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 operate an online auction platform for commercial real estate. 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 and is evolving as the pandemic continues. The COVID-19
pandemic did not materially affect the Company's condensed consolidated
financial statements for the three and nine months ended September 30, 2020.

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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 had
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 to minimize travel and restrict in-person marketing events
during the remainder of the year. Overall, the increased direct spend related to
COVID-19 has not been material to date and has had minimal impact as these
expenses have been generally offset by the cost savings of COVID-19 operational
changes. 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 further 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, and sales related to
marketplace service offerings have returned to pre-pandemic levels. During the
first three quarters of 2020, we increased the allowance for credit loss as a
result of increased write-off trends and increased the forecasted credit loss
estimate on high credit risk customers to reflect the uncertainty around the
duration and speed of an economic recovery. 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
September 30, 2020 and Three Months Ended September 30, 2019" below for further
discussion.

We strengthened our liquidity position through an equity offering of common
stock in May 2020 and an offering of Senior Notes and amendment and restatement
of our credit facility in early July 2020. See Note 10 and Note 14 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, the effects of
the pandemic have not affected our ability to date to access funding on
reasonably similar terms as were available prior to March 2020. We discuss the
current and potential impact of select provisions of the CARES Act (defined
below) in our liquidity discussion.

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Service Offerings

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 currently 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 have seen a decline in CoStar revenue growth rates in 2020 and
currently anticipate CoStar Suite revenue growth rates to continue to decline
through the remainder of the year. In the coming months, we plan to separate the
CoStar and LoopNet sales teams and build out a dedicated LoopNet sales force.

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 revenue growth rates for most of 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 delays in
implementation of new services resulting in a reduction of implementation fees.
During the third quarter of 2020, we experienced moderate increases in revenue
growth rates compared to the second quarter of 2020 due to additional
professional fees.

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's
services 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, revenue for STR declined in
the second quarter as compared to the first quarter. However, we saw a moderate
increase in revenue in the third quarter of 2020 as compared to the second
quarter of 2020. During the first three quarters of 2020, we provided payment
extensions to certain STR customers and in the third quarter of 2020, we saw
slight improvements in collections as hotels reopened. 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. In the third quarter of 2020,
multifamily revenue growth rates continued to increase relative to 2019 revenue
growth rates as 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,
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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 of our
commercial real estate sales force to LoopNet Signature Ads. As a result, the
LoopNet revenue 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 declined and cancellations
increased in the second quarter of 2020. In the third quarter of 2020, we saw a
significant increase in sales and a decline in cancellations. Overall, revenues
in commercial property and land increased compared to the third quarter of 2019
primarily due to revenue from our newly acquired online auction platform, Ten-X
and, to a lesser extent, revenue growth from LoopNet. Accordingly, we expect the
revenue growth rates will continue to increase for the reminder of the year
relative to 2019 growth rates. 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 our commercial
property and land service 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.

As of September 30, 2020 and 2019, our net bookings of subscription-based
services on all contracts were approximately $53 million and $50 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 nine months ended September 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 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 our
client base and site users, including property owners, property managers,
buyers, tenants 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 remainder of 2020 currently include:

•Integrating recently completed acquisitions, including STR and Ten-X, with our
business operations. We are consolidating 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 recently acquired
Emporis, a Germany-based provider of international commercial real estate data
and images that we plan to integrate into CoStar. We are working on integrating
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. To increase
exposure, we have upgraded LoopNet listings for properties to be auctioned on
Ten-X and are allocating banner space on both our CoStar and LoopNet sites to
Ten-X to cross-market our services.

•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. We plan to create a dedicated sales team to support the
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expected growth within the business. 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 internationally by offering multiple languages
and currencies on the platform. We plan to enhance CoStar Suite by making
additional investments in analytical and service capabilities focused on lenders
and owners of commercial real estate. In addition, we plan to invest in the
technology and infrastructure of our other existing service offerings.

•Continuing to develop, improve and market our 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 Apartments.com 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 and focus 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.
Our wholly owned subsidiary entered into an asset purchase agreement (the "Asset
Purchase Agreement") dated February 12, 2020, to acquire all of the equity
interests of RentPath Holdings, Inc. for $588 million in cash, 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, we 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 completes its review of the substance of the
parties' submission. Bankruptcy court approval was obtained on June 9, 2020. On
July 29, 2020, we exercised our option pursuant to the Asset Purchase Agreement
to extend the date after which either party may terminate the Asset Purchase
Agreement if the transaction has not closed (the "Outside Date") for an
additional three months until November 12, 2020 in exchange for a payment of
$7.5 million. We continue to engage with the FTC on the substance of its review,
which we expect to conclude in the fourth quarter of 2020. 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 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
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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 10 and Note 14 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, 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
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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 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.

                                       37
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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 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.

                                       38
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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                     Nine Months Ended
                                                            September 30,                         September 30,
                                                       2020               2019               2020                2019
Net income                                         $  58,186          $ 

78,619 $ 191,339 $ 227,036 Amortization of acquired intangible assets in cost of revenues

                                            6,612              4,957              18,671             15,503
Amortization of acquired intangible assets in
operating expenses                                    18,258              7,586              44,677             22,443
Depreciation and other amortization                    6,806              6,279              20,563             19,289
Interest expense (income)                              7,537             (4,414)              9,482            (13,304)
Other expense (income)                                   338               (240)                (29)              (779)
Income tax expense                                    10,748             20,304              33,200             49,608
EBITDA                                             $ 108,485          $ 113,091          $  317,903          $ 319,796

Net cash flows provided by (used in)
Operating activities                               $ 106,692          $ 116,451          $  355,338          $ 350,017
Investing activities                                 (36,855)           (29,775)           (223,880)           (57,883)
Financing activities                                 249,544              5,460           2,665,902             (2,193)


                                       39

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

The following table provides a comparison of our selected consolidated results
of operations for the three months ended September 30, 2020 and 2019 (in
thousands):
                                                                Three Months Ended
                                                                   September 30,
                                                                                                   Increase          Increase (Decrease)
                                                              2020               2019           (Decrease) ($)               (%)
Revenues:
  CoStar Suite                                            $ 165,988          $ 156,013          $     9,975                         6  %
  Information services                                       33,174             19,471               13,703                        70
  Multifamily                                               155,184            125,707               29,477                        23
  Commercial property and land                               71,274             51,617               19,657                        38
Total revenues                                              425,620            352,808               72,812                        21
Cost of revenues                                             77,865             71,172                6,693                         9
Gross profit                                                347,755            281,636               66,119                        23
Operating expenses:
Selling and marketing (excluding customer base
amortization)                                               146,634            101,582               45,052                        44
Software development                                         40,732             32,639                8,093                        25
General and administrative                                   65,322             45,530               19,792                        43
Customer base amortization                                   18,258              7,616               10,642                           NM
Total operating expenses                                    270,946            187,367               83,579                        45
Income from operations                                       76,809             94,269              (17,460)                      (19)
Interest (expense) income                                    (7,537)             4,414              (11,951)                          NM
Other (expense) income                                         (338)               240                 (578)                          NM
Income before income taxes                                   68,934             98,923              (29,989)                      (30)
Income tax expense                                           10,748             20,304               (9,556)                      (47)
Net income                                                $  58,186          $  78,619          $   (20,433)                      (26) %

__________________________

NM - Not meaningful

Revenues. Revenues increased to $426 million for the three months ended
September 30, 2020, from $353 million for the three months ended September 30,
2019. The $73 million increase was attributable to increases in revenues for
several of our services, including a $29 million, or 23%, increase in
multifamily revenue. The increase in multifamily revenues was primarily due to
higher sales as a result of recent investments in marketing and upsells of
existing customer packages to higher value advertising packages. Commercial
property and land revenue increased $20 million, or 38%, due to revenue of $12
million from the acquisition of Ten-X, in addition to growth in sales of our
LoopNet online marketplace services as a result of stronger traffic, driving
sales of higher value advertisements as compared to the prior year. Information
services revenue increased $14 million, or 70%, primarily due to revenue of
$13 million from STR, which was acquired in the fourth quarter of 2019. CoStar
Suite revenues increased $10 million, or 6%, primarily due to renewal price
increases from prior periods and, to a lesser extent, higher sales volume.

Gross Profit. Gross profit increased to $348 million for the three months ended
September 30, 2020, from $282 million for the three months ended September 30,
2019, and the gross profit percentage was 82% for the three months ended
September 30, 2020, compared to 80% for the three months ended September 30,
2019. The increase in gross profit was due to higher revenues partially impacted
by an increase in cost of revenues of $7 million, or 9%, primarily due to higher
personnel costs of $4 million and intangible asset amortization of $2 million,
primarily due to the acquisitions of STR and Ten-X.

Selling and Marketing Expenses. Selling and marketing expenses increased to $147
million for the three months ended September 30, 2020, from $102 million for the
three months ended September 30, 2019. The $45 million increase was primarily
attributable to a $17 million increase in marketing agency spending and a
$15 million increase in search engine
                                       40
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marketing, primarily for multifamily, as well as a $3 million increase in other
forms of marketing, and a $13 million increase in personnel costs. The increase
in personnel costs was driven by increased headcount, as a result of the
acquisitions of STR and Ten-X, as well as higher sales commissions. These
increases were partially offset by a $3 million decrease in travel and
entertainment expense.

Software Development Expenses. Software development expenses increased to $41
million for the three months ended September 30, 2020, from $33 million for the
three months ended September 30, 2019, and increased as a percentage of revenues
to 10% for the three months ended September 30, 2020 from 9% for the three
months ended September 30, 2019. The $8 million increase was primarily due to
a $7 million increase in personnel costs driven by increased headcount to
enhance our product offerings, including $3 million due to the acquisitions of
STR and Ten-X, as well as a $1 million increase in occupancy costs.

General and Administrative Expenses. General and administrative expenses
increased to $65 million for the three months ended September 30, 2020, from $46
million for the three months ended September 30, 2019, and increased as a
percentage of revenues to 15% for the three months ended September 30, 2020 from
13% for the three months ended September 30, 2019. The $19 million increase in
the amount of general and administrative expense was primarily due to a
$11 million increase in personnel costs as a result of increased headcount
driven by the acquisitions of STR and Ten-X, a $4 million increase in
professional services driven by acquisitions, a $3 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, and a $2 million increase in software and equipment costs.

Customer Base Amortization Expense. Customer base amortization expense increased
to $18 million for the three months ended September 30, 2020 from $8 million for
the three months ended September 30, 2019, and increased as a percentage of
revenues to 4% for the three months ended September 30, 2020 from 2% for the
three months ended September 30, 2019. The increase in customer base
amortization expense was primarily due to the STR and Ten-X acquisitions.

Interest (Expense) Income. Interest (expense) income was a net expense of $8
million for the three months ended September 30, 2020 as compared to net
interest income of $4 million for the three months ended September 30, 2019. The
decrease for the three months ended September 30, 2020 was primarily due to
interest expense of $7 million on our Senior Notes issued on July 1, 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 September 30, 2020 and
September 30, 2019.

Income Tax Expense. Income tax expense decreased to $11 million for the three
months ended September 30, 2020 from $20 million for the three months ended
September 30, 2019. The decrease was primarily due to lower income before income
taxes, as well as an increase in excess tax benefits.

Comparison of Business Segment Results for Three Months Ended September 30, 2020 and Three Months Ended September 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 $411 million for the three
months ended September 30, 2020, from $344 million for the three months ended
September 30, 2019. The increase in North America revenues was attributable to
increases in revenues for several of our services, including a $29 million
increase in multifamily revenues driven by higher sales as a result of recent
investments in marketing and upgrades of existing customer packages to higher
value advertising packages. Commercial property and land revenues increased $20
million primarily due to the acquisition of Ten-X, and to a lesser extent,
stronger traffic, driving sales of higher value advertisements in our LoopNet
service offering. CoStar Suite and
                                       41
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information services revenue increased $9 million. The increase in CoStar Suite
revenue was primarily due to renewal price increases and to a lesser extent,
higher sales volume. The increase in information services was primarily due to
the acquisition of STR. International revenues increased to $15 million for the
three months ended September 30, 2020, from $9 million for the three months
ended September 30, 2019. The increase in International revenues was primarily
due to the acquisition of STR.

Segment EBITDA. North America EBITDA decreased to $108 million for the three
months ended September 30, 2020, from $116 million for the three months ended
September 30, 2019. The decrease in North America EBITDA was primarily due to
increases in personnel, marketing and general and administrative costs,
partially offset by an increase in revenue. International EBITDA for the three
months ended September 30, 2020 was income of $0.6 million, as compared to a
loss of $3 million for the three months ended September 30, 2019, as a result of
increased revenue, offset by increases in personnel and general and
administrative costs due to the acquisition of STR.

                                       42
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Comparison of Nine Months Ended September 30, 2020 and Nine Months Ended September 30, 2019

The following table provides a comparison of our selected consolidated results
of operations for the nine months ended September 30, 2020 and 2019 (in
thousands):
                                                                 Nine Months Ended
                                                                   September 30,
                                                                                                    Increase          Increase (Decrease)
                                                             2020                2019            (Decrease) ($)               (%)
Revenues:
  CoStar Suite                                           $  495,997          $  456,539          $    39,458                         9  %
  Information services                                          96,092              59,098            36,994                        63
  Multifamily                                                  438,185             360,463            77,722                        22
  Commercial property and land                                 184,352             148,893            35,459                        24
Total revenues                                            1,214,626           1,024,993              189,633                        19
Cost of revenues                                            230,814             214,243               16,571                         8
Gross profit                                                983,812             810,750              173,062                        21
Operating expenses:
Selling and marketing (excluding customer base
amortization)                                               402,202             308,751               93,451                        30
Software development                                        121,343              89,022               32,321                        36
General and administrative                                  181,598             127,943               53,655                        42
Customer base amortization                                   44,677              22,473               22,204                        99
Total operating expenses                                    749,820             548,189              201,631                        37
Income from operations                                      233,992             262,561              (28,569)                      (11)
Interest (expense) income                                    (9,482)             13,304              (22,786)                          NM
Other income                                                     29                 779                 (750)                      (96)
Income before income taxes                                  224,539             276,644              (52,105)                      (19)
Income tax expense                                           33,200              49,608              (16,408)                      (33)
Net income                                               $  191,339          $  227,036          $   (35,697)                      (16) %

__________________________

NM - Not meaningful

Revenues. Revenues increased to $1,215 million for the nine months ended
September 30, 2020, from $1,025 million for the nine months ended September 30,
2019. The $190 million increase was attributable to increases in revenues for
several of our services, including, a $78 million, or 22%, increase in
multifamily revenue. The multifamily increase was due to higher sales volume as
a result of recent investments in marketing and upsells of existing customer
packages to higher value advertising packages. CoStar Suite revenues increased
$39 million, or 9%, primarily due to renewal price increases from prior periods,
and to a lesser extent, higher sales volume. Information services revenue
increased $37 million, or 63%, primarily due to revenue of $39 million from STR,
which was acquired in the fourth quarter of 2019, partially offset by a decrease
in revenue from Real Estate Manager of $2 million. Commercial property and land
revenue increased $35 million, or 24%, primarily due to growth in our LoopNet
online marketplace services of $22 million as a result of stronger traffic,
driving sales of higher value advertisements, and revenue of $12 million from
the acquisition of Ten-X.

Gross Profit. Gross profit increased to $984 million for the nine months ended
September 30, 2020, from $811 million for the nine months ended September 30,
2019, and the gross profit percentage was 81% for the nine months ended
September 30, 2020, compared to 79% for the nine months ended September 30,
2019. The increase in gross profit was due to higher revenues partially offset
by an increase in cost of revenues of $17 million, or 8%, primarily due to
higher personnel costs of $10 million, including $8 million from the
acquisitions of STR and Ten-X, merchant fees of $3 million, amortization of $3
million, IT equipment of $2 million and software maintenance costs of
$2 million, partially offset by lower travel and entertainment costs of $2
million during the current year.

                                       43
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Selling and Marketing Expenses. Selling and marketing expenses increased to $402
million for the nine months ended September 30, 2020, from $309 million for the
nine months ended September 30, 2019. The $93 million increase was attributable
to increases of $43 million in search engine marketing and $23 million in
marketing agency fees, primarily related to multifamily, and a $34 million
increase in personnel costs driven by increased headcount, primarily due to
additional multifamily sales personnel and the acquisitions of STR and Ten-X, as
well as higher sales commissions. These increases were partially offset by a
decrease of $4 million in other forms of marketing, driven by a decrease in
spending on events.

Software Development Expenses. Software development expenses increased to $121
million for the nine months ended September 30, 2020, from $89 million for the
nine months ended September 30, 2019, and increased as a percentage of revenues
to 10% for the nine months ended September 30, 2020 from 9% for the nine months
ended September 30, 2019. The $32 million increase in the amount of software
development expense was primarily due to a $28 million increase in personnel
costs as a result of increased headcount to enhance our product offerings,
including $8 million due to the acquisitions of STR and Ten-X, as well as
increases of $2 million in both supplies and office services and occupancy
costs.

General and Administrative Expenses. General and administrative expenses
increased to $182 million for the nine months ended September 30, 2020, from
$128 million for the nine months ended September 30, 2019, and increased as a
percentage of revenues to 15% for the nine months ended September 30, 2020 from
12% for the nine months ended September 30, 2019. The $54 million increase in
the amount of general and administrative expense was primarily due to a
$25 million increase in personnel costs as a result of increased headcount,
including $16 million as a result of the acquisitions of STR and Ten-X, a
$14 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 $10 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 $45 million for the nine months ended September 30, 2020 from $22 million for
the nine months ended September 30, 2019, and increased as a percentage of
revenues to 4% for the nine months ended September 30, 2020 from 2% for the nine
months ended September 30, 2019. The increase in customer base amortization
expense was primarily due to the STR and Ten-X acquisitions.

Interest (Expense) Income. Interest (expense) income was a net expense of $9
million for the nine months ended September 30, 2020, as compared to net income
of $13 million for the nine months ended September 30, 2019. The decrease during
the nine months ended September 30, 2020 was due to an increase in interest
expense of $12 million, of which, $5 million and $7 million was related to the
$745 million draw on the 2017 Credit Agreement in the first quarter of 2020 and
our Senior Notes issued on July 1, 2020, respectively. In addition, there was a
decrease of $11 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 nine months ended September 30, 2020 compared to the nine
months ended September 30, 2019.

Income Tax Expense. Income tax expense decreased to $33 million for the nine
months ended September 30, 2020 from $50 million for the nine months ended
September 30, 2019. The decrease was primarily due to lower income before income
taxes for the nine months ended September 30, 2020, as well as an increase in
excess tax benefits.

Comparison of Business Segment Results for Nine Months Ended September 30, 2020 and Nine Months Ended September 30, 2019

Segment Revenues. North America revenues increased to $1.2 billion for the nine
months ended September 30, 2020, from $1.0 billion for the nine months ended
September 30, 2019. The increase in North America revenues was attributable to
increases in revenues for several of our services, including a $78 million
increase in multifamily revenues driven by higher sales as a result of recent
investments in marketing and upsells of existing customer packages to higher
value advertising packages, and increases in CoStar Suite revenues of $37
million primarily due to price increases upon renewal of subscriptions in the
past nine months, and to a lesser extent, higher sales. Commercial property and
land revenues increased $36 million primarily due to growth in our LoopNet
service offering and the acquisition of Ten-X. Information services increased
$24 million due to the acquisition of STR. International revenues increased to
$42 million for the nine months ended September 30, 2020, from $27 million for
the nine months ended September 30, 2019. The increase in International revenues
was primarily due to the acquisition of STR.

Segment EBITDA. North America EBITDA decreased to $323 million for the nine months ended September 30, 2020, from $327 million for the nine months ended September 30, 2019. The decrease in North America EBITDA was primarily due

                                       44
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to increases in personnel, marketing and general and administrative costs,
partially offset by an increase in revenue. International EBITDA increased to a
loss of $5 million for the nine months ended September 30, 2020 from a loss of
$7 million for the nine months ended September 30, 2019, primarily as a result
of increased revenue, offset by increases in personnel and general and
administrative costs.

Liquidity and Capital Resources

Our principal sources of ongoing liquidity are cash from operations and more
recently, proceeds from our debt and equity offerings. Total cash, cash
equivalents and restricted cash increased to approximately $3.9 billion as of
September 30, 2020, compared to cash and cash equivalents of approximately $1.1
billion as of December 31, 2019. The increase in cash, cash equivalents and
restricted cash for the nine months ended September 30, 2020 was primarily due
to proceeds from our May 2020 equity offering, net of transaction costs, of $1.7
billion, as well as proceeds from the July 2020 issuance of our Senior Notes,
net of transaction costs, of $983 million. In addition, cash generated from
operations contributed $355 million, partially offset by cash paid for
acquisitions, net of cash acquired, of $192 million.

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 10 and Note 14 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.

Net cash provided by operating activities for the nine months ended
September 30, 2020 was approximately $355 million compared to approximately $350
million for the nine months ended September 30, 2019. The $5 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 a decrease in the change in working capital.

Net cash used in investing activities for the nine months ended September 30,
2020 was approximately $224 million compared to approximately $58 million of
cash used in investing activities for the nine months ended September 30, 2019.
The $166 million increase in cash used in investing activities was primarily due
to an increase in cash paid for acquisitions, net of cash acquired, as a result
of the acquisition of Ten-X for $184 million during the nine months ended
September 30, 2020 as compared to $14 million used in the nine months ended
September 30, 2019. The increase was partially offset by proceeds from the sale
of our ARS investments of $10 million during the nine months ended September 30,
2020, as well as, a decrease in capital expenditures to $42 million compared to
$44 million in the nine months ended September 30, 2019.

Net cash provided by financing activities for the nine months ended
September 30, 2020 was approximately $2.7 billion   compared to approximately $2
million used in financing activities for the nine months ended September 30,
2019. The $2.7 billion increase is primarily due to proceeds from our May 2020
equity offering, net of transaction costs, of $1.7 billion, as well as, proceeds
from the issuance of our July 1, 2020 Senior Notes, net of transaction costs, of
$983 million. We expect to use the proceeds from these transactions 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 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 Notes 10 and 14 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 equity offering and Senior
Notes.

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. Our wholly owned subsidiary entered into an Asset 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, we exercised our
option pursuant to the asset purchase agreement for the RentPath acquisition to
extend the Outside Date under that agreement for an additional three months
until November 12, 2020, in exchange for payment of $7.5 million. In accordance
with the Asset Purchase Agreement, we paid a $59 million break fee into a cash
escrow account. In the event the Asset Purchase Agreement is terminated under
specified circumstances and either certain antitrust approvals are not obtained,
or a governmental order related to antitrust or competition matters prohibits
the consummation of the transaction, this amount is not refundable to us. As the
transaction had not closed as of September 30, 2020, the break fee is recorded
as restricted cash within cash, cash equivalents and restricted cash on the
Company's condensed consolidated balance sheets. See Note 5 to the
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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 to the net interest deduction limitations and technical
corrections to tax depreciation methods for qualified improvement property. As
permitted under the CARES Act, we are currently 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 commercial
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
remainder 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-
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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 remainder
of 2020, trends in customer behavior, effective tax rate, pending acquisitions,
the anticipated benefits of completed or proposed acquisitions, the anticipated
timing of acquisition closings and integration, 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 COVID-19 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 commercial real estate
industry in particular, recover after the COVID-19 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
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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.


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