Edit Symbol List
Enter up to 25 symbols separated by commas or spaces in the text box below. These symbols will be available during your session for use on applicable pages.
Don't know the stock symbol? Use the
Symbol Lookup tool.
Alphabetize the sort order of my symbols
Investing just got easier…
Sign up now to become a NASDAQ.com member and begin receiving instant notifications when key events occur that affect the stocks you follow.Access Now X
CoStar Group (CSGP)
Q4 2012 Earnings Call
February 28, 2013 11:00 am ET
Richard Simonelli - Director of Strategic Communications and Investor Relations
Andrew C. Florance - Co-Founder, Chief Executive Officer, President and Director
Brian J. Radecki - Chief Financial Officer, Principal Accounting Officer and Treasurer
Brandon Burke Dobell - William Blair & Company L.L.C., Research Division
John Campbell - Stephens Inc., Research Division
William A. Warmington - Raymond James & Associates, Inc., Research Division
Suzanne E. Stein - Morgan Stanley, Research Division
Todd Lukasik - Morningstar Inc., Research Division
Previous Statements by CSGP
» CoStar Group Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript
» CoStar Group, Inc. Q2 2010 Earnings Call Transcript
» CoStar Group, Inc. Q1 2010 Earnings Call Transcript
Thank you, operator, and good morning, everyone. Welcome to CoStar Group's Fourth Quarter and Year-end Results for 2012 Conference Call. We're delighted you have joined us.
Before I turn the call over to Andy, I have some really important facts for you to listen to. 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 our February 27, 2013, press release on the fourth quarter and year-end 2012 results, and in our filings with the SEC, including our Form 10-Q for the period ended September 30, 2012, and our Form-10K for the period ended December 31, 2011, 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 also being broadcast live over the Internet at www.costar.com. A replay will be available live and in color approximately 1 hour after this call concludes and will be available until March 28, 2013. 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 279285. A replay of this call will also be available on our website soon after the call concludes.
So with that, I'd like to turn the call over to Andy Florance. Andy?
Andrew C. Florance
Thank you, Richard. Thank you, everyone, for joining us this morning. U.K. folks, thank you for joining us this afternoon, for the year-end 2012 and our fourth quarter earnings call.
I'm very happy to report that in the fourth quarter, and for the first time in CoStar's history, we crossed the $100 million mark in quarterly revenue. This was a 51% increase year-over-year. We also achieved our highest quarter ever of EBITDA with $20.5 million in the fourth quarter, which is an increase of 86% year-over-year.
And with that, I'll turn the conference call over for questions, dial -- No, no, we've got a couple more pages. Our successful acquisition of LoopNet and the realization of the strong cross-selling opportunity between CoStar and LoopNet has been a key driver of these strong results. Our core CoStar Group information business is showing real strength. During the fourth quarter 2012, we booked $8.5 million in annualized net new subscription revenue and added 1,292 new CoStar subscriber customers. For the second consecutive quarter, that is a record number of new subscribers. 3 of our top 5 customers, CB Richard Ellis, Newmark Grubb Knight Frank and Cushman & Wakefield, renewed or entered into new multiyear contracts with us.
In 2012, our fastest growing markets based upon total revenue were Los Angeles, with $1.9 million in net new revenue; followed by Dallas, with $1.5 million; Chicago's $1.5 million; Northern New Jersey was $1.3 million; Orange County, $1.2 million; and Charlotte, with $1.1 million. Our fastest growing markets by year-over-year percentage growth were El Paso at 297%; Charlotte again at 99%; Louisville at 61%; Columbia, South Carolina, at 53%; Omaha at 53%; Memphis at 52%; and good old Milwaukee at 51%.
Our subscription renewal rates remain at all time highs on the CoStar side. Our 12-month trailing renewal rate for annual subscription-based services moved higher again to 94.1%. And our renewal rate for the more than 5,000 customer firms that have been CoStar subscribers over 5 years was once again 99%.
In the 10 months since we closed the acquisition of LoopNet, we have achieved $18 million of the $20 million in cost synergies we have targeted over originally a 24-month target period. So we're very close to achieving all those synergies.
So focusing on LoopNet. And as we've previously stated, the cross-selling opportunity resulting from the LoopNet acquisition is substantial. There are 100,000 LoopNet members that we feel are prime targets for CoStar information products. And the vast majority of almost 100,000 individual clients at CoStar are not currently paying to advertise listings on LoopNet. While the additional annual revenue potential is very large, we've only scratched the surface of this opportunity at this early point. Through mid-February, we have closed 2,521 cross-selling deals, where we've either sold CoStar information products to LoopNet users or have sold LoopNet marketing services to CoStar clients. Since we began cross-selling, we have sold approximately $10 million in annual contract value of CoStar services to LoopNet members and approximately $1.7 million of LoopNet services to CoStar customers. We began selling the LoopNet services to CoStar customers later in the process, so that number we would expect to be a little bit lower.
Overall, the total amount of revenue synergies is $14.6 million in annualized contract value, which that number also includes bundling LoopNet customers that went from monthly to annual contracts for LoopNet marketing. Before these cross-selling efforts, those LoopNet members, all those LoopNet members, only had a contract commitment of $273,000 with LoopNet. So from $273,000 to $14.6 million. The 2,335 contracts closed since the merger represent less than 2% of the total prospect pool we have to work with. I believe it is quite clear at this point that cross-selling is working and has a lot of potential. Now we're very focused on doing it more effectively.
One challenge we face is the sheer size of the LoopNet membership base we need to meet with in order to upsell. Given the size of our field sales force at the time of the acquisition, at a rate of several meetings a week, it would take years to meet with all these LoopNet prospects. At the same time, our account executives are meeting with existing and other prospects. They've got a lot of demands on their time.
To address this problem, we selected and transferred approximately 40 inside sales people, predominantly from LoopNet, to our CoStar field sales force. All of these former inside sales people are paired with more experienced sales reps, and each team works together in a specific sales territory across the country. These new field sales reps typically spend 2 days a week each in either of our Washington or San Francisco regional offices. And they spend their time arranging meetings, attending training classes or preparing contracts. They then travel to their respective markets with the goal of having 4 face-to-face meetings a day for several days each week.
The program is working very well. These teams are outsigning the majority of our single-person teams and are converting a lot of business. We have taken a large number of quality sales people with high potential who are selling low ROI products and have moved them into much higher potential field product roles -- or field production rules. Our objective is to generate the highest close rate from the meetings we have with LoopNet members. Obviously, the higher close rates we drive, the higher sales numbers we'll get. But the reality is we get a very wide range of conversion rates between our various sales people.
In order to improve our sales teams' conversion rates, we've conducted extensive surveys and focus groups with LoopNet members that we are meeting with in the field. So we're basically looking at those who both bought and those who didn't buy and asking them what drove their decision-making process. And I think we've gained an awful lot of valuable information and we'll be able to use it to produce even better cross-selling results going forward.
Past surveys have clearly indicated that prospects will pay more to upgrade to higher-quality data with better analytics. Of the people who we recently upgraded to CoStar from LoopNet, 71% of those surveys said they did so to get better data. 71% of those surveyed said they did so to get better data. The second most frequently stated reason for upgrading given by 13% of LoopNet members surveyed was that CoStar helped them compete better in their markets, which could be closely correlated to the first reason given.