COSTAR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements," including
statements about our beliefs and expectations. There are many risks and
uncertainties that could cause actual results to differ materially from those
discussed in the forward-looking statements. Potential factors that could cause
actual results to differ materially from those discussed in any forward-looking
statements include, but are not limited to, those discussed in "Cautionary
Statement Concerning Forward-Looking Statements" at the end of this Item 2 and
"Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q, as
well as those described from time to time in our filings with the Securities and
Exchange Commission.

All forward-looking statements in this filing are based on information available
to us on the date of this filing, and we assume no obligation to update such
statements, whether as a result of new information, future events or otherwise,
except as required by law. The following discussion should be read in
conjunction with our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and other filings with the Securities and Exchange
Commission and the condensed consolidated financial statements and related notes
included in this Quarterly Report on Form 10-Q.

Overview

CoStar Group, Inc. (the "Company" or "CoStar") is the number one provider of
information, analytics and online marketplaces to the commercial real estate
industry in the United States ("U.S.") and United Kingdom ("U.K.") based on the
fact that we offer the most comprehensive commercial real estate database
available; have the largest research department in the industry; own and operate
leading online marketplaces for commercial real estate and apartment listings in
the U.S. based on the numbers of unique visitors and site visits per month; and
provide more information, analytics and marketing services than any of our
competitors. We have created and compiled a standardized platform of
information, analytics and online marketplace services where industry
professionals and consumers of commercial real estate, including apartments, and
the related business communities, can continuously interact and facilitate
transactions by efficiently accessing and exchanging accurate and standardized
real estate-related information. Our service offerings span all commercial
property types, including office, retail, industrial, multifamily, commercial
land, mixed-use and hospitality. We manage our business geographically in two
operating segments, with our primary areas of measurement and decision-making
being North America, which includes the U.S. and Canada, and International,
which primarily includes Europe, Asia-Pacific and Latin America. On June 24,
2020, we acquired Ten-X Holding Company, Inc and its subsidiaries ("Ten-X"),
which provide a leading platform for conducting commercial real estate online
auctions and negotiated bids primarily for distressed properties. See Note 5 to
the accompanying Notes to the Condensed Consolidated Financial Statements
included in Part I of this Quarterly Report on Form 10-Q for further discussion
of this acquisition.

Our services are typically distributed to our clients under subscription-based
license agreements that renew automatically, a majority of which have a term of
at least one year. Upon renewal, many of the subscription contract rates may
change in accordance with contract provisions or as a result of contract
renegotiations. To encourage clients to use our services regularly, we generally
charge a fixed monthly amount for our subscription-based services rather than
charging fees based on actual system usage or number of paid clicks. Our
subscription clients generally pay contract fees on a monthly basis, but in some
cases may pay us on a quarterly or annual basis. We generally see higher sales
of Apartments.com listing services during the peak summer rental season and
higher CoStar Suite sales towards the end of the year; however, sales fluctuate
from period-to-period and year-to-year and our revenue is not generally seasonal
because our services are typically sold on a subscription basis.

Our primary brands include CoStar, LoopNet, Apartments.com, STR, Ten-X,
BizBuySell and LandsofAmerica. We also provide other services that complement
those offered through our primary brands. These include real estate and lease
management solutions, lease administration and abstraction services through our
CoStar Real Estate Manager service offerings; and market research, consulting
and analysis, portfolio and debt analysis, and management and reporting
capabilities through our CoStar Investment Analysis and CoStar Risk Analytics
service offerings. Our principal service offerings are discussed in more detail
below.

Impact of the COVID-19 Pandemic

A novel strain of coronavirus known as "COVID-19" was first identified in Wuhan,
China in December 2019, and was subsequently declared a pandemic by the World
Health Organization on March 11, 2020. COVID-19 has surfaced in nearly all
regions around the world and resulted in travel restrictions and business
slowdowns or shutdowns in affected areas. The full impact of the COVID-19
pandemic is unknown. The COVID-19 pandemic did not materially affect the
Company's condensed consolidated financial statements for the three and six
months ended June 30, 2020.

                                       32
--------------------------------------------------------------------------------

We are closely and continually monitoring the impact of the COVID-19 pandemic on
our business, employees, customers, and communities. To protect the health and
safety of our employees and to help stop the spread of the disease, we shifted
to a digital, remote workplace in mid-March 2020. As of that time, nearly all of
our employees began to work from home and continue to do so as of the date of
this filing. We have temporarily shifted certain employees' job responsibilities
so they can work from home, and modified our in-person research and sales
processes so that they can be conducted safely and in compliance with social
distancing guidelines to protect our employees, our customers and our
communities. We believe our employees are operating at near normal levels of
productivity in this digital environment. We continue to monitor events related
to the pandemic, as well as the guidelines and mandates provided by governmental
and health authorities. We plan to continue adapting our business operations
when and as deemed appropriate to comply with these guidelines and mandates and
to respond to changing circumstances.

In connection with the shift to work from home, we incurred and may continue to
incur expenses to help employees perform their jobs effectively and securely. In
preparation for an eventual return to work in the office, we have also incurred
and expect to continue to incur expenses to help protect the health and safety
of our employees and visitors. In response to the COVID-19 pandemic, we have
also taken steps to manage our costs including minimizing hiring to essential
positions, restricting business travel and canceling in-person marketing events.
We expect to continue these steps and, therefore, to see these cost savings in
the second half of the year. Overall, the increased spend related to COVID-19
has not been material and has had minimal impact as these expenses have been
offset by the cost savings. As the situation evolves, we may implement
additional cost reductions.

Current general economic conditions in the U.S. and the world as a result of the
COVID-19 pandemic are negatively affecting business operations for our clients
and are expected to result in business consolidations and, in certain
circumstances, failures. In general, customers are seeking to reduce expenses as
a result of current economic conditions. The extent and duration of any future
continued weakening of the global economy is unknown. There can be no assurance
that any of the governmental or private sector initiatives designed to
strengthen the U.S. and other economies will ultimately be successful or
available to us and our customers, and, if successful, when the benefits will be
available or seen. Because of the rapidly evolving nature of the COVID-19
pandemic and responses to it by, and the impact on, global economies, our
revenue or earnings forecasts may not prove to be accurate. Any expected changes
in financial results discussed in this report, including any expected impact of
COVID-19, are based on our current observations and experience and involve
estimates and assumptions. As the extent and duration of the impacts from
COVID-19 remain unclear, the Company's estimates and assumptions may evolve as
conditions change. Our current observations and past experience and results may
not be an indicator of ongoing trends or future results, and actual results
could differ significantly from our estimates and expectations.

Our near-term revenues are relatively predictable as a result of our
subscription-based business model; however, we expect that we will continue to
experience the effects of the COVID-19 pandemic on our business, results of
operations and overall financial performance. Such effects may include, among
others, a decrease in new customer sales and increases in customer
cancellations, suspensions, service reductions and failures to pay or delays in
payments of amounts owed to us. We are more likely to incur asset impairment
charges or restructuring charges, or increase our allowance for credit losses,
as a result of this crisis and related economic downturn, which could adversely
affect our results of operations. The amount and frequency of such actions will
be affected by the severity and duration of the COVID-19 pandemic. We
experienced an increase in customer requests for cancellations and suspensions
towards the end of the first quarter of 2020 that continued through May 2020;
however, those requests have eased since then. We also increased our allowance
for credit loss during the first half of 2020 as a result of increased write-off
trends as well as additional reserves for customers with higher credit risk. Due
to the uncertainty associated with the COVID-19 pandemic, we will continue to
monitor customer behavior and its impact on our results of operations. See Note
4 to the accompanying Notes to the Condensed Consolidated Financial Statements
included in Part I of this Quarterly Report on Form 10-Q and the "Comparison of
Three Months Ended June 30, 2020 and Three Months Ended June 30, 2019" below for
further discussion.

Our recent equity offering of common stock completed in May 2020 and our
offering of Senior Notes and amendment and restatement of our credit facility
completed in early July 2020 strengthened our liquidity position. See Note 14
and Note 15 to the accompanying Notes to the Condensed Consolidated Financial
Statements included in Part I of this Quarterly Report on Form 10-Q and the
"Development, Investments and Expansion" below for further discussion of our
recent equity and Senior Notes offerings and the 2020 Credit Agreement. Overall,
we have not experienced significant COVID-19 related impacts that would affect
our ability to access funding on reasonably similar terms as were available to
the Company previously. We discuss the current and potential impact of select
provisions of the CARES Act (defined below) in our liquidity discussion.

Service Offerings

                                       33
--------------------------------------------------------------------------------

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

Information and Analytics

CoStar Suite®. Our subscription-based information services consist primarily of
CoStar Suite services. CoStar Suite is sold as a platform of service offerings
consisting of CoStar Property®, CoStar COMPS®, CoStar Market Analytics, CoStar
Tenant®, CoStar Lease Comps and CoStar Public Record through our online and
mobile applications. Our integrated suite of online service offerings includes
information about space available for lease, comparable sales information,
information about properties for sale, tenant information, Internet marketing
services, analytical capabilities, information for clients' websites,
information about industry professionals and their business relationships, and
industry news. Our commercial real estate sales force is responsible for selling
multiple product lines, including CoStar Suite and LoopNet. Sales initiatives
commenced in late 2019 shifted the focus of our sales force to sales of LoopNet
Signature Ads, a premium listing service. As a result of this shift, as well as
the continued impact of COVID-19 on our current and potential customer base, we
currently anticipate CoStar Suite revenue growth rates to decline through the
end of the year.

Information services. We provide real estate and lease management solutions,
including lease administration and abstraction services, through our CoStar Real
Estate Manager® service offerings, as well as portfolio and debt analysis,
management and reporting capabilities through our CoStar Investment Analysis and
CoStar Risk Analytics® service offerings. We provide information services
internationally, through our Grecam, Belbex and Thomas Daily businesses in
France, Spain and Germany, respectively. Sales of CoStar Real Estate Manager
represent a significant portion of our information services revenue. CoStar Real
Estate Manager's revenue growth rates increased significantly in 2018 as new
clients adopted, and existing clients expanded their use of, CoStar Real Estate
Manager to manage compliance with new lease accounting and reporting
requirements that became effective for public companies for financial reporting
periods beginning after December 15, 2018. CoStar Real Estate Manager continued
to experience high growth rates throughout 2019. In the first half of 2020,
growth rates began to decline as the surge of the demand eased as companies
passed the implementation date for the new requirements and customer behavior
began to change in response to economic conditions, including potential delays
in implementation of new services resulting in reduction of implementation fees.
Accordingly, we expect the growth rate for CoStar Real Estate Manager to
continue to decline throughout the year relative to 2019 growth rates.

On October 22, 2019, we acquired STR and we now also provide STR's complementary
benchmarking and analytics services to the hospitality industry. Sales of STR
also represent a significant portion of our information services revenue. STR
sells the majority of its services on a subscription basis, but also has
one-time or ad hoc transaction fee revenues. The hospitality industry has been
severely impacted by COVID-19. As a result, we have experienced and expect to
continue to experience some impact to the revenue growth rates for STR,
particularly as a result of a decline in ad hoc transaction fee revenues as
customers delay purchases. We've offered payment extensions to certain customers
of STR, and we will continue to monitor customer behavior and any resulting
impact to our financial condition and results of operations. See Note 5 to the
accompanying Notes to the Condensed Consolidated Financial Statements included
in Part I of this Quarterly Report on Form 10-Q for further discussion of this
acquisition.

Online Marketplaces

Multifamily. Apartments.comTM is part of our network of apartment marketing
sites, which primarily includes ApartmentFinder®, ForRent.com®,
ApartmentHomeLiving.comTM, Apartamentos.comTM, Westside Rentals, and Off Campus
Partners, LLC ("OCP"). Our network of subscription-based advertising services
provides property management companies and landlords with a comprehensive
advertising destination for their available rental units and offers renters a
platform for searching for available rentals. On June 12, 2019, we acquired OCP,
a provider of student housing marketplace content and technology to U.S.
universities. We continue to integrate OCP and the services they offer into our
Apartments.com network. Multifamily sales have not been adversely impacted by
the COVID-19 pandemic in the first half of 2020, and tenants, property owners
and landlords continued to transact in our digital environment. See Note 5 to
the accompanying Notes to the Condensed Consolidated Financial Statements
included in Part I of this Quarterly Report on Form 10-Q for further discussion
of the OCP acquisition.

Commercial property and land. Our LoopNet.com network of commercial real estate
websites offer subscription-based, online marketplace services that enable
commercial property owners, landlords and real estate agents working on their
behalf to list properties for sale or for lease and to submit detailed
information about property listings. Commercial real estate agents, buyers and
tenants use the LoopNet.com network of online marketplace services to search for
available property listings that meet their criteria. Loopnet.com represents a
majority of the commercial property and land revenue. As part of our rebuild and
launch of the LoopNet Signature Ads product, we rolled out new ad packages in
the fourth quarter of 2019 and shifted the focus
                                       34
--------------------------------------------------------------------------------

of our commercial real estate sales force to LoopNet Signature Ads. As a result,
the growth rate increased in the fourth quarter of 2019 and in the first quarter
of 2020. As a result of COVID-19 and its impact on the commercial real estate
industry, LoopNet.com sales volumes began to decline in the second half of March
2020, and continued to decline through May 2020. In June 2020, we saw
cancellations decline to pre-pandemic levels and some recovery in sales volume.
Overall, we expect the revenues in commercial property and land to increase
primarily due to revenue from our newly acquired online auction platform, Ten-X.
Our BizBuySell.com network, which includes BizQuest® and FindaFranchise, and our
Land.com network of sites, which include LandsofAmerica, LandAndFarm and
LandWatch®, are also included in our commercial property and land service
revenue. The BizBuySell.com network provides online marketplaces for businesses
for-sale and our Land.com network of sites provide online marketplaces for rural
lands for-sale.

As of June 30, 2020 and 2019, our net bookings of subscription-based services on
all contracts were approximately $35 million and $59 million, respectively,
calculated based on the annualized amount of change in our sales resulting from
all new subscription-based contracts or upsales on all existing
subscription-based contracts, less write-downs and cancellations, for the period
reported. The factors resulting in this year-over-year change are discussed
above. We recognize subscription revenues on a straight-line basis over the life
of the contract. Net bookings is considered a key indicator of future
subscription revenue growth and is also used as a metric of salesforce
productivity by management and investors.

For the six months ended June 30, 2020 and 2019, our contract renewal rates for
existing CoStar subscription-based services on annual contracts were
approximately 89% and 90%, respectively, and therefore our cancellation rate for
those services for the same periods were approximately 11% and 10%,
respectively. Our contract renewal rate is a quantitative measurement that is
typically closely correlated with our revenue results. As a result, management
believes that the rate may be a reliable indicator of short-term and long-term
performance absent extraordinary circumstances. Our trailing twelve-month
contract renewal rate may decline in light of COVID-19 developments and the
resulting negative economic conditions leading to greater business failures
and/or consolidations among our clients, reductions in customer spending, or
decreases in our customer base.

Development, Investments and Expansion

We plan to continue to invest in our business and our services, evaluate
strategic growth opportunities, and pursue our key priorities for 2020 as
described below while we closely monitor the economic developments from the
COVID-19 pandemic and manage our response to such developments. We are committed
to supporting, improving and enhancing our information, analytics and online
marketplace solutions, including expanding and improving our offerings for
property owners, property managers and renters. We expect to continue our
software development efforts to improve existing services, introduce new
services, integrate and cross-sell services, integrate recently completed
acquisitions and expand and develop supporting technologies for our research,
sales and marketing organizations. We may reevaluate our priorities as the
COVID-19 pandemic continues to evolve.

Our key priorities for the second half of 2020 include:

•Integrating recently completed acquisitions, including STR and Ten-X, with our
business operations. We plan to consolidate STR data and services with CoStar
Suite to create an integrated platform. We expect that the combination of STR's
and CoStar's offerings will allow us to create valuable new and improved tools
for industry participants. We plan to drive international expansion, in part,
through STR's global operations and to apply STR's benchmarking expertise to
other commercial real estate segments we serve. We also plan to begin the
integration of the Ten-X platform into both LoopNet and CoStar, to expand the
audience for Ten-X auctions to include our online commercial real estate users.

•Continuing to invest in the LoopNet marketplace by enhancing the content on the
site (including high-quality imagery), seeking targeted advertisements,
providing premium listing services (such as LoopNet Signature Ads) that increase
a property listing's exposure, and adding more content for premium listings to
better meet the needs of a broader cross section of the commercial real estate
industry. To support the LoopNet marketplace, we implemented training and
incentive programs for our sales team to increase sales of LoopNet Signature
Ads, with a focus on property owners.

•Continuing to invest in CoStar Suite, including capabilities that allow us to
broaden the reach of CoStar Suite in Europe by offering multiple languages and
currencies on the platform. We plan to enhance CoStar Suite by making additional
investments in analytical capabilities focused on owners and lenders of
commercial real estate. In addition, we plan to invest in the technology and
infrastructure of our other existing service offerings including CoStar Real
Estate Manager in order to leverage data and technology across our platforms.
                                       35
--------------------------------------------------------------------------------


•Continuing to develop, improve and market our recently launched Apartments.com
service offerings that focus on the digital rental experience and enable renters
to apply for leases and make rent payments, and for landlords to run tenant
credit and background checks, all online through a single platform. We seek user
feedback and continue to aggressively market our multifamily listing services in
an effort to provide more value to advertisers and, in turn, to attract
advertisers. Our marketing investment is focused on search engine marketing and
enhanced brand awareness. As we continue to assess the success and effectiveness
of our marketing campaign, we will continue to work to determine the optimal
level and focus of our marketing investment for our services for future periods
and may adjust our marketing spend as we deem appropriate.

•Obtaining necessary regulatory approvals to close the pending acquisition of
RentPath and integrating RentPath with the Apartments.com network post-closing.
On February 11, 2020, a wholly owned subsidiary of the Company entered into an
agreement to acquire for $588 million in cash all of the equity interests of
RentPath Holdings, Inc., as reorganized following an internal restructuring
pursuant to and under the joint chapter 11 plan of reorganization of RentPath
and certain of its subsidiaries. The completion of the transaction is subject to
customary conditions, including the expiration or termination of the applicable
waiting period under applicable antitrust laws and bankruptcy approvals. On
April 29, 2020, the Company and RentPath each received a request for additional
information from the U.S. Federal Trade Commission ("FTC") with respect to the
acquisition. The FTC's additional request extends the waiting period imposed by
the Hart-Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act") until
the parties complete the compliance process and the FTC has had an opportunity
to review and engage with the parties on the substance of their submission.
Bankruptcy court approval was obtained on June 9, 2020. On July 29, 2020, the
Company exercised its option pursuant to the asset purchase agreement for the
RentPath acquisition to extend the Outside Date under that agreement for an
additional three months in exchange for a maximum potential payment of $7.5
million. The Company continues to expect the acquisition to close on or before
February 12, 2021, subject to expiration or termination of the applicable
waiting period under the HSR Act and the satisfaction or waiver of all closing
conditions. See Note 5 to the accompanying Notes to the Condensed Consolidated
Financial Statements included in Part I of this Quarterly Report on Form 10-Q
for further discussion.

To support our continued expansion and development, we recently completed a
public equity offering, a senior notes offering and the refinancing of our
revolving credit facility. In May 2020, we completed a public equity offering of
2,633,587 shares of common stock for $655 per share. Net proceeds from the
public equity offering were approximately $1.7 billion, after deducting
approximately $35.0 million of underwriting fees, commissions and other stock
issuance costs. We expect to use the net proceeds from the public equity
offering to fund all or a portion of the costs of any strategic acquisitions we
pursue in the future, to finance the growth of our business and/or for working
capital and other general corporate purposes. General corporate purposes may
include additions to working capital, capital expenditures, repayment of debt,
investments in our subsidiaries, and the repurchase, redemption or retirement of
securities, including our common stock.

On July 1, 2020, we issued $1.0 billion aggregate principal amount of 2.800%
Senior Notes due July 15, 2030 (the "Senior Notes"). Interest on the Senior
Notes is payable semi-annually in arrears beginning on January 15, 2021. We may
redeem the Senior Notes in whole or in part (a) at any time prior to April 15,
2030, at a redemption price equal to 100% of the principal amount of the Senior
Notes, plus the Applicable Premium (as calculated in accordance with the
indenture governing the Senior Notes) as of, and any accrued and unpaid
interest, if any, on the principal amount of Senior Notes being redeemed to, but
excluding, the redemption date, and (b) on or after April 15, 2030, at a
redemption price equal to 100% of the principal amount of the Senior Notes, plus
any accrued and unpaid interest, if any, on the principal amount of Senior Notes
being redeemed to, but excluding, the redemption date. We used a portion of the
net proceeds from the issuance of the Senior Notes to repay outstanding
borrowings under the 2017 Credit Agreement, and we intend to use the remaining
proceeds to fund all or a portion of the costs of any strategic acquisitions we
pursue in the future, to finance the growth of our business and/or for working
capital and other general corporate purposes.

On July 1, 2020, we also entered into a second amended and restated credit
agreement (the "2020 Credit Agreement"), which amended and restated in its
entirety our existing credit agreement (the "2017 Credit Agreement"). The 2020
Credit Agreement provides for a $750 million revolving credit facility with a
term of five years and a letter of credit sublimit of $20 million from a
syndicate of financial institutions as lenders and issuing banks. On July 1,
2020, we repaid the outstanding borrowings under our existing $750 million
revolving credit facility pursuant to the 2017 Credit Agreement using the
proceeds from the issuance of the Senior Notes. Funds drawn down on the
revolving credit facility pursuant to the 2020 Credit Agreement may be used for
working capital and other general corporate purposes. The 2020 Credit Agreement,
along with the proceeds from the May equity offering, the July Senior Notes
offering and cash generated by our business are expected to support our
continued growth and give us flexibility to act on strategic acquisition
opportunities that may arise. See Note 14 and
                                       36
--------------------------------------------------------------------------------

Note 15 to the accompanying Notes to the Condensed Consolidated Financial
Statements included in Part I of this Quarterly Report on Form 10-Q for further
discussion of our recent equity and Senior Notes offerings and our 2020 Credit
Agreement.

We intend to continue to assess the need for additional investments in our
business, in addition to the investments discussed above, in order to develop
and distribute new services and functionality within our current platform or
expand the reach of, or otherwise improve, our current service offerings. Any
future product development or expansion of services, combination and
coordination of services or elimination of services or corporate expansion,
development or restructuring efforts could reduce our profitability and increase
our capital expenditures. Any new investments, changes to our service offerings
or other unforeseen events could cause us to experience reduced revenues or
generate losses and negative cash flow from operations in the future. Any
development efforts must comply with our credit facility, which contains
restrictive covenants that restrict our operations and use of our cash flow and
may prevent us from taking certain actions that we believe could increase our
profitability or otherwise enhance our business.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements
prepared in accordance with generally accepted accounting principles ("GAAP").
We also disclose and discuss certain non-GAAP financial measures in our public
releases, investor conference calls and filings with the Securities and Exchange
Commission. The non-GAAP financial measures that we may disclose include net
income before interest (expense) income and other (expense) income, loss on debt
extinguishment, income taxes, depreciation and amortization ("EBITDA"), adjusted
EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per
diluted share. EBITDA is our net income before interest (expense) income and
other (expense) income, loss on debt extinguishment, income taxes, depreciation
and amortization. We typically disclose EBITDA on a consolidated and an
operating segment basis in our earnings releases, investor conference calls and
filings with the Securities and Exchange Commission. Adjusted EBITDA is
different from EBITDA because we further adjust EBITDA for stock-based
compensation expense, acquisition- and integration-related costs for pending and
completed acquisitions, restructuring costs and settlements and impairments
incurred outside our ordinary course of business. Non-GAAP net income is
determined by adjusting our net income for stock-based compensation expense,
acquisition- and integration-related costs for pending and completed
acquisitions, restructuring costs, settlement and impairment costs incurred
outside our ordinary course of business and loss on debt extinguishment, as well
as amortization of acquired intangible assets and other related costs, and then
subtracting an assumed provision for income taxes. We may disclose adjusted
EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per
diluted share on a consolidated basis in our earnings releases, investor
conference calls and filings with the Securities and Exchange Commission. The
non-GAAP financial measures that we use may not be comparable to similarly
titled measures reported by other companies. Also, in the future, we may
disclose different non-GAAP financial measures in order to help our investors
meaningfully evaluate and compare our results of operations to our previously
reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per
diluted share as operating performance measures and, as such, we believe that
the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA
and non-GAAP net income is net income. We believe the most directly comparable
GAAP financial measures to non-GAAP net income per diluted share and adjusted
EBITDA margin are net income per diluted share and net income divided by
revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA
margin, non-GAAP net income and non-GAAP net income per diluted share, we
exclude from net income the financial items that we believe should be separately
identified to provide additional analysis of the financial components of the
day-to-day operation of our business. We have outlined below the type and scope
of these exclusions and the material limitations on the use of these non-GAAP
financial measures as a result of these exclusions. EBITDA, adjusted EBITDA,
adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted
share are not measurements of financial performance under GAAP and should not be
considered as a measure of liquidity, as an alternative to net income or as an
indicator of any other measure of performance derived in accordance with GAAP.
Investors and potential investors in our securities should not rely on EBITDA,
adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net
income per diluted share as a substitute for any GAAP financial measure,
including net income and net income per diluted share. In addition, we urge
investors and potential investors in our securities to carefully review the GAAP
financial information included as part of our Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange
Commission, as well as our quarterly earnings releases, and compare the GAAP
financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin,
non-GAAP net income and non-GAAP net income per diluted share.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and
non-GAAP net income per diluted share may be used by management to internally
measure our operating and management performance and may be used by investors as
supplemental financial measures to evaluate the performance of our business. We
believe that these non-GAAP measures, when viewed with our GAAP results and
accompanying reconciliations, provide additional information to investors
                                       37
--------------------------------------------------------------------------------

that is useful to understand the factors and trends affecting our business
without the impact of certain acquisition-related items. We have spent more than
30 years building our database of commercial real estate information and
expanding our markets and services partially through acquisitions of
complementary businesses. Due to these acquisitions, our net income has included
significant charges for amortization of acquired intangible assets, depreciation
and other amortization, acquisition- and integration-related costs for pending
and completed acquisitions, restructuring costs, and loss on debt
extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and
non-GAAP net income per diluted share exclude these charges and provide
meaningful information about the operating performance of our business, apart
from charges for amortization of acquired intangible assets, depreciation and
other amortization, acquisition- and integration-related costs for pending and
completed acquisitions, restructuring costs; settlement and impairment costs
incurred outside our ordinary course of business. We believe the disclosure of
non-GAAP measures can help investors meaningfully evaluate and compare our
performance from quarter to quarter and from year to year without the impact of
these items. We also believe the non-GAAP measures we disclose are measures of
our ongoing operating performance because the isolation of non-cash charges,
such as amortization and depreciation, and other items, such as interest
(expense) income and other (expense) income, income taxes, stock-based
compensation expenses, acquisition- and integration-related costs for pending
and completed acquisitions, restructuring costs, loss on debt extinguishment and
settlement and impairment costs incurred outside our ordinary course of
business, provides additional information about our cost structure, and, over
time, helps track our operating progress. In addition, investors, securities
analysts and others have regularly relied on EBITDA and may rely on adjusted
EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per
diluted share to provide a financial measure by which to compare our operating
performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Amortization of acquired intangible assets in cost of revenues may be useful
for investors to consider because it represents the diminishing value of any
acquired trade names and other intangible assets and the use of our acquired
technology, which is one of the sources of information for our database of
commercial real estate information. We do not believe these charges necessarily
reflect the current and ongoing cash charges related to our operating cost
structure.

•Amortization of acquired intangible assets in operating expenses may be useful
for investors to consider because it represents the estimated attrition of our
acquired customer base. We do not believe these charges necessarily reflect the
current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider
because they generally represent the wear and tear on our property and equipment
used in our operations. We do not believe these charges necessarily reflect the
current and ongoing cash charges related to our operating cost structure.

•The amount of interest (expense) income and other (expense) income we generate
and incur may be useful for investors to consider and may result in current cash
inflows and outflows. However, we do not consider the amount of interest
(expense) income and other (expense) income to be a representative component of
the day-to-day operating performance of our business.

•Income tax expense may be useful for investors to consider because it generally
represents the taxes which may be payable for the period and the change in
deferred income taxes during the period and may reduce the amount of funds
otherwise available for use in our business. However, we do not consider the
amount of income tax expense to be a representative component of the day-to-day
operating performance of our business.

•The amount of loss on our debt extinguishment may be useful for investors to
consider because it generally represents losses from the early extinguishment of
debt. However, we do not consider the amount of the loss on debt extinguishment
to be a representative component of the day-to-day operating performance of our
business.

Set forth below are descriptions of additional financial items that have been
excluded from EBITDA to calculate adjusted EBITDA and the material limitations
associated with using this non-GAAP financial measure as compared to net income:

•Stock-based compensation expense may be useful for investors to consider
because it represents a portion of the compensation of our employees and
executives. Determining the fair value of the stock-based instruments involves a
high degree of judgment and estimation and the expenses recorded may bear little
resemblance to the actual value
                                       38
--------------------------------------------------------------------------------

realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

•The amount of acquisition- and integration-related costs for pending and
completed acquisitions incurred may be useful for investors to consider because
such costs generally represent professional service fees and direct expenses
related to acquisitions. Because we do not acquire businesses on a predictable
cycle, we do not consider the amount of acquisition- and integration-related
costs for pending and completed acquisitions to be a representative component of
the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary
course of business may be useful for investors to consider because they
generally represent gains or losses from the settlement of litigation matters or
impairments on acquired intangible assets. We do not believe these charges
necessarily reflect the current and ongoing cash charges related to our
operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to
consider because they generally represent costs incurred in connection with a
change in a contract or a change in the makeup of our properties or
personnel. We do not consider the amount of restructuring related costs to be a
representative component of the day-to-day operating performance of our
business.

The financial items that have been excluded from our net income to calculate
non-GAAP net income and non-GAAP net income per diluted share are amortization
of acquired intangible assets and other related costs, stock-based compensation,
acquisition- and integration-related costs for pending and completed
acquisitions, restructuring and related costs and settlement and impairment
costs incurred outside our ordinary course of business. These items are
discussed above with respect to the calculation of adjusted EBITDA together with
the material limitations associated with using this non-GAAP financial measure
as compared to net income. In addition to these exclusions from net income, we
subtract an assumed provision for income taxes to calculate non-GAAP net income.
In 2020 and 2019, we assumed a 25% tax rate, which approximated our historical
long-term statutory corporate tax rate, excluding the impact of discrete items.

Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period.

Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

Management compensates for the above-described limitations of using non-GAAP
measures by using a non-GAAP measure only to supplement our GAAP results and to
provide additional information that is useful to investors to understand the
factors and trends affecting our business.

                                       39
--------------------------------------------------------------------------------

The following table shows our net income reconciled to our EBITDA and our net
cash flows from operating, investing and financing activities for the indicated
periods (in thousands):
                                                          Three Months Ended                                      Six Months Ended
                                                               June 30,                                               June 30,
                                                        2020               2019               2020                   2019
Net income                                          $   60,360          $

63,248 $ 133,153 $ 148,417 Amortization of acquired intangible assets in cost of revenues

                                              6,054             5,033              12,059                   10,546
Amortization of acquired intangible assets in
operating expenses                                      14,935             7,175              26,419                   14,857
Depreciation and other amortization                      6,990             6,546              13,757                   13,010
Interest expense (income)                                3,596            (4,678)              1,945                   (8,890)
Other expense (income)                                     474              (538)               (367)                    (539)
Income tax expense                                      16,889            16,768              22,452                   29,304
EBITDA                                              $  109,298          $ 93,554          $  209,418          $       206,705

Net cash flows provided by (used in)
Operating activities                                $  117,182          $ 85,073          $  248,646          $       233,567
Investing activities                                  (189,719)          (18,679)           (187,025)                 (28,108)
Financing activities                                 1,691,207            (1,035)          2,416,358                   (7,653)


                                       40

--------------------------------------------------------------------------------

Comparison of Three Months Ended June 30, 2020 and Three Months Ended June 30, 2019

The following table provides a comparison of our selected consolidated results
of operations for the three months ended June 30, 2020 and 2019 (in thousands):
                                                                 Three Months Ended
                                                                      June 30,
                                                                                                    Increase           Increase (Decrease)
                                                               2020               2019           (Decrease) ($)                (%)
Revenues:
  CoStar Suite                                             $ 165,053          $ 152,825          $   12,228                           8  %
  Information services                                        30,536             20,777               9,759                          47
  Multifamily                                                145,541            120,488              25,053                          21
  Commercial property and land                                56,029             49,670               6,359                          13
Total revenues                                               397,159            343,760              53,399                          16
Cost of revenues                                              74,040             71,918               2,122                           3
Gross profit                                                 323,119            271,842              51,277                          19
Operating expenses:
Selling and marketing (excluding customer base
amortization)                                                130,461            119,075              11,386                          10
Software development                                          39,001             28,455              10,546                          37
General and administrative                                    57,403             42,337              15,066                          36
Customer base amortization                                    14,935              7,175               7,760                             NM
Total operating expenses                                     241,800            197,042              44,758                          23
Income from operations                                        81,319             74,800               6,519                           9
Interest (expense) income                                     (3,596)             4,678              (8,274)                            NM
Other (expense) income                                          (474)               538              (1,012)                            NM
Income before income taxes                                    77,249             80,016              (2,767)                         (3)
Income tax expense                                            16,889             16,768                 121                           1
Net income                                                 $  60,360          $  63,248          $   (2,888)                         (5)

__________________________

NM - Not meaningful

Revenues. Revenues increased to $397 million for the three months ended June 30,
2020, from $344 million for the three months ended June 30, 2019. The $53
million increase was attributable to increases in revenues for several of our
services, including, a $25 million, or 21%, increase in multifamily revenue. The
increase in multifamily revenues was primarily due to higher sales volume as a
result of recent investments in marketing and upgrades of existing customer
packages to higher value advertising packages. CoStar Suite revenues increased
$12 million, or 8%, primarily due to renewal price increases from prior periods.
Information services revenue increased $10 million, or 47%, primarily due to
revenue of $12 million from the acquisition of STR, partially offset by a
decrease in revenue from Real Estate Manager of $1 million. Commercial property
and land revenue increased $6 million, or 13%, primarily due to growth in our
LoopNet online marketplace services as a result of stronger pricing as compared
to the prior year.

Gross Profit. Gross profit increased to $323 million for the three months ended
June 30, 2020, from $272 million for the three months ended June 30, 2019, and
the gross profit percentage was 81% for the three months ended June 30, 2020,
compared to 79% for the three months ended June 30, 2019. The increase in gross
profit was due to higher revenues partially impacted by an increase in cost of
revenues of $2 million, or 3%, primarily due to higher personnel costs and
intangible asset amortization of $1 million each, primarily due to the
acquisition of STR.

Selling and Marketing Expenses. Selling and marketing expenses increased to $130
million for the three months ended June 30, 2020, from $119 million for the
three months ended June 30, 2019. The $11 million increase was primarily
attributable to a $9 million increase in personnel costs driven by increased
headcount, primarily due to additional sales personnel and the acquisition of
STR, as well as higher sales commissions. The increase was also due to an
additional $12 million in search
                                       41
--------------------------------------------------------------------------------

engine marketing primarily for multifamily, as well as, a $3 million increase in
other forms of marketing, partially offset by a $10 million decrease in events
spending and a $4 million decrease in travel and entertainment expense.

Software Development Expenses. Software development expenses increased to $39
million for the three months ended June 30, 2020, from $28 million for the three
months ended June 30, 2019, and increased as a percentage of revenues to 10% for
the three months ended June 30, 2020 from 8% for the three months ended June 30,
2019. The $11 million increase in the amount of software development expense was
primarily due to a $9 million increase in personnel costs as a result of
increased headcount to enhance our product offerings, including $2 million due
to the acquisition of STR, as well as a $1 million increase in supplies and
office services costs and a $1 million increase in occupancy costs.

General and Administrative Expenses. General and administrative expenses
increased to $57 million for the three months ended June 30, 2020, from $42
million for the three months ended June 30, 2019, and increased as a percentage
of revenues to 14% for the three months ended June 30, 2020 from 12% for the
three months ended June 30, 2019. The $15 million increase in the amount of
general and administrative expense was primarily due to a $6 million increase in
credit loss expense primarily due to the Company's expectation that the economic
downturn caused by the COVID-19 pandemic will increase delinquent trade
receivables, a $4 million increase in personnel costs as a result of increased
headcount as a result of the acquisition of STR, and a $4 million increase in
professional services driven by acquisitions.

Customer Base Amortization Expense. Customer base amortization expense increased
to $15 million for the three months ended June 30, 2020 from $7 million for the
three months ended June 30, 2019, and increased as a percentage of revenues to
4% for the three months ended June 30, 2020 from 2% for the three months ended
June 30, 2019. The increase in customer base amortization expense was primarily
due to the STR acquisition.

Interest (Expense) Income. Interest (expense) income was a net expense of $4
million for the three months ended June 30, 2020 as compared to net income of $5
million for the three months ended June 30, 2019. The decrease was primarily due
to interest expense of $4 million for the three months ended June 30, 2020
related to the $745 million draw on our revolving credit facility in the first
quarter of 2020, as well as, a decrease of $5 million in interest income caused
by lower rates of return on our cash and cash equivalent balances compared to
the prior year.

Other (Expense) Income. Other (expense) income, which is comprised primarily of
foreign exchange gains and losses and other non-operating income and expenses,
did not change materially for the three months ended June 30, 2020 and June 30,
2019.

Income Tax Expense. Income tax expense remained consistent at $17 million for
the three months ended June 30, 2020 and the three months ended June 30, 2019 as
a result of consistent pre-tax book income for each period.

Comparison of Business Segment Results for Three Months Ended June 30, 2020 and Three Months Ended June 30, 2019

We manage our business geographically in two operating segments, with our
primary areas of measurement and decision-making being North America, which
includes the U.S. and Canada, and International, which primarily includes
Europe, Asia-Pacific, and Latin America. Management relies on an internal
management reporting process that provides revenue and operating segment EBITDA,
which is our net income before interest (expense) income and other (expense)
income, loss on debt extinguishment, income taxes, depreciation and
amortization. Management believes that operating segment EBITDA is an
appropriate measure for evaluating the operational performance of our operating
segments. EBITDA is used by management to internally measure our operating and
management performance and to evaluate the performance of our business. However,
this measure should be considered in addition to, not as a substitute for or
superior to, income from operations or other measures of financial performance
prepared in accordance with GAAP.

Segment Revenues. North America revenues increased to $384 million for the three
months ended June 30, 2020, from $335 million for the three months ended
June 30, 2019. The increase in North America revenues was primarily due to a $25
million increase in multifamily revenues driven by higher sales volume as a
result of recent investments in marketing and upgrades of existing customer
packages to higher value advertising packages, and increases in CoStar Suite
revenues of $12 million, primarily due to renewal price increases in prior
periods. There were also increases of $6 million in both commercial property and
land and information services. The information services increase was primarily
due to growth in our LoopNet service offering, and to a lesser extent, the
acquisition of STR. International revenues increased to $13 million for the
three months ended June 30, 2020, from $9 million for the three months ended
June 30, 2019. The increase in International revenues was primarily due to the
acquisition of STR.

                                       42
--------------------------------------------------------------------------------

Segment EBITDA. North America EBITDA increased to $112 million for the three
months ended June 30, 2020, from $95 million for the three months ended June 30,
2019. The increase in North America EBITDA was primarily due to an increase in
revenues, partially offset by increases in personnel, marketing and general and
administrative costs. International EBITDA for the three months ended June 30,
2020 was a loss of $3 million, as compared to a loss of $1 million for the three
months ended June 30, 2019, as a result of increases in personnel and general
and administrative costs due to the acquisition of STR.

                                       43
--------------------------------------------------------------------------------

Comparison of Six Months Ended June 30, 2020 and Six Months Ended June 30, 2019

The following table provides a comparison of our selected consolidated results
of operations for the six months ended June 30, 2020 and 2019 (in thousands):
                                                                 Six Months Ended
                                                                     June 30,
                                                                                                   Increase          Increase (Decrease)
                                                              2020               2019           (Decrease) ($)               (%)
Revenues:
  CoStar Suite                                            $ 330,009          $ 300,526          $    29,483                        10  %
  Information services                                       62,918             39,627               23,291                        59
  Multifamily                                               283,001            234,756               48,245                        21
  Commercial property and land                              113,078             97,276               15,802                        16
Total revenues                                              789,006            672,185              116,821                        17
Cost of revenues                                            152,949            143,071                9,878                         7
Gross profit                                                636,057            529,114              106,943                        20
Operating expenses:
Selling and marketing (excluding customer base
amortization)                                               255,568            207,169               48,399                        23
Software development                                         80,611             56,383               24,228                        43
General and administrative                                  116,276             82,413               33,863                        41
Customer base amortization                                   26,419             14,857               11,562                        78
Total operating expenses                                    478,874            360,822              118,052                        33
Income from operations                                      157,183            168,292              (11,109)                       (7)
Interest (expense) income                                    (1,945)             8,890              (10,835)                          NM
Other income                                                    367                539                 (172)                      (32)
Income before income taxes                                  155,605            177,721              (22,116)                      (12)
Income tax expense                                           22,452             29,304               (6,852)                      (23)
Net income                                                $ 133,153          $ 148,417          $   (15,264)                      (10)

__________________________

NM - Not meaningful

Revenues. Revenues increased to $789 million for the six months ended June 30,
2020, from $672 million for the six months ended June 30, 2019. The $117 million
increase was attributable to increases in revenues for several of our services,
including, a $48 million, or 21%, increase in multifamily revenue. The
multifamily increase was due to higher sales volume as a result of recent
investments in marketing and upgrades of existing customer packages to higher
value advertising packages. CoStar Suite revenues increased $29 million, or
10%, primarily due to renewal price increases from prior periods, and to a
lesser extent, higher sales volume. Information services revenue increased $23
million, or 59%, primarily due to revenue of $26 million from the acquisition of
STR, partially offset by a decrease in revenue from Real Estate Manager of
$2 million. Commercial property and land revenue increased $16 million, or 16%,
primarily due to growth in our LoopNet online marketplace services of
$15 million as a result of stronger pricing as compared to the prior year and,
to a lesser extent, growth in our land and business for-sale services of
$1 million.

Gross Profit. Gross profit increased to $636 million for the six months ended
June 30, 2020, from $529 million for the six months ended June 30, 2019, and the
gross profit percentage was 81% for the six months ended June 30, 2020, compared
to 79% for the six months ended June 30, 2019. The increase in gross profit was
due to higher revenues partially offset by an increase in cost of revenues of
$10 million, or 7%, primarily due to higher personnel costs of $5 million,
including $4 million from the acquisition of STR, additional merchant fees of
$5 million, IT equipment of $2 million and software maintenance costs of
$1 million, partially offset by lower data and content costs of $4 million
during the current year.

                                       44
--------------------------------------------------------------------------------

Selling and Marketing Expenses. Selling and marketing expenses increased to $256
million for the six months ended June 30, 2020, from $207 million for the six
months ended June 30, 2019. The $48 million increase was attributable to a
$28 million in search engine marketing, primarily for multifamily, and a
$21 million increase in personnel costs driven by increased headcount, primarily
due to additional sales personnel and the acquisition of STR, partially offset
by a decrease of $1 million in other forms of marketing.

Software Development Expenses. Software development expenses increased to $81
million for the six months ended June 30, 2020, from $56 million for the six
months ended June 30, 2019, and increased as a percentage of revenues to 10% for
the six months ended June 30, 2020 from 8% for the six months ended June 30,
2019. The $24 million increase in the amount of software development expense was
primarily due to a $21 million increase in personnel costs as a result of
increased headcount to enhance our product offerings, including $4 million due
to the acquisition of STR, as well as a $1 million increase in supplies and
office services costs and a $1 million increase in occupancy costs.

General and Administrative Expenses. General and administrative expenses
increased to $116 million for the six months ended June 30, 2020, from $82
million for the six months ended June 30, 2019, and increased as a percentage of
revenues to 15% for the six months ended June 30, 2020 from 12% for the six
months ended June 30, 2019. The $34 million increase in the amount of general
and administrative expense was primarily due to a $14 million increase in
personnel costs as a result of increased headcount, including $9 million as a
result of the acquisition of STR, a $10 million increase in credit loss expense
primarily due to the Company's expectations that the economic downturn caused by
the COVID-19 pandemic will increase delinquent trade receivables, a $6 million
increase in professional services related to acquisitions, and, to a lesser
extent, additional increases in both software and equipment and occupancy costs.

Customer Base Amortization Expense. Customer base amortization expense increased
to $26 million for the six months ended June 30, 2020 from $15 million for the
six months ended June 30, 2019, and increased as a percentage of revenues to 3%
for the six months ended June 30, 2020 from 2% for the six months ended June 30,
2019. The increase in customer base amortization expense was primarily due to
the STR acquisition.

Interest (Expense) Income. Interest (expense) income was a net expense of $2
million for the six months ended June 30, 2020, as compared to net income of $9
million for the six months ended June 30, 2019. The $11 million change was
primarily due to an increase in interest expense of $4 million for the six
months ended June 30, 2020 related to the $745 million draw on our revolving
credit facility in the first quarter of 2020, as well as, a decrease of $7
million in interest income caused by lower rates of return on our cash and cash
equivalent balances compared to the prior year.

Other Income. Other income, which is comprised primarily of foreign exchange
gains and losses and other non-operating income and expenses, did not change
materially for the six months ended June 30, 2020 and June 30, 2019.

Income Tax Expense. Income tax expense decreased to $22 million for the six
months ended June 30, 2020 from $29 million for the six months ended June 30,
2019. The $7 million decrease was primarily due to lower income before income
taxes for the six months ended June 30, 2020, as well as, an increase in excess
tax benefits.

Comparison of Business Segment Results for Six Months Ended June 30, 2020 and Six Months Ended June 30, 2019

Segment Revenues. North America revenues increased to $762 million for the six
months ended June 30, 2020, from $654 million for the six months ended June 30,
2019. The increase in North America revenues was primarily due to a $48 million
increase in multifamily revenues driven by higher sales volume as a result of
recent investments in marketing and upgrades of existing customer packages to
higher value advertising packages, and increases in CoStar Suite revenues of $28
million primarily due to renewal price increases in prior periods, and to a
lesser extent, higher sales volume. There were also increases of $16 million and
$15 million in commercial property and land and information services,
respectively, primarily due to growth in our LoopNet service offering, and to a
lesser extent, the acquisition of STR. International revenues increased to $27
million for the six months ended June 30, 2020, from $18 million for the six
months ended June 30, 2019. The increase in International revenues was primarily
due the acquisition of STR and further growth of our subscription-based
services.

Segment EBITDA. North America EBITDA increased to $215 million for the six
months ended June 30, 2020, from $210 million for the six months ended June 30,
2019. The increase in North America EBITDA was primarily due to an increase in
revenue, partially offset by increases in personnel, marketing and general and
administrative costs. International EBITDA decreased to a loss of $5 million for
the six months ended June 30, 2020 from a loss of $4 million for the six months
ended June 30, 2019, primarily as a result of increased personnel and general
and administrative costs.

                                       45
--------------------------------------------------------------------------------

Liquidity and Capital Resources

Our principal sources of ongoing liquidity are cash and cash equivalents from
operations. Total cash and cash equivalents increased to approximately $3.5
billion as of June 30, 2020, compared to cash and cash equivalents of
approximately $1.1 billion as of December 31, 2019. The increase in cash and
cash equivalents for the six months ended June 30, 2020 was primarily due to
proceeds from our May 2020 equity offering, net of transaction costs, of $1.7
billion, as well as, borrowings of $745 million under our revolving credit
facility. In addition, the increase was due to net cash generated from
operations of $249 million, partially offset by cash paid for acquisitions, net
of cash acquired, of $185 million.

Net cash provided by operating activities for the six months ended June 30, 2020
was approximately $249 million compared to approximately $234 million for the
six months ended June 30, 2019. The $15 million increase was primarily due to an
increase in net income excluding certain non-cash expenses such as depreciation
and amortization and credit loss expense, partially offset by changes in working
capital.

Net cash used in investing activities for the six months ended June 30, 2020 was
approximately $187 million compared to approximately $28 million of cash used in
investing activities for the six months ended June 30, 2019. The $159 million
increase in cash used in investing activities was primarily due to an increase
in cash paid for acquisitions, net of cash acquired, of $171 million as a result
of the acquisition of Ten-X for $185 million during the six months ended
June 30, 2020 as compared to $14 million used in the six months ended June 30,
2019. The increase was partially offset by proceeds from the sale of our ARS
investments of $10 million, as well as, a decrease in capital expenditures to
$13 million compared to $14 million in the six months ended June 30, 2019.

Net cash provided by financing activities for the six months ended June 30, 2020
was approximately $2.4 billion  compared to approximately $8 million used in
financing activities for the six months ended June 30, 2019. The $2.4 billion
increase is primarily due to proceeds from our equity offering, net of
transaction costs, of $1.7 billion, as well as, borrowings of $745 million under
our revolving credit facility. The Company expected to use the borrowings under
the revolving credit facility to fund all or a portion of the costs of any
strategic acquisitions it pursues in the future, to finance the growth of its
business and for working capital and other general corporate purposes. The
increased cash position allows for greater financial flexibility in light of
ongoing uncertainty in the global markets resulting from the COVID-19 pandemic.
See Note 10 to the accompanying Notes to the Condensed Consolidated Financial
Statements included in Part I of this Quarterly Report on Form 10-Q for further
discussion of the revolving credit facility.

Our future capital requirements will depend on many factors, including, among
others, our operating results, expansion and integration efforts, our level of
acquisition activity or other strategic transactions, and the future impact of
the COVID-19 pandemic. To date, we have grown in part by acquiring other
companies, and we expect to continue to make other acquisitions in the future.
For example, on June 24, 2020, we acquired Ten-X for a purchase price of
$187 million in cash. On February 11, 2020, our wholly owned subsidiary entered
into a purchase agreement to acquire all of the equity interests of reorganized
RentPath, following an internal restructuring pursuant to a chapter 11 plan of
reorganization, for $588 million in cash. On July 29, 2020, the Company
exercised its option pursuant to the asset purchase agreement for the RentPath
acquisition to extend the Outside Date under that agreement for an additional
three months in exchange for a maximum potential payment of $7.5 million. In
accordance with the purchase agreement, we paid $59 million into a cash escrow
account. In the event the agreement is terminated under specified circumstances
in which certain antitrust approvals are not obtained, or a governmental order
related to antitrust or competition matters prohibits the consummation of the
transaction, the amount paid into escrow will not be refunded to us. See Note 5
to the accompanying Notes to the Condensed Consolidated Financial Statements
included in Part I of this Quarterly Report on Form 10-Q for further discussion.

In May 2020, we completed a public equity offering of 2,633,587 shares of common
stock for $655 per share and on July 1, 2020, we issued $1.0 billion aggregate
principal amount of Senior Notes, entered into the 2020 Credit Agreement, which
amended and restated in its entirety the 2017 Credit Agreement, and repaid in
full the balance on the existing $750 million revolving credit facility under
the 2017 Credit Agreement. For further discussion of our recent equity and
Senior Notes offerings and our 2020 Credit Agreement, see
"-Overview-Development, Investments and Expansion" and Note 15 to the
accompanying Notes to the Condensed Consolidated Financial Statements included
in Part I of this Quarterly Report on Form 10-Q for further discussion.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief
and Economic Security Act (the "CARES Act"). The CARES Act, among other things,
includes provisions relating to the deferral of taxes, valuation allowances, and
balance sheet classifications, as well as provisions relating to refundable
payroll tax credits, deferral of employer social security payments, net
operating loss carryback periods, alternative minimum tax credit refunds,
modifications
                                       46
--------------------------------------------------------------------------------

to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

As permitted under the CARES Act, we deferred approximately $21 million in income tax payments due in the second quarter, to the third quarter of 2020, and we are deferring payroll taxes due in 2020 to 2021 and 2022.

As of the filing date of this Quarterly Report on Form 10-Q, we believe that our
available cash combined with positive cash flows provided by operating
activities should be sufficient for us to maintain and fund our operations for
at least the next twelve months. Our ability to maintain adequate capital for
our operations in the future is dependent upon numerous rapidly evolving
factors, many of which we cannot accurately predict or assess, including, among
others, the length and severity of the economic downturn associated with the
COVID-19 pandemic, related disruption of the international and national economy
and credit markets; actions taken by governments, businesses and individuals in
response to the pandemic such as office and other workplace closures, worker
absenteeism, quarantines, mass-transit disruptions or other travel or
health-related restrictions; how quickly economies, including the real estate
industry in particular, recover after the pandemic subsidies; sales of our
services; and collection of accounts receivables. We plan to continue to monitor
and evaluate the financial impact of the COVID-19 pandemic as it evolves.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and revenues and
expenses during the period reported. The following accounting policies involve a
"critical accounting estimate" because they are particularly dependent on
estimates and assumptions made by management about matters that are highly
uncertain at the time the accounting estimates are made. In addition, while we
have used our best estimates based on facts and circumstances available to us at
the time, different acceptable assumptions would yield different results.
Changes in the accounting estimates are reasonably likely to occur from period
to period, which may have a material impact on the presentation of our financial
condition and results of operations. We review these estimates and assumptions
periodically and reflect the effects of revisions in the period that they are
determined to be necessary. We consider policies relating to the following
matters to be critical accounting policies:

•Long-lived assets, intangible assets and goodwill
•Revenue recognition
•Income taxes
•Business combinations

For an in-depth discussion of each of our significant accounting policies,
including our critical accounting policies and further information regarding
estimates and assumptions involved in their application, see our Annual Report
on Form 10-K for the year ended December 31, 2019 and Note 2 to the accompanying
Notes to the Condensed Consolidated Financial Statements included in Part I of
this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

See Note 2 to the accompanying Notes to the Condensed Consolidated Financial
Statements included in Part I of this Quarterly Report on Form 10-Q for
information on recent accounting pronouncements, including the expected dates of
adoption.

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Quarterly Report on Form 10-Q
and make forward-looking statements in our press releases, conference calls,
Annual Reports on Form 10-K, other Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and other filings with the Securities and Exchange
Commission that are subject to risks and uncertainties. Forward-looking
statements include information that is not purely historic fact and include,
without limitation, statements concerning our financial outlook for the third
quarter and full year of 2020 and beyond, our possible or assumed future results
of operations generally, and other statements and information regarding
assumptions about our revenues, revenue growth rates, gross margin percentage,
net income, net income per share, fully diluted net income per share, EBITDA,
adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net
income per share, weighted-average outstanding shares, cash flow from operating
activities, operating costs, capital and other expenditures, the current and
future impacts of COVID-19 on our operations, our actions in response to the
COVID-19 pandemic, key priorities for the second half of 2020, trends in
customer behavior, effective tax rate, pending acquisitions, the anticipated
benefits of completed or proposed acquisitions, the anticipated
                                       47
--------------------------------------------------------------------------------

timing of acquisition closings, integration and anticipated benefits of
completed acquisitions, the anticipated benefits of cross-selling efforts,
product development and release, geographic and product expansion, planned
service enhancements, planned sales and marketing activities and investments,
the impact or results of sales initiatives, product integrations, net new sales,
contract renewal rates, use of proceeds from equity and debt offerings, the use
of proceeds of any draws under our $750 million credit facility under the 2020
Credit Agreement, expectations regarding our compliance with financial and
restrictive covenants in the 2020 Credit Agreement, employee relations,
management's plans, goals and objectives for future operations, deferral of tax
payments, and sources and adequacy of liquidity. Sections of this Report which
contain forward-looking statements include the Financial Statements and related
Notes, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Quantitative and Qualitative Disclosures About Market Risk,"
"Controls and Procedures," "Legal Proceedings" and "Risk Factors."

Our forward-looking statements are also identified by words such as "hope,"
"anticipate," "may," "believe," "expect," "intend," "will," "should," "plan,"
"estimate," "predict," "continue" and "potential" or the negative of these terms
or other comparable terminology. You should understand that these
forward-looking statements are estimates reflecting our judgment, beliefs and
expectations, not guarantees of future performance. They are subject to a number
of assumptions, risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the forward-looking
statements. The following important factors, in addition to those discussed or
referred to under the heading "Risk Factors," and other unforeseen events or
circumstances, could affect our future results and could cause those results or
other outcomes to differ materially from those expressed or implied in our
forward-looking statements: the effects of and uncertainty surrounding the
COVID-19 pandemic, including the length and severity of the economic downturn
associated with the COVID-19 pandemic, including disruption of the international
and national economy and credit markets; actions taken by governments,
businesses and individuals in response to the pandemic such as office and other
workplace closures, worker absenteeism or decreased productivity, quarantines,
mass-transit disruptions or other travel or health-related restrictions; how
quickly economies, including the real estate industry in particular, recover
after the pandemic subsides; commercial real estate market conditions; general
economic conditions, both domestic and international, including the impacts of
"Brexit" and uncertainty from the expected discontinuance of LIBOR and the
transition to any other interest rate benchmark; our ability to identify and
acquire additional acquisition candidates; the possibility that the acquisition
of RentPath does not close when expected or at all; the risk that the bankruptcy
process may cause greater business disruption for RentPath than expected; our
ability to realize the expected benefits, cost savings or other synergies from
acquisitions, including STR, Ten-X and RentPath, on a timely basis or at all;
our ability to combine acquired businesses, successfully or in a timely and
cost-efficient manner; business disruption relating to integration of acquired
businesses or other business initiatives; the risk that expected investments in
acquired businesses, or the timing of any such investments, may change or may
not produce the expected results; our ability to transition acquired service
platforms to our model in a timely manner or at all; changes and developments in
business plans and operations; theft of any personally identifiable information
we, or the businesses that we acquire, maintain, store or process; any actual or
perceived failure to comply with privacy or data protection laws, regulations or
standards; any disruption of our systems, including due to any cyberattack or
other similar event; the amount of investment for sales and marketing and our
ability to realize a return on investments in sales and marketing; our ability
to effectively and strategically combine, eliminate or de-emphasize service
offerings; reductions in revenues as a result of service changes; the time and
resources required to develop upgraded or new services and to expand service
offerings; changes or consolidations within the commercial real estate industry;
customer retention; our ability to attract new clients and to sell additional
services to existing clients; our ability to develop, successfully introduce and
cross-sell new products or upgraded services in U.S. and foreign markets; our
ability to attract consumers to our online marketplaces; our ability to increase
traffic on our network of sites; the success of our marketing campaigns in
generating brand awareness and site traffic; our ability to protect and defend
our intellectual property including unauthorized or unlicensed use of our
services; competition; foreign currency fluctuations; global credit market
conditions affecting investments; our ability to continue to expand
successfully, timely and in a cost-efficient manner, including internationally;
our ability to effectively penetrate and gain acceptance in new sectors and
geographies; our ability to control costs; litigation or government
investigations in which we become involved; changes in accounting policies or
practices; release of new and upgraded services or entry into new markets by us
or our competitors; data quality; expansion, growth, development or
reorganization of our sales force; employee retention, including retention of
employees of acquired businesses; technical problems with our services;
managerial execution; changes in relationships with real estate brokers,
property managers and other strategic partners; legal and regulatory issues,
including any actual or perceived failure to comply with U.S. or international
laws, rules or regulations; and successful adoption of and training on our
services; competitive conditions; and the availability of capital.

Accordingly, you should not place undue reliance on forward-looking statements,
which speak only as of, and are based on information available to us on, the
date of this Quarterly Report on Form 10-Q (unless otherwise indicated). All
subsequent written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to update any
                                       48
--------------------------------------------------------------------------------

such statements or release publicly any revisions to these forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

                                       49

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses