018, an increase of $6 million compared to our previous outlook. The midpoint of the outlook implies an adjusted EBITDA margin of 34% for 2018, just an impressive increase of 500 basis points compared to 2017.

For the fourth quarter of 2018, we expect non-GAAP net income per share in a range of $2.48 to $2.56 and adjusted EBITDA in the range of $125 million to $129 million. Our guidance range implies an adjusted EBITDA margin of 41% for Q4, ahead of our stated 40% goal for the quarter. Overall, I believe the strong results in operational improvements position us well going into the fourth quarter and into 2019.

With that, we’ll now open up the call for questions.

Question-and-Answer Session

Operator

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

Andrew Jeffrey

Hey, guys. Good afternoon.

Andy Florance

Good afternoon.

Scott Wheeler

Good afternoon, Andrew.

Andrew Jeffrey

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

Andy Florance

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

Andrew Jeffrey

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

Andy Florance

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

Scott Wheeler

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

Andy Florance

And then another thing to just remind everybody is that when we acquired ForRent, I sat down and had a chance to talk to the President of ForRent, we'd really been negotiating with Dominion not with leadership of ForRent directly. And I asked the President of ForRent, what is it – what is it like I've never been a cycle running a large ILS. And I said what's it like when you are in a negative cycle and he was surprised and he said well, Andy, we are in a negative cycle. You just don’t see that because you guys are killing it. When vacancy rates are low, ILS spending is down. When vacancy rates are high, ILS spending goes up.

So there's some degree that there could be some cyclicality that's inverse on the apartment side and especially when you look at the fundamentals looking like I say Atlanta, Georgia. Interest rates coming up, the Case-Shiller for Atlanta has housing pricing up 76% in five years like it's going to the multifamily. So we feel really quite good about it with a lot of legs to go. More worried about a Black Swan, a thing you can't anticipate.

Andrew Jeffrey

Maybe some counter cyclicality in multifamily…

Andy Florance

Yeah.

Andrew Jeffrey

Okay, thank you.

Operator

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

George Tong

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

Andy Florance

Well, here we are in this public call. So – yes, so we have – it's really just – it's not so much dramatic change. It's focusing on some of the fundamentals that worked well for us for a long time. I think the one big change is that we had to make a fundamental decision. We're going to have two different large national sales forces meeting with exactly the same customers. So the people that buy ads from LoopNet are commercial estate brokers and commercial estate owners. Buying an ad from LoopNet is fairly basic. We generally can hire a new sales person and get them up and running and successfully selling LoopNet, the vast majority of the time, within a matter of months.

So the clients expressed to us that really, we don't like being called by fifteen different people and it makes sense that we just have one point of relationship management. So we shifted our sales efforts to teach the CoStar sales force to sell LoopNet into that CoStar customer base rather than having two different sets of people calling in. The CoStar sales force would naturally be in a better position to price more effectively and to sell the higher end ads. And it's – and the numbers show, it's working out well.

The other thing is that you're always tweaking, you never want to take your customer base for granted. And when we are in a very strong market, sometimes there is a temptation for the sales force to just be looking to churn the next piece of business. And it’s a huge industry, but it's a small industry and it's important that our sales force continues to build relationships with our clients. And my experience in the industry is that the salesperson that builds relationships long term sells twice as much net as the person that doesn't.

So we're really just sort of optimizing the sales force and this positions us for sustained long term growth and good client satisfaction. We do not run every quarter to how can we get the single highest booking this quarter because I'll be gone next quarter since I've been here for so darn long, I tend to think the next year, the next year and the long term right answer. So sometimes we do the hard right instead of the easy wrong.

George Tong

Makes sense. And then the LoopNet conversion piece?

Andy Florance

How are we going to proceed with that? Well, we are going to – I mean the numbers are obviously spectacular so far. And they keep – I guess we’re – if you take the first and the second round, Rich, would this be about $167 million of upsell. And as fast as we upsell these things, they seem to replenish themselves. So it will – we've been doing a number of initiatives with our marketing department buildings, some online videos where we try to figure out who we’re targeting and then we present value proposition based on who they are. So we’re doing a little more digital selling and preparation. But we're continuing to focus on it.

And you know as we stated earlier, I think it is a multi-year effort. I think it’s something that will be work in this LoopNet conversion list for at least another three years and then it will move into a long term sustainability where five million people coming in a given month often. And some percentage of them, they'll begin their customer journey with us in the LoopNet interface. And then when they keep returning, we can identify the market to them and then migrate them up to CoStar. 99.5% of the people coming to LoopNet never see any upgrade messages, any upsell messages. They don't know there's a CoStar because they’re end users. We want to keep it that way. And we really are sort of laser targeting the folks we really think are consuming at a level they should move up to professional product. So I hope that answers the question.

Operator

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

David Ridley-Lane

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

Andy Florance

Yes, obviously, the – let’s just keep our bearings here. Obviously, the growth is excellent in the multifamily space and continues to be very strong and exceptional, so historical – all-time highs for anyone in the space. And we anticipate that we've got a lot of exciting stuff for years to come here. As we brought in ForRent, we bring in that revenue slug upfront. It does not pass through our sales bookings numbers.

We upfront when we acquired them we never had any expectation that we would retain 100% of the revenue. Often you'll have someone buying a top paid top level ad on both sides. And if someone's you know they will we expect that there will be some churn off where they won't buy top level ads on two sites from us. We can retain a lot of that, but not all of that and we sort of anticipated that.

And as that that burns off, you have – it comes out in our sales booking. So it goes in silently, but it comes out in the sales booking number. So that creates 4 million some drag in the quarter against the multifamily bookings roughly. And then the other thing is that when you're bringing in two sales forces and taking your message out there, your number one goal is to solidify the revenue and solidify the relationships. You want to get out there, make sure that you are visiting every one of these new customers coming to Apartments.com network and that you have them in there. And I don't have the exact cancellation numbers for ForRent, but I would imagine they were probably 400%, 500% higher than ours…

Scott Wheeler

Definitely higher than ours, yeah.

Andy Florance

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

Operator

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

Bill Warmington

Good afternoon, everyone.

Andy Florance

Well, good afternoon.

Scott Wheeler

Good afternoon, Bill. We’ve been expecting.

Bill Warmington

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

Andy Florance

Sounds like compound question coming.

Bill Warmington

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

Andy Florance

Yes, so Bill you've definitely got the fact straight there. We had about $4 million of this erosion that we saw as we're converting each quarter. No other offsets or ad backs, the LoopNet info run off is down at negligible amount. It's not really enough to talk about. So nothing really left for there. I think what you're seeing too is a little bit of what we saw last year in Q3 where in the CRE business, you come into July and August and you just see a slowdown in activity and slow down of flow through, which you saw last year in the CoStar and some in the LoopNet bookings.

So we saw that again in the third quarter of this year. And when you dig on to that and you look at what the sales force is selling to some of the stats Andy gave, we're encouraged that they're – year-over-year the sales people are selling 35% more this year in net than what they were selling last year in commercial real estate as CoStar LoopNet combined. We simply need to get some more of them in-house, so we can keep selling more. And we didn't see as you heard the sales force numbers were down slightly, sequentially here lot and apartments, but some in CoStar as well. So we'll need to keep pushing those back into the sales force and that will help us continue on the good productivity piece that we're seeing, but I think you got the ad backs right there.

Operator

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

Pete Christiansen

Hey, guys.

Andy Florance

Hey, Pete.

Pete Christiansen

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

Andy Florance

Sure, it’s a good question because probably the temperature is changing a little bit here. And so we did the Realla deal. And that's an example of a deal that is not a big deal. It's not the size of an Apartments.com. It's a much, much smaller deal. But what we're interested in there is the technology of the people and the positioning. And there are – we probably have 10, 12 deals right now that we're very interested in. And so, it's probably a little bit more aggressive now than it has been. But if you are – in particular if you are looking at some of these companies that bring technology that are operating at relatively small basis that you can leverage into a much bigger platform. The relative value is the issue not where you are in the cycle.

So when you do a deal like Realla, it doesn't matter it’s the top of the cycle or bottom of cycle, the cycle is the cycle and it probably – where we are in the cycle probably matter, more when you are looking at billion dollar deals. And there we have to think hard and carefully, but we still consider those. So we are not seeing again reiterate, there's – I look at our younger commercial estate analysts and economists and they talk about rent growth slowing as a disaster and like you should see what's like when rent growth falls, this is actually really good environment, the best of ever good, so we don’t see anything falling off right away. So we continue to look at very aggressively at smaller deals right now and we probably will have news there and probably at a much greater pace than you've seen in the last year or so.

Operator

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

Brett Huff

Good afternoon guys how are you doing?

Andy Florance

Good, hi Brett.

Scott Wheeler

Hi Brett.

Brett Huff

Good. Thanks for taking the call. Bookings question part two. I know a couple have asked about this. General question is one of the reasons, I think, investors at least have told us – they have told us they really like how things are going is that the bookings kind of quarterly annualized net new have just kind of gone up in a pretty steady fashion and that’s driven confidence in the future organic growth.

Can you articulate to us kind of the main five, six or whatever the number is, the reasons you are thinking the net new bookings will be up next year or year after, whatever it is. And that’s the main thrust of my question. And the second is, Scott you mentioned that there were 35% more sales going on. I just wanted to make sure I understood what you mean for that. And I'll leave you guys there. Thank you.

Andy Florance

Yes so I think people sometimes look for – obviously this is a great business with a strong track record and continues and has the ability to sustain these high growth rates for a huge period of time, why? Because it is a $50 trillion, $70 trillion global asset class and we’re the largest player in that space. And we’re just at the early days of creating those solutions. And clearly, we’ve shown that we’re able to build compelling products that have a huge advantage – that have just a huge advantage over some of the slower competitors.

So now we – if we just kept going up every single quarter like clockwork, you might say, hey, are these made of returns? But they're not, there is some volatility and we do things periodically like buying ForRent that create noise in the number so and so forth. But the market is strong, our competitive advantage is unquestioned. We have shared some news with you that should be exciting to you on other competitive fronts. I don't want to do schadenfreude but it's a reality.

And then we have a really robust product pipeline. There are a lot of opportunities out there. There's also a lot of M&A opportunities out there. And virtually, everything we're looking at in M&A is not about picking up the revenue of the company we're buying, it's about building out the platform. It's about picking up one of these companies and building a solution that reaches a much broader audience and also as an interconnected solution, so that the inputs already exist in our system and outputs feed another part of our system.

So there's a lot of good stuff here, it's a great company. And while bookings sequential stair-step precision in the bookings growth is important, it's not everything, so.

Scott Wheeler

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

Operator

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

Sterling Auty

Yes thanks. Hi guys.

Andy Florance

I just fairly recognize you there.

Sterling Auty

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

Scott Wheeler

Great, yes thanks Sterling. Let me clarify the pieces there. The $4 million drag that we talked about was a bookings drag that was in the net new sales bookings number. There is a parallel drag, I'll call it to revenue, and that has to do more the our products that were sold by ForRent previously that we chose not to continue. Those we never count in our bookings at all, those are revenue that comes with the acquired company that will tradeoff of over the course of the year. And it will offset the growth in our bookings.

So that's why when you saw the revenue in the Apartments multifamily growth rate slowed in Q3 because you picked up a bigger chunk of that in Q2 right after the acquisition, and then this sort of non-bookings revenue that we're not selling anymore that erodes as people’s contracts come up. So that's the revenue drag, which goes parallel to this bookings conversions issue.

So hopefully I’ve cleared what those two pieces are. And yes, we did expect that to happen early in the quarter, the that bookings came out fairly strong that we were happy with how the sales force actually sold a great amount of new product even while they're doing the conversions. So we're happy with how the ForRent and the Apartments combined forces are selling together and they are working together in their own individual territories. And now the former ForRent sales folks are ramping up their productivity and are about 75% to 80% productive as our historical Apartments reps in selling new business.

So we're seeing really good progress there.

Andy Florance

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

Operator

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

Mayank Tandon

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

Andy Florance

Sure. So yes, it does show our willingness and our commitment to continue growing the platform. I don’t want to get into too much detail for competitive reasons on exactly what we plan to do. But we do think that there is opportunity to expand our footprint internationally pretty quickly using some technology and methods that reduce the initial cost of going to market in reducing an initial risk. So we think it's possible to take couple of hundred people and add 50 countries with some footprint.

So we're looking at that we're looking at companies that will support that. I do feel that the more I’m in the business the more you're out there looking at the different players. You do feel that a company that is building up all these different software sets, and models, and customer bases and interactions between these different components, this is a game of software and software is about scale and its global scale. So I think the future is providing us an international level. We don't want to be measured about it because our EBITDA growth in the United States is awesome. And you want to keep harvesting your EBITDA in the United States, but then keep our eye on the fact that 10 years from now, we could have half of our EBITDA being global.

And we would never want to give that up. It's just very similar to when we were making a lot of money in Washington, in New York, there was some skepticism about taking it out to the whole country. And the numbers in the secondary markets in the United States in the earlier years as we expand our New York and Washington were de minimis, but they're not de minimis now. And we're excited about the technology is changing a little bit, and the market is changing little bit, opening up some new opportunities for us.

Operator

Thank you. I’m sorry.

Andy Florance

No, go ahead.

Operator

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

Stephen Sheldon

Yes hi guys. Good evening.

Andy Florance

Hi, Stephen.

Stephen Sheldon

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

Scott Wheeler

Sure. We're pretty happy to see the expansion that we're seeing now, especially when you're going to big integration like that, and the acquired business was making little of any margin. And so we took on a big slug of cost and had to rationalize that and keep the revenue at the same time. When you look at the progression [ph] through the year, it's really improved obviously as we've taken those out. And when you look at the associate the average margin for the business in the fourth quarter, you see that multifamily is going to be right there broadly in line with where the total business is going to be the fourth quarter.

Now you could say okay, yes but that’s real low real marketing spend, which is true. So that business is still not going to be in the profitable range of the entire business for the year. But I think when you see us at least hitting one quarter now on average, we’ll hit more of those as time goes on. We still believe that the margin profile of multifamily can be equivalent to the average margin of the entire business on an overall basis. We've got to scale a little bit more.

Andy Florance

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

Scott Wheeler

Yes those are much higher.

Andy Florance

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

Scott Wheeler

50 to 60.

Andy Florance

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

Scott Wheeler

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

Operator

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

Pat Walravens

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

Andy Florance

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

Scott Wheeler

Did someone wave your escalation?

Andy Florance

Yes that’s not happy to deal.

Pat Walravens

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

Scott Wheeler

Yes, when we started this at the very end of the first quarter, beginning of the second quarter, we really eliminated the discounting in many forms. Some of it was in bundle discounts some of it was in just manager discretionary discounts; some of it was in just selling partial products, which really resulting in discounts; and then some were in annual escalations that we had, which resulted in essential discounts. So this was all happening at the same time in the early second quarter where we said, we're done with the discounting programs anymore, all of those go away. And now we manage the business to a very defined rate card.

We have very defined escalations on an annual basis. And then now we're starting to take some of the very deepest of the discounts on a combined product basis, and go back to those clients, look at the value proposition. And those that have strong value propositions are now signing up for three years escalations or three-year increases to get up to rate card over a multiyear time frame. And we probably did about 30-or-so of those deals in the last month and a half to start to get our feet wet on that.

So those are all part of this, first, firm up your pricing, firm up your rate card and now go start to take the deeper discounts historically and move them up to rate card because you've seen the investment we put in the product with all the analytics, with all the new research centers and all these things over time and we're seeing clients are willing to step up to that as they recognize that value.

Andy Florance

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

Pat Walravens

Please do.

Andy Florance

So the word waiving escalations is completely foreign to me and I don't understand it. So we went through a phase where you had all of these LoopNet folks who were getting really marginal product and paying very little. And you want to bring them over to the CoStar platform. And we stretched down in pricing to include them in the business. Then you had Xceligent out there operating for an extended period of time. And we estimate that for every dollar they were charging someone, they were spending $5 to produce it. So they created this artificial price point out there. And again trying to bring people into the system, we extended discounts for a period of time.

The reality is our products on the commercial real estate side provide an owner, or broker, an appraiser, irreplaceable huge value. And they are a major bargain. And our renewal rates would instruct any economist that we are under pricing these products. And the difference between – only a junior salesperson who doesn't understand the market sells these lower-priced things, you have the more senior salesperson who comfortably signed a much higher point. So over time, you would expect to see the pricing growth continue to reflect the value we are providing folks. And the ROI on investment in our products, half of our clients is phenomenal no matter what we do with escalations of a couple of points to each year or more.

So the era of trying to meet Xceligent's pre-bankruptcy pricing is behind us. And yes, enough said, we feel strongly about that one. And let's get Pete in here for cheating second question.

Scott Wheeler

Pete how do you slip back in there?

Operator

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

Pete Christiansen

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

Andy Florance

Hey that’s a good question because always you’d expect at 3.7% unemployment you get some problems. I'm very grateful that we moved to Richmond with a research center we did because that's probably where a lot of competition would occur. We went into – like the engagement surveys in Richmond show that that center is working really well, folks are pretty happy there, I think, its great feel and energy down there. That offsets our huge sort research hiring needs. I would not want to be hiring in some – the researchers in some U.S.A. right now. On the sales front, I think, I have no indication that our hiring is not going well. It is just a question of we've been really busy and a lot of change and we're not afraid of change.

So you put two big competing sales forces together in the apartment industry, we're experienced enough to fully expect churn and reactions and we manage and at the best we can and then you just deal that and going keep on hiring. I think we communicated that earlier.

The other thing is that I always believe it’s good to be real straightforward the sales force about what the expectations for the job are. And it's to sell the correct solutions to the right people and to maintain a good positive relationship with those customers, and we don't yield on that. And if that causes 10 people in the CoStar sales force to leave, we'll be better off next year. And so it's on track. I think we probably need to continue sort of tweet the organization structure to be able to do with the growth but I would say it's going well. And next year is probably easier than this year in terms of the number of changes happening in the sales force, which even when no change occurs one year in the sales force, all sales forces believe lots of changes occurring.

Pete Christiansen

And it’s just difference for those.

Andy Florance

Yes. But anyhow thank you Pete.

Andy Florance

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

Operator

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