BETHESDA, MD — CoStar Group, Inc. (Nasdaq: CSGP ) today announced that its first quarter 2006 earnings per diluted share, including stock option expense, doubled compared to the same quarter a year ago. Revenues increased 18.9% from $31.3 million in the first quarter of 2005 to $37.3 million in the first quarter of 2006. The Company also reported it is on track to launch a major new product offering next month that it expects will give retailers, brokers, owners and developers unrivaled commercial retail property intelligence online.
"Our first quarter results reflect the significant investments we have been making to create value for our customers and stockholders," said CoStar Group President and CEO Andrew C. Florance. "While the majority of our revenue growth and revenues continue to come from core markets, we believe that the upcoming launch of our retail offering will create new avenues for growth and earnings leverage for the Company going forward."
Revenues for the first quarter of 2006 were up sequentially by 4.1% over the fourth quarter of 2005 and up 4.8% during the same period for core U.S. subscription-based services. Core subscription-based revenue growth was supported by consistently high renewal rates, which remained at approximately 94% in the first quarter of 2006. Over the past 12 months, CoStar's rate of renewal for subscription services was the highest it has been in six years. The Company has reported sequential revenue increases in every quarter since its IPO in 1998.
CoStar's net income increased to $1.9 million, or $0.10 per share, for the first quarter of 2006 compared to net income of $974,000, or $0.05 per share, for the first quarter of 2005. For the quarter ending March 31, 2006, EBITDA was $4.7 million, compared to EBITDA of $4.2 million in the first quarter of 2005.
The first quarter results include non-cash, pre-tax charges for equity compensation of $1.0 million, including stock option compensation expense of approximately $850,000, resulting from CoStar's adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004) "Share-based Payment" (SFAS 123R) on January 1, 2006. Non-cash equity compensation expense is primarily included in selling and marketing expense, and general and administrative expense, and, by comparison, was $14,000 for the first quarter of 2005. The Company expects 2006 non-cash equity compensation expense to be between $5.0 million and $6.0 million.
As of March 31, 2006, the Company had $142.3 million in cash, cash equivalents and short-term investments. The Company has no long-term debt.
"With the completion of our 21-market expansion earlier this year, CoStar is now serving 66 U.S. markets and researching over 35 billion square feet of commercial space," said Florance. "Next month, when we unveil CoStar for Retail at the 2006 International Council of Shopping Centers (ICSC) conference, our database of researched properties will encompass a huge new retail segment — one that we believe will offer tremendous value for retailers, brokers, owners and developers."
"For the past six months, we have been conducting extensive market testing to gauge the acceptance of our new retail product, and the response has been tremendous," Florance added. "Through feedback gained from personal demonstrations with the nation's leading retailers, brokers and owners, we have shaped our offering into what we have been told is a resource that no industry professional will want to do without. In fact, some retail customers who have previewed CoStar for Retail have told us it could dramatically improve their ability to open stores faster, at a lower cost and with less risk of failure. Commercial brokers are just as excited about having a new opportunity to tap into a deep, reliable source of retail property listings so that they spend less time and effort collecting information and more time closing deals for their clients."
"As a market, retail is enormous," Florance explained. "It includes many diverse players: shopping center owners, multi-unit retailers, brokers and brokerage firms specializing in retail properties as well as lenders and investors interested in retail. Customers have told us there is a clear need for our service in the retail sector, and we are excited to be launching it next month."
The new CoStar for Retail offering will package traditional CoStar Property Professional services with geographic and retailer-specific tenant information along with demographic details and a powerful new proximity search capability with on-the-fly mapping and customized reporting capability. To date, the Company has photographed and researched over 340,000 retail properties and invested significantly in new software and systems to deliver this robust new offering.
"We're currently the only commercial real estate information provider with the scale, experience and infrastructure to meet the retail industry's information needs," Florance added. "We believe no other commercial real estate information provider has this capability."
"For 2006, we are reiterating our expectation for organic revenue growth of approximately 18.0% to 22.0%," stated CoStar Group Chief Financial Officer Frank A. Carchedi. "We expect a sequential quarterly increase in revenue from the first quarter of 2006 to the second quarter of 2006 of approximately 3.5% to 5.0% and sequential quarterly growth rates to reach 5.0% to 6.5% by the end of the year."
"We continue to expect 2006 fully diluted net income per share of approximately $0.45 to $0.60, which includes an estimated $5.0 to $6.0 million in non-cash equity compensation charges for restricted stock grants and previously granted, unvested stock options," Carchedi explained. "For the second quarter of 2006, we expect fully diluted net income per share of approximately $0.03 to $0.07. As we have stated previously, we expect a $2.5 million to $3.5 million pre-tax incremental expense during the second quarter for our retail launch, including the seasonally occurring ICSC tradeshow."
Management will conduct a conference call to discuss earnings results for the first quarter ended March 31, 2006 and the financial outlook for the second quarter of 2006 at 11:00 a.m. EDT on Thursday, April 27, 2006. The Company will also webcast a product demonstration of its upcoming CoStar for Retail product offering during the conference call.
The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/corporate/investor. If you would like to join by telephone, please call (800) 329-4405 within the United States or (706) 634-0964 outside the United States. A telephonic replay of the conference call will be available two hours after the live call concludes through midnight on May 4, 2006. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 7663991. The replay will also be available over the Internet at http://www.costar.com/corporate/investor for a period of time following the call.
To join the webcast demonstration of CoStar for Retail during the conference call, please navigate to http://www.costar.com/earnings and follow the login instructions. Please allow 30 minutes before the webcast to ensure that your system setup has been properly established.
About CoStar Group, Inc.
CoStar Group, Inc. (Nasdaq: CSGP) is the number one provider of information services to commercial real estate professionals in the United States and the United Kingdom. CoStar's suite of services offers customers access via the Internet to the most comprehensive database of commercial real estate information on 66 U.S. markets, London and the United Kingdom. Based in Bethesda, MD, the Company has approximately 1,000 employees throughout the United States and the United Kingdom, including the largest professional research organization in the industry.