CoStar Group Announces Second Quarter Revenue Growth of 15% and Sales Booking Growth of 39% Year-over-Year, Raises Full Year Earnings and Revenue Guidance  

WASHINGTON, July 26, 2017 (GLOBE NEWSWIRE) -- CoStar Group, Inc. (NASDAQ:CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that revenue for the quarter ended June 30, 2017 was $237 million, an increase of 15% over revenue of $207 million in the second quarter of 2016. Company-wide net bookings were a record $37 million in the second quarter of 2017.

“We had an exceptional first half of 2017 and I am very pleased that our investments in sales, marketing, technology and research have resulted in acceleration in top-line growth and extremely strong momentum in bookings,” said Andrew C. Florance, Founder and Chief Executive Officer of CoStar Group. “Our newly minted Global Research Center in Richmond has grown to over 600 professionals driving our research productivity to new heights. Our increased research proactivity with the broker and owner community is delivering higher quality data and analytics, making CoStar’s outstanding services even better. There is no doubt that stronger research is a significant factor in our bookings and revenue growth in the first half of 2017.”

Florance continued, “CoStar Suite had its best sales quarter ever, with bookings up 23%, while revenue increased 13% year-over-year. We achieved accelerated revenue growth in our Commercial Property and Land marketplaces, which grew 17% year-over-year fueled by robust sales of LoopNet Premium Lister and our new tiered advertising sales to owners. Apartments.com revenue also grew an impressive 24% year-over-year and delivered very strong sales bookings in the quarter.”  

Year 2016-2017 Quarterly Results - Unaudited
(in millions, except per share data)
 2016 2017
 Q1Q2Q3Q4 Q1Q2
        
Revenues200   207   213   218    227   237 
Net income17 16 23 30  22 22 
Net income per share - diluted0.52 0.48 0.72 0.91  0.68 0.68 
Weighted average outstanding shares - diluted        32.4 32.4 32.4 32.5  32.6 32.7 
        
EBITDA48 46 58 64  55 44 
Adjusted EBITDA58 56 67 75  64 54 
Non-GAAP net income31 29 36 42  34 28 
Non-GAAP net income per share - diluted0.95 0.91 1.11 1.29  1.05 0.86 

Net income for the second quarter of 2017 increased to $22 million or $0.68 per diluted share compared to net income of $16 million in the second quarter of 2016. EBITDA in the second quarter of 2017 was $44 million.

Non-GAAP net income (defined below) for the quarter ended June 30, 2017 was $28 million or $0.86 per diluted share.  Adjusted EBITDA (which excludes stock-based compensation and other items as defined below) was $54 million for the second quarter of 2017.

As of June 30, 2017, the Company had approximately $575 million in cash, cash equivalents and long term investments, while short and long-term debt outstanding, net of debt issuance costs, totaled approximately $305 million.

2017 Outlook 
“We exceeded our second quarter top and bottom line estimates, and we are raising our full year 2017 revenue and earnings guidance,” stated Scott Wheeler, Chief Financial Officer of CoStar Group.  

The Company expects revenue to be in a range of approximately $954 million to $960 million for the full year of 2017, increasing the midpoint by $7 million from the prior outlook.  For the third quarter of 2017, the Company expects revenue of approximately $243 million to $245 million.

For the full year of 2017, the Company expects non-GAAP net income per diluted share (defined below) in a range of approximately $4.42 to $4.52.  For the third quarter of 2017, the Company expects non-GAAP net income per diluted share of approximately $1.09 to $1.15.

The preceding forward-looking statements reflect CoStar Group’s expectations as of July 26, 2017, including forward-looking non-GAAP financial measures on a consolidated basis. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, the exact amounts or timing of investments, transitions, restructurings, settlements or impairments will occur in any given quarter. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, the Company does not intend to update its forward-looking statements until its next quarterly results announcement.

Reconciliation of EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share and all of the disclosed non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms. A reconciliation of forward-looking non-GAAP guidance to the most directly comparable GAAP measure, net income, can be found within the tables included in this release.

Non-GAAP Financial Measures
For information regarding the purpose for which management uses the non-GAAP financial measures disclosed in this release and why management believes they provide useful information to investors regarding the Company’s financial condition and results of operations, please refer to the Company’s latest periodic report.

EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group before (i) interest income (expense), (ii) provision for income taxes, and (iii) depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before (i) stock-based compensation expense, (ii) acquisition and integration related costs, (iii) restructuring charges and related costs, and (iv) settlements and impairments incurred outside the Company’s normal business operations.

Non-GAAP net income is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group before (i) amortization of acquired intangible assets, (ii) stock-based compensation expense, (iii) acquisition and integration related costs, (iv) purchase accounting adjustments, (v) restructuring charges and related costs, and (vi) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. The company assumes a 38% tax rate in order to approximate our long-term effective corporate tax rate.

Non-GAAP net income per diluted share (also referred to as non-GAAP EPS) is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period.  For periods with GAAP net losses and non-GAAP net income, the weighted-average outstanding shares used to calculate non-GAAP net income per share includes potentially dilutive securities that were excluded from the calculation of GAAP net income per share as the effect was anti-dilutive.

Earnings Conference Call
Management will conduct a conference call at 11:00 AM EDT on Thursday, July 27, 2017 to discuss earnings results for the second quarter of 2017 and the Company’s outlook. The audio portion of the conference call will be broadcast live over the Internet at www.costargroup.com/investors/events. To join the conference call by telephone, please dial (877) 260-8896 (from the United States and Canada) or (612) 332-0632 (from all other countries) and refer to conference code 426643. An audio recording of the conference call will be available for replay approximately one hour after the call's completion and will remain available for a period of time following the call. To access the recorded conference call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 426643. The webcast replay will also be available in the Investors section of CoStar Group's website for a period of time following the call.

CoStar Group, Inc.
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
         
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2017 2016 2017 2016
         
         
Revenues $237,153  $206,869  $463,706  $406,608 
Cost of revenues 55,273  42,679  106,619  85,579 
Gross margin 181,880  164,190  357,087  321,029 
         
Operating expenses:        
Selling and marketing 91,726  80,468  168,128  155,672 
Software development 23,144  19,547  45,518  37,182 
General and administrative 34,557  30,227  68,552  57,703 
Customer base amortization 4,570  5,829  9,344  12,052 
  153,997  136,071  291,542  262,609 
         
Income from operations 27,883  28,119  65,545  58,420 
Interest and other income 605  159  1,034  243 
Interest and other expense (2,693) (2,455) (5,379) (4,964)
Income before income taxes 25,795  25,823  61,200  53,699 
Income tax expense 3,611  10,247  16,886  21,402 
Net income $22,184  $15,576  $44,314  $32,297 
         
Net income per share - basic $0.68  $0.48  $1.37  $1.01 
Net income per share - diluted $  0.68  $  0.48  $  1.36  $  1.00 
         
Weighted average outstanding shares - basic 32,406  32,186  32,341  32,135 
Weighted average outstanding shares - diluted         32,739  32,448  32,651  32,415 


CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures - Unaudited
(in thousands, except per share data)
         
Reconciliation of Net Income to Non-GAAP Net Income
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2017 2016 2017 2016
         
Net income $22,184  $15,576  $44,314  $32,297 
Income tax expense 3,611  10,247  16,886  21,402 
Income before income taxes 25,795  25,823  61,200  53,699 
Amortization of acquired intangible assets 9,340  11,516  20,233  23,435 
Stock-based compensation expense 10,103  9,339  19,460  17,670 
Acquisition and integration related costs 411  811  772  2,258 
Settlements and impairments     (760)  
Non-GAAP income before income taxes 45,649  47,489  100,905  97,062 
Assumed rate for income tax expense * 38% 38% 38% 38%
Assumed provision for income tax expense (17,347) (18,046) (38,344) (36,884)
Non-GAAP net income $28,302  $29,443  $62,561  $60,178 
         
Net income per share - diluted $0.68  $0.48  $1.36  $1.01 
Non-GAAP net income per share - diluted $0.86  $0.91  $1.92  $1.86 
         
Weighted average outstanding  shares - basic 32,406  32,186  32,341  32,135 
Weighted average outstanding  shares - diluted 32,739  32,448  32,651  32,415 
         
* A 38% tax rate is assumed, which approximates our long-term effective corporate tax rate, excluding the impact of a discrete item related to excess tax benefits from stock-based compensation.
         
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2017 2016 2017 2016
         
Net income $22,184  $15,576  $44,314  $32,297 
Amortization of acquired intangible assets in cost of revenues 4,770  5,687  10,889  11,383 
Amortization of acquired intangible assets in operating expenses 4,570  5,829  9,344  12,052 
Depreciation and other amortization 6,520  5,924  12,925  11,526 
Interest and other income (605) (159) (1,034) (243)
Interest and other expense 2,693  2,455  5,379  4,964 
Income tax expense 3,611  10,247  16,886  21,402 
EBITDA $43,743  $45,559  $98,703  $93,381 
Stock-based compensation expense 10,103  9,339  19,460  17,670 
Acquisition and integration related costs 411  811  772  2,258 
Settlements and impairments     (760)  
Adjusted EBITDA $54,257  $55,709  $118,175  $113,309 


CoStar Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
     
  June 30, 2017   December 31,
2016
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents $  564,638  567,223 
Accounts receivable, net 51,512  48,537 
Income tax receivable   129 
Prepaid expenses and other current assets 19,837  11,602 
Total current assets 635,987  627,491 
     
Long-term investments 9,952  9,952 
Deferred income taxes, net 7,834  7,273 
Property and equipment, net 85,779  87,568 
Goodwill 1,280,271  1,254,866 
Intangible assets, net 198,097  195,965 
Deposits and other assets 2,099  1,948 
Total assets $2,220,019  $2,185,063 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable, accrued expenses and other current liabilities         $85,789  $83,916 
Current portion of long-term debt 21,945  31,866 
Deferred revenue 43,167  39,164 
Total current liabilities 150,901  154,946 
     
Long-term debt, less current portion 282,881  306,473 
Deferred gain on sale of building 17,454  18,715 
Deferred rent 31,077  31,589 
Deferred income taxes, net 20,218  18,386 
Income taxes payable 753  741 
     
Stockholders' equity 1,716,735  1,654,213 
Total liabilities and stockholders' equity $2,220,019  $2,185,063 


CoStar Group, Inc. 
Condensed Consolidated Statements of Cash Flows - Unaudited 
(in thousands, unaudited) 
  
 Six Months Ended
June 30,
 2017 2016
Operating activities:   
Net income$  44,314  $  32,297 
Adjustments to reconcile net income to net cash provided by operating activities:           
Depreciation and amortization33,158  34,961 
Amortization of debt issuance costs1,487  1,610 
Stock-based compensation expense19,460  17,670 
Deferred income tax expense, net3,434  3,474 
Provision for losses on accounts receivable2,349  5,108 
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable(5,177) (10,868)
Prepaid expenses and other current assets(7,887) (2,616)
Deposits and other assets(103) 482 
Accounts payable and other liabilities605  4,956 
Deferred revenue3,723  (380)
Net cash provided by operating activities95,363  86,694 
    
Investing activities:   
Proceeds from sale and settlement of investments  4,700 
Purchases of property and equipment and other assets(12,674) (7,394)
Acquisitions, net of cash acquired(45,068) (10,795)
Net cash used in investing activities(57,742) (13,489)
    
Financing activities:   
Payments of long-term debt(35,000) (20,000)
Repurchase of restricted stock to satisfy tax withholding obligations(13,456) (13,967)
Proceeds from exercise of stock options and employee stock purchase plan7,683  3,837 
Net cash used in financing activities(40,773) (30,130)
    
Effect of foreign currency exchange rates on cash and cash equivalents567  (742)
Net increase (decrease) in cash and cash equivalents(2,585) 42,333 
Cash and cash equivalents at the beginning of period567,223  421,818 
Cash and cash equivalents at the end of period$564,638  $464,151 


CoStar Group, Inc.
Results of Segments - Unaudited
(in thousands)
        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2017 2016 2017 2016
Revenues       
North America$229,826  $199,859  $449,167  $393,120 
International       
  External customers7,327  7,010  14,539  13,488 
  Intersegment revenues *11  10  22  21 
Total International revenues7,338  7,020  14,561  13,509 
Intersegment eliminations(11) (10) (22) (21)
Total revenues$237,153  $206,869  $463,706  $406,608 
        
EBITDA       
North America$43,364  $45,127  $97,797  $91,991 
International379  432  906  1,390 
Total EBITDA$43,743  $45,559  $98,703  $93,381 
        
*Intersegment revenues recorded were attributable to services performed for the Company's wholly owned subsidiary, CoStar Portfolio Strategy by Grecam S.A.S. (“Grecam”), a wholly owned subsidiary of CoStar Limited, the Company’s wholly owned U.K. holding company. Intersegment revenues are recorded at an amount the Company believes approximates fair value. North America EBITDA includes a corresponding cost for the services performed by Grecam for CoStar Portfolio Strategy.


CoStar Group, Inc.
Revenues by Services - Unaudited
(in thousands)
         
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2017 2016 2017 2016
         
Information and analytics        
CoStar Suite $  113,794  $  101,074  $  223,773  $  198,708 
Information services 18,312  19,425  36,648  38,850 
Online marketplaces        
Multifamily 68,076  54,860  132,067  107,098 
Commercial property and land     36,971  31,510  71,218  61,952 
Total revenues $237,153  $206,869  $463,706  $406,608 


CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures with 2016-2017 Quarterly Results - Unaudited
(in millions, except per share data)
         
Reconciliation of Net Income to Non-GAAP Net Income
         
  2016 2017
  Q1Q2Q3Q4 Q1Q2
         
Net income $16.7 $15.6 $23.2 $29.6  $22.1 $22.2 
Income tax expense 11.2 10.2 14.2 16.0  13.3 3.6 
Income before income taxes 27.9 25.8 37.4 45.5  35.4 25.8 
Amortization of acquired intangible assets 11.9 11.5 11.3 10.8  10.9 9.3 
Stock-based compensation expense 8.3 9.3 9.3 9.4  9.4 10.1 
Acquisition and integration related costs 1.5 0.8    0.4 0.4 
Restructuring and related costs   0.1 1.8    
Settlements and impairments      (0.8) 
Non-GAAP income before income taxes 49.6 47.5 58.1 67.5  55.3 45.6 
Assumed rate for income tax expense * 38%38%38%38% 38%38%
Assumed provision for income tax expense (18.9)(18.0)(22.1)(25.6) (21.0)(17.3)
Non-GAAP net income $30.7 $29.4 $36.0 $41.8  $34.3 $28.3 
         
Non-GAAP net income per share - diluted $0.95 $0.91 $1.11 $1.29  $1.05 $0.86 
         
Weighted average outstanding  shares - basic 32.1 32.2 32.2 32.2  32.3 32.4 
Weighted average outstanding  shares - diluted 32.4 32.4 32.4 32.5  32.6 32.7 
         
* A 38% tax rate is assumed, which approximates our long-term effective corporate tax rate, excluding the impact of a discrete item related to excess tax benefits from stock-based compensation. 
  
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
         
  2016 2017
  Q1Q2Q3Q4 Q1Q2
         
Net income $16.7 $15.6 $23.2 $29.6  $22.1 $22.2 
Amortization of acquired intangible assets 11.9 11.5 11.3 10.8  10.9 9.3 
Depreciation and other amortization 5.6 5.9 6.8 6.3  6.4 6.5 
Interest and other income (0.1)(0.2)(0.3)(1.2) (0.4)(0.6)
Interest and other expense 2.5 2.5 2.5 2.6  2.7 2.7 
Income tax expense 11.2 10.2 14.2 15.9  13.3 3.6 
EBITDA $47.8 $45.6 $57.7 $64.0  $55.0 $43.7 
Stock-based compensation expense 8.3 9.3 9.3 9.4  9.4 10.1 
Acquisition and integration related costs 1.5 0.8    0.4 0.4 
Restructuring and related costs   0.1 1.8    
Settlements and impairments      (0.8) 
Adjusted EBITDA $57.6 $55.7 $67.1 $75.2  $63.9 $54.3 


CoStar Group, Inc.
Reconciliation of Forward-Looking Guidance - Unaudited
(in thousands, except per share data)
        
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income
 Guidance Range Guidance Range
 For the Three Months For the Twelve Months
 Ended September 30, 2017 Ended December 31, 2017
 Low High Low High
        
Net income$24,000  $27,000  $99,000  $105,000 
Income tax expense12,500  14,300  54,000  56,000 
Income before income taxes36,500  41,300  153,000  161,000 
Amortization of acquired intangible assets8,400  8,300  36,000  36,000 
Stock-based compensation expense11,000  10,000  42,000  40,000 
Acquisition and integration related costs2,000  1,000  3,000  2,000 
Restructuring and related costs       
Settlements and impairments    (800) (800)
Non-GAAP income before income taxes57,900  60,600  233,200  238,200 
Assumed rate for income tax expense*38% 38% 38% 38%
Assumed provision for income tax expense(22,000) (23,000) (88,600) (90,500)
Non-GAAP net income$35,900  $37,600  $144,600  $147,700 
        
Net income per share - diluted$0.73  $0.82  $3.03  $3.21 
Non-GAAP net income per share - diluted$1.09  $1.15  $4.42  $4.52 
        
Weighted average outstanding  shares - diluted32,800  32,800  32,700  32,700 
        
* A 38% tax rate is assumed, which approximates our long-term effective corporate tax rate, excluding the impact of a discrete item related to excess tax benefits from stock-based compensation.
        
Reconciliation of Forward-Looking Guidance, Net Income to Adjusted EBITDA 
    
 Guidance Range Guidance Range
 For the Three Months For the Twelve Months
 Ended September 30, 2017 Ended December 31, 2017
 Low High Low High
Net income$24,000  $27,000  $99,000  $105,000 
Amortization of acquired intangible assets8,400  8,300  36,000  36,000 
Depreciation and other amortization6,800  6,800  27,500  27,500 
Interest and other expense, net2,600  2,600  9,600  9,600 
Income tax expense12,500  14,300  54,000  56,000 
Stock-based compensation expense11,000  10,000  42,000  40,000 
Acquisition and integration related costs2,000  1,000  3,000  2,000 
Restructuring and related costs       
Settlements and impairments    (800) (800)
Adjusted EBITDA$67,300  $70,000  $270,300  $275,300 

About CoStar Group, Inc.

CoStar Group, Inc. (NASDAQ:CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 5 million monthly unique visitors per month. Apartments.com, ApartmentFinder.com, ApartmentHomeLiving.com, Westside Rentals and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. Through an exclusive partnership with Move, a subsidiary of News Corporation, Apartments.com is the exclusive provider of apartment community listings across Move’s family of websites, which include realtor.com®, doorsteps.com and move.com.  CoStar Group’s websites attracted an average of over 37 million unique monthly visitors in aggregate in the second quarter of 2017. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of over 3,500 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.com.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar Group's financial expectations, the Company's plans, objectives, expectations and intentions and other statements including words such as “hope,” "anticipate," "may," "believe," "expect," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of management of CoStar Group and are subject to significant risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements. The following factors, among others, could cause or contribute to such differences:  the risk that the trends stated or implied by this release cannot or will not be sustained at the current pace, including trends related to sales, bookings, top-line growth, revenue, earnings, and research productivity; the risk that the Company is unable to sustain current revenue and earnings growth rates or increase them; the risk that revenues for the third quarter and full year 2017 will not be as stated in this press release; the risk that net income for the third quarter and full year 2017 will not be as stated in this press release; the risk that non-GAAP net income and non-GAAP net income per diluted share for the third quarter and full year 2017 will not be as stated in this press release; the risk that adjusted EBITDA for the third quarter and full year 2017 will not be as stated in this press release; and the risk that costs actually incurred in connection with the Xceligent litigation differ from estimates included within the Company’s forecast, which differences may be material.  Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar’s Annual Report on Form 10-K for the year ended December 31, 2016, and CoStar’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, each of which is filed with the SEC, including in the “Risk Factors” section of those filings, and the Company’s other filings with the SEC available at the SEC’s website (www.sec.gov). CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  

All Contacts
Scott Wheeler 
Chief Financial Officer
(202) 336-6920
swheeler@costar.com

Richard Simonelli
Vice President, Investor Relations
(202) 346-6394
rsimonelli@costar.com

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