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CoStar Group Inc  (CSGP -2.64%)
Q3 2018 Earnings Conference Call
Oct. 23, 2018, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


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.

Richard Simonelli -- Vice President of Investor Relations & Public Relations

Thank you, operator. Welcome to CoStar Group 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 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-Q's 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 those terms and you'll find that press release on our website located at costargroup.com.

As a reminder, today's conference call is also being broadcast live and in color on our website. So please refer to 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?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Rich, on behalf of all of our shareholders, I want to thank you for those inspirational words. 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 searchers and heavy searchers to CoStar Suite.

To date, we've 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 to. 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 all 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're confidently on our way to surpassing our goal of 40% adjusted EBITDA margin in the fourth quarter 2018. Unless you do not know, about four years ago we set a long-range goal of reaching a $250 million revenue quarter by the fourth quarter of this year and adjusted EBITDA margin of 40%.

Clearly, with a $306 million quarter this quarter, we are on track to smash through the revenue goal and with a 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 NextGen long range revenue and margin targets designed to delight our investors.

Companywide net new bookings were 40 million in the third quarter of 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 our sales force, spent most of their time, vast majority of their time, transitioning over 7,100 new ForRent customers 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 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 their satisfaction with so many different points of contact. There is no good reason for doing it this way. It was 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 force sales force, but it's worked out spectacularly.

In total, gross LoopNet sales bookings contribution from the CoStar sales force was up $2.8 million for Q3 year-over-year. This is up 216%, I am sorry, 261% year-over-year. On a per rep basis, gross LoopNet sales bookings contribution from the CoStar sales force was 39,000 for Q3. This is up 249% year-over-year. So they are learning some new things, folks and customer service selling LoopNet, but still yielding good productivity and we are aligning the Salesforce 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. It's 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 micro-site, generate a PDF to a blast email distribution, 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 officially gathering and managing larger 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 and 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 average monthly unique visitors are actually down. Let me repeat, their unique visitors are actually down and then one can assume so is the return on investment for their advertisers.

As a stand-alone site, apartments.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 moved network during both time periods. We have increased the apartments.com network visits gap over RentPath by almost an 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. It took the rating to CAA one and it's probably a default rating to CAA 1 PD. Moody's 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 CAA 2.

They revised the outlook for RentPath from stable to negative, Moody's said the downgrade reflects a 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 17, 2019 maturity of $15 million in the undrawn revolving credit availability will further pressure the company's financial position as 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%.

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 add opportunities for clients who have very valuable 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 went live in Q3 with significant power add 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 a 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 100th of that.

Accordingly, a top ad in New York might sell for $6500 a month, while an ad in Toledo might price at $450 a month. Sort of common sense, but we think it will help us optimize revenue.

This fall, we plan to roll out 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 paid listing on LoopNet 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 total force growing revenue 141% in the third quarter 2018 compared to the third quarter of last year. Is that number actually correct Scott, because it seems really high?

Scott T. Wheeler -- Chief Financial Officer

No, it's big. Correct.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

With the continued strong growth and huge potential of Real Estate Manager, the President of Real Estate Manager, Eddy 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 quality data directly into CoStar 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. It used to be a large brokerage firm. A number of our top 10 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, a large component of our analytics solutions were consulting based. We would meet one-on-one with large investors or lenders and one-off provide them with analytics.

This process engage 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 admission of our analytics team. Jay Spivey, who has been in leadership with us for 25 years, now leads all of our analytic solutions.

We have a clear mission now to devote our best talent to building leverageable digital analytic 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 analytic solutions, providing insights into risk, CMBS, REITs, portfolios, underwriting valuation, peering geospatial trends, benchmarking capital markets and more.

We just held a three-day analytics leadership summit 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 led 30 presentations focusing on key opportunities for CoStar. I think it would be helpful to share with you some of the wrap-up survey quotes from the survey monkey 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 exciting appreciation for a talented team, understanding 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 start-up with best year is 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 hopefully, "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 to the amazing talent we have at CoStar" and another one, "enthusiasm, optimism, commitments and energy". Another one, "great optimism for the future, we have some amazing talent here."

This was an incredible opportunity to share ideas, check how other groups were 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 infectious and helps reinforce while we're far and away the leader in our field and the best quote, "now the real work begins."

One update to 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 volume setting new records.

The ongoing health of the asset class is the result of a durable national economy that 10 years into the third longest post war expansion continues to reliably add 200,000 jobs per month, despite a 3.7% unemployment rate. A low yielding investment environment which is historically low cap rates offer attractive relative value and restrained very importantly, restrained on the part of developers.

Recent rate hikes by the Fed have yet to dent commercial real estate's relative value proposition. So CoStar's 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 the national economy and the ongoing shift to consumption patterns toward e-commerce.

This disruption consumption patterns has weakened demand someone for traditional retail space and rent growth and retail sectors lag the other property types. However, there is very limited development of new retail space and that's kept retail fundamentals broadly in balance, in fact, really quite healthy.

Trends in the multifamily sector have also been positive. Thanks to shift in homeownership patterns, the low 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 industry 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 held the end of economic expansions and slower growth at outright recession will reduce demand particularly for office retail and industrial space.

For the multifamily sector however, rising mortgage rates will keep many would-be homebuyers out of the home ownership 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. Barring the 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 real estate recession and concern.

The average value over the last 17 years is 48%. The most recent reading is 41% and that puts us in the lowest-quartile of values in the last 20 years. All major sectors and aggregate numbers are strong. This is 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 for the first 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 for the commercial real estate industry. We approach 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 T. Wheeler -- Chief Financial Officer

Thank you, Andy.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

You're welcome.

Scott T. Wheeler -- Chief Financial Officer

Quite a nice buildup. Although I must say, talking about the numbers, it just doesn't get any better than this. I'm just the warm up actually, but good to hear that none of the tariffs are affecting our revenue nor our outlook.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Keep watching those TEUs.

Scott T. Wheeler -- Chief Financial Officer

No-trade war here. All right. So, another strong revenue growth quarter 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've achieved net bookings of $40 million or higher.

During both the second and third quarters of this year, a significant amount of our Salesforce time was expanded on converting the ForRent customers to combine Apartments.com contracts, which took our sales team's 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 to 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 and 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. The significant increase from the 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 of this year. Excluding the LoopNet Information Services, our Real Estate Manager and other services in this Group grew a stunning 64% in the third quarter over the third quarter of 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 Service 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 in 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 remain 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 rate from the second quarter of this year. We are now more than a year past the acquisition of LandWatch, so the total growth rate and the organic growth rate for commercial property and land are now the same.

LoopNet sales remained strong and we expect organic growth in the commercial property and 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 facilities in the third quarter. Our outlook also includes some modest savings in facilities and staff cost associated with these closures.

Operating expenses of $163 million for the third quarter of 2018 were below our estimates and down from $186 million in the second quarter of 2018, primarily on lower third quarter marketing spending. Net income for the third quarter of 2018 of $59 million increased an impressive 72% compared to Q3 2017. 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 these 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 rate 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 who've been 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. As 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 7100 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 the integration to refocus our teams on new sales.

In terms of cost synergies, to date we have reduced approximately $30 million in annual costs, which includes staffing reductions of approximately 290 people and elimination of other duplicative operating costs.

In addition to cost 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 is feeding critical data like availabilities in rents back into our database. This is a very important step in the integration process and we're thrilled to have completed it so quickly.

Back in September of last year when we announced the acquisition of ForRent, we said we expected the acquired revenue to stabilize in a range of $75 million to $85 million with long-term EBITDA margins of approximately 45% to 55%.

I'm 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 Alan mentioned, we completed the acquisition of Realla earlier this month, which we expect to be an important strategic addition to our U.K. business. While we have big plans for the platform, we don't expect a meaningful revenue contribution in the fourth quarter.

We anticipate we'll add approximately $1 million to $2 million of operating costs 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 through 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 topline 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 million 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, which is an impressive increase of 500 basis points compared to 2017.

For the fourth quarter to 2018, we expect non-GAAP net income per share in the 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 and operational improvements position us well going into the fourth quarter and into 2019.

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

Questions and Answers:


Thank you, (Operator Instructions) And our first question will come from the line of Andrew Jeffrey with SunTrust. Please go ahead.

Andrew Jeffrey -- SunTrust -- Analyst

Hey guys. Good afternoon.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Good afternoon, Andrew.

Andrew Jeffrey -- SunTrust -- Analyst

Appreciate taking the question. Lots of moving parts, pretty much all positive now ForRent's behind you and you 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 it at CoStar as the business sort of stands today?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

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

Andrew Jeffrey -- SunTrust -- Analyst

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

Yeah, I would say more the same. There is no shortage of people to sell to. There's 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 that were to euphemism and so I think it's sustainable more 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 say more specific?

Scott T. Wheeler -- Chief Financial Officer

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, see those integration and then be able to grow on the backs of those. But those are little more cyclical and lumpy, but we have plenty of opportunities to go after and we just need to keep working it on.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

And then, another thing to just to remind everybody is that when we acquired ForRent, as sat down and had a chance to talk to the President of ForRent, we had really been negotiating with Dominion, not with the leadership of ForRent directly.

And I asked the President ForRent, what is it like -- what is it like? I've never been in a cycle running a large IOS and he said what is it like when you are in a negative cycle and he was surprised 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, IOS spending is down, when vacancy rates are high, IOS spending goes up.

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

Andrew Jeffrey -- SunTrust -- Analyst

Maybe some counter-cyclicality in multifamily. Thank you.


Thank you. Next we'll go to the line of George Tong with Goldman Sachs. Please go ahead.

George Tong -- Goldman Sachs -- Analyst

Hi. Thanks. Good afternoon. You've redirected your CoStar Suite Salesforce 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 flipside of that, your progress with engaging with your existing customers to prime them for a future pricing increase?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Well, here we are in this public call. So the -- 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 Salesforces meeting with exactly the same customers. So the people that buy ads from LoopNet, are commercial real estate brokers and commercial real 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 express to us that really, we don't like being called by 15 different people and it make sense that we just had one point of relationship management. So, we shifted our sales efforts to teach the CoStar Salesforce to sell LoopNet into their CoStar customer base rather than having two different sets of people calling in. The CoStar Salesforce would naturally be in a better position to price more effectively and to sell the higher end ads 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 is a temptation for the Salesforce 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 Salesforce continues to build relationships with our clients. And my experience in the industry is that the sales person 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 Salesforce 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 to next year, the next year and the long-term right answer. So sometimes we do the hard right instead easy wrong.

George Tong -- Goldman Sachs -- Analyst

Makes sense. And then the LoopNet conversion piece?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

How we're going to proceed with that? Well, we are going to -- I mean the numbers are obviously, spectacular so far, they keep -- I guess where if you take the first and the second round, Rich, would this be about 160 some million of upsell. And as fast as we have sold 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 we trying to figure out who we're targeting and then we present value proposition from based on who they are.

So we're doing a little more digital selling and preparation. But we'll continue to focus on it and as we stated earlier, I think it is a multi-year effort. I think it's something that we'll be working this LoopNet conversion list for 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 up-sell messages. They don't know there is 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 the professional product. So I hope that answers the question?


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

David Ridley-Lane -- Bank of America -- Analyst

Sure. I was wondering if you could discuss the reasons for this acceleration 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?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Yes, obviously the -- let's just keep our bearings here. Obviously, the growth is excellent in the multifamily space and continue to be very strong and exceptional, So historically -- 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.

The, as we brought in ForRent, we bring in that revenue slug upfront and does not pass through our sales bookings numbers. We upfront when we acquired them, we never had any expectation that we would retain a 100% of the revenue.

Often you'll have someone buying a top paid at top level ad on both sides. And if someone's -- they will, we expect that there'll be some churn off or 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've anticipated that and as 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 Salesforces 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 and make sure that you are visiting every one of these new customers coming through Apartments.com network and that you have them in there. And I don't have the exact cancellation numbers for rent, but I would imagine they were probably 400% or 500% higher than ours --

David Ridley-Lane -- Bank of America -- Analyst

Definitely higher than ours. Yeah.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

And so we want to take that revenue, bring it in and bring it long-term in to the super low, industry leading cancellation rates are those 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's 200, 300 left at 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'm guessing 7,000 some firms that are buying only product from RentPath, which is a huge opportunity for us and then the other thing 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 positive outlook feeling good about it.


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

Bill Warmington -- Wells Fargo -- Analyst

Good afternoon, everyone.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Good afternoon, Bill. We've been expecting you. Since I only get one question I have to make sure I let you know that I'm expecting spectacular inspiring and next-gen answers from you on that question. So, the $40 million bookings, you alluded to $4 million in ForRent revenue that went way for the quarter.

I want to make sure that, because I believe that was also one of the offsets in Q2, there 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 that $4 million is in this quarter and then if there are any other offsets that are worth highlighting for this quarter?

Scott T. Wheeler -- Chief Financial Officer

Yeah. So Bill you got definitely got the facts straight there. We had about $4 million of this erosion that we saw we're converting each quarter. No other offsets or add backs. The LoopNet info run-off is down a 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 what we saw last year in Q3, where in the CRE business you come into July and August and you just see it slowdown in activity and slowdown of flow through, which you saw last year in the CoStar and some of the LoopNet bookings. So we saw that again in the third quarter of this year.

And when you dig under that and you look at what the sales force is selling to some of the stats Andy gave, we're encouraged that year-over-year the salespeople are selling 35% more this year and in than what they were selling last year in commercial real estate that's CoStar LoopNet combined.

We simply need to get some more of them in-house, so we can keep selling more and we did see us as you heard the sales force numbers were down slightly sequentially here lot in apartments, but some in CoStar as well. So we'll need to keep pushing those back into the -- 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 add backs right there.


Thank you. Next we'll go to the line of Pete Christiansen with Citi. Please go ahead.

Pete Christiansen -- Citi -- Analyst

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

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Sure. It's a good question because probably the temperature is changing a little bit here and so we did the reality and that's an example of a deal that is not a big deal. It's not the size of Apartments.com. It's a much, much smaller deal, but we're interested in there is the technology, 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're looking at some of these companies that bring technology the we are operating a relatively small basis, but 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 to the top of the cycle above and the cycle -- the cycle is the cycle and it probably where we are in the cycle probably matters more when you're looking at $1 billion deals and there we have to think hard and carefully, but we still consider those.

So we are not seeing again to reiterate, there's I look at our younger commercial estate analysts and economists and they talk about rent growth slowing as a disaster unlike you should see it's like when rent growth falls. This is actually really good environment the best I've ever been. So we don't see anything falling off right away. So we could take a 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.


Thank you. Next, we'll go to the line of Brett Huff with Stephens and Corp. Please go ahead.

Brett Huff -- Stephens -- Analyst

Good afternoon, guys. How are you doing? 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 that we use pulled us have told us they really like how things are going.

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 us kind of the main five, six or whatever the number is, the reasons you're thinking that net new bookings will be up next year, a year after or whatever it is and that's the main thrust of my question.

And the second is, Scott, you mentioned that the, there were 35% more sales going on and I just wanted to meet sure I understood what you meant for that and I'll leave you guys there. Thank you.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

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 solutions and clearly we've shown that we're able to build compelling products that have a huge advantage that has 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 off returns, but they're not. There is some volatility and we do things periodically like buying ForRent that create noise in the numbers so on 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 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 is an interconnected solution, so that the inputs already exists in our system and outputs feed another part of our system.

So they're just 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.

Scott T. Wheeler -- Chief Financial Officer

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 are 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 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 is in LoopNet.


Thank you. Next, we'll go to the line of Sterling Auty with JPMorgan. Please go ahead.

Sterling Auty -- JPMorgan -- Analyst

Yeah. Thanks. Hi guys. I wanted to circle back to the ForRent item, because I wasn't clear in some of the questions it was referred to as a $4 million hit the bookings. Another question it was a hit to revenue.

I just want to clarify, make sure I understand, was it a hit to bookings and revenue in the quarter and if so, did you guys realize there was going to be that magnitude when you gave the guidance coming into the quarter and how do we think about kind of the bounce back as you kind of converted.

So in another words is there kind of a de-bounce in that productivity? So we get maybe some tailwind here in the fourth quarter?

Scott T. Wheeler -- Chief Financial Officer

Yeah thanks Sterling. Let me clarify the pieces there. The $4 million drag that we've 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 with the 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 trade-off 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 flow 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 any more that erodes as people's contracts come up.

So that's the revenue drag, which goes parallel to this bookings conversions issue. So hopefully that clears what those two pieces are. And yes, we did expect that to happen really in the quarter. The bookings that came out fairly strongly, we're happy with how the sales force, actually sold a great amount of new product even while they're doing the conversions.

So we're pretty 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 about 75% to 80% as productive as our historical apartments reps in selling new business. So we're seeing really good progress there.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Yeah. And it's really important that -- it's real 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 to ForRent today, but our sense is that this deal was a ultimately ends up being a single-digit EBITDA acquisition, multiple of EBITDA acquisition, that has tremendous strategic advantage to the company.

So these are the kinds of deals we love and they set the stage for long-term growth for the company. So as we beat the expected burn off revenue numbers, it would be a mistake for people to take those as negative.


Thank you. (Operator instructions) We'll go to the line of Mayank Tandon with Needham & Company. Please go ahead.

Mayank Tandon -- Needham & Company -- Analyst

Great. Thank you. Andy, does the acquisition in the UK set the stage for more of focuse 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 so the timeline on any future expansion internationally?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Sure. So yeah, I think it does show our willingness and our commitment to continue growing the platform. I don't like enter 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 reduced the initial cost of going into a market and reduced initial risk.

So, we think it's possible to take a couple hundred people and add 50 countries with some footprint. So we're looking at that. We're looking at companies that would support that. I do feel that the more 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 at 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 -- 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 of 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, New York. There was some skepticism about taking it out of the whole country. And the numbers and the United States in the early years, as we expand our New York, Washington were de minimis, but they're not de minimis now.

So and we're excited about the technology is changing a little bit, and the market is changing a little bit opening up some new opportunities for us.


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

Stephen Sheldon -- William Blair -- Analyst

Yeah. Hi guys, good evening. I wanted to ask about margins by business, you noted, I think that profit in multifamily will likely be up. I think it's 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?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Sure. We're pretty happy to see the expansion that we're seeing now, especially when you go into a big integration like that and the acquired business was making a little if any margin. And so we took on a big slug of costs and had to rationalize that and keep the revenue at the same time.

When you look at the progress through the year, it's really improved obviously as we've taken those out and when you look at the associated 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 in the fourth quarter.

Now you can say OK, yeah, but that's your lowest 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 got to scale a little bit more. We can take a look at like a LoopNet margin or margin those sorts of margins, they are much higher and that's where this business now -- differences this business does that and goes through $1 billion.

Stephen Sheldon -- William Blair -- Analyst

Yeah, very high scale.

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

So hopefully that gives you some clarity. We're happy that the way we're pacing and the business is performing well.


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

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. Thanks for the detailed discussions so far, guys. Can I go back to pricing around the CoStar Suite? I'd love to understand better, I heard this concept of waving the escalations and just does that ring a bell by the way?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

We are familiar with all these terms as they -- but it's time to time. We are familiar with all these terms as they -- but it's time to time. If someone waive their escalation, but that does not happen.

Pat Walravens -- JMP Securities -- Analyst

So before this year, how are you thinking about that and what you are doing this year and in 2019 and beyond and how is it going to work?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Yes. So when we started this back in May, during the end of the first quarter beginning in the second quarter, but we really eliminated the discounting in many forms. Some of it was in bundled discount. Some of it was in just manager discretionary discounts. Some of it was in just selling partial products, which really were resulting in discounts and then some were in annual escalations that we had, which resulted in essentially discounts.

So this all happened at the same time in the early second quarter where we said we are done with the discounting programs anymore. All of those go away and now we manage the business to a very, very defined rate card. We have well 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 of three-year increases to get up to rate card over a multi-year timeframe and we probably get 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're seeing 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.

Scott T. Wheeler -- Chief Financial Officer

Yes, I just can't help to chime in here. So the word waving escalations is completely foreign to me and I don't understand it. So we went through a phase where you had all these LoopNet folks who were getting a 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 of 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 sales person who does understand the market sells these lower price things, you have the more senior sales person who comfortably signed a much higher point.

So over time, you would expect to see the pricing grow to -- continue to reflect the value we're providing folks and the ROI on investment in our products, of half of our clients is phenomenal, no matter what we do with escalations of a couple points each year or more. So the era of trying to meet Xceligent pre-bankruptcy pricing is behind us. And yeah, enough said, but feel strongly about that one. And let's get Pete in here for a cheating second question, how do you slip back in there?


Okay. We'll go back to the line to Pete Christiansen with Citi. Please go ahead.

Pete Christiansen -- Citi -- Analyst

Thank you very much. I appreciate that. Very, very, quick question, I promise, I won't hold up anyway much longer, but you talked about headcount going down, attrition and then you're actively hiring. Just generally how's house hiring going? Is it been tougher lately?

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

It's a good question because we're always you would expect a 3.7% unemployment you get some problems. I am very grateful that we moved to Richmond with a research center when 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 and I think it's great feel in energy down there. That offsets our huge sort of research hiring needs. I would not want to be hiring in some researchers in some US cities right now.

On the sales front, I think our -- 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 are experienced enough to fully expect churn and reactions that we manage that the best we can and then you just deal with it and 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's the expectations for the job are and it's you know to sell the correct solution 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 and I think we probably need to continue to serve it tweak the organization structure to be able to deal with the growth, but it's -- 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 with no change occurs one year in a sales force, all sales forces believe lots of changes occurring as it's just different probably.

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


Thank you, ladies and gentlemen. This conference will be available for replay after 7:30 PM today through November 23 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code 455388. International participants may dial area code 320-365-3844. Those numbers again are 1800-475-6701 and 320-365-3844 using the access code 455388.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Duration: 73 minutes

Call participants:

Richard Simonelli -- Vice President of Investor Relations & Public Relations

Andrew C. Florance -- Co-Founder, Chief Executive Officer, President & Director

Scott T. Wheeler -- Chief Financial Officer

Andrew Jeffrey -- SunTrust -- Analyst

George Tong -- Goldman Sachs -- Analyst

David Ridley-Lane -- Bank of America -- Analyst

Bill Warmington -- Wells Fargo -- Analyst

Pete Christiansen -- Citi -- Analyst

Brett Huff -- Stephens -- Analyst

Sterling Auty -- JPMorgan -- Analyst

Mayank Tandon -- Needham & Company -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Pat Walravens -- JMP Securities -- Analyst

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