BETHESDA, MD -- CoStar Group, Inc. (NASDAQ: CSGP) today announced that its earnings increased significantly in the fourth quarter of 2004, during which the Company continued its significant investment in growing its database.
CoStar's EBITDA (earnings before interest, taxes, depreciation and amortization) increased 30.0% to $5.5 million for the fourth quarter of 2004 compared to EBITDA of $4.2 million for the fourth quarter of 2003. Pro forma earnings improved by 53.4% to $4.3 million or $0.23 per share for the fourth quarter of 2004 compared to pro forma earnings of $2.8 million or $0.16 per share for the same quarter in 2003. (Pro forma earnings is net income before purchase amortization included in cost of revenues and in operating expenses and income tax benefit.) For the quarter ended December 31, 2004, net income increased to $19.4 million or $1.03 per share, compared to net income of $1.0 million or $0.06 per share for the fourth quarter of 2003. Net income in the fourth quarter of 2004 included a one-time income tax credit of approximately $16.7 million primarily related to the reversal of our previously recorded valuation allowance against our net operating loss carryforwards, which we expect will be used to reduce future amounts of income taxes otherwise payable.
"Outstanding retention in our sales force and the success of our new outbound sales group contributed to our strong performance in the fourth quarter of 2004," stated CoStar Group President & CEO Andrew C. Florance. "A restructuring of our sales commission plans has reduced our sales force turnover by more than 50% in 2004."
For the year ended December 31, 2004, EBITDA increased 50.0% to $19.8 million, compared to EBITDA of $13.2 million in 2003. Pro forma earnings almost doubled to $14.7 million, or $0.78 per share, in 2004 compared to pro forma earnings of $7.4 million, or $0.44 per share, in 2003. Net income for 2004 increased to $25.0 million or $1.33 per share versus net income of $100,000 or $0.01 per share in 2003.
As previously announced, as a result of substantial year over year earnings growth, the impact of purchase amortization on net income has been diminished; therefore, beginning with the Company's results for the first quarter of 2005, the Company expects to no longer report pro forma earnings. However, the Company expects to continue to report EBITDA and reconcile it to net income.
Revenues for the year ended December 31, 2004, were $112.1 million, an increase of 17.9% over revenues of $95.1 million in 2003. Revenues increased sequentially by 4.0% for the fourth quarter of 2004 over the third quarter of 2004. CoStar has reported revenue increases in 26 consecutive quarters since its IPO.
As of December 31, 2004, the Company had $117.1 million in cash, cash equivalents and short-term investments, an increase of $3.8 million compared to September 30, 2004. This increase resulted principally from growing EBITDA, and includes $240,000 of proceeds from stock option exercises of approximately 12,000 shares of common stock during the fourth quarter. The Company has no long-term debt.
"We are highly confident in our business model and believe that reinvesting our significant earnings growth into dramatically growing our database will position the company for even stronger future revenue and earnings growth," stated CoStar Group President & CEO Andrew C. Florance. "We intend to research and release information on an additional 500,000 properties over the course of the next two years, effectively doubling the number of properties we actively track in North America."
"Historically, there has been a direct correlation between growth in our database and revenue growth," Florance added. "On average, we currently generate $230 in revenue annually per actively tracked building in our U.S. database with the most productive market generating as much as $2,100 annually per building. We expect the 500,000 new properties will come from our previously announced expansion into 21 new geographic markets, future new markets and the addition of retail properties and shopping centers. Further, we believe we can continue to produce earnings while making this significant investment to expand our database coverage and future earnings potential."
The renewal rate for CoStar's subscription services increased two percentage points from approximately 91% in the fourth quarter of 2003 to approximately 93% in the fourth quarter of 2004. During the fourth quarter of 2004 and January 2005, these renewals included long-term agreements with Cushman & Wakefield, Jones Lang LaSalle, Marcus & Millichap, Advantis/GVA and Studley Inc., five of the industry's leading commercial real estate brokerage firms. These five contracts have an aggregate future revenue value in excess of $26.0 million and are among the Company's largest contract commitments to date.
This week the Company released a 10,000-property database covering the Richmond, VA. market. The Company believes it has pre-sold enough monthly subscription revenue to cover the current monthly costs of maintaining and supporting the Richmond database. This marks one of the Company's most successful market launches to date. This is the first time an organically built new market has opened in this strong financial position. The Company expects to open an additional 18 new geographic markets in 2005.
In the second quarter of 2005, the Company expects to release a major new web service, "CoStar Relationship Manager." CoStar Relationship Manager is a web-based sales contact management system that integrates directly with CoStar's subscription information services.
"For 2005, we expect revenues to reach approximately $135.0 million, with organic revenue growth of approximately 18.0% to 19.0%," stated CoStar Group Chief Financial Officer Frank A. Carchedi. "In addition, we expect a sequential increase in revenue from the fourth quarter of 2004 to the first quarter of 2005 of approximately 5.0%, which includes the acquired revenue base from the NRB acquisition. We expect 2005 fully diluted net income per share of approximately $0.23, which includes estimated third and fourth quarter equity compensation charges for previously granted, unvested stock options as described below. For the first quarter of 2005, we expect fully diluted net income per share of approximately $0.05. Our expected results throughout 2005 will be fully taxed at approximately a 40.0% effective rate as a result of the release of the valuation allowance on our net operating loss carryforwards. The new equity and tax charges are not expected to result in cash payments."
"Capital expenditures for 2005 are expected to include investments in assets required to support our planned market and retail expansions, including additional field research vehicles, building photography, communications, photographic and computer equipment, leasehold improvements and workstations, and are expected to total approximately $8.0 million," Carchedi stated. "Additionally, we expect to have approximately $4.0 million in capital expenditures in 2005 to support existing operations, consistent with expenditures for the past several years."
The table below summarizes the major components of our outlook for 2005 results of operations, compared to actual results for 2004. This table includes "forward-looking statements" which are necessarily expectations reflecting our current judgment, not guarantees of future performance. The projected 2005 performance results in this table are subject to many assumptions, risks and uncertainties, including events that are not within our control, which could cause actual results to differ materially from the expected results stated in this press release. Information about potential factors that could cause actual results to differ materially from these expected results include, but are not limited to, those stated in our filings from time to time with the Securities and Exchange Commission, including our Form 10-Q for the period ended September 30, 2004, under the heading "Risk Factors." Accordingly, you should not place undue reliance on forward-looking statements. All forward-looking statements are based on information available to us on the date of this release, and we assume no obligation to update such statements.
Management will conduct a conference call to discuss earnings results for the quarter and year ended December 31, 2004, and the financial outlook for 2005 at 11:00 am ET, Thursday, February 17, 2005. This 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 February 26, 2005. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 3857955. The replay will also be available over the Internet at http://www.costar.com/corporate/investor for a period of time following the call.
About CoStar Group, Inc.
CoStar Group, Inc., (NASDAQ: CSGP) is the leading 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 over 55 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.