PRESS RELEASE DETAIL


Apr 26, 2017

CoStar Group Grows First Quarter Net Income 32% Year-over-Year; First Quarter Sales Bookings Accelerate to Record $35 Million; Raises Full-Year Earnings and Revenue Guidance

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, 2017 was $227 million, an increase of 13% over revenue of $200 million in the first quarter of 2016. Company-wide net bookings were $35 million in the first quarter of 2017, an increase of 14% year-over-year versus the first quarter of 2016 and up 18% from the fourth quarter of 2016.

“We had an exceptionally strong first quarter of 2017 as our investments in our sales force, marketing campaigns, technology enhancements and research improvements combined to deliver outstanding sales and revenue results,” said Andrew C. Florance, Founder and Chief Executive Officer of CoStar Group. “We generated our best sales quarter in our history with Company-wide net bookings of $35 million. Our quarterly sequential revenue growth rate accelerated to 3.8% in the first quarter of 2017 compared to 2.6% in the fourth quarter of 2016.”

Florance continued, “We are really hitting our stride in multifamily. Multifamily revenue grew 22% year-over-year. The first quarter of 2017 was our second best multifamily sales quarter as our newly revamped and vastly improved sales team continues the momentum from last fall. Our March cancellation rate was the lowest it has been since we entered the multifamily space demonstrating the effects of our continued emphasis on client service. According to comScore, visits and unique visitor traffic in March reached all-time highs for Apartments.com and our multifamily network as we continue to expand our lead over the competition."

Year 2016-2017 Quarterly Results - Unaudited
(in millions, except per share data)
  2016   2017
  Q1 Q2 Q3 Q4   Q1
             
Revenues $ 200   $ 207   $ 213   $ 218     $ 227  
Net income 17   16   23   30     22  
Net income per share - diluted 0.52   0.48   0.72   0.91     0.68  
Weighted average outstanding shares - diluted 32.4   32.4   32.4   32.5     32.6  
             
EBITDA 48   46   58   64     55  
Adjusted EBITDA 58   56   67   75     64  
Non-GAAP net income 31   29   36   42     34  
Non-GAAP net income per share - diluted 0.95   0.91   1.11   1.29     1.05  

 

CoStar Suite revenue for the first quarter of 2017 of $110 million increased 13% versus the first quarter of 2016. Revenue by services can be found within the tables included in this release.

Net income for the first quarter of 2017 increased 32% to $22 million or $0.68 per diluted share compared to net income of $17 million in the first quarter of 2016. EBITDA in the first quarter of 2017 was $55 million compared to $48 million in the first quarter of 2016.

Non-GAAP net income (defined below) for the quarter ended March 31, 2017 was $34 million or $1.05 per diluted share.  Adjusted EBITDA (which excludes stock-based compensation and other items as defined below) was $64 million for the first quarter of 2017 versus $58 million in the first quarter of 2016, which is an increase of 11% year-over-year.

On April 10, 2017, the Company entered into a definitive agreement to purchase LandWatch.com from DataSphere Technologies, Inc.  LandWatch is an online leader in rural properties and land for sale, including hunting land, timberland, farms and ranches.  The acquisition of LandWatch is expected to nearly double the scale of the Company’s existing Land marketplace business in terms of revenue, leads, and SEO footprint.  CoStar currently owns and operates multiple land-for-sale sites, including LandsofAmerica.com, LandandFarm.com and the Land.com domain. 

“Rural land is a multi-trillion dollar real estate asset class in the United States,” said Florance. “The acquisition of LandWatch solidifies our position as the number one online network of marketplaces for rural real estate.”

As of March 31, 2017, the Company had approximately $582 million in cash, cash equivalents and long-term investments, while short- and long-term debt outstanding, net of debt issuance costs, totaled approximately $304 million.

2017 Outlook 
“As a result of outstanding first quarter sales and strong revenue growth, we are raising our full year 2017 earnings and revenue guidance,” stated Scott Wheeler, Chief Financial Officer of CoStar Group.  

The Company expects revenue to be in a range of approximately $945 million to $955 million for the full year of 2017, increasing the midpoint by $10 million from the prior outlook. The full year revenue guidance range includes a pro-rata estimate of $5 million resulting from the pending acquisition of LandWatch, which is expected to close in May 2017.  For the second quarter of 2017, the Company expects revenue of approximately $233 million to $235 million.

For the full year of 2017, the Company expects non-GAAP net income per diluted share (defined below) in a range of approximately $4.30 to $4.40. The LandWatch acquisition is expected to be slightly accretive in 2017, contributing approximately $0.02 in non-GAAP net income per diluted share. For the second quarter of 2017, the Company expects non-GAAP net income per diluted share of approximately $0.58 to $0.64 which includes the highest seasonal advertising investments to coincide with the summer apartment rental season.

The preceding forward-looking statements reflect CoStar Group’s expectations as of April 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, transition, restructuring, 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) purchase amortization and other related costs, (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, April 27, 2017 to discuss earnings results for the first 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 (800) 230-1085 (from the United States and Canada) or (612) 288-0337 (from all other countries) and refer to conference code 421923. 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 421923. 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,
    2017   2016
         
         
Revenues   $ 226,553     $ 199,739  
Cost of revenues   51,346     42,900  
Gross margin   175,207     156,839  
         
Operating expenses:        
Selling and marketing   76,402     75,204  
Software development   22,374     17,635  
General and administrative   33,995     27,476  
Customer base amortization   4,774     6,223  
    137,545     126,538  
         
Income from operations   37,662     30,301  
Interest and other income   429     84  
Interest and other expense   (2,686 )   (2,509 )
Income before income taxes   35,405     27,876  
Income tax expense   13,275     11,155  
Net income   $ 22,130     $ 16,721  
         
Net income per share - basic   $ 0.69     $ 0.52  
Net income per share - diluted   $ 0.68     $ 0.52  
         
Weighted average outstanding shares - basic   32,276     32,085  
Weighted average outstanding shares - diluted   32,563     32,382  

 

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,
    2017   2016
         
Net income   $ 22,130     $ 16,721  
Income tax expense   13,275     11,155  
Income before income taxes   35,405     27,876  
Amortization of acquired intangible assets and other related costs   10,893     11,919  
Stock-based compensation expense   9,357     8,331  
Acquisition and integration related costs   362     1,447  
Settlements and impairments   (760 )    
Non-GAAP income before income taxes   55,257     49,573  
Assumed rate for income tax expense *   38 %   38 %
Assumed provision for income tax expense   (20,998 )   (18,838 )
Non-GAAP net income   $ 34,259     $ 30,735  
         
Net income per share - diluted   $ 0.68     $ 0.52  
Non-GAAP net income per share - diluted   $ 1.05     $ 0.95  
         
Weighted average outstanding  shares - basic   32,276     32,085  
Weighted average outstanding  shares - diluted   32,563     32,382  
         
* A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.
         
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
    Three Months Ended
March 31,
    2017   2016
         
Net income   $ 22,130     $ 16,721  
Amortization of acquired intangible assets in cost of revenues   6,119     5,696  
Amortization of acquired intangible assets in operating expenses   4,774     6,223  
Depreciation and other amortization   6,405     5,602  
Interest and other income   (429 )   (84 )
Interest and other expense   2,686     2,509  
Income tax expense   13,275     11,155  
EBITDA   $ 54,960     $ 47,822  
Stock-based compensation expense   9,357     8,331  
Acquisition and integration related costs   362     1,447  
Settlements and impairments   (760 )    
Adjusted EBITDA   $ 63,919     $ 57,600  

 

CoStar Group, Inc.
Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
         
    March 31,
2017
  December 31,
2016
    (Unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents   $ 572,472     $ 567,223  
Accounts receivable, net   49,557     48,537  
Income tax receivable   129     129  
Prepaid expenses and other current assets   12,005     11,602  
Total current assets   634,163     627,491  
         
Long-term investments   9,952     9,952  
Deferred income taxes, net   8,479     7,273  
Property and equipment, net   85,504     87,568  
Goodwill   1,263,484     1,254,866  
Intangible assets, net   191,472     195,965  
Deposits and other assets   2,101     1,948  
Total assets   $ 2,195,155     $ 2,185,063  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable and accrued expenses   $ 95,153     $ 83,916  
Current portion of long-term debt   6,961     31,866  
Deferred revenue   41,977     39,164  
Total current liabilities   144,091     154,946  
         
Long-term debt, less current portion   297,150     306,473  
Deferred gain on sale of building   18,084     18,715  
Deferred rent   31,800     31,589  
Deferred income taxes, net   19,521     18,386  
Income taxes payable   747     741  
         
Stockholders' equity   1,683,762     1,654,213  
Total liabilities and stockholders' equity   $ 2,195,155     $ 2,185,063  

 

CoStar Group, Inc.
Results of Segments - Unaudited
(in thousands)
       
  Three Months Ended
March 31,
  2017   2016
Revenues      
North America $ 219,341     $ 193,261  
International      
External customers 7,212     6,478  
Intersegment revenue * 11     11  
Total International revenue 7,223     6,489  
Intersegment eliminations (11 )   (11 )
Total revenues $ 226,553     $ 199,739  
       
EBITDA      
North America $ 54,433     $ 46,864  
International 527     958  
Total EBITDA $ 54,960     $ 47,822  
       
*Intersegment revenue recorded was 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 revenue is recorded at an amount the Company believes approximates fair value. North America EBITDA includes a corresponding cost for the services performed by Grecam.

 

CoStar Group, Inc.
Revenues by Services - Unaudited
(in thousands)
         
    Three Months Ended
March 31,
    2017   2016
         
Information and analytics        
CoStar Suite   $ 109,979     $ 97,634  
Information services   18,336     19,425  
Online marketplaces        
Multifamily   63,991     52,238  
Commercial property and land    34,247     30,442  
Total revenues   $ 226,553     $ 199,739  

 

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
    Q1 Q2 Q3 Q4   Q1
               
Net income   $ 16.7   $ 15.6   $ 23.2   $ 29.6     $ 22.1  
Income tax expense   11.2   10.2   14.2   16.0     13.3  
Income before income taxes   27.9   25.8   37.4   45.5     35.4  
Amortization of acquired intangible assets   11.9   11.5   11.3   10.8     10.9  
Stock-based compensation expense   8.3   9.3   9.3   9.4     9.4  
Acquisition and integration related costs   1.5   0.8         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  
Assumed rate for income tax expense*   38 % 38 % 38 % 38 %   38 %
Assumed provision for income tax expense   (18.9 ) (18.0 ) (22.1 ) (25.6 )   (21.0 )
Non-GAAP net income   $ 30.7   $ 29.4   $ 36.0   $ 41.8     $ 34.3  
               
Non-GAAP net income per share - diluted   $ 0.95   $ 0.91   $ 1.11   $ 1.29     $ 1.05  
               
Weighted average outstanding  shares - basic   32.1   32.2   32.2   32.2     32.3  
Weighted average outstanding  shares - diluted   32.4   32.4   32.4   32.5     32.6  
               
* A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.
 
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
               
    2016   2017
    Q1 Q2 Q3 Q4   Q1
               
Net income   $ 16.7   $ 15.6   $ 23.2   $ 29.6     $ 22.1  
Amortization of acquired intangible assets   11.9   11.5   11.3   10.8     10.9  
Depreciation and other amortization   5.6   5.9   6.8   6.3     6.4  
Interest and other income   (0.1 ) (0.2 ) (0.3 ) (1.2 )   (0.4 )
Interest and other expense   2.5   2.5   2.5   2.6     2.7  
Income tax expense   11.2   10.2   14.2   15.9     13.3  
EBITDA   $ 47.8   $ 45.6   $ 57.7   $ 64.0     $ 55.0  
Stock-based compensation expense   8.3   9.3   9.3   9.4     9.4  
Acquisition and integration related costs   1.5   0.8         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  

 

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, 2017   Ended December 31, 2017
  Low   High   Low   High
               
Net income $ 4,900     $ 7,700     $ 91,500     $ 96,300  
Income tax expense 3,000     4,700     56,000     59,100  
Income before income taxes 7,900     12,400     147,500     155,400  
Amortization of acquired intangible assets 10,900     10,900     36,000     36,000  
Stock-based compensation expense 11,000     10,000     42,000     40,000  
Acquisition and integration related costs 1,000     500     2,000     1,500  
Restructuring and related costs              
Settlements and impairments         (800 )   (800 )
Non-GAAP income before income taxes 30,800     33,800     226,700     232,100  
Assumed rate for income tax expense* 38 %   38 %   38 %   38 %
Assumed provision for income tax expense (11,700 )   (12,800 )   (86,100 )   (88,200 )
Non-GAAP net income $ 19,100     $ 21,000     $ 140,600     $ 143,900  
               
Net income per share - diluted $ 0.15     $ 0.24     $ 2.80     $ 2.94  
Non-GAAP net income per share - diluted $ 0.58     $ 0.64     $ 4.30     $ 4.40  
               
Weighted average outstanding  shares - diluted 32,700     32,700     32,700     32,700  
               
* A 38% tax rate is assumed in order to approximate the Company's long-term effective 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, 2017   Ended December 31, 2017
  Low   High   Low   High
Net income $ 4,900     $ 7,700     $ 91,500     $ 96,300  
Amortization of acquired intangible assets 10,900     10,900     36,000     36,000  
Depreciation and other amortization 6,600     6,600     27,500     27,500  
Interest and other expense, net 2,600     2,600     10,400     10,400  
Income tax expense 3,000     4,700     56,000     59,100  
Stock-based compensation expense 11,000     10,000     42,000     40,000  
Acquisition and integration related costs 1,000     500     2,000     1,500  
Restructuring and related costs              
Settlements and impairments         (800 )   (800 )
Adjusted EBITDA $ 40,000     $ 43,000     $ 264,600     $ 270,000  

 

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 11 million registered members. 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 33 million unique monthly visitors in aggregate in the first quarter of 2017. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of approximately 3,200 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.com.


CONTACT: Scott Wheeler, Chief Financial Officer, (202) 336-6920, swheeler@costar.com; Richard Simonelli, Vice President, Investor Relations, (202) 346-6394, rsimonelli@costar.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, cancellation rates, revenue, earnings, unique visitors, and total visits; the risk that the Company is unable to sustain current revenue and earnings growth rates or increase them; the risk that the acquisition of LandWatch does not close when and as expected; the risk that the acquisition of LandWatch does not produce the expected results, including doubling the scale of the Company’s existing Land marketplace business in terms of revenue, leads and SEO footprint; the risk that the LandWatch business cannot be combined successfully or in a timely and cost-efficient manner; the risk that business disruption relating to the LandWatch acquisition may be greater than expected; the risk that synergies and expected operating efficiencies from the acquisition of LandWatch may not be as expected, may not be fully realized, may take longer to realize than expected or may not drive revenue and earnings growth; the risk that the combination and integration of LandWatch will disrupt CoStar's operations or result in the loss of consumers, property owners or key employees; the risk that revenues for the second quarter and full year 2017 will not be as stated in this press release; the risk that net income for the second 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 second quarter and full year 2017 will not be as stated in this press release; the risk that the LandWatch acquisition is not accretive in 2017 as stated in this release; the risk that adjusted EBITDA for the second quarter and full year 2017 will not be as stated in this press release; 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; and the risk that the impact of the acquisition of LandWatch on the Company’s outlook differs from expectations.  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, 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.

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