BETHESDA, MD — CoStar Group, Inc. (NASDAQ: CSGP) today announced a significant quarterly increase in EBITDA (earnings before interest, taxes, depreciation and amortization), up by 66% from $4.2 million in the first quarter of 2005 to $7.0 million in the fourth quarter of 2005. With the release of the Milwaukee, WI database, the Company also announced the completion of its 21-market expansion, which began in May 2004.
Revenues for the year ended December 31, 2005 were $134.3 million, an increase of 19.9% over revenues of $112.1 million in 2004. Subscription-based revenue growth was supported by strong renewal rates, which increased from approximately 93.0% in the fourth quarter of 2004 to approximately 94.4% in the fourth quarter of 2005.
Revenues for the fourth quarter ended December 31, 2005 grew 4.3% sequentially versus the third quarter of 2005, and 5.2% during the same period in the core U.S. subscription based-services. CoStar has reported sequential revenue increases in every quarter since its IPO in 1998.
CoStar's EBITDA increased 26.2% to $7.0 million for the fourth quarter of 2005 compared to EBITDA of $5.5 million for the fourth quarter of 2004. For the quarter ended December 31, 2005, net income was $3.2 million or $0.17 per share compared to $19.4 million or $1.03 per share for the fourth quarter of 2004, which included a one-time income tax credit of approximately $16.7 million primarily related to the reversal of the Company's previously recorded valuation allowance against net operating loss carryforwards.
For the year ended December 31, 2005, EBITDA was $19.1 million, including a one-time pre-tax restructuring charge of $2.2 million, resulting from the closing of the Mason, OH operation in the third quarter of 2005, compared to EBITDA of $19.8 million in 2004. As of December 31, 2005, the Company had $134.2 million in cash, cash equivalents and short-term investments. The Company has no long-term debt.
"We ended a very good year with an outstanding quarter in terms of sales," said CoStar Group President and CEO Andrew C. Florance. "In fact, December 2005 and January 2006 were our highest subscription months ever. While the majority of our revenue growth and revenues are still coming from our original core markets, our 21-market expansion is now complete. In aggregate, the markets that have been open for 6 months or more are profitable, and we expect that all our expansion markets, in aggregate, will be profitable this year."
In these expansion markets, the Company finished the project of photographing approximately 246,000 properties and researching over 5 billion square feet of gross building area. Now, this phase is complete, and the cost structure for these markets is expected to decline. The Company has signed up 231 new customers in expansion markets and believes that as CoStar services gain wider adoption that many more will follow.
While the Company may open several additional markets in 2006, the major 21-market expansion is complete. The Company is now focused on a new key growth initiative: expanding coverage of retail information. The Company believes its retail offering is revolutionary and will completely change the way retailers, owners and retail brokers conduct their jobs.
Says Florance, "The retail market is huge, and we believe there is a clear need for our service. Retailers are trying to open or close stores more effectively, developers are searching for the right mix of retail tenants and brokers are trying to make a living on this information-starved business. We see multiple opportunities for success here."
Continued Florance, "We're in a unique position. Our core business has proven high margins and strong cash flow, and we have the capital to invest in a long-term retail strategy. We're currently the only real estate information provider with the scale, experience and infrastructure to meet the retail industry's information needs, which is why we believe no other competitor is serving the retail industry today."
"In addition, we believe the interests of all parties in the retail industry are aligned with our own. In fact, we have been overwhelmed with support and encouragement from everyone who has seen our retail offering. It packages traditional CoStar Property Professional services with geographic and retailer-specific tenant information and Claritas demographic details. It includes a new, powerful proximity search capability with on-the-fly mapping and customized reporting capability."
The Company is on target to add retail to its core products by the May 2006 International Council of Shopping Centers (ICSC) Conference.
"For 2006, we expect organic revenue growth of approximately 18.0% to 22.0%," stated CoStar Group Chief Financial Officer Frank A. Carchedi, "with sequential quarterly growth in the range of 3.5% to 6.5% per quarter. We expect a sequential increase in revenue from the fourth quarter of 2005 to the first quarter of 2006 of approximately 3.5% to 5.0%. We 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 current restricted stock grants and previously granted, unvested stock options. For the first quarter of 2006, we expect fully diluted net income per share of approximately $0.05 to $0.10. Our expected results throughout 2006 will be fully taxed at approximately 42.5% to 43.5% effective rate."
Included in the Company's 2006 earnings guidance is an estimated $12.0 million of pre tax expenses, or $0.35 per share related to the expansion of retail coverage, including personnel, marketing and overhead expenses.
The Company expects capital expenditures for 2006 to range from $12.0 to $15.0 million, including significant investments in building photography for the planned retail expansion as well as server equipment and workstations to support ongoing operations.
Management will conduct a conference call to discuss earnings results for the quarter and year ended December 31, 2005, and the financial outlook for 2006 at 11:00 a.m. EST, Thursday, February 16, 2006. 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 23, 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 4962543. 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 66 major 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.