Press release

CoStar Group First Quarter Revenue Grows 20% and Net Income Increases 63% Year-Over-Year

0
Sponsored by Businesswire

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 March 31, 2019, was $328
million, an increase of 20% over revenue of $274 million for the first
quarter of 2018. Net income for the first quarter of 2019 was $85
million, an increase of 63% over net income of $52 million for the first
quarter of 2018.

EBITDA for the first quarter of 2019 was $113 million, an increase of
61% versus EBITDA of $70 million for the first quarter of 2018. Adjusted
EBITDA (which excludes stock-based compensation, acquisition and
integration related costs and other items as described below) for the
first quarter of 2019 was $125 million, an increase of 49% compared to
adjusted EBITDA of $84 million for the first quarter of 2018.

“The strong revenue and earnings growth we showed in 2018 has continued
into the first quarter of 2019,” said Andrew C. Florance, Founder and
Chief Executive Officer of CoStar Group. “In the first quarter of 2019,
our sales team generated $48 million in company-wide net new bookings,
an increase of 36% year-over-year. Apartments.com had an exceptionally
strong sales quarter, growing quarterly net new bookings by 40%
year-over-year, exceeding even the record net new bookings level we
achieved in the fourth quarter of 2018.”

Florance continued, “Unique visitors to our network of marketplaces grew
29% year-over-year from 38 million in the first quarter of 2018 to 49
million in first quarter of 2019. With strong traffic growth and a
robust product development pipeline for Apartments, LoopNet, and CoStar
we believe we will continue to deliver strong consistent revenue growth.”

 
Year 2018-2019 Quarterly Results – Unaudited
(in millions, except per share data)
 
  2018     2019
Q1   Q2   Q3   Q4 Q1
     
Revenues $ 274 $ 297 $ 306 $ 316 $ 328
Net income 52 44 59 84 85
Net income per share – diluted 1.44 1.20 1.61 2.29 2.33
Weighted average outstanding shares – diluted 36.4 36.5 36.5 36.5 36.6
 
EBITDA 70 64 91 125 113
Adjusted EBITDA 84 85 110 139 125
Non-GAAP net income 60 60 79 102 92
Non-GAAP net income per share – diluted 1.65 1.66 2.16 2.81 2.53
 

As of March 31, 2019, the Company had approximately $1.2 billion in
cash, cash equivalents and long-term investments, and no outstanding
debt.

Non-GAAP net income for the first quarter of 2019 (which excludes
amortization of acquired intangible assets, stock-based compensation and
other items as described below) was $92 million or $2.53 per diluted
share, an increase of $32 million or 54% versus the first quarter of
2018.

2019 Outlook

The Company continues to expect revenue in the range of $1,370 million
to $1,380 million for the full year of 2019. We expect revenue for the
second quarter of 2019 in the range of $333 million to $337 million,
representing revenue growth of 13% over the second quarter of 2018 at
the midpoint of the range. The revenue growth outlook in the second
quarter of 2019 is lower than the reported first quarter revenue growth
rate as we passed the anniversary of the ForRent acquisition and
discontinued certain ForRent revenue streams that contributed to the
2018 revenue results.

The Company continues to expect adjusted EBITDA in a range of $495
million to $505 million for the full year of 2019. For the second
quarter of 2019, the Company expects adjusted EBITDA in a range of $98
million to $102 million.

We expect full-year 2019 non-GAAP net income per diluted share in a
range of $9.90 to $10.10, based on 36.7 million shares, an increase of
$0.10 at the midpoint versus the previously provided outlook, primarily
as a result of increased interest income earned on cash balances. For
the second quarter of 2019, we expect non-GAAP net income per diluted
share in a range of $1.94 to $2.02 based on 36.7 million shares. These
ranges include a non-GAAP tax rate of 25%.

The preceding forward-looking statements reflect CoStar Group’s
expectations as of April 23, 2019, including forward-looking non-GAAP
financial measures on a consolidated basis. 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 interest and other income (expense),
loss on debt extinguishment, income taxes, depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA
before stock-based compensation expense, acquisition- and
integration-related costs, restructuring costs and settlements and
impairments incurred outside the Company’s normal course of business.

Non-GAAP net income is a non-GAAP financial measure determined by
adjusting GAAP net income attributable to CoStar Group for stock-based
compensation expense, acquisition- and integration-related costs,
restructuring costs, settlement and impairment costs incurred outside
the Company’s normal course of business and loss on debt extinguishment,
as well as amortization of acquired intangible assets and other related
costs, and then subtracting an assumed provision for income taxes. In
2019, the Company is assuming a 25% tax rate in order to approximate our
statutory corporate tax rate excluding the impact of discrete items.

Non-GAAP net income per diluted share is a non-GAAP financial measure
that represents non-GAAP net income divided by the number of diluted
shares outstanding for the period used in the calculation of GAAP net
income per diluted share. 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 5:00 PM EDT on Tuesday,
April 23, 2019 to discuss earnings results for the second quarter and
the Company’s outlook. The audio portion of the conference call will be
broadcast live over the Internet at investors.costargroup.com.
To join the conference call by telephone, please dial (800) 230-1096
(from the United States and Canada) or (612) 332-0107 (from all other
countries) and refer to conference code 466402. 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 466402. 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
March 31,
2019 2018
 
Revenues $ 328,425 $ 273,718
Cost of revenues 71,153   62,477  
Gross profit 257,272 211,241
 
Operating expenses:
Selling and marketing (excluding customer base amortization) 88,094 88,490
Software development 27,928 22,913
General and administrative 40,076 40,590
Customer base amortization 7,682   5,803  
163,780   157,796  
 
Income from operations 93,492 53,445
Interest and other income 4,945 2,987
Interest and other expense (732 ) (690 )
Income before income taxes 97,705 55,742
Income tax expense 12,536   3,511  
Net income $ 85,169   $ 52,231  
 
Net income per share – basic $ 2.35   $ 1.46  
Net income per share – diluted $ 2.33   $ 1.44  
 
Weighted average outstanding shares – basic 36,237   35,893  
Weighted average outstanding shares – diluted 36,567   36,350  
 
 
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
March 31,
2019 2018
Net income $ 85,169 $ 52,231
Income tax expense   12,536     3,511  
Income before income taxes 97,705 55,742
Amortization of acquired intangible assets 13,195 10,411
Stock-based compensation expense 12,029 10,412
Acquisition and integration related costs 249 3,522
Restructuring and related costs   68      
Non-GAAP income before income taxes 123,246 80,087
Assumed rate for income tax expense * 25 % 25 %
Assumed provision for income tax expense   (30,812 )   (20,022 )
Non-GAAP net income $ 92,434   $ 60,065  
 
Net income per share – diluted $ 2.33   $ 1.44  
Non-GAAP net income per share – diluted $ 2.53   $ 1.65  
 
Weighted average outstanding shares – basic 36,237 35,893
Weighted average outstanding shares – diluted 36,567 36,350
 
* A 25% tax rate is assumed for 2019 and 2018, which approximates
our statutory corporate tax rate.
 
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended
March 31,
2019 2018
Net income $ 85,169 $ 52,231
Amortization of acquired intangible assets in cost of revenues 5,513 4,608
Amortization of acquired intangible assets in operating expenses 7,682 5,803
Depreciation and other amortization 6,464 6,572
Interest and other income (4,945 ) (2,987 )
Interest and other expense 732 690
Income tax expense   12,536     3,511  
EBITDA $ 113,151   $ 70,428  
Stock-based compensation expense 12,029 10,412
Acquisition and integration related costs 249 3,522
Restructuring and related costs   68      
Adjusted EBITDA $ 125,497   $ 84,362  
 
 
CoStar Group, Inc.
Condensed Consolidated Balance Sheets – Unaudited
(in thousands)
 
   

March 31,
2019

    December 31,
2018
ASSETS
Current assets:
Cash and cash equivalents $ 1,232,817 $ 1,100,416
Accounts receivable, less allowance of $4,790 and $5,709 as of March
31, 2019 and December 31, 2018, respectively
92,841 89,192
Prepaid expenses and other current assets   20,713   23,690
Total current assets 1,346,371 1,213,298
 
Long-term investments 10,070 10,070
Deferred income taxes, net 6,451 7,469
Property and equipment, net 85,978 83,303
Lease right-of-use assets 112,042
Goodwill 1,612,065 1,611,535
Intangible assets, net 275,750 288,911
Deferred commission costs, net 77,375 76,031
Deposits and other assets 7,274 7,432
Income tax receivable   14,908   14,908
Total assets $ 3,548,284 $ 3,312,957
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 7,919 $ 6,327
Accrued wages and commissions 49,264 45,588
Accrued expenses 36,291 29,821
Deferred gain on the sale of building 2,523
Income taxes payable 22,536 14,288
Deferred rent 4,153
Lease liabilities 26,062
Deferred revenue   56,155   51,459
Total current liabilities 198,227 154,159
 
Deferred gain on the sale of building 13,669
Deferred rent 31,944
Deferred income taxes, net 76,682 69,857
Income taxes payable 17,443 17,386
Lease and other long-term liabilities   127,318   4,000
Total liabilities $ 419,670 $ 291,015
 
Total stockholders’ equity   3,128,614   3,021,942
Total liabilities and stockholders’ equity $ 3,548,284 $ 3,312,957
 
 
CoStar Group, Inc.
Condensed Consolidated Statements of Cash Flows – Unaudited
(in thousands)
 
    Three Months Ended
March 31,
2019     2018
Operating activities:
Net income $ 85,169 $ 52,231
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,659 16,983
Amortization of deferred commissions costs 12,407 12,006
Amortization of debt issuance costs 219 219
Stock-based compensation expense 12,029 10,412
Deferred income taxes, net 3,702 1,851
Bad debt expense 2,185 1,431
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (5,835 ) (2,511 )
Prepaid expenses and other current assets 206 (9,522 )
Deferred commissions (13,729 ) (16,263 )
Lease right-of-use and other assets 5,138 (3,412 )
Accounts payable and other liabilities 18,636 4,288
Deferred revenue   8,708     5,272  
Net cash provided by operating activities 148,494 72,985
 
Investing activities:
Purchases of property and equipment and other assets (9,429 ) (8,617 )
Cash paid for acquisitions, net of cash acquired       (340,074 )
Net cash used in investing activities (9,429 ) (348,691 )
 
Financing activities:
Repurchase of restricted stock to satisfy tax withholding obligations (18,679 ) (15,392 )
Proceeds from exercise of stock options and employee stock purchase
plan
  12,061     10,616  
Net cash used in financing activities (6,618 ) (4,776 )
 
Effect of foreign currency exchange rates on cash and cash
equivalents
  (46 )   448  
Net increase (decrease) in cash and cash equivalents 132,401 (280,034 )
Cash and cash equivalents at the beginning of period   1,100,416     1,211,463  
Cash and cash equivalents at the end of period $ 1,232,817   $ 931,429  
 
 
CoStar Group, Inc.
Disaggregated Revenues – Unaudited
(in thousands)
 
  Three Months Ended March 31,
2019   2018
North America   International   Total North America   International   Total
Information and analytics
CoStar Suite $ 140,973 $ 6,728 $ 147,701 $ 123,886 $ 6,475 $ 130,361
Information services 16,591 2,259 18,850 12,612 2,448 15,060
Online marketplaces
Multifamily 114,268 114,268 87,683 87,683
Commercial property and land   47,405   201   47,606   40,614       40,614  
Total revenues $ 319,237 $ 9,188 $ 328,425 $ 264,795 $ 8,923   $ 273,718  
 
 
CoStar Group, Inc.
Results of Segments – Unaudited
(in thousands)
 
Three Months Ended
March 31,
2019 2018
EBITDA
North America $ 115,268 $ 71,055
International   (2,117 )   (627 )
Total EBITDA $ 113,151   $ 70,428  
 
 
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures with 2018-2019
Quarterly Results – Unaudited
(in millions, except per share data)
           
Reconciliation of Net Income to Non-GAAP Net Income
 
2018 2019
Q1   Q2   Q3   Q4 Q1
 
Net income $ 52.2 $ 43.8 $ 58.8 $ 83.5 $ 85.2
Income tax expense   3.5       1.9       14.2       26.1     12.5  
Income before income taxes 55.7 45.7 73.0 109.6 97.7
Amortization of acquired intangible assets 10.4 14.1 13.6 13.3 13.2
Stock-based compensation expense 10.4 11.2 9.0 12.1 12.0
Acquisition and integration related costs 3.5 9.5 7.2 1.5 0.2
Restructuring and related costs               2.3           0.1  
Non-GAAP income before income taxes 80.1 80.6 105.1 136.5 123.2
Assumed rate for income tax expense * 25 % 25 % 25 % 25 % 25 %
Assumed provision for income tax expense   (20.0 )     (20.1 )     (26.3 )     (34.1 )   (30.8 )
Non-GAAP net income $ 60.1     $ 60.4     $ 78.8     $ 102.3   $ 92.4  
 
Non-GAAP net income per share – diluted $ 1.65     $ 1.66     $ 2.16     $ 2.81   $ 2.53  
 
Weighted average outstanding shares – basic 35.9 36.1 36.1 36.1 36.2
Weighted average outstanding shares – diluted 36.4 36.5 36.5 36.5 36.6
 
* A 25% tax rate is assumed for 2019 and 2018, which approximates
our statutory corporate tax rate.
 
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
 
2018 2019
Q1   Q2   Q3   Q4 Q1
 
Net income $ 52.2 $ 43.8 $ 58.8 $ 83.5 $ 85.2
Amortization of acquired intangible assets 10.4 14.1 13.6 13.3 13.2
Depreciation and other amortization 6.6 6.4 6.8 6.5 6.5
Interest and other income (3.0 ) (2.6 ) (3.0 ) (4.6 ) (4.9 )
Interest and other expense 0.7 0.7 0.7 0.7 0.7
Income tax expense   3.5       1.9       14.2       26.1     12.5  
EBITDA $ 70.4     $ 64.3     $ 91.1     $ 125.5   $ 113.2  
Stock-based compensation expense 10.4 11.2 9.0 12.1 12.0
Acquisition and integration related costs 3.5 9.5 7.2 1.5 0.2
Restructuring and related costs               2.3           0.1  
Adjusted EBITDA $ 84.4     $ 85.1     $ 109.6     $ 139.0   $ 125.5  
 
 
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 June 30, 2019 Ended December 31, 2019
Low     High Low     High
 
Net income $ 51,000 $ 55,000 $ 285,000 $ 296,000
Income tax expense   17,000     19,000     95,000     99,000  
Income before income taxes 68,000 74,000 380,000 395,000
Amortization of acquired intangible assets 12,000 12,000 48,000 48,000
Stock-based compensation expense 14,000 13,000 54,000 50,000
Acquisition and integration related costs   1,000         2,000     1,000  
Non-GAAP income before income taxes 95,000 99,000 484,000 494,000
Assumed rate for income tax expense * 25 % 25 % 25 % 25 %
Assumed provision for income tax expense   (23,800 )   (24,800 )   (120,500 )   (123,500 )
Non-GAAP net income $ 71,200   $ 74,200   $ 363,500   $ 370,500  
 
Net income per share – diluted $ 1.39   $ 1.50   $ 7.77   $ 8.07  
Non-GAAP net income per share – diluted $ 1.94   $ 2.02   $ 9.90   $ 10.10  
 
Weighted average outstanding shares – diluted 36,700 36,700 36,700 36,700
 

* A 25% tax rate is assumed, which approximates our statutory
corporate tax rate.

 
Reconciliation of Forward-Looking Guidance, Net Income to
Adjusted EBITDA
 
Guidance Range Guidance Range
For the Three Months For the Twelve Months
Ended June 30, 2019 Ended December 31, 2019
Low High Low High
Net income $ 51,000 $ 55,000 $ 285,000 $ 296,000
Amortization of acquired intangible assets 12,000 12,000 48,000 48,000
Depreciation and other amortization 7,000 7,000 26,000 26,000
Interest and other expense, net (4,000 ) (4,000 ) (15,000 ) (15,000 )
Income tax expense 17,000 19,000 95,000 99,000
Stock-based compensation expense 14,000 13,000 54,000 50,000
Acquisition and integration related costs   1,000         2,000     1,000  
Adjusted EBITDA $ 98,000   $ 102,000   $ 495,000   $ 505,000  
 

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
nearly 6 million monthly unique visitors. Realla is the UK’s most
comprehensive commercial property digital marketplace. Apartments.com,
ApartmentFinder.com, ForRent.com, ApartmentHomeLiving.com, Westside
Rentals, AFTER55.com, CorporateHousing.com, ForRentUniversity.com 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. CoStar Group’s websites
attracted an average of over 49 million unique monthly visitors in
aggregate in the first quarter of 2019. Headquartered in Washington, DC,
CoStar maintains offices throughout the U.S. and in Europe and Canada
with a staff of over 3,700 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 revenue, net
income, non-GAAP net income, EBITDA, adjusted EBITDA, and sales; the
risk that the Company is unable to sustain current revenue and earnings
growth rates or increase them; the risk that strong traffic growth and
the company’s product development pipeline do not result in strong
consistent revenue growth as stated in this release; the risk that
revenues for the second quarter and full year 2019 will not be as stated
in this press release; the risk that net income for the second quarter
and full year 2019 will not be as stated in this press release; the risk
that adjusted EBITDA for the second quarter and full year 2019 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 second quarter and
full year 2019 will not be as stated in this press release; and the risk
that the tax rate estimates stated in this press release are incorrect
or may change. 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, 2018, which is filed with the SEC, including in the “Risk
Factors” section of that filing, 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.