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CoStar Fourth Quarter Revenue Climbs 51% Year-Over-Year Reaching $100 Million and Drives 86% Year-Over-Year EBITDA Increase

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WASHINGTON, Feb. 27, 2013 -- CoStar Group, Inc. (Nasdaq:CSGP), commercial real estate's leading internet provider of information, analytics and marketing services, announced today that revenue for the fourth quarter of 2012 was $100.1 million versus $66.2 million in the fourth quarter of 2011, which represents an increase of 51% year-over-year. Revenue for the year ended December 31, 2012 was $349.9 million, an increase of 39% over revenue of $251.7 million for the full year of 2011.

Year 2011-2012 Quarterly Results - Unaudited
(in millions, except per share data)
20112012
Q1Q2Q3Q4Q1Q2Q3Q4
Revenues$ 59.6$ 62.1$ 63.8$ 66.2$ 68.6$ 85.2$ 96.0$ 100.1
EBITDA10.57.16.011.011.98.219.620.5
Net income (loss)4.52.62.35.25.1(6.7)6.84.7
Net income (loss) per share - diluted0.220.120.090.200.20(0.25)0.240.17
Weighted average outstanding shares - diluted21.022.425.325.425.526.527.727.7
Adjusted EBITDA12.614.314.016.015.320.425.625.1
Non-GAAP Net Income6.27.37.28.48.210.513.112.6
Non-GAAP Net Income per share - diluted0.290.330.280.330.320.390.470.46

"2012 was an exceptional year for CoStar both financially and strategically," said Andrew C. Florance, Founder and Chief Executive Officer of CoStar. "We closed the LoopNet acquisition, and I am very pleased with the early successes we are achieving as we continue integrating the two companies. In the 10 months since we closed the acquisition of LoopNet, we have achieved cost synergies of approximately $18 million. We are successfully upselling LoopNet information users to CoStar information services. CoStar has now sold approximately $10 million of annual contract value in information services to LoopNet members who previously only had a $160,000 commitment. Similarly, we have sold $1.7 million of LoopNet marketing services to CoStar clients."

Florance stated: "We increased the organic revenue growth rate of LoopNet Premium Membership sales 140%, taking it from 5% in the fourth quarter of 2011 to 12% in the fourth quarter of 2012. From the third quarter to the fourth quarter of 2012, we also increased the average new sales price for LoopNet Premium Membership from $56 to $69 and reduced the cancellation rate from 6.1% to 5.6%. The fourth quarter 2012 cancellation rate for LoopNet Premium Membership is the lowest it has been since the third quarter of 2007."

"We expect the LoopNet cross-selling opportunity to continue to drive highly profitable double digit revenue growth for the foreseeable future. We believe that as we grow past the $100 million revenue quarter milestone we are well positioned to achieve our goal of exiting the fourth quarter of 2014 at an annual revenue run rate of $500 million with 30-35% margins," said Florance.

With the acquisition of LoopNet, CoStar Group now operates websites that have over 10 million unique monthly visitors in aggregate.

EBITDA (defined below) in the fourth quarter of 2012 was $20.5 million versus $11.0 million in the fourth quarter of 2011, which is an increase of 86% year-over-year. EBITDA for the year ended December 31, 2012 was $60.2 million which is an increase of 74% over EBITDA of $34.6 million for the full year of 2011. Adjusted EBITDA (defined below) was $25.1 million for the fourth quarter of 2012, which is an increase of 57% year-over-year. Adjusted EBITDA for the year ended December 31, 2012 was $86.4 million, up $29.5 million or 52% from $56.9 million for the full year of 2011.

Non-GAAP net income (defined below) in the fourth quarter of 2012 was $12.6 million or $0.46 per diluted share, which represents an increase of $4.2 million or 50% year-over-year. Non-GAAP net income for the year ended December 31, 2012 was $44.4 million or $1.65 per diluted share, which represents an increase of 53% over non-GAAP net income of $29.1 million for the full year of 2011. Net income in the fourth quarter of 2012 was $4.7 million or $0.17 per diluted share and $9.9 million or $0.37 per diluted share for the year ended December 31, 2012.

In the fourth quarter of 2012, the Company's 12-month trailing renewal rate for annual subscription-based services was 94%, and the renewal rate for CoStar's over 5,000 customer firms that have been subscribers for five years or longer was 99%. Both rates remain at all-time highs.

As of December 31, 2012, the Company had approximately $177.7 million in cash, cash equivalents, short-term and long-term investments. This represents an increase of $25.9 million from the third quarter of 2012. Short and long-term debt associated with the LoopNet acquisition totaled approximately $170.6 million as of December 31, 2012.


2013 Outlook

"Based on the positive results of our cross-selling and integration initiatives, as well as the continued strength of our core information sales, we expect strong revenue and earnings growth in 2013," stated CoStar Group Chief Financial Officer Brian J. Radecki. For the first quarter of 2013, the Company expects revenue of approximately $101 million to $103 million, and approximately $424 million to $429 million for the full year 2013. The annual revenue outlook includes a reduction of approximately $5 million to $7 million from de-emphasizing or eliminating certain redundant services, but in the long term the Company expects to replace and even exceed these revenues by converting users of these services to higher quality services offered under annual subscriptions.

For the first quarter of 2013, the Company expects non-GAAP net income per diluted share (defined below) of approximately $0.41 to $0.45. First quarter 2013 expenses include seasonally higher costs related to our annual sales conference, increased marketing expenses to support the LoopNet cross-selling initiative and standard annual increases in personnel expenses. For the full year of 2013, the Company expects non-GAAP net income per diluted share in a range of approximately $2.08 to $2.20. The annual outlook includes a reduction of approximately $0.08 to $0.12 of non-GAAP net income per diluted share related to eliminating or de-emphasizing certain services as noted above.

Also, the company may begin to incur additional stock-based compensation expenses in 2013 or 2014 mainly related to restricted stock granted in early 2012 that vests upon achievement of performance criteria. The company expects to begin recording the expense for the grants when management determines it is probable the goal will be achieved. The company expects to record a cumulative catch-up of stock-based compensation expense of approximately $10 million to $15 million in the initial quarter that it is deemed probable that the profitability goals will be achieved, and approximately $2 million to $3 million per quarter thereafter for a total incremental expense of approximately $24 million. The adjusted EBITDA and non-GAAP earnings per diluted share in the Company's outlook do not include stock compensation expense and other items.

The preceding forward-looking statements reflect CoStar's expectations as of February 27, 2013, including forward-looking non-GAAP financial measures on a consolidated basis – including LoopNet and related costs. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, restructuring, settlements or impairments will occur in any given quarter. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, the Company does not intend to update its forward-looking statements until its next quarterly results announcement.

Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all of the disclosed non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms.


Non-GAAP Financial Measures

For information regarding the purpose for which management uses the non-GAAP financial measures disclosed in this release and why management believes they provide useful information to investors regarding the Company's financial condition and results of operations, please refer to the Company's latest periodic report.

EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) interest income (expense), (ii) provision for income taxes, and (iii) depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before (i) stock-based compensation expense, (ii) acquisition and integration related costs, (iii) restructuring charges and related costs, (iv) costs related to the acquisition and transition of the Company's corporate headquarters, and (v) settlements and impairments incurred outside the Company's normal business operations.

Non-GAAP net income is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) purchase amortization and other related costs, (ii) stock-based compensation expense, (iii) acquisition and integration related costs, (iv) purchase accounting adjustments, (v) restructuring charges and related costs, (vi) costs related to the acquisition and transition of the Company's corporate headquarters, and (vii) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. In 2011, we assumed a 40% tax rate, and in 2012 and beyond we assume a 38% tax rate in order to approximate our long-term effective corporate tax rate.

Non-GAAP net income per diluted share (also referred to as non-GAAP EPS) 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.


Earnings Conference Call

Management will conduct a conference call to discuss earnings results for the fourth quarter of 2012 and the Company's outlook for 2013 at 11:00 a.m. EST on Thursday, February 28, 2013. The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/investors.aspx. To join the conference call by telephone, please dial (800) 230-1096 (from the United States and Canada) or (612) 332-0107 (from all other countries) and refer to conference code 279285. An audio recording of the conference call will be available approximately one hour after the live call concludes and remain available for a period of time following the call. To access the recorded call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 279285. The webcast replay will also be available in the Investors section of CoStar's web site for a period of time following the call.

CoStar Group, Inc.
Condensed Consolidated Statements of Operations-Unaudited 
(in thousands, except per share data)
For the Three MonthsFor the Twelve Months
Ended December 31,Ended December 31,
2012201120122011
Revenues$ 100,083$ 66,164$ 349,936$ 251,738
Cost of revenues31,47822,014114,86688,167
Gross margin68,60544,150235,070163,571
Operating expenses:
Selling and marketing26,53716,17184,11361,164
Software development10,0424,61732,75620,037
General and administrative17,55214,98777,15458,362
Purchase amortization4,56961313,6072,237
58,70036,388207,630141,800
Income from operations9,9057,76227,44021,771
Interest and other income86224526798
Interest and other expense(1,810)0(4,832)0
Income before income taxes8,1817,98623,13422,569
Income tax expense, net3,4672,81013,2197,913
Net income$ 4,714$ 5,176$ 9,915$ 14,656
Net income per share - basic$ 0.17$ 0.21$ 0.37$ 0.63
Net income per share - diluted$ 0.17$ 0.20$ 0.37$ 0.62
Weighted average outstanding shares - basic27,29525,01026,53323,131
Weighted average outstanding shares - diluted27,72425,40226,94923,527
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures-Unaudited
(in thousands, except per share data)
Reconciliation of Net Income to Non-GAAP Net Income
For the Three MonthsFor the Twelve Months
Ended December 31,Ended December 31,
2012201120122011
Net income$ 4,714$ 5,176$ 9,915$ 14,656
Income tax expense, net3,4672,81013,2197,913
Income before income taxes8,1817,98623,13422,569
Purchase amortization and other related costs7,5961,01222,2413,590
Stock-based compensation expense3,6151,99312,2828,103
Acquisition and integration related costs1,0073,06313,92414,191
Restructuring and related costs------1,509
Settlements and impairments------(1,479)
Non-GAAP income before income taxes20,39914,05471,58148,483
Assumed rate for income tax expense, net *38%40%38%40%
Assumed provision for income tax expense, net(7,752)(5,621)(27,201)(19,393)
Non-GAAP net income$ 12,647$ 8,433$ 44,380$ 29,090
Net income per share - diluted$ 0.17$ 0.20$ 0.37$ 0.62
Non-GAAP net income per share - diluted$ 0.46$ 0.33$ 1.65$ 1.24
Weighted average outstanding shares - diluted27,72425,40226,94923,527
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
For the Three MonthsFor the Twelve Months
Ended December 31,Ended December 31,
2012201120122011
Net income$ 4,714$ 5,176$ 9,915$ 14,656
Purchase amortization in cost of revenues3,0273998,6341,353
Purchase amortization in operating expenses4,56961313,6072,237
Depreciation and other amortization2,9572,19710,5119,262
Interest income(86)(224)(526)(798)
Interest expense1,81004,8320
Income tax expense, net3,4672,81013,2197,913
EBITDA$ 20,458$ 10,971$ 60,192$ 34,623
Stock-based compensation expense3,6151,99312,2828,103
Acquisition and integration related costs1,0073,06313,92414,191
Restructuring and related costs------1,509
Settlements and impairments------(1,479)
Adjusted EBITDA$ 25,080$ 16,027$ 86,398$ 56,947
CoStar Group, Inc.
Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
December 31,December 31,
20122011
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$ 156,027$ 545,280
Short-term investments373,515
Accounts receivable, net16,39216,589
Deferred income taxes, net9,25611,227
Income tax receivable5,357850
Prepaid and other current assets9,5605,722
Debt issuance costs, net2,934--
Total current assets199,563583,183
Long-term investments21,66224,584
Deferred income taxes, net--10,224
Property and equipment, net46,30837,571
Goodwill718,07891,784
Intangible and other assets, net170,63220,530
Deposits and other assets2,2742,241
Debt issuance costs, net6,622918
Total assets$ 1,165,139$ 771,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 51,590$ 38,533
Current portion of long-term debt17,500--
Income taxes payable--978
Deferred revenue32,54822,271
Total current liabilities101,63861,782
Long-term debt, less current portion153,125--
Deferred gain on sale of building28,80931,333
Deferred rent17,30516,592
Deferred income taxes, net34,071--
Income taxes payable2,8182,151
Other long-term liabilities1,030--
Stockholders' equity826,343659,177
Total liabilities and stockholders' equity$ 1,165,139$ 771,035
CoStar Group, Inc.
Results of Segments-Unaudited
(in thousands)
For the Three MonthsFor the Twelve Months
Ended December 31,Ended December 31,
2012201120122011
Revenues
United States$ 95,199$ 61,613$ 330,805$ 233,381
International
External customers4,8844,55119,13118,357
Intersegment revenue *3603351,5141,140
Total international revenue5,2444,88620,64519,497
Intersegment eliminations(360)(335)(1,514)(1,140)
Total revenues$ 100,083$ 66,164$ 349,936$ 251,738
EBITDA
United States$ 23,897$ 11,648$ 70,199$ 38,099
International **(3,439)(677)(10,007)(3,476)
Total EBITDA$ 20,458$ 10,971$ 60,192$ 34,623
* Intersegment revenue is attributable to services performed by Property and Portfolio Research Ltd., a wholly owned subsidiary of Property and Portfolio Research, Inc. (PPR), for PPR. Intersegment revenue is recorded at what the Company believes approximates fair value. U.S. EBITDA includes a corresponding cost for the services performed by Property and Portfolio Research Ltd. for PPR.
** International EBITDA includes a corporate allocation of approximately $800,000 and $600,000 for the three months ended December 31, 2012 and 2011, and approximately $5,300,000 and $800,000 for the twelve months ended December 31, 2012 and 2011, respectively.
Reconciliation of Non-GAAP Financial Measures with 2011-2012 Quarterly Results - Unaudited
(in millions, except per share data)
Reconciliation of Net Income (Loss) to Non-GAAP Net Income
20112012
Q1Q2Q3Q4Q1Q2Q3Q4
Net income (loss)$ 4.5$ 2.6$ 2.3$ 5.2$ 5.1$ (6.7)$ 6.8$ 4.7
Income tax expense, net2.81.50.92.83.75.60.43.5
Income (loss) before income taxes7.34.13.28.08.8(1.1)7.28.2
Purchase amortization and other related costs0.80.80.91.11.05.87.97.6
Stock-based compensation expense2.12.21.91.92.22.73.73.6
Acquisition and integration related costs0.35.05.83.11.29.52.31.0
Restructuring and related costs----1.5----------
Settlements and impairments(0.3)--(1.2)----------
Non-GAAP income before income taxes10.212.112.114.113.216.921.120.4
Assumed rate for income tax expense, net *40%40%40%40%38%38%38%38%
Assumed provision for income tax expense, net(4.0)(4.8)(4.9)(5.7)(5.0)(6.4)(8.0)(7.8)
Non-GAAP net income$ 6.2$ 7.3$ 7.2$ 8.4$ 8.2$ 10.5$ 13.1$ 12.6
Non-GAAP net income per share - diluted$ 0.29$ 0.33$ 0.28$ 0.33$0.32$ 0.39$ 0.47$ 0.46
Weighted average outstanding shares - diluted21.022.425.325.425.526.927.727.7
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
20112012
Q1Q2Q3Q4Q1Q2Q3Q4
Net income (loss)$ 4.5$ 2.6$ 2.3$ 5.2$ 5.1$ (6.7)$ 6.8$ 4.7
Purchase amortization0.80.80.91.01.05.87.97.6
Depreciation and other amortization2.62.42.12.22.32.42.83.0
Interest income(0.2)(0.2)(0.2)(0.2)(0.2)(0.1)(0.1)(0.1)
Interest expense----------1.21.81.8
Income tax expense, net2.81.50.92.83.75.60.43.5
EBITDA$ 10.5$ 7.1$ 6.0$ 11.0$11.9$ 8.2$ 19.6$ 20.5
Stock-based compensation expense2.12.21.91.92.22.73.73.6
Acquisition and integration related costs0.35.05.83.11.29.52.31.0
Restructuring and related costs----1.5----------
Settlements and impairments(0.3)--(1.2)----------
Adjusted EBITDA$ 12.6$ 14.3$ 14.0$ 16.0$15.3$ 20.4$ 25.6$ 25.1
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income
(in thousands, except per share data)
Guidance RangeGuidance Range
For the Three MonthsFor the Twelve Months
Ended March 31, 2013Ended December 31, 2013
LowHighLowHigh
Net income$ 3,100$ 4,900$ 23,000$ 27,900
Income tax expense, net2,3003,50016,70020,300
Income before income taxes5,4008,40039,70048,200
Purchase amortization and other related costs7,2007,20027,00027,000
Stock-based compensation expense *5,0004,00021,00019,000
Acquisition and integration related costs400300500400
Restructuring and related costs4003005,0004,000
Non-GAAP Income before income taxes18,40020,20093,20098,600
Assumed rate for income tax expense, net **38%38%38%38%
Assumed provision for income tax expense, net(6,992)(7,676)(35,416)(37,468)
Non-GAAP Net Income$ 11,408$ 12,524$ 57,784$ 61,132
Net Income per share - diluted$ 0.11$ 0.18$ 0.83$ 1.00
Non-GAAP Net Income per share - diluted$ 0.41$ 0.45$ 2.08$ 2.20
Weighted average outstanding shares - diluted27,80027,80027,80027,800
* The forward looking guidance above does not include stock-based compensation expense related to performance-based stock granted in 2012. The company expects to begin recording the related stock-based compensation expense when management believes it is probable that the profitability goals associated with the stock will be achieved. In the initial quarter of the determination, the cumulative catch-up of stock-based compensation expense is expected to be in a range of $10 million to $15 million and additional expense of approximately $2 million to $3 million per quarter thereafter for a total incremental expense of approximately $24 million.
** A 38% tax rate is assumed for 2013 in order to approximate the Company's long-term effective corporate tax rate.


About CoStar Group, Inc.

CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytics and marketing services. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 6.7 million registered members. CoStar operates websites that have over 10 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe including the industry's largest professional research organization. For more information, visit www.costar.com.