COSTAR GROUP, INC. 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 stated under the heading "Cautionary Statement Concerning Forward-Looking Statements" at the end of this Item 2 and "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"), as well as those described from time to time in our filings with theSecurities and Exchange Commission . All forward-looking statements 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 2021 Form 10-K, our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and other filings with theSecurities 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," "CoStar Group ," "we," "us" or "our") is a leading provider of information, analytics and online marketplaces to the commercial real estate industry inthe United States ("U.S.") andUnited Kingdom ("U.K.") based on the fact that we offer a 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 theU.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. With our recent acquisitions ofHomesnap, Inc. ("Homesnap") andHomes Group, LLC ("Homes.com"), we also offer online platforms for marketing and workflow management for residential real estate agents and brokers and residential property listings for homebuyers. We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making beingNorth America , which includes theU.S. andCanada , and International, which primarily includesEurope ,Asia-Pacific andLatin America . Our most recent strategic acquisitions includeHomes.com ; ComReal Info, the owner and operator of BureauxLocaux inFrance and BIH the owner and operator of Business Immo, a leading commercial real estate news service provider inFrance . See Notes 5 and 8 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 these acquisitions. 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. Depending on the type of service, contract rates are generally based on one or more of the following factors: the number of sites, number of users, organization size, the client's business focus, geography, the number of properties reported on or analyzed, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis. Our transaction-based services primarily consist of auction fees from ourTen-X online auction platform, which are generally calculated as a percentage of the final sales price for the commercial real estate property sold and recognized as revenue upon the successful closure of an auction. Other transaction-based services are described by service offering below. Our primary brands include CoStar®, LoopNet®, Apartments.comTM, STR®, Ten-X®, BizBuySell®, LandsofAmericaTM, HomeSnap®, and Homes.com®, which are accessible via the Internet and through our mobile applications. Our principal service offerings are discussed in more detail below. 30 --------------------------------------------------------------------------------
Impacts of the COVID-19 Pandemic and Current Economic Conditions
The COVID-19 pandemic has created significant economic volatility, uncertainty and disruption around the world. Further, in response to the concerns over inflation risk, theU.S. Federal Reserve has raised interest rates in the first and second quarters of 2022 and signaled they expect additional rate increases. While the impacts of the COVID-19 pandemic and current economic conditions continue to evolve, they have not materially affected our consolidated financial statements during 2021 or our condensed consolidated financial statements forJune 30, 2022 . It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements - allowing work from the office or home, or switch to all work from home. These activities may result in reduced demand for office space and rising interest rates may reduce demand for all types of real estate. If the demand for office space or other real estate decreases significantly, there could be a downturn in the commercial real estate market that may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers' ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.
Service Offerings
Our portfolio of information, analytics and online marketplace services are branded and marketed to our customers and marketplace end users. Our services are primarily derived from a database of building-specific information and offering customers specialized tools for accessing, analyzing and using our information. Over time, we enhanced and expanded, and we expect to continue to enhance and expand, our existing information, analytics and online marketplace services and we have developed, and we expect to continue to develop, additional services that use our comprehensive database to meet the needs of our existing customers as well as potential new categories of customers.
Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:
CoStar
CoStar® is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news, and market and lease analytical capabilities. CoStar's year-over-year revenue growth rate for the second quarter of 2022 increased compared to the second quarter of 2021. The number of subscribers has increased year-over-year and we have also realized the impact of price increases and existing customers upgrading to our global service offering. We began applying price increases in late 2021, which had been temporarily suspended earlier in the COVID-19 pandemic. We expect CoStar's revenue growth rate for 2022 to increase compared to the revenue growth rate for 2021 as a result of expected increases in subscriber counts and price increases and customer upgrades for renewing contracts.
Information Services
We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through ourCoStar Investment Analysis and CoStar Risk Analytics® service offerings. We also provide benchmarking reports for the hospitality industry. STARTM reports are provided on a subscription basis and we also provide one-time or ad hoc reports or analysis on a transaction basis. We provide information services internationally, through our Grecam,Belbex andThomas Daily businesses inFrance ,Spain andGermany , respectively. Information Services' year-over-year revenue growth rate for the second quarter of 2022 decreased compared to the second quarter of 2021 as a result of a reduction in the sales growth rate for STR products. We expect the Information Services revenue growth rate for 2022 to be consistent with the revenue growth rate for 2021. 31 --------------------------------------------------------------------------------
Multifamily
Apartments.com™ is part of our network of apartment marketing sites, which primarily includes ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.com™, Apartamentos.com™, Westside Rentals, andOff Campus Partners, LLC . 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.Apartments.com also receives transaction-based revenue for tenant processing fees. Multifamily's year-over-year revenue growth rate in the second quarter of 2022 decreased compared to the second quarter of 2021 as a result of fewer properties being listed and customers downgrading the ad packages purchased as multifamily vacancy rates have declined from historical averages. In late 2021, we began initiating a new pricing structure that has partially offset the impact of the decline in properties listed and customer downgrades. Therefore, we expect Multifamily's year-over-year revenue growth rate for 2022 to decrease compared to the revenue growth rate for 2021.
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 advertise 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's year-over-year revenue growth rate for the second quarter of 2022 decreased compared with the second quarter of 2021. We expectLoopNet's year-over-year revenue growth rate for 2022 to decrease compared to the revenue growth rate for 2021 as we continue to develop a dedicated sales force forLoopNet .
Residential
OnDecember 22, 2020 , we acquired Homesnap, an online and mobile software platform that provides subscription-based access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms. OnMay 24, 2021 , we acquiredHomes.com , a residential advertising and marketing services company primarily operating through its portal,Homes.com . Residential's second quarter 2022 revenue increased compared to the second quarter of 2021 as a result of increased sales of Homesnap products and services. We expect Residential's revenue for the year endedDecember 31, 2022 to decline when compared to the year endedDecember 31, 2021 due to the discontinuation of certainHomes.com products and services that were inconsistent with our long-term business strategy. This decline is expected to be partially offset by an increase in sales of Homesnap products and services.
Other Marketplaces
OnJune 24, 2020 , we acquiredTen-X , an online auction platform for commercial real estate. Our BizBuySell network, which includes BizQuest® and FindaFranchise, and our Land.com network of sites, which includes LandsofAmerica, LandAndFarm and LandWatch®, are also included in Other Marketplaces revenue. The BizBuySell network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online marketplaces for rural lands for-sale. Other Marketplaces' revenue growth rate is expected to be lower in 2022 compared to 2021 given the impact of theTen-X acquisition in 2020. Subscription-based Services
The majority of our revenue is generated from service offerings which are distributed to our clients under subscription-based agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.
For the three months endedJune 30, 2022 andJune 30, 2021 , our annualized net new bookings of subscription-based services on all contracts were approximately$84 million and$51 million , respectively. Net new bookings is calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upgrades on existing subscription-based contracts, less downgrades and cancellations for the period reported. Net new bookings is considered an operating metric that is an indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. Revenue from our subscription-based contracts was approximately 93% and 92% of total revenue for the three months endedJune 30, 2022 andJune 30, 2021 , respectively. 32 -------------------------------------------------------------------------------- For the trailing twelve months endedJune 30, 2022 and 2021, our contract renewal rates for existingCoStar Group subscription-based services for contracts with a term of at least one year were approximately 91% and 92%, respectively, and therefore our cancellation rates for those services for the same periods were approximately 9% and 8% respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe 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 as a result of negative economic conditions, consolidations among our clients, reductions in customer spending, or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year was approximately 78% of total revenue for the trailing twelve months endedJune 30, 2022 andJune 30, 2021 .
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 as described below, while we closely monitor the economic impacts of the COVID-19 pandemic and manage our response. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants, brokers, agents and residential 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 reevaluate our priorities on a regular basis and may reevaluate our priorities as the COVID-19 pandemic continues to evolve.
Our key priorities for the remainder of 2022 currently include:
•Continuing to develop and invest in residential marketplaces. Our residential team is creating new and improved tools to help consumers have a highly contextual experience when searching for homes supported by high quality media and in-depth attributes of homes and details of the surrounding neighborhoods, parks and schools and to help consumers collaborate with their agent and other consumers. We are also creating new and improved tools to help agents promote their residential listings, connect with buyers and sellers and streamline their daily workflow. In the second quarter of 2022, we launched Citysnap™, a consumer-facing search website and mobile app specifically for the five boroughs ofNew York City in conjunction with the Real Estate Board ofNew York . To support the expanded product offerings, we expect to increase our investment in residential products in 2022 by approximately$180 million compared to 2021 levels. The most significant components of our investment are expected to be content development, marketing costs and technology resources. The increase in our investment in residential products in 2022 is expected to reduce our results of operations and cash flow from operations for the year endedDecember 31, 2022 . We plan to continue to monitor and evaluate these investments and adjust our residential business strategy and level of investment as we determine appropriate. •Continuing to invest in our international business. We plan to enhance our international CRE marketplaces leveraging our LoopNet brand and portfolio of brands in theUnited Kingdom ,Spain andFrance . We plan to expand our international presence by hiring managers and teams of field researchers in certain European markets and have completed an acquisition of a real estate news service inFrance . •Continuing to expand our sales forces. We have implemented initiatives to improve our retention and new employee training and have increased the size of our sales recruiting team. These actions have resulted in a net increase in our sales force headcount in the first half of 2022. We plan further increases in our sales force headcount and further development of sales teams dedicated to our key products.
•Continuing to invest in CoStar, including:
•Enhancing benchmarking capabilities. We integrated STR's data into CoStar in 2021 and plan to apply STR's benchmarking expertise within CoStar. We will continue to integrate the STR products into our core platform throughout 2022.
•Continuing to develop and market a solution for lenders that leverages CoStar's
Risk Analytics capabilities to support lenders with risk management,
underwriting, surveillance and compliance reporting. We released our new Lender
product in the first quarter of 2022. This solution provides a focus on
portfolio risk analytics and surveillance to help lenders meet regulatory and
accounting requirements. Subsequent product releases are expected to focus on
loan origination and underwriting.
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We intend to continue to assess the need for additional investments in our
business 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, 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, 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, restructuring costs and settlements
and impairments incurred outside our ordinary course of business. Adjusted
EBITDA margin represents adjusted EBITDA divided by revenues for the period.
Non-GAAP net income is determined by adjusting our net income for stock-based
compensation expense, acquisition- and integration-related costs, 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. 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.
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, adjusted EBITDA margin, non-GAAP net income and
non-GAAP net income per diluted share as operating performance measures. 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.
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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 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, 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,
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, 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:
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•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 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 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 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, 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 2022 and 2021, we assumed a 26% and 25% tax
rate, respectively, which approximated our historical long-term statutory
corporate tax rate, excluding the impact of discrete items.
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.
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,
2022 2021 2022 2021
Net income $ 83,473 $ 61,148 $ 172,791 $ 135,360
Amortization of acquired intangible assets in
cost of revenues 7,937 6,948 15,035 14,356
Amortization of acquired intangible assets in
operating expenses 14,878 18,345 30,970 36,764
Depreciation and other amortization 7,010 7,028 13,975 15,528
Interest expense, net 3,399 7,877 11,117 15,755
Other income, net (1,343) (847) (2,207) (797)
Income tax expense 24,654 32,833 56,757 51,902
EBITDA $ 140,008 $ 133,332 $ 298,438 $ 268,868
Net cash flows provided by (used in)
Operating activities $ 81,392 $ 132,436 $ 212,099 $ 220,289
Investing activities $ (45,306) $ (150,470) $ (57,707) $ (284,790)
Financing activities $ 1,184 $ 2,405 $ (14,570) $ (16,138)
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Comparison of Three Months Ended
The following table provides a comparison of our selected consolidated results of operations for the three months endedJune 30, 2022 andJune 30, 2021 (in thousands): Three Months Ended June 30, Increase Increase (Decrease) 2022 2021 (Decrease) ($) (%) Revenues: CoStar$ 206,566 $ 176,979 $ 29,587 17 % Information Services 38,502 35,157 3,345 10 Multifamily 182,359 171,357 11,002 6 LoopNet(1) 56,297 51,095 5,202 10 Residential(1) 20,154 18,087 2,067 11 Other Marketplaces(1) 32,430 27,658 4,772 17 Total revenues 536,308 480,333 55,975 12 Cost of revenues 100,971 89,566 11,405 13 Gross profit 435,337 390,767 44,570 11 Operating expenses: Selling and marketing (excluding customer base amortization) 181,344 164,612 16,732 10 Software development 51,587 48,573 3,014 6 General and administrative 77,345 58,226 19,119 33 Customer base amortization 14,878 18,345 (3,467) (19) Total operating expenses 325,154 289,756 35,398 12 Income from operations 110,183 101,011 9,172 9 Interest expense, net (3,399) (7,877) (4,478) (57) Other income, net 1,343 847 496 59 Income before income taxes 108,127 93,981 14,146 15 Income tax expense 24,654 32,833 (8,179) (25) Net income$ 83,473 $ 61,148 $ 22,325 37 __________________________
(1) As of
Revenues. Revenues increased to$536 million for the three months endedJune 30, 2022 , from$480 million for the three months endedJune 30, 2021 . The$56 million increase was attributable to increases in revenues for several of our service offerings. CoStar revenues increased$30 million , or 17%, due to higher sales volume driven by an increase in subscribers, as well as, the impact of annual price increases and customer upgrades on contract renewals. Multifamily revenues increased$11 million , or 6%, due to increases in pricing on renewals, partially offset by a less favorable mix of ad packages purchased.LoopNet revenue increased$5 million or 10%, primarily as a result of an increase in average prices, and to a lesser extent, due to the acquisition of BureauxLocaux. Other Marketplaces revenues increased$5 million , or 17%, driven by an increase of Land for Sale, BizBuySell, andTen-X revenue in equivalent amounts. Information Services revenues increased$3 million , or 10%, primarily attributable to increased revenue for ourCoStar Real Estate Manager product and STR service offerings. Residential revenues increased$2 million , or 11%, primarily due to an increase in sales of Homesnap's products and services, partially offset by, the discontinuation of certainHomes.com products and services that were inconsistent with our long-term business strategy. 37 -------------------------------------------------------------------------------- Gross Profit. Gross profit increased to$435 million for the three months endedJune 30, 2022 , from$391 million for the three months endedJune 30, 2021 , and the gross profit percentage was consistent at 81% for both the three months endedJune 30, 2022 and 2021, The increase in gross profit was due to higher revenues, partially offset by, an increase in cost of revenues of$11 million , or 13%. The increase in cost of revenues was primarily due to an increase of$6 million related to our investment and further development of our residential marketplaces, including research equipment, data centers, data and content, personnel, and software and equipment expenses. In addition, there were increases of$1 million each in personnel costs and software and equipment, to support our researchers, and amortization of customer base intangible assets. Selling and Marketing Expenses. Selling and marketing expenses increased to$181 million for the three months endedJune 30, 2022 , from$165 million for the three months endedJune 30, 2021 . The$17 million increase was mostly attributable to a$7 million increase in personnel costs, primarily due to an increase in headcount and an increase in commissions of$3 million , as well as, a$5 million increase in marketing spending. The increase in marketing expenses was driven by higher events costs forApartments.com ,Ten-X and CoStar, and search engine marketing expenses related to residential marketing initiatives, partially offset by, a decrease in advertising agency fees, driven byTen-X andLoopNet . Travel and entertainment costs also increased$3 million . Software Development Expenses. Software development expenses increased to$52 million for the three months endedJune 30, 2022 , from$49 million for the three months endedJune 30, 2021 , and remained consistent as a percentage of revenues at 10% for the three months endedJune 30, 2022 and 2021. The$3 million increase was due to increases of$1 million each in both personnel and occupancy expenses, primarily related to our investment and further development of our residential marketplaces, as well as, increased headcount to support the development of our other products. General and Administrative Expenses. General and administrative expenses increased to$77 million for the three months endedJune 30, 2022 , from$58 million , for the three months endedJune 30, 2021 and increased as a percentage of revenues to 14% for the three months endedJune 30, 2022 from 12% for the three months endedJune 30, 2021 . The increase of$19 million was due to a$6 million increase in personnel costs, driven by a$3 million increase in salaries, as well as, a$2 million increase in stock-based compensation expense, and a$6 million increase in professional services fees. There were also increases of$3 million in software and equipment expenses, and a$3 million increase in travel and entertainment and conference costs. Customer Base Amortization Expense. Customer base amortization expense decreased to$15 million for the three months endedJune 30, 2022 from$18 million for the three months endedJune 30, 2021 , and decreased as a percentage of revenues at 3% for the three months endedJune 30, 2022 from 4% for the three months endedJune 30, 2021 . The decrease was primarily attributable to a decrease in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent,Ten-X , STR, and Homesnap, which had been amortizing on an accelerated basis since their acquisitions. This decrease was partially offset by an increase in expense from intangibles acquired through the acquisition ofHomes.com . Interest Expense, net. Interest expense, net was a net expense of$3 million for the three months endedJune 30, 2022 , as compared to net expense of$8 million for the three months endedJune 30, 2021 . The decrease for the three months endedJune 30, 2022 was primarily due to an increase in interest income of$4 million , mostly attributable to an increased rate of return on cash equivalents.
Other Income, net. Other income, net remained consistent for the three months
ended
Income Tax Expense. Income tax expense decreased to$25 million for the three months endedJune 30, 2022 , from$33 million for the three months endedJune 30, 2021 . The decrease was primarily due to a tax restructuring gain recognized during the three months endedJune 30, 2021 .
Comparison of Business Segment Results for Three Months Ended
We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making beingNorth America , which includes theU.S. andCanada , and International, which primarily includesEurope ,Asia-Pacific , andLatin 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. See "Non-GAAP Financial Measures" for further information regarding our segment operating results. 38 -------------------------------------------------------------------------------- Segment Revenues.North America revenues increased to$517 million for the three months endedJune 30, 2022 , from$464 million for the three months endedJune 30, 2021 . The$54 million increase inNorth America revenues was attributable to increases in revenues for several of our service offerings, including an increase in CoStar revenues of$30 million due to higher sales volume driven by an increase in subscribers, as well as, the impact of annual price increases and customer upgrades on contract renewals. Multifamily revenues increased$11 million , due to increases in pricing on renewals, partially offset by a less favorable mix of ad packages purchased. Other Marketplaces revenues increased$5 million , driven by an increase in Land for Sale, BizBuySell, andTen-X revenue in equivalent amounts.LoopNet revenues increased$4 million as a result of price increases. Information Services revenues increased$2 million due to increased revenue from ourCoStar Real Estate Manager product and STR service offerings. Residential revenues increased$2 million due to the increase in sales of Homesnap's products and services, partially offset by, the discontinuation of certainHomes.com products and services that were inconsistent with our long-term business strategy. International revenues increased to$19 million for the three months endedJune 30, 2022 , from$17 million for the three months endedJune 30, 2021 . The increase in International revenues was primarily driven by the acquisitions of BureauxLocaux and Business Immo. Segment EBITDA. North America EBITDA increased to$139 million for the three months endedJune 30, 2022 , from$130 million for the three months endedJune 30, 2021 . 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 for the three months endedJune 30, 2022 decreased to$1 million from$3 million for the three months endedJune 30, 2021 . The decrease was due to an increase in general and administrative, personnel, and marketing costs, partially offset by an increase in revenue. 39 --------------------------------------------------------------------------------
Comparison of Six Months Ended
The following table provides a comparison of our selected consolidated results of operations for the six months endedJune 30, 2022 and 2021 (in thousands): Six Months Ended June 30, Increase Increase (Decrease) 2022 2021 (Decrease) ($) (%) Revenues: CoStar$ 405,215 $ 349,163 $ 56,052 16 % Information Services 75,717 69,853 5,864 8 Multifamily 357,836 337,504 20,332 6 LoopNet(1) 110,744 100,325 10,419 10 Residential(1) 38,214 29,192 9,022 31 Other Marketplaces(1) 64,407 51,993 12,414 24 Total revenues 1,052,133 938,030 114,103 12 Cost of revenues 196,450 178,314 18,136 10 Gross profit 855,683 759,716 95,967 13 Operating expenses: Selling and marketing (excluding customer base amortization) 325,341 303,299 22,042 7 Software development 105,608 95,357 10,251 11 General and administrative 155,306 122,076 33,230 27 Customer base amortization 30,970 36,764 (5,794) (16) Total operating expenses 617,225 557,496 59,729 11 Income from operations 238,458 202,220 36,238 18 Interest expense, net (11,117) (15,755) (4,638) (29) Other income, net 2,207 797 1,410 NM Income before income taxes 229,548 187,262 42,286 23 Income tax expense 56,757 51,902 4,855 9 Net income$ 172,791 $ 135,360 $ 37,431 28 __________________________
NM - Not meaningful
(1) As of
Revenues. Revenues increased to$1,052 million for the six months endedJune 30, 2022 , from$938 million for the six months endedJune 30, 2021 . The$114 million increase was attributable to increases in revenues for several of our service offerings. CoStar revenues increased$56 million , or 16%, due to higher sales volume driven by an increase in subscribers, as well as, the impact of annual price increases and customer upgrades on contract renewals. Multifamily revenues increased$20 million , or 6%, due to increases in pricing on renewals, partially offset by a less favorable mix of ad packages purchased. Other Marketplaces revenues increased$12 million , or 24%, primarily driven by increases inTen-X and Land for Sale revenue in equivalent amounts, and to a lesser extent, an increase in revenue for BizBuySell. Residential revenues increased$9 million , or 31%, primarily due to an increase in sales of Homesnap's products and services, partially offset by, the discontinuation of certainHomes.com products and services that were inconsistent with our long-term business strategy.LoopNet revenues increased$10 million , or 10%, primarily as a result of an increase in average prices, and to a lesser extent, due to the acquisition of BureauxLocaux. Information Services revenues increased$6 million , or 8%, primarily due to increased revenue from ourCoStar Real Estate Manager product and STR service offerings. 40 -------------------------------------------------------------------------------- Gross Profit. Gross profit increased to$856 million for the six months endedJune 30, 2022 , from$760 million for the six months endedJune 30, 2021 , and the gross profit percentage remained consistent at 81% for the six months endedJune 30, 2022 and 2021. The increase in gross profit was due to higher revenues, partially offset by, an increase in cost of revenues of$18 million , or 10%, primarily due to an increase of$12 million related to our investment and further development of our residential marketplaces, including research equipment, data centers, personnel, software and equipment, and data and content costs. There were also increases of$2 million in software and equipment, and$1 million each in occupancy expenses and training costs. Selling and Marketing Expenses. Selling and marketing expenses increased to$325 million for the six months endedJune 30, 2022 , from$303 million for the six months endedJune 30, 2021 . The$22 million increase was primarily attributable to increases of$21 million in conferences, events and travel costs,$11 million in personnel costs, primarily due to an increase in headcount and an increase in commissions earned, as well as, a$5 million increase in search engine marketing costs. These increases were partially offset by a$17 million decrease in advertising agency fees driven byLoopNet andTen-X . Software Development Expenses. Software development expenses increased to$106 million for the six months endedJune 30, 2022 , from$95 million for the six months endedJune 30, 2021 , and remained consistent as a percentage of revenues at 10% for the six months endedJune 30, 2022 , and 2021. The$10 million increase was primarily due to an increase of$7 million in personnel costs, primarily related to our investment and further development of our residential marketplaces, as well as, an increase of$1 million in recruiting agency fees and increased headcount to support the development of our other products. There was also an increase of$2 million in occupancy costs. General and Administrative Expenses. General and administrative expenses increased to$155 million for the six months endedJune 30, 2022 , from$122 million for the six months endedJune 30, 2021 , and increased as a percentage of revenues to 15% for the six months endedJune 30, 2022 from 13% for the six months endedJune 30, 2021 . The$33 million increase in the amount of general and administrative expense was driven by an increase of$11 million in personnel costs, primarily driven by increases in salaries and stock-based compensation expense, and to a lesser extent, increases of$5 million in each of travel and entertainment costs, driven partially by an increase in the average cost of air travel, software and equipment expenses, and professional services, and increases of$2 million in each of recruiting agency fees and property taxes. Customer Base Amortization Expense. Customer base amortization expense decreased to$31 million for the six months endedJune 30, 2022 from$37 million for the six months endedJune 30, 2021 , and decreased as a percentage of revenues to 3% for the six months endedJune 30, 2022 from 4% for the six months endedJune 30, 2021 . The decrease in customer base amortization expense was primarily attributable to a decrease in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent, STR,Ten-X , and Homesnap, which had been amortizing on an accelerated basis since their acquisitions. This decrease was partially offset by an increase in expense from intangibles acquired through the acquisition ofHomes.com . Interest Expense, net. Interest expense, net was a net expense of$11 million for the six months endedJune 30, 2022 , as compared to net expense of$16 million for the six months endedJune 30, 2021 . The decrease of$5 million for the six months endedJune 30, 2022 was primarily due to earned interest income of$4 million mainly attributable to an increased rate of return on cash equivalents. Other Income, net. Other income, net increased$1 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase was primarily due to increases in foreign exchange gains due to rate fluctuations. Income Tax Expense. Income tax expense increased to$57 million for the six months endedJune 30, 2022 from$52 million for the six months endedJune 30, 2021 . The increase was mostly due to higher income before taxes and a decrease in excess tax benefits, partially offset by a tax restructuring gain recognized in the six months endedJune 30, 2021 .
Comparison of Business Segment Results for Six Months Ended
41
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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 $1,015 million for the six
months ended June 30, 2022 , from $906 million for the six months ended June 30,
2021 . The $109 million increase in North America revenues was attributable to
increases in revenues for several of our services. CoStar revenues increased $55
million , due to higher sales volume driven by an increase in subscribers, as
well as, the impact of annual price increases and customer upgrades on contract
renewals. Multifamily revenues increased $20 million , due to increases in
pricing on renewals, partially offset by a less favorable mix of ad packages
purchased. Other Marketplaces revenues increased $12 million , primarily driven
by increases in Ten-X and Land for Sale revenue in equivalent amounts, and to a
lesser extent, an increase in revenue for BizBuySell. Residential revenues
increased $9 million , primarily due to an increase in sales of Homesnap's
products and services partially offset by the discontinuation of certain
Homes.com products and services that were inconsistent with our long-term
business strategy. LoopNet revenues increased $8 million , primarily as a result
of an increase in average prices. Information Services revenues increased $5
million , primarily due to increased revenue from our CoStar Real Estate Manager
and STR service offerings. International revenues increased to $37 million for
the six months ended June 30, 2022 , from $32 million for the six months ended
June 30, 2021 . The increase in International revenues was primarily driven by
the acquisitions of BureauxLocaux and Business Immo, and to a lesser extent, due
to growth in our CoStar product revenue.
Segment EBITDA. North America EBITDA increased to $294 million for the six
months ended June 30, 2022 , from $266 million for the six months ended June 30,
2021 . The increase in North America EBITDA was primarily due to an increase in
revenue, partially offset by increases in personnel and general and
administrative costs. International EBITDA for the six months ended June 30,
2022 was income of $4 million , as compared to $3 million for the six months
ended June 30, 2021 , the increase was due to increased revenue, partially offset
by increases in personnel, general and administrative, and marketing costs.
Liquidity and Capital Resources
We believe the balance of cash, cash equivalents and restricted cash, which was approximately$4.0 billion as ofJune 30, 2022 , along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our cash requirements have not changed materially since the 2021 Form 10-K. Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts, and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.
We currently plan to expand our
Cash, cash equivalents and restricted cash increased to approximately$4.0 billion as ofJune 30, 2022 , compared to cash, cash equivalents and restricted cash of approximately$3.8 billion as ofDecember 31, 2021 . The increase in cash, cash equivalents, and restricted cash for the six months endedJune 30, 2022 was primarily due to cash generated from operations of$212 million and proceeds from participation in our employee stock purchase plan of$7 million , partially offset by,$20 million of repurchases of common stock from employees to satisfy the employees' minimum tax withholding obligations upon the vesting of restricted stock grants,$56 million of purchases of property and equipment, including assets related to the expansion of our campus inRichmond, Virginia , and capitalized software development costs, as well as, cash paid for acquisitions of$6 million . Net cash provided by operating activities for the six months endedJune 30, 2022 was approximately$212 million compared to approximately$220 million for the six months endedJune 30, 2021 . The$8 million decrease in cash provided by operating activities was primarily due an increase in net income excluding certain non-cash expenses such as deferred income taxes and stock-based compensation expense, offset by a decrease from changes in net working capital of$28 million . 42 -------------------------------------------------------------------------------- Net cash used in investing activities for the six months endedJune 30, 2022 was approximately$58 million compared to approximately$285 million of cash used in investing activities for the six months endedJune 30, 2021 . The$227 million decrease in cash used in investing activities was primarily due to$98 million additional cash paid for assets related to the expansion of our campus inRichmond, Virginia , as well as,$142 million additional cash paid for acquisitions during the six months endedJune 30, 2021 , partially offset by, an increase in cash used for the purchase of other property and equipment, including capitalized software development costs, during the six months endedJune 30, 2022 . Net cash used in financing activities for the six months endedJune 30, 2022 was approximately$15 million compared to approximately$16 million used in financing activities for the six months endedJune 30, 2021 . The decrease in cash used in financing activities was due to a$9 million decrease in repurchases of restricted stock to satisfy employee tax withholding obligations upon vesting of restricted stock awards, partially offset by a$5 million decrease in proceeds from the exercise of employee stock options and the repayment of debt assumed in a business acquisition of$2 million during the six months endedJune 30, 2022 .
Critical Accounting Estimates
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 the following significant accounting policies to contain critical accounting estimates: •Long-lived assets, intangible assets and goodwill; •Income taxes; •Revenue recognition; and •Business combinations. For an in-depth discussion of each of our significant accounting policies, including the related critical accounting estimates. and further information regarding estimates and assumptions involved in their application, see the 2021 Form 10-K 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. During the six months endedJune 30, 2022 , there were no material changes to our critical accounting estimates from those described in the 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 2 of the Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.
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, investor 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 theSecurities 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 2022 and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions or expectations 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-generally accepted accounting principles ("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 impact of COVID-19 on our revenues, revenue growth rates and profitability, key priorities for 2022, trends in customer behavior, legal proceedings and claims, legal costs, effective tax rate, the anticipated benefits of completed or proposed acquisitions, the anticipated timing for integration of completed acquisitions, the anticipated benefits of cross-selling efforts, 43 -------------------------------------------------------------------------------- product development and release, geographic and product expansion, planned service enhancements, expansion and development of our sales forces, planned sales and marketing activities and investments, the impact or results of sales and marketing initiatives, product integrations, elimination and de-emphasizing of services, investments in residential marketplace services and our residential marketplace strategy, 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 (the "2020 Credit Agreement"), employee relations, attrition and retention, management's plans, goals and objectives for future operations, deferral of tax payments, sources and adequacy of liquidity, and growth and markets for our stock. 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 may be 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: potential declines in our revenues, revenue growth rates and profitability due to the impacts of the COVID-19 pandemic and economic conditions on the commercial real estate industry and our core customer base; our inability to attract and retain clients; our inability to successfully develop and introduce new or upgraded information, analytics and online marketplace services that are attractive to our users and advertisers or successfully combine or shift focus from current services with less demand; our inability to compete successfully against existing or future competitors in attracting advertisers; a downturn or consolidation in the real estate industry that may decrease customer demand for our services; our inability to hire qualified persons or retain and continue to develop our sales force; downward pressure on our operating margins by our internal and external investments; our inability to increase awareness of our brands, including CoStar,LoopNet ,Apartments.com , BizBuySell, LandsofAmerica, STR,Ten-X ,Homes.com and Homesnap; our inability to maintain or increase traffic to our marketplaces and the possibility of internet search engines not featuring our websites on the search engine results page; competition; our inability to successfully identify, finance, integrate and/or manage costs related to acquisitions; our actual or perceived failure to comply with privacy laws and standards; cyberattacks and security vulnerabilities; technical problems or disruptions that affect either our customers' ability to access our services, or the software, internal applications, database and network systems underlying our services; the costs of a large infrastructure project to build out our campus inRichmond, Virginia ; our current or future geographic expansion plans that may not result in increased revenues; fluctuations and market cyclicality; our inability to retain and attract highly capable management and operating personnel; changes in tax laws, regulations or fiscal and tax policies; risks related to acceptance of credit cards and debit cards and facilitation of other customer payments; risks related to our data, intellectual property and listings; risks related to our international operations, including fluctuating foreign currencies and the economic effects of "Brexit" and risks related to our indebtedness. 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 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. 44
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