And gentlemen, thank you for standing by, and welcome to the 2nd Quarter 2018 Earnings Call. As a reminder, today's call is being recorded. Turn the conference over to your host, Richard Simonelli. Please go ahead.
Thank you, operator, and welcome to CoStar Group's Q2 2018 conference call. Before I turn the call over to Andy Florance, our CEO and Founder and Scott Wheeler, our CFO, I'd like to share some very interesting and important items that can actually have a positive effect on your life. Certain portions of our discussions 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 July 24, 2018 press release on our Q2 results and company's outlook as well as in CoStar's filings with the SEC, including our most recent Annual Report on Form 10 ks and our subsequent quarterly reports on Form 10 Q under the heading Risk Factors. All forward looking statements are based on information available to CoStar on the date of this call, and we assume no obligation to update these statements whether as a result of new information, future events or otherwise.
Reconciliation 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 earlier. Release is available on our website located at costargroup.com. As a reminder, today's conference call is being broadcast live and in color on our website, where you can also find CoStar's Investor Relations page. Please refer to the press release on how to access the replay of this call. Remember, just one question, so make it a good one.
I will now turn the call over to Andy Florens. Andy?
Thank you for joining us for our Q2 2018 earnings call. This month marks CoStar's 20 year anniversary as a public company, making this our 80th earnings call. Congratulations to those of you who bought our stock on July 1, 1998, when we list on NASDAQ at $9 a share. The only thing better than your 4,000 percent gain is the thrills you've enjoyed listening to more than 100 hours of these excellent packed CoStar Group earnings calls. On our IPO roadshow in 1998, we had less than $10,000,000 in trailing full year revenue.
Back then, many investors expressed some skepticism to our claim that CoStar Group had $100,000,000 potential total addressable market. In June of 2018, we achieved our first $100,000,000 revenue a month, and we're now at $1,200,000,000 revenue run rate. In the Q2 of 2018, our Apartments.com business alone generated its first $100,000,000 revenue quarter. Revenue for the Q2 2018 was $297,000,000 an increase of 25 percent over revenue of $237,000,000 for the Q2 of 2017. Year over year, net income in the Q2 of 2018 doubled to $44,000,000 and non GAAP net income, which excludes onetime costs associated with the acquisition of ForRent, was up 114%.
I strongly believe we will meet our 40% adjusted EBITDA margin goal for the Q4 of 2018. Our strong momentum in sales continues. Bookings in the Q2 of 2018 were very strong as we generated $45,000,000 an increase of 23% year over year versus the $37,000,000 we achieved in the Q2 2017. Just 1 year ago, that $37,000,000 had been the best net new sales quarter we'd ever had. Our commercial property and land marketplaces had their best sales quarter ever in the Q2 of 2018 with a year over year revenue increase of 105%.
This increase featured significant sales of LoopNet Premium Lister and Power ads on loopnet.com. With the integration of the CoStar and LoopNet databases, we were able to eliminate LoopNet's information product and focus LoopNet entirely on being the best possible marketing solution for commercial real estate. We're making significant enhancements to the LoopNet marketplace month in and month out views per advertised property has doubled. We're shifting our priorities developing and selling our higher end LoopNet power ads, such as our gold, platinum and diamond level advertising. The diamond ads on LoopNet reached the end user markets of tenants and small investors more effectively with larger ads that sort the top of relevant search results.
They're enhanced with immersive virtual reality walk throughs, drone shots, videos and more. They will also appear prominently throughout CoStar in order to make a strong impression on our broker audience as well. As we invest in growing our news service, the diamond ads will reach this audience through our newsletters and news website. Many landlords advertising with us believe that reaching the professional audience of tenant reps within CoStar Suite is equally as important as reaching the tenants themselves as the vast majority of lease transactions over 5,000 square feet involve tenants represented by professional brokers. We're already beginning to sell diamond ads on LoopNet for as much as $2,200 per month, which is 60x the $35 per month we currently average on LoopNet.
We believe that properties advertised on LoopNet and CoStar are leasing and selling faster, so there is real economic value and return on our clients' advertising investment. Conversely, vacant or unleased space is incredibly expensive for landlords, so reducing that downtime by marking the space with us provides an immediate and substantial return on investment. We're also now focusing on selling to owners instead of just the brokers. Owners typically have 94% of the economic interest at stake in a deal compared to a listing broker who has just 1.5% of the economics they share the commission with other brokers or his or her firm. We believe the return on investment argument resonates much more strongly with the owner who has the most at stake.
We believe that our commercial real estate advertising products are countercyclical. When an owner has a leasing crisis in a $250,000,000 property, a one of a kind 2,200 dollars month effective marketing solution is a no brainer. While the CoStar sales force remains focused on generating strong sales growth for the company, we also have them heavily focused on pricing integrity and relationship development with our existing clients. As we've mentioned in the last earnings call, we're holding the line on our pricing policies and not accepting discount or under license contracts. As a result, we've seen an 80% increase in the average price per new broker user brokerages at $2.55 per broker.
But by July, we're licensing new brokerages at $4.66 per broker. This increase improves our intermediate and long term revenue but does come at a cost of some reduction of short term contract volume. We averaged 6 24 total new CoStar contracts per month at the beginning of the 2nd quarter, and that dropped to 4 74 new contracts at the end of the 2nd quarter. So the trade off is approximately 25 percent overall lower contract volume, but they're at significantly higher price points. Beginning in March of this year, we felt it was important to incentivize our sales team to visit each of their CoStar customers to provide training, build stronger relationships and demonstrate the exceptional value of our CoStar Suite service.
We are focusing our sales force on relationship development right now for a number of important reasons. We've added tens of thousands of new users in the past 12 months. I feel it's important that these new and existing clients feel that we're in a partnership with them and focused on their success. Working closely with our clients, we expect to gain stronger referrals, lower cancels, better learn our clients' needs, upsell other products and more accurately license and price our products as contracts renew. It's working.
From April to June, in Q2 of 2018, we saw a 75% increase in number of face to face meetings our salespeople had with our clients focused on relationship development. As we do with Apartments.com sales force, we carefully track these meetings and get client feedback. This resulted in an improvement our net promoter score each month in the Q2. In June 2018, our net promoter score reached 9.1 on a 10 point scale, very positive referrals. I firmly believe that while this focus does not maximize short term sales productivity, it does create greater customer satisfaction and relationships definitely increase intermediate term and long term sales results.
I believe it also significantly widens our competitive mode. Today, we kicked off a multi day strategy session here at our headquarters with several dozen of Cushman and Wakefield's global leaders strategies to best leverage CoStar's technologies, information platforms and marketplaces to fuel the growth of their global platform. We believe it is positive for the industry and our business for the number 3 commercial real estate brokerage in the space, Cushman and Wakefield, or one of the top 3 players to be going public. Cushman is only is one of only 3 really large global brokerage firms. They've got almost $7,000,000,000 in revenue, 48,000 employees in 70 countries and an awesome brand that dates back over 100 years.
We know the company aims to continue to drive growth by investing in its technology to best serve clients and deliver margin expansion as it drives efficiency with recently acquired businesses. Apartments dot com continues to strengthen its lead as the number one apartment Internet listing service. We achieved our first $100,000,000 quarter, which is remarkable since we only entered the multifamily marketing business just 4 years ago with the acquisition of Apartments.com, which at the time only had annual revenue of $85,000,000 During the Q2, we once again achieved all time highs in visitors and traffic. Our SEO performance remains remarkably strong. Measured on May of this year based on Google rankings list of 10,000 apartments keywords, apartments had 73% of the number one slots.
That's 7x the 7% Zillow has or 25x or 24x the 3% RentPath has. And as reported by Comscore during the Q2 of 2018, Apartments dotcom averaged 15,200,000 unique monthly visitors, an increase of 37% year over year. Apartments.com had 3x more unique monthly visitors than Apartment Guide. This 4,900,000 unique visitors represented a decrease of 11% during the same period. Excluding traffic from move in both periods, our Apartments dotcom network averaged 47.6 1,000,000 visits per month, up 33%.
In June of 2018, our entire Apartments com network had more than double the number of unique visitors, 112% more to be precise, than the RentPath network according to Comscore. We had 2.5x the total number of visits over RentPath in June as well. Our network produced a stunning number of leads. It produced 41% more leads in the Q2 of 2018 than we did a year ago during the same period. Since we believe we have the highest quality leads in the industry, this should make a listing on Apartments.comnetwork even more valuable.
In June of 2018, we announced that we are resuming our partnership with News Corp subsidiary, Move Inc, to power exclusively apartment community listings on Move's websites, realtor.comanddoorsteps.com. Move had partnered with Move with unique potential renters a month. We believe this will result in the most cost effective use of advertiser dollars as their listings will enjoy increased exposure and will be available now on up to 11 different apartment websites. In June, we delivered our best gross sales month ever for Apartments.com. 1 of our primary priorities for our Apartments.
Team this year has been integrating the legacy Apartments.com sales force with the new sales team additions from ForRent. The ForRent business is being integrated quickly and effectively. We initially set a goal of integrating ForRent's operations clients and software within 12 to 24 months. Given the great progress we're making, it looks like we'll complete the integration in less than 12 months. Our integrated sales force has been performing really well from the start.
They're selling an integrated network and advertising package that we expect further increases exposure for our clients and generates more leads for them. Since the ForRent acquisition closed in February, we have met with all of our ForRent customers multiple times. This has created enormous goodwill and decreased cancellations dramatically. Since we integrated the sales force, average monthly than the monthly average of 4 rent cancels in 2017. We've converted over 4,100 At the end of the quarter, we had 48,500 apartment communities investing in the Apartments dotcom network.
That is approximately 18,000 communities 4 years ago. We're now very focused on that record setting 50,000 community milestone. Once again, we had a strong presence at last month's National Apartment Association Annual Conference in San Diego, resulting in 1,000,000 of dollars of net new sales. We had enormous interest from property managers from around the United States, which resulted in thousands of booth visitors, leads captured and demos delivered. We have already generated over 3.2 $1,000,000 in net new sales from the NAA conference with more sales still rolling in.
The highlight of the conference for me was the very positive feedback The CoStar Real Estate Manager solution is now an established leader in facilities project management, lease abstraction and lease accounting. We continue to add to a strong list of Fortune 1,000 companies as customers, including top financial, industrial, health care, retail and service companies join us. Additionally, existing customers continue to expand their use of our services as they seek to meet the new ASC 842 Leases standard. Over 3 50 companies are currently utilizing the service. In fact, a couple of the companies on today's earnings calls use it.
CoStar Real Estate Manager sales continue to impress with year over year revenue growth in the Q2 of 2018 of 118%. This year, CoStar Real Estate Manager is expected to exit Q4 2018 at approximately $43,000,000 revenue run rate with margins approaching 25%. We purchased Real Estate Manager in October of 2011 when it was known as Virtual Premise. You may recall this was right in the middle of the period that our acquisition of LoopNet was under careful very careful review by the FTC. This shows we're able to do more than one thing successfully at a time.
We paid $17,000,000 for virtual premise, which had approximately $7,000,000 in revenue, so we paid 2.5x revenue. I think you would agree that a SaaS business growing profitably through $43,000,000 in revenue at 118% growth rate is now worth a lot more than the $17,000,000 we paid for it. The purchase of Real Estate Manager builds our track record of making quality acquisitions that are selective that expand the total addressable markets we operate in, growing revenue and profitability of the company and strengthening our unique commercial estate platform. This has ultimately been a major contributor to increasing shareholder value. As we manage our capital in the balance sheet of CoStar and look for our next M and A opportunity, We're careful we do not overpay for businesses or make recklessly risky bets.
I'd rather wait and identify quality businesses that have the high potential to to Manager, Apartments.com, LoopNet and many, many others. I want to update you on our research operations. Our ability to collect and curate valuable commercial real estate content is our primary core competency. Our research operations continue to perform really well. In order to optimize the efficiency and effectiveness of our research process, we're closing 2 major research centers and consolidating them into other centers.
In Rx twenty eighteen, we'll be closing our research in Glasgow, Scotland and consolidating it into London. At the same time, we're closing our research center in Columbia, Maryland. Our centers in San Diego, Richmond and Washington will pick up the Columbia Center's workload. Both of the Glasgow and Columbia leases expire this fall. CoStar listing manager continues to be very additive to CoStar's research process.
Many brokers like to have direct control over when and how their listings are presented. With brokers self entering quality information, it frees up our researchers to continue to gather even more information as they perform their monthly update cycles. We are not seeing any slowdown of the robust start from broker entry we had in the 1st 6 months of CoStar Listing Manager. In June, 23,000 new listings were entered directly into CoStar by brokers. That is 38% of all new listings we experienced.
In the same month, 36% of all listings or 297,000 were brokers and owners using CoStar Listing Manager. We believe as brokers learn more about Listing Manager, their participation will increase even more. Our CoStar product development teams have been working hard to deliver a significant update to the core CoStar platform. We expect this will provide a far more intuitive user experience to search, filter and view results, generate reports and produce visually stunning analytic charts covering every important measure within the search results. The upcoming release is not just a big leap forward aesthetically, but it's been optimized for serious performance.
Searches resulting in tens of thousands of records will typically return in less than a second. In fact, it's often measured in milliseconds. Yesterday, I ran a series of searches in the update CoStar and initially thought something was wrong because the screens weren't really changing as I did the queries. Looked more carefully, it turned out it was actually moving so quickly, I couldn't see the results coming back. The results just seemed to appear instantly.
Clients really like speed and software, so they're really going to like the updated CoStar. They should. So there is one person who's listened to every one of CoStar's 80 earnings calls. It's Frank Carchetti, who was our CFO when we went public until he retired in 2007. Frank is addicted to CoStar, so Frank unretired in 2,009 for an extra 9 years and has played a valued role in our M and A team.
He's also successfully managed a number of our acquired companies. We all want to thank him for making CoStar's incredible journey from $5,000,000 of revenue a year to $100,000,000 a month possible. It would not have happened without him. Frank is going to be retiring this fall, and I'm confident that even in retirement, he'll be there for our 1 hundredth earnings call watching over his CoStar shares. I'll make sure I speak loudly so he can hear me.
This summer, the U. S. Economic expansion has entered its 10th year, yet growth seems to be accelerating rather than slowing. Consensus estimates for the 2018 GDP growth are strong and recent job growth has been solid as well, all of which is good for commercial real estate and apartment demand. For investors, prospects of rising interest rates have been the primary cause of concern in the commercial real estate industry as cap rates had compressed to record levels.
However, the 10 year treasury reversed its trend after crossing 3%, and some of the interest rate fears have eased. Record capital is being raised for real estate investment, and that should support real estate values in the future as well. The investment sales market has been fairly steady over the past two and a half years with investment sales volume peaking in 'fifteen, steady in 'sixteen, down a bit in 'seventeen and so far in 'eighteen as well. All 4 major sectors of commercial estate have performed well in this economic cycle. Occupancy has exceeded the best readings of the last cycle and rent growth easily surpassed inflation.
This year is turning to be a bit of an exception turning out to be a bit of exception. Net absorption, a measure of tenant demand, is slightly down year over year for all property types except multifamily. This is not surprising as industrial has had a tremendous run up due to e commerce growth. Retail is on the painful side of the e commerce coin as more people opt to have goods delivered to their home. With full employment, the office sector is starting to feel the slowdown in office job creation is inevitable, resulting in slightly lower demand growth.
On the supply side, the slowdown in completions has been similar across all property types. Deliveries this year are running below last year's totals, making the market fundamentals look as healthy as they were at the beginning of the year. Rent growth among the property types has diverged with industrial being the clear winner at just under 6% year over year growth, Retail is the laggard at 1.4%. The apartment sector is worth highlighting as after strong supply pipeline and weakening fundamentals, the market is recovering once again with rent growth accelerating, up 40 basis points to 3% compared to the end of last year. So the highlights of strengthening customer relationships, outstanding competitive positioning across multiple products and all in all, a solid economic outlook.
I will now turn the call over for everyone's favorite part of the earnings call to our CFO, Scott Wheeler.
Well, thank you, Andy. Great list of highlights. I don't think I can top that. No. Well, yeah, we are making great progress against our operating objectives for 2018 and we continue to deliver strong financial results.
We certainly remain confident about the trajectory of the business moving forward. As Andy mentioned, we delivered outstanding sales this quarter with $45,000,000 in net bookings, which exceeded our expectations overall and were up 23% from the Q2 of 2017. We are particularly encouraged by these results as there are a number of initiatives currently underway across our sales team. Our commercial real estate sales force continues to convert former LoopNet customers to higher value CoStar and LoopNet marketing contracts at a solid pace. Through the end of the second quarter, we've converted approximately 9,300 LoopNet customers to CoStar and or marketing contracts at an average price of approximately $5.27 per month.
On average, these LoopNet users were paying only $54 per month for an average monthly price lift of $4.73 per month, consistent with our results last quarter. At this point, we have generated $53,000,000 in annual incremental contract revenue from the LoopNet conversion. In addition, we initiated our pricing and licensing compliance program in the Q2, resulting in higher prices per user on new contracts. We expect that this effort, along with our focus on client service, will result in improved sales and customer value over the long term. Our focus on LoopNet as a marketing site is certainly paying off.
LoopNet sales were particularly strong in the quarter as the commercial real estate field sales team increased their LoopNet advertising sales over 2 50% compared to the Q2 of 2017. Our field sales team is becoming increasingly effective selling power ads in the Q2, selling 7x the level that they sold in the Q2 of 2017. Now granted this is from a small base, but the momentum is certainly encouraging. Finally, we had our best month of multifamily gross sales ever in June, which is impressive considering our focus on integrating the ForRent and Apartment sales forces in the Q2. The anticipated cancellations of some legacy ForRent clients resulted in lower net bookings for multifamily in total, which we expect will be short lived as we complete customer integration and we continue reducing the for rent property cancellations.
Switching over to revenue. Our growth rate was 25% in the Q2 of 2018 over the Q2 of 2017, coming in slightly above the high end of our guidance range. As we indicated last quarter, we're now actively moving existing customers and selling new customers a combined multifamily network product that includes both the Apartments.com and the ForRent family of websites. Accordingly, we're no longer able to effectively calculate an organic growth rate for multifamily or for the company in total. Overall, our revenue growth in our 2 largest businesses, CoStar Suite and Multifamily, is very strong, and we expect consolidated revenue to grow in a range of 22% to 24% for the year, a slight improvement over our guidance from the Q1 of 2018.
Looking at our revenue performance by services, CoStar Suite revenue growth was an outstanding 18% in the Q2 of 2018 versus the Q2 of 2017, a significant increase from the 13% annual growth rate we reported just a year ago in the Q2 of 2017. We expect CoStar Suite to continue delivering elevated growth levels with the growth rate for the full year 2018 atornearthelowend of our 18% to 20% guidance range. Revenue growth rates in information services were negative 14% in the Q2 of 2018 as expected due to the shutdown of the LoopNet information services in the Q1 of this year. Excluding the LoopNet information services, our real estate manager and other services in this group grew a whopping 57% in this quarter over the Q2 of 2017. Real Estate Manager continues to exceed our expectations with growth in excess of 100% in the second quarter of 2018 over the Q2 of 2017.
With the shutdown of LoopNet Premium and Searcher substantially complete and the strong growth at Real Estate Manager, we expect information services revenue to decline at a rate of negative 12% to negative 15% on a year over year basis in 2018, a significant improvement from our last outlook. Multifamily revenue grew 54% in the Q2 of 2018, including the impact of the ForRent acquisition. The integration is progressing ahead of schedule, but there's still a lot of left a lot of work left to do. Accordingly, our revenue expectations remain unchanged, and we expect multifamily revenue growth of 40% to 45% for the year. Rounding out our services performance, commercial property and land grew 16% year over year in the Q2 of 2018.
Organic revenue growth, normalizing for the May 2017 acquisition of LandWatch, was 12% in the Q2 of 2018 versus the Q2 of 2017. With strong sales levels in both LoopNet and the land marketplaces, we expect revenue growth rates to improve through the rest of 2018 and expect organic growth in commercial property and land in the 13% to 15% range for 2018. Our gross margins came in at 77 percent in the Q2 of 2018, in line with last quarter. Gross margins in the second half of twenty eighteen are expected to remain in line with the second quarter, improving slightly towards the latter part of the year following the closure of our Columbia, Maryland and Glasgow, Scotland research facilities. Our outlook includes some severance costs associated with these changes and modest savings in facilities and staff costs in the latter quarters.
Operating expenses of $186,000,000 for the Q2 of 2018 were below our estimates as we are laser focused on delivering our margin goals for the year. Approximately $3,000,000 of our expense favorability in the quarter was associated with lower than expected personnel costs. Marketing expenses increased seasonally as expected in the Q2, although we pushed approximately $3,000,000 of our marketing spend out of the Q2 and into the Q3 of 2018. The balance of the expense favorability related to focused cost management and operating efficiencies across the business, including better than planned results in the ForRent integration. Our Q2 2018 adjusted EBITDA was $85,000,000 or 29 percent of revenue.
This was approximately $15,000,000 above the top end of our guidance range and a full 600 basis points above our projected margin. We're very pleased that we were able to maintain this high level of adjusted EBITDA margin in the Q2 when advertising and marketing costs reached their peak for the year. Net income for the Q2 of 2018 of $44,000,000 increased an impressive 98% compared to the Q2 of 2017. Our effective tax rate in the quarter is 4%, which includes income tax benefits of $6,000,000 for state level research and development tax credits for the years 2013 through 2017, along with $3,000,000 of tax benefits associated with share based payment transactions. Non GAAP net income for the Q2 of 2018 increased 114 percent to $60,000,000 or $1.66 per diluted share and includes the adjustments for stock based compensation and acquisition related expenses.
Non GAAP net income for the 2nd quarter assumes a tax rate of 25%, which does not include the tax benefits of share based payment transactions or the R and D tax credits we took this quarter. Now let's take a look at some of the performance metrics for the quarter. At the end of the Q2 of 2018, our sales force totaled 775 people. The decline from the 905 salespeople at the end of the Q1 relates primarily to the reductions associated with the ForRent integration. The renewal rate on annual contracts was 91% in the Q2 of 2018, up from 90.6% in the Q2 of 2017.
The renewal rate for customers who've been subscribers for 5 years or longer was an impressive 97%. Subscription revenue on annual contracts accounts for 77% of our revenue in the quarter, down slightly from 79% last quarter due to a full quarter impact of ForRent, which has a lower percentage of revenue on annual contracts. As with most of our acquisitions, we expect this percentage to start increasing again as we convert more customers to annual apartments.com full network contracts. Before I get to the outlook, I'd like to give you an update on the ForRent integration. Our efforts to convert ForRent customers to the new Apartments network product is on track and revenue retention is ahead of our expectations so far.
To date, we have reduced approximately $20,000,000 to $25,000,000 in annual costs, which includes staffing reductions of over 200 people and elimination of other duplicative operating costs. We've incurred $9,000,000 of nonrecurring integration costs in the 2nd quarter and $12,000,000 year to date, which are included in our results and added back in our non GAAP financials. Overall, we're very happy with the pace and execution of the integration and expect to be substantially complete within 1 year of purchasing for Rem. I'll now discuss our outlook for the full year and Q3 of 2018. Based on strong year to date revenue and sales results, we are raising our 2018 revenue outlook by $4,000,000 at the midpoint from our previous guidance.
Our new 2018 revenue outlook is expected in the range of $1,180,000,000 to $1,192,000,000 This revenue range implies an annual revenue growth rate of 22% to 24% compared to 2017. We expect revenue in the Q3 of 2018 in the range of $304,000,000 to $307,000,000 representing top line growth of around 23% at the midpoint. In terms of earnings, we're raising our guidance range for the full year of 2018 by $0.31 at the midpoint to a range of approximately $7.75 to $7.95 for non GAAP net income per diluted share, and that's based on 36,500,000 shares. We expect adjusted EBITDA to be in a range of 395,000,000 to 405,000,000 for the full year of 2018, an increase of $15,000,000 compared to our previous outlook. Year over year, we expect adjusted EBITDA growth of approximately 40% to 45%.
For the Q3 of 2018, we expect non GAAP net income per share in a range of $2.02 to $2.10 and adjusted EBITDA in a range of $102,000,000 to $106,000,000 We expect adjusted EBITDA margins to increase in the Q3 and again in the Q4 as marketing costs decline and we continue to progress with the ForRent integration. We expect to meet or exceed our goal of 40% adjusted EBITDA margin in the Q4 of 2018. Overall, I believe the strong results in the first half of twenty eighteen position us to continue our revenue growth trajectory and margin expansion. I look forward to updating you on our progress throughout the year. With that, I will now open up the call for questions.
Thank Our first question is coming from the line of George Tong from Goldman Sachs. Please go ahead.
Hi, thanks. Good afternoon. You've converted 9,300 LoopNet customers through the end of 2Q. Can you elaborate on the cadence of LoopNet conversions in the Q2 relative to earlier quarters? And how you expect future Well, pricing lift is remaining about the same as
Well, pricing lift is remaining about the same as constant from Q1 to Q2 and expect it to stay constant Q3 and Q4. We are building out some new marketing initiatives that we've been working on for a while that we'll be rolling out in Q3, Q4, which might provide some acceleration for the conversion pace. We also have been building software to enhance the in LoopNet product upsell experience. And so we expect to continue at a good clip. And as we said before, we think we will be converting at this sort of clip or a little bit better around this area for 2 years plus out from here.
So and then even after we've converted a number of the folks who were formerly premium searchers or heavily searchers for a long period of time, LoopNet will remain a really important pipeline for upselling people to CoStar. So it's a great way to identify folks who need commercial real estate information and do a highly targeted marketing message to them. So it was a good performance and it will I think remain strong and steady for quite some time now. And the one exception one thing to make sure you think about though is, we're feeling really good about some of the product enhancements we've got coming on the marketing side of LoopNet. So we've been investing in making sure the sales force is comfortable with, fluent in selling the LoopNet marketing solutions across the CoStar Group.
So there's been a little bit of shift to folks selling the LoopNet marketing solution and that necessitates a little bit less of a focus on doing the information conversions. But all in all, we're very happy with the result.
Thank you. Our next question then will come from the line of Brett Huff from Stephens Inc. Please go ahead.
Good afternoon, guys. Congrats on a nice quarter.
Great.
Thank you, Brett.
On the bookings number of $45,000,000 that's a focus some folks have had. Can you give us or I think it was Scott, may have given us some kind of context around that visavis. There was still some loop net planned cancellations or shutdown that negatively impacted that. Can you quantify that again for us? And number 2, can you put a number or a ballpark on the pricing integrity negative impact on that $45,000,000 because I think that's a question we'll get a lot of?
Thanks.
Yes. So Brett, on the components, last quarter, we took a large reduction in the LoopNet info. I think we talked a lot about that. This quarter, there's only about $1,000,000 probably of negative drag for LoopNet info. The other transition item in this quarter as we do the for rent integration is that we're seeing somewhere around $4,000,000 or so of cancellations that come through as we work through the customer base and move the clients over the network contracts.
So the pace and the revenue conversion for rent is happening as expected, but as you'd expect, there's this couple of quarters where you're going to see the cancellations till we solidify all the revenue there. So that pulls the number down just a little bit more. But I think as you look at what we've done really on the CoStar side, we talked about the LoopNet conversions are still strong. The CoStar field team has really put in some great effort now selling more of the LoopNet product. In fact, 25% of their output is now selling LoopNet marketing, and it used to be 10% a year ago.
So you see a little bit of shifting over to that commercial property and land, which we talked a little bit about. And then on the pricing side, the value increases there on the contract basis, I don't think we have a real slowdown in the quarter to talk through on pricing. I think it's more of the focus on the service initiative, the LoopNet cross sells, and then continuing the pace following the large discounting that impacts the sales in the Q1 or the Q2. So hopefully that gives you some context on the different pieces.
Yes. And again, the for rent cancellation number, we are outperforming that number. So when you put together 2 or 3 marketplaces, you expect to get very significant cost efficiencies. You expect to get you expect to have some loss of redundant advertising dollars, which we're seeing, but we're actually getting a better than expected result on that. So we're really kind of happy with the way it's come out.
Yes. So our net sales for the quarter came out ahead of what we expected. Obviously, that's what allows us to raise our revenue guidance. It's in a few different buckets than what it may have been in the Q1, but our sales are always volatile quarter to quarter. We're happy that we're in this mid-40s range this year.
We're in the mid-30s range most of last year, and we're happy with the momentum we have going forward.
Thank you. Our next question will come from the line of Andrew Jeffrey from SunTrust. Please go ahead.
Hey guys, good afternoon.
Good afternoon, Andrew.
Like the same day conference call.
I'm glad it's turning into a tradition, I guess.
No extra charge for that. Much appreciated.
With regard to cross sell, as you've seen this nice success with LoopNet, any updates in terms of what you think the total cross sell potential is? I know you've talked about, Andy, as much as a couple of $100,000,000 Is that still a good long term expectation? How can we think about that maybe nuanced or from a timing standpoint, too?
Yes. So I absolutely still believe that number is a multi $100,000,000 number. I consistently believe that to be the case. And there will be 2 components. So just looking at the number we have right now at this quarter, relatively early on, it's a pretty solid number for cross selling.
But you've got 2 really solid legs you're working here. 1 is the selling LoopNet to CoStar customers and the other is selling CoStar to LoopNet users or former customers. And they're both I feel very optimistic about both. And it will naturally waver up and down slightly. It will have some volatility from quarter to quarter, but it will be a real consistent message line for the next 3 years.
Thank you. Our next question will come from the line of Pete Christiansen from Citi. Please go ahead.
Good afternoon, guys. Nice trends. Andy, can you rank some of the key reinvestment areas that you're looking at, I guess, over the next 12 months?
Yes. I mean just generally, one of the key areas is transformational product initiatives we're going we're working on at Apartments .com. We look at the apartment industry not just it's not just opportunity for the institutional grade properties that are over 100 units. We think there's a really exciting opportunity for us in generally facilitating the leasing of apartments from the individual unit on up to the 400 unit property. I don't want to get too specific into some of the initiatives we're working on, but we are cranking on some product initiatives that we're pretty excited about.
And I think they'll probably they're going to require some investment and they are they're taking some investment now and there'll be something that match rate over the course of 18 months or so. But when we are ready to bring those to market in the beginning of 2018, we'll talk about them more explicitly. There are we continue to feel that there like we continue to feel that there's an awful lot of opportunity in the owner lender segment of our industry. We've got some very exciting products we're working on to enhance CoStar to make it more useful for our many banking clients and try to win deeper penetration there. And we also believe that there is a significant global opportunity.
So we continue to invest into Spain, and we'll be doing some investments into France, where we already have a footprint. And the United Kingdom will probably begin cash flowing a little bit more, so there'll be price for transfer investment into Germany. And so it's those are some of our bigger initiatives. So is there anything I forgot, Scott, that we're thinking about? Certainly, the LoopNet marketplace.
Yes. So the LoopNet marketplace, so you can see the numbers are really solid there. And that is becoming I think that, that has the opportunity. The LoopNet marketing commercial real estate on the Internet, I believe, is an opportunity on par with marketing apartments on the Internet. So we're going to invest behind that a little bit over the next 2 years.
And then we might also do some additional investment into the businesses for sale area at the tail end of that 12 month horizon. So we're exploring a number of different things there. Obviously, remaining sensitive to achieving our 40% margin goal and beating it in the 4th quarter and then remaining somewhat consistent to that high margin level remaining consistent with high margin level ongoing and out years. So we're balancing reinvestment in the business with maintaining high margin levels. There is absolutely no shortage of potential investment initiatives.
It's a question of prioritizing the really exciting ones upfront, working on them in as fast a process as we can responsibly and efficiently run these initiatives.
Thank you. Our next question will come from Mayank Tandon from Needham and Company. Please go ahead.
Thank you. Good evening. Scott, you touched on some of the pricing lift and obviously that has a lot to do with the LoopNet conversion. But could you just maybe parse out the growth rate that you expect going forward for 2018 and then maybe longer term as well in terms of how it breaks down between increased penetration within the installed base, adding new customers and then, of course, any other pricing uplift beyond the conversion on LoopNet?
Yes. So the growth rates going forward, we still expect to get about half of our growth from existing accounts and further penetration of broader geographies, and we expect to get about half from new business and getting new logos. We're seeing that pretty consistently. It doesn't change a whole lot. And the other area now that we're seeing more growth is really not only the pricing in the CoStar side, but as we've done more pricing on the LoopNet side for unlimited lister contracts and now on our listing plans, we're seeing good upward movement in pricing on the LoopNet side as well.
But what we haven't called in really into the rest of the year is the pricing right now has been on new contracts coming in for new customers. We have not begun our program on a scale basis to do repricing of existing contracts as they roll, and we expect that will start to work its way in as the rest of the year and become a bigger impact into next year.
And that last point that Scott was making is huge. So on our existing customer base, we have not had in place rigorous processes to evaluate each contract renewing and making sure that it's appropriately priced at the point of renewal. So there is a lot of potential value in particularly in firms that might have signed up many years ago, have merged, have grown, have added a lot of people, have grown their footprint and our enterprise licensing hasn't kept up with that. So one of Scott's primary initiatives is setting up the systems around that to make sure we're capturing that appropriate revenue uplift and also making sure that our commission schedules support But that could be that alone over the next 3 years could be $100,000,000 in uplift, right pricing those. So we'll continue to see this higher average price point hold, I believe.
And then just the mix shift of going from marketing products to brokers in LoopNet to marketing products to owners, I think, an enormous net price uplift impact. So it will be pretty significant for next 3 years.
Thank you. Thank you. Our next question will come from David Ridley Lane from Bank of America. Please go ahead. Good evening.
In the
past you've shared the number of advertising multifamily properties. Now that 4 rents come online, I was wondering if I could get an update on that metric. And then directionally, what portion of those properties are on a premium level package versus a basic package? How much have you upsell that base already? Thank you.
Unfortunately, the sheet that that was printed on, I removed from the conference room to go grab something. I took it from Rich half an hour ago just before the meeting started. So we are at 43,147 on the Apartments dotcom before the for rent came in. And the real impressive growth there is at the upper end with a 55% growth of our highest end ad, the diamond ad. And then the silver ad is only growing at 3% year over year.
So the single highest growth category that people are buying is that premium level at. So that's good news. And the reason is we're delivering a lot more leads and a lot more value and more value increase to the advertiser than the price is going up. And then overall, it's the 48,490 when you combine the 4 rent apartments. Again, we will mark when we hit the 50,000 mark because that's like a hugely impressive feat of strength in the apartment marketing industry.
Thank you. Our next question will come from Stephen Sheldon from Wedmore Blair. Please go ahead.
Yes, thanks. Good evening, guys. How should we think about the factors that drove the adjusted EBITDA outperformance in the Q2, coming in at $85,000,000 versus guidance of, I think, $66,000,000 to $70,000,000 You talked about the $3,000,000 push out of advertising expense, but how much of the outperformance was driven by ForRent? What other factors may have driven it? And did you adjust your profit assumptions for ForRent over the remainder of the year?
Yes. You mentioned the marketing piece, which was the part that shifts out. The rest of the outperformance was all from strong cost management and then the few $1,000,000 of extra revenue that we had over our expectation. Yes, there's probably $2,000,000 or $3,000,000 of better than expected costs from the ForRent integration in the quarter. And so we expect that those benefits continue.
We flowed the full $15,000,000 of outperformance on EBITDA through to the guidance for the year. So we're confident that the things we're doing outside of the push in the marketing have to do with managing resources tightly as well as accelerating the ForRent integration and watching every other operating costs that we have, which you get a lot of duplicative marketing and other contracts that you find as you go through these integrations and those we were able to get out the door quicker than what we expected. So solid performance, managing headcount closely and taking out those duplicative costs gave you that outperformance.
And Scott overlooked completely the single biggest factor, which is we set 100% of all the senior executive team's bonuses for the year on feeding the 40% EBITDA margin adjusted EBITDA margin target in the Q4. And I've reminded them at every single executive meeting that it's either make the target or nada.
That's true. He does that every meeting.
Thank you. Our next question comes from the line of Bill Warmington from Wells Fargo. Please go ahead.
Good afternoon, everyone.
Good morning, Bill.
So, 100 hours of calls, I can say it only feels like half that. And also before I forget, I just wanted to wish good luck to Rich on his less than a month left of bachelorhood.
Yes. Thank you. I'm sure Angelo will appreciate your mention.
My question has to do with one of the figures you threw out in terms of 41% more leads and higher quality, better conversion rates. And so my question is, what are you doing to better demonstrate the higher quality to the potential buyers? And also then, what are you doing to better monetize those leads? And can you in some way use that $1,000,000,000 in cash that you're sitting on to somehow accelerate that process?
Bill, I always appreciate your questions. They're very helpful. So the yes, so it's interesting. The one of the ways at NAA, we partnered with 2 of the major players that provide lead tracking services for the apartment industry. 1 of them, LeaseHawk, has sampled 10,000,000 incoming leads into apartment communities.
Those that service shows that not only are we producing by far in a way the highest volume of leads, but they're also the most have the highest conversion rate, dramatically higher conversion rates than any of the other lead sources, which is important to our customers because each lead is an opportunity for them, but it's also a significant cost item for them. They have to process the lead, walk them through the department, everything else. So we've been making it with these 3rd parties that we're partnering with to communicate this information along with the tracking numbers we provide to our customers and the lead tracking tools we provide to them, they're very aware of the tremendous advantage we're providing them. And we've been hearing from them that they used to require 2 or 3 services to keep the lead flow they need and that today they're getting 100% of lead flow they need by just advertising with the Apartments dotcom network. So we're getting credit for it.
I would say that in 30, 40 conversations I had in NA with clients, almost all of them told us straight out, we measure it, we monitor it. And absolutely without a doubt, you guys get credit for the most leads and the highest quality leads. So that's a solid story. We don't need to I think we're effectively pushing it. However, you would expect that the clients are getting a great deal right now because while the lead flow and the conversion rate has gone up dramatically, I was shocked at how big the lead number was this past quarter.
It was huge. And it means that there is a pricing opportunity there. And we're going to be we'll be looking at that and we'll be it won't be out of control, but we do think there is an opportunity there for some pricing leverage there. So I think that we didn't expect such a tremendous growth in lead flow as we've seen. So we're seeing this as it holds consistent, we'll probably look for ways to recognize some of that additional value or capture some of the additional value we're providing folks.
In terms of how we use that modest cash balance we have, the we are very active looking at opportunities in the market. We have a number of different irons in the fire. We are being selective. We are not chasing things that we feel are overvalued in the cycle. And we're looking for reasonably priced assets that we think have that we can get a 10 banger on.
If we can't get a 10 banger on it, why do it? But we're not we aren't forgetting that balance. We're aggressively working it, but we want to do it the right way.
Thank you. We have a question from the line of Sterling Auty from JPMorgan. Please go ahead.
Yes, thanks. Hi, guys. Just one question on the LoopNet conversions. Of the 100,000 or so targets that you're going after, what percentage have you now kind of reached to do kind of the meetings and demos at this point to try to convert them?
I don't have an exact figure in front of me here. So I could only give you a guesstimate. And I would imagine it is 20% or so. But also remember that my experiences over the years has been that often that you'll have a quick sales cycle where you meet with one of those conversions and they close within 30 days. So your initial conversion rate initial close might be 50%.
Your 3 year close rate might be 75%. So you have the first run of it and then those people often reconsider or eventually come around to it. So we have a motto here in our sales organization that eventually they all buy. It's just a question of when they see the light and are ready to get a fantastic ROI for their investment in CoStar.
We have a question from the line of Mark Weisberger from B. Riley FBR. Please go ahead.
Good afternoon. Thank you. Are seeing any trends in non traditional users across any of your platforms? And if so, does that impact future product releases and or marketing campaigns?
We've always a couple of big sea changes like one is the growth of owners. We have predominantly used to be driven by brokers. Now overwhelmingly, our biggest customers are owners, and that's a growing segment. So that's a big focus for our product releases. We always have a remarkable collection of unexpected users from our products like you can delve into them, you look at 20 brands and you're like, why in the world are they buying the product?
And then there'll be some explanation about they need to measure the radio transmission blockage of buildings in order to calculate certain things. So there's always something going on like LA school districts subscribe to CoStar in order to forecast their budgets and out years since they're funded by commercial property taxes. So there's always something going on there. I actually think that it's not a small it's not a sort of wild outlier, but the banking industry, I think, is the next big phase for us. So our ability to wrap our customers' loan portfolios with good surveillance and strong underwriting tools.
I think we can for relatively modest costs, we can invest there and build some really compelling tools for the banking industry. So we have some things in development there. Also, we're providing some tools for CMBS investors, I think are pretty exciting where we're giving CMBS investors advance information on the economics of properties in the portfolios well before the servicers report that content to the investors. So we're getting some information arbitrage there. I think those tools have a lot of legs.
So we're now we're really more focusing on bigger blocks of opportunities. So taking folks who are traditionally 4% of our revenues and saying can we grow them to 10%. And there's probably 5% or 6% of those.
Thank you. And at this time, I have no further questions in queue.
Great. So Mark was batting cleanup. So thank you very much our 80th CoStar earnings call, and we look forward to updating you on our progress for the Q3 before long. And again, thank you very much for joining us.
Thank you. And ladies and gentlemen, that does conclude