BETHESDA, MD -- CoStar Group, Inc. (NASDAQ: CSGP) earnings increased substantially in the third quarter of 2004 while the Company continued its heavy investment in expanding into 21 new geographic markets, the Company announced today.
CoStar's EBITDA (earnings before interest, taxes, depreciation and amortization) increased 36.9% to $5.1 million for the third quarter of 2004 compared to EBITDA of $3.7 million for the third quarter of 2003. Pro forma earnings improved by 84.1% to $4.0 million or $0.21 per share for the third quarter of 2004 compared to pro forma earnings of $2.1 million or $0.13 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 the related income tax benefit.) For the quarter ended September 30, 2004, net income increased to $2.4 million or $0.13 per share, compared to net income of $281,000 or $0.02 per share for the third quarter of 2003.
Revenues for the third quarter of 2004 were $28.6 million, an increase of 18.7% over the third quarter of 2003. Revenues increased sequentially by 4.2% for the third quarter of 2004 over the second quarter of 2004. CoStar has reported revenue increases in 25 consecutive quarters since its IPO.
"We have continued to generate strong revenue and earnings growth on our existing platform while positioning the Company for expected higher growth rates in the future," stated CoStar Group President & CEO Andrew C. Florance. "Our strong performance in the quarter reflects the favorable trends we have seen in rising renewal rates, increasing demand from new customers and improving market conditions."
The renewal rate for CoStar's subscription services increased two percentage points from approximately 91% in the third quarter of 2003 to approximately 93% in the third quarter of 2004.
"In addition, we are making significant progress on our planned expansion into 21 new geographic markets in the United States," Florance added. "Since deploying our field research teams into these markets in May, we have collected information on and photographed over 70,000 office, industrial and retail properties. Our initial field research phase will soon be completed in a number of markets, and we already have signed leading brokerage firms in certain of these markets to multi-year contracts. We expect this major expansion effort to begin contributing favorably to our revenue in the first quarter of 2005."
As of September 30, 2004, the Company had $113.3 million in cash, cash equivalents, and short-term investments, an increase of $6.0 million compared to June 30, 2004. This increase resulted principally from growing EBITDA, and includes $1.5 million of proceeds from stock option exercises of approximately 66,000 shares of common stock during the third quarter. The Company has no long-term debt.
"For the fourth quarter of 2004, we expect overall sequential quarterly revenue growth of 3.5% to 4.0%, and pro forma earnings of approximately $0.22 per share," stated Frank A. Carchedi, CoStar's Chief Financial Officer. "Adjusting these pro forma amounts for purchase amortization and the related income tax benefit, which we expect to be consistent with the amounts for the third quarter of 2004, we expect diluted net income of approximately $0.14 per share in the fourth quarter of 2004. In the fourth quarter, we expect continued investment in our expansion into 21 new U.S. markets and we plan to continue to focus on balancing that investment in long-term growth with expected earnings growth from existing operations," Carchedi stated.
"We now expect pro forma earnings for 2004 to nearly double compared to 2003 and expect pro forma earnings per share of approximately $0.78 for 2004," Carchedi continued. "Adjusting these pro forma amounts for purchase amortization and the related income tax benefit which we expect to total approximately $6.5 million in 2004, the Company now expects diluted net income of approximately $0.44 per share in 2004."
Also, the Company announced that due to substantial year over year earnings growth, the impact of purchase amortization on net income has diminished; therefore, beginning in the first quarter of 2005, the Company expects to no longer report pro forma earnings. The Company expects to continue to report EBITDA and reconcile EBITDA to net income.
Management will conduct a conference call to discuss earnings results for the quarter ended September 30, 2004, and the financial outlook for 2004 at 11:00 am ET, Wednesday, October 20, 2004. 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 October 31, 2004. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 1264780. 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 950 employees throughout the United States and the United Kingdom, including the largest professional research organization in the industry.