PRESS RELEASE DETAIL


Oct 21, 2009

CoStar Group, Inc. Announces Third Quarter 2009 Results

2009-10-21 2009 CoStar Group, Inc. Announces Third Quarter 2009 Results Revenues Increase 7% Quarter Over Quarter as Company Adds $10 Million in Cash

2009-10-21 2009 CoStar Group, Inc. Announces Third Quarter 2009 Results Revenues Increase 7% Quarter Over Quarter as Company Adds $10 Million in Cash

Print Release (PDF) 

BETHESDA, Md., Oct. 21, 2009 -- CoStar Group, Inc. (Nasdaq:CSGP), the number one provider of information, marketing and analytic services to the commercial real estate industry, today announced that revenues for the third quarter of 2009 were $53.6 million, an increase of $3.5 million or 7%, compared to revenues of $50.1 million for the second quarter of 2009, as acquisition revenue and stronger than anticipated organic revenue contributed to sequential quarterly revenue growth. Although market conditions remain challenging, the Company's third quarter organic revenue declined at a significantly slower rate than in each of the prior three quarters.

Net income for the quarter ended September 30, 2009 was $4.3 million, or $0.22 per diluted share, compared to $4.6 million, or $0.24 per diluted share for the quarter ended June 30, 2009. EBITDA (earnings before interest, taxes, depreciation and amortization) for the quarter ended September 30, 2009 was $10.6 million, compared to EBITDA of $11.6 million for the quarter ended June 30, 2009. Third quarter 2009 results included approximately $500,000 of acquisition and deal-related costs associated primarily with the acquisition of Property and Portfolio Research, Inc. (PPR).

As of September 30, 2009, the Company had $253.9 million in cash, cash equivalents, short-term and long-term investments, which is an increase of $10.2 million since June 30, 2009. The Company has no long-term debt.

            Year 2008-2009 Quarterly Results - Unaudited
                 (in millions, except per share data)
                                  2008                     2009
                       --------------------------  -------------------
                         Q1     Q2     Q3     Q4     Q1     Q2     Q3
                       -----  -----  -----  -----  -----  -----  -----
 Revenues              $52.3  $53.5  $53.8  $52.9  $51.4  $50.1  $53.6
 EBITDA                 11.5   12.8   15.5   16.7   14.4   11.6   10.6
 Net income              5.0    5.4    6.6    7.5    6.1    4.6    4.3
 Net income per share
  - diluted             0.26   0.28   0.34   0.38   0.31   0.24   0.22
 Weighted average
  outstanding shares
  - diluted             19.4   19.5   19.6   19.5   19.6   19.6   20.1


"Despite the weak commercial real estate market, we saw a marked improvement in our organic revenue this past quarter as investors, owners, lenders and government agencies turned to CoStar for insight into market conditions," said CoStar Group President and CEO Andrew C. Florance. "The fact that subscribers view our services as 'must have' utilities was evident in our renewal rate, which improved quarter over quarter despite the difficult market conditions." In addition, the number of net new paying subscribers increased during the third quarter of 2009 to 83,620, which includes both PPR and quarter over quarter organic growth.

"We have also recently positioned the Company for additional, future revenue growth through the acquisition of Resolve Technology, Inc., the second company we have acquired in the past 90 days," said Florance. "By continuing our acquisition strategy, we are able to provide additional tools and resources that we expect will add value for our subscribers by helping them do more with the information we provide," he continued.

"Resolve's tools are used by many of the world's leading institutional investors to integrate disparate historical, budget and pro forma financial and property information and spreadsheets into one centralized data warehouse so that they can more effectively analyze their real estate investments," said Florance. "We believe the singular capability of Resolve's tools to facilitate the integration of real estate investors' actual and forecasted investment performance data with CoStar's comprehensive, research-verified property information and forecasts from PPR will significantly enhance the value of all three companies' products."

Florance commented that he also was pleased with the progress on PPR's integration with CoStar's research platform and the emerging cross-selling opportunities. "We have already cross-sold several clients in the third quarter of 2009. Projected sales and revenue from the acquisition are running ahead of plan, and I am very pleased by the interest we are seeing so far."

CoStar's third quarter 2009 revenues include prorated revenue of $3.8 million from PPR, which the Company announced it acquired on July 20, 2009.

Also during the third quarter, CoStar continued to deliver new product enhancements and made more of its services available in additional markets.

"The extensive new analytic capabilities we've added to our service over the past six months represent a major step in our ongoing strategy to provide CoStar subscribers with the best available tools for analyzing commercial real estate markets," said Florance. "This past quarter, our research team expanded our CoStar COMPS(R) and CoStar Tenant(R) services, bringing CoStar's full suite of information services to every market in the U.S. We have already begun to capture additional revenue from the expanded offerings."

Subscription-based revenue accounted for more than 95% of the Company's total revenue in the third quarter of 2009. The 12-month trailing customer renewal rate for CoStar's subscription-based services was approximately 85%. In addition, the third quarter 2009 renewal rate increased over the second quarter of 2009, the first quarterly increase in the renewal rate this year.

Fourth Quarter 2009 Outlook

"For the fourth quarter of 2009, we expect approximately $53.0 to $54.0 million in revenues, and fully diluted net income per share of approximately $0.16 to $0.19," stated CoStar Group Chief Financial Officer Brian J. Radecki. "Our fourth quarter outlook includes approximately $0.03 per share of deal-related costs, purchase amortization, equity compensation, and other costs related to the acquisition of Resolve," said Radecki.

"For the full year of 2009, we expect approximately $208.0 to $209.0 million in revenues, and fully diluted net income per share of approximately $0.92 to $0.95," Radecki added. "Our full year guidance includes approximately $6.9 million in pre-tax, non-cash equity compensation charges related to the vesting of restricted stock and stock option grants," said Radecki.

Management will conduct a conference call to discuss earnings results for the third quarter ended September 30, 2009, and the financial outlook for the fourth quarter of 2009 at 11:00 a.m. ET on Thursday, October 22, 2009. The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/investor.aspx. To join the conference call by telephone, please call (800) 288-8976 from within the United States and Canada, or (612) 332-0335 from outside the United States and Canada. Refer to conference reservation number 118413. A replay of the conference call will be available approximately one hour after the live call concludes and remain available through midnight on November 5, 2009. The replay telephone number is (800) 475-6701 within the United States and Canada, or (320) 365-3844 outside the United States and Canada. Refer to Conference reservation number 118413. The replay will also be available over the Internet at http://www.costar.com/investor.aspx for a period of time following the call.

                          CoStar Group, Inc.
         Condensed Consolidated Statements of Operations-Unaudited
                 (in thousands, except per share data)
                                      For the             For the
                                   Three Months         Nine Months
                                  Ended Sept. 30,     Ended Sept. 30,
                                ------------------  ------------------
                                  2009      2008      2009      2008
                                --------  --------  --------  --------

 Revenues                       $ 53,590  $ 53,757  $155,024  $159,499
 Cost of revenues                 19,149    17,613    52,787    55,675
                                --------  --------  --------  --------
 Gross margin                     34,441    36,144   102,237   103,824
 Operating expenses:
  Selling and marketing           11,630    10,336    30,542    33,330
  Software development             3,454     3,122     9,697     9,677
  General and administrative      11,564    10,170    33,585    30,074
  Purchase amortization              842     1,236     2,530     3,723
                                --------  --------  --------  --------
                                  27,490    24,864    76,354    76,804
                                --------  --------  --------  --------
 Income from operations            6,951    11,280    25,883    27,020
 Interest and other income, net      263       951     1,027     4,132
                                --------  --------  --------  --------
 Income before income taxes        7,214    12,231    26,910    31,152
 Income tax expense, net           2,889     5,586    11,863    14,030
                                --------  --------  --------  --------
 Net income                      $ 4,325   $ 6,645  $ 15,047  $ 17,122
                                ========  ========  ========  ========
 Net income per share - basic     $ 0.22    $ 0.34    $ 0.77    $ 0.89
                                ========  ========  ========  ========
 Net income per share - diluted   $ 0.22    $ 0.34    $ 0.76    $ 0.88
                                ========  ========  ========  ========
 Weighted average outstanding
  shares - basic                  19,868    19,393    19,628    19,330
                                ========  ========  ========  ========
 Weighted average outstanding
  shares - diluted                20,084    19,604    19,749    19,535
                                ========  ========  ========  ========
 Reconciliation of Non-GAAP
  Financial Measures with
  Net Income
 Net income                      $ 4,325   $ 6,645  $ 15,047  $ 17,122
 Purchase amortization in
  cost of revenues                   659       585     1,641     1,772
 Purchase amortization in
  operating expenses                 842     1,236     2,530     3,723
 Depreciation and other
  amortization                     2,107     2,432     6,571     7,374
 Interest income, net               (263)     (951)   (1,027)   (4,132)
 Income tax expense, net           2,889     5,586    11,863    14,030
                                --------  --------  --------  --------
 EBITDA                         $ 10,559  $ 15,533  $ 36,625  $ 39,889
                                ========  ========  ========  ========
                            CoStar Group, Inc.
                Condensed Consolidated Balance Sheets
                              (in thousands)
                                               Sept. 30,     Dec. 31,
                                                 2009          2008
                                              (Unaudited)
                                              -----------  -----------
 ASSETS
 Current assets:
   Cash and cash equivalents                     $200,738     $159,982
   Short-term investments                          23,253       35,268
   Accounts receivable, net                        13,811       12,294
   Deferred income taxes                            2,757        2,036
   Prepaid and other current assets                 4,051        2,903
                                              -----------  -----------
 Total current assets                             244,610      212,483
 Long-term investments                             29,939       29,340
 Deferred income taxes                              6,554        3,392
 Property and equipment, net                       16,579       16,876
 Intangible and other assets, net                  92,825       70,749
 Deposits and other assets                          1,828        1,544
                                              -----------  -----------
 Total assets                                    $392,335     $334,384
                                              ===========  ===========
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable and accrued expenses         $ 25,168     $ 19,694
   Deferred revenue                                14,213        9,442
                                              -----------  -----------
 Total current liabilities                         39,381       29,136
 Deferred income taxes                                 --          132
 Income taxes payable                               1,707        1,695
 Stockholders' equity                             351,247      303,421
                                              -----------  -----------
 Total liabilities and stockholders' equity      $392,335     $334,384
                                              ===========  ===========
                        CoStar Group, Inc.
                   Results of Segments-Unaudited
                          (in thousands)
                                     For the            For the
                                  Three Months        Nine Months
                                 Ended Sept. 30,     Ended Sept. 30,
                                ------------------  ------------------
                                  2009      2008      2009      2008
                                --------  --------  --------  --------
 Revenues
 United States                   $48,807   $48,026  $141,590  $141,888
 International
  External customers               4,783     5,731    13,434    17,611
  Intersegment revenue *             308        --       308        --
                                --------  --------  --------  --------
 Total international revenue       5,091     5,731    13,742    17,611
 Intersegment eliminations         (308)        --     (308)        --
                                --------  --------  --------  --------
 Total Revenues                  $53,590   $53,757  $155,024  $159,499
                                ========  ========  ========  ========
 EBITDA
 United States                   $10,646   $15,852  $ 37,202  $ 42,184
 International **                   (87)     (319)     (577)   (2,295)
                                --------  --------  --------  --------
 Total EBITDA                    $10,559   $15,533  $ 36,625  $ 39,889
                                ========  ========  ========  ========
 * Intersegment revenues are attributable to services performed by
 Property & Portfolio Research Ltd. for Property & Portfolio Research,
 Inc. United States EBITDA includes a corresponding cost for the
 services performed by Property & Portfolio Research Ltd.
 ** International EBITDA includes a corporate allocation of
 approximately $153,000 and $277,000 for the three months ended
 September 30, 2009 and 2008, respectively, and $334,000 and $887,000
 for the nine months ended September 30, 2009 and 2008, respectively.
 Reconciliation of Non-GAAP Financial Measures with 2008-2009
 Quarterly Results - Unaudited
 (in millions)
                                  2008                    2009
                       --------------------------  -------------------
                         Q1     Q2     Q3     Q4     Q1     Q2     Q3
                       -----  -----  -----  -----  -----  -----  -----
 Net income            $ 5.0  $ 5.4  $ 6.6  $ 7.5  $ 6.1  $ 4.6  $ 4.3
 Purchase amortization   1.8    1.9    1.8    1.7    1.4    1.2    1.5
 Depreciation and
  other amortization     2.5    2.5    2.4    2.3    2.2    2.2    2.1
 Interest income, net  (1.9)  (1.3)  (0.9)  (0.8)  (0.4)  (0.3)  (0.2)
 Income tax
  expense, net           4.1    4.3    5.6    6.0    5.1    3.9    2.9
                       -----  -----  -----  -----  -----  -----  -----
 EBITDA                $11.5  $12.8  $15.5  $16.7  $14.4  $11.6  $10.6
                       =====  =====  =====  =====  =====  =====  =====


About CoStar Group, Inc.

CoStar Group, Inc. (Nasdaq:CSGP) is the number one provider of information, marketing and analytic services to commercial real estate professionals in the United States as well as the United Kingdom. CoStar's suite of services offers customers access via the Internet to the most comprehensive database of commercial real estate information throughout the U.S. as well as in the United Kingdom and France. Headquartered in Bethesda, MD, CoStar has approximately 1,400 people working for the Company worldwide, including the largest professional research organization in the industry. For more information, visit http://www.costar.com.

CONTACT: CoStar Group, Inc.
         Investors/Analysts:
         Brian J. Radecki, Chief Financial Officer
           (301) 664-9132
           bradecki@costar.com
         Media:
         Timothy J. Trainor, Communications Director
           (301) 280-7695
           ttrainor@costar.com

This news release includes "forward-looking statements" including, without limitation, statements regarding CoStar's; expectations, beliefs, intentions or strategies regarding the future. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. More information about potential factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those stated in CoStar's filings from time to time with the Securities and Exchange Commission, including CoStar's Form 10-K for the year ended December 31, 2008, and CoStar's Form 10-Q for the quarter ended June 30, 2009 under the heading "Risk Factors." In addition to these statements, there can be no assurance that; our renewal rate is evidence that subscribers view our services as 'must have' utilities that organic revenue growth will be as anticipated; that the acquisition of Resolve positions the Company for additional revenue growth; that the Company's acquisition strategy will provide additional tools and resources that will add value for its subscribers; that Resolve's tools will facilitate the integration of real estate investors' actual and forecasted investment performance data with CoStar's comprehensive, research-verified property information and forecasts from PPR and therefore significantly enhance the value of all three companies' products; that sales and revenue from the Company's acquisition of PPR will run ahead of plan; that the Company will continue to capture additional revenue from ts expanded offerings; that revenue and fully diluted net income per share for the fourth quarter of 2009 will be as stated in this press release; that deal-related costs, purchase amortization, equity compensation, and other costs related to the acquisition of Resolve for the fourth quarter and full year 2009 will be as stated in this press release; that revenue and fully diluted net icome per share for the full year 2009 will be as stated in this press release; and that pre-tax, non-cash equity compensation charges related to the vesting of restricted stock and stock option grants for the full year 2009 will be as stated in this press release. All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements.
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