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CoStar First Quarter 2013 Revenue Grows 52% Year-Over-Year; Organic Growth Rate of LoopNet Core Business Surges 219% Since Acquisition; Company Raises Revenue and Earnings Guidance

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WASHINGTON, DC – April 24, 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 first quarter of 2013 was $104.0 million versus $68.6 million in the first quarter of 2012, which represents an increase of 52% year-over-year.

“I am very pleased with the progress we have made since closing the LoopNet acquisition a year ago,” said Andrew C. Florance, Founder and Chief Executive Officer of CoStar. “We had a record $13.8 million in annualized net new sales in the first quarter of 2013, which is up 27% from last quarter. In March 2013, we recorded our best sales month ever.”

Florance stated: “We achieved all-time high quarterly revenue for LoopNet Premium Membership in the first quarter of 2013 and increased the organic revenue growth rate for Premium Membership by 219%, from 5.2% in the first quarter of 2012 to 16.6% in the first quarter of 2013. Also, we increased the average new sales price 32% on Premium Membership from $57 to $75 year-over-year. In March 2013, 51% of all new Premium Membership subscribers signed up for annual contracts, up from almost no annual contracts before the acquisition.” 

“Total revenue synergies from the acquisition through the end of the first quarter of 2013 increased to $18.4 million, including $12.4 million of CoStar information sales to LoopNet members and approximately $2.0 million in LoopNet marketing services to CoStar clients. I expect we will achieve our goal of a $500 million revenue run rate and 30-35% adjusted EBITDA margins as we exit 2014,” said Florance.

Year 2012-2013 Quarterly Results - Unaudited
(in millions, except per share data)
 20122013
 Q1Q2Q3Q4Q1
      
Revenues$68.6$85.2$96.0$100.1$104.0
EBITDA 11.98.219.620.57.6
Net income (loss)5.1(6.7)6.84.7(2.4)
Net income (loss) per share - diluted0.20(0.25)0.240.17(0.09)
Weighted average outstanding shares - diluted25.526.527.727.727.4
      
Adjusted EBITDA15.320.425.625.125.7
Non-GAAP Net Income8.210.513.112.613.0
Non-GAAP Net Income per share - diluted0.320.390.470.460.47

Adjusted EBITDA (which excludes stock-based compensation and other items as defined below) was $25.7 million for the first quarter of 2013 compared to $15.3 million in the first quarter of 2012, which is an increase of 68% year-over-year.

In February 2012, the Compensation Committee of the Board of Directors of CoStar approved grants of performance-based restricted stock that would vest upon the achievement of $90 million of cumulative EBITDA over a period of four consecutive quarters. These awards support the Committee’s goals of aligning management’s incentives with increasing long-term stockholder value through increased earnings.

Based on continued strong performance, the accelerated pace and success of the LoopNet integration and management’s increased confidence that it is probable the earnings goals will be achieved during 2014, the Company recorded a cumulative catch-up of stock-based compensation expense in the first quarter.

EBITDA in the first quarter of 2013 was $7.6 million and was impacted by $15.1 million of higher stock-based compensation expense compared to last year, mainly related to the performance-based restricted stock awards.

Non-GAAP net income (defined below) in the first quarter of 2013 was $13.0 million or $0.47 per diluted share, which represents an increase of $4.8 million or 59% year-over-year. Net income in the first quarter of 2013 was ($2.4) million or ($0.09) per diluted share and includes the impact of the additional stock-based compensation expense. 
  
As of March 31, 2013, the Company had approximately $189.1 million in cash, cash equivalents, short-term and long-term investments.  This represents an increase of $11.3 million from the fourth quarter of 2012.  Short and long-term debt associated with the LoopNet acquisition totaled approximately $166.3 million as of March 31, 2013.


2013 Outlook

“Based on the ongoing success of our cross-selling initiatives, as well as the continued strength of our core information, analytics and marketing services, we are raising both our revenue and earnings estimates for 2013,” stated Brian J. Radecki, Chief Financial Officer of CoStar.  For the second quarter of 2013, the Company expects revenue in the range of approximately $105 million to $107 million, and approximately $428 million to $432 million for the full year 2013, an increase of $4.0 million compared to the Company’s prior guidance.

For the second quarter of 2013, the Company expects non-GAAP net income per diluted share (defined below) in the range of approximately $0.50 to $0.53.  For the full year of 2013, the Company currently expects non-GAAP net income per diluted share in a range of approximately $2.12 to $2.22, an increase of $0.04 compared to the Company’s previous guidance. 

The annual revenue and earnings outlook includes the impact of de-emphasizing or eliminating certain services.

The adjusted EBITDA and non-GAAP earnings per diluted share in the Company’s outlook do not include stock-based compensation expense and other items.  In each of the remaining quarters of 2013, the company expects to record approximately $7.5 million to $8.5 million per quarter of total stock compensation expense, which includes both normal ongoing stock-based compensation awards and the performance-based awards expense.

The preceding forward-looking statements reflect CoStar’s expectations as of April 24, 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 and (vi) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. 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 first quarter of 2013 and the Company’s outlook for 2013 at 11:00 a.m. EDT on Thursday, April 25, 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) 230-1074 (from the United States and Canada) or (612) 288-0329 (from all other countries) and refer to conference code 287842. 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 287842. 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 Months
 Ended March 31,
 20132012
   
   
Revenues $ 104,033 $ 68,629
Cost of revenues33,60624,334
Gross margin70,42744,295
   
Operating expenses:  
 Selling and marketing26,97815,550
 Software development12,1025,015
 General and administrative29,82014,494
 Purchase amortization4,125634
 73,02535,693
   
Income (loss) from operations(2,598)8,602
Interest and other income104250
Interest and other expense(1,755) -- 
Income (loss) before income taxes(4,249)8,852
Income tax expense (benefit), net(1,839)3,720
Net income (loss) $ (2,410) $ 5,132
   
Net income (loss) per share - basic $ (0.09) $ 0.20
Net income (loss) per share - diluted $ (0.09) $ 0.20
   
Weighted average outstanding shares - basic27,42825,128
Weighted average outstanding shares - diluted27,42825,528
 
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures-Unaudited
(in thousands, except per share data)
   
   
Reconciliation of Net Income (Loss) to Non-GAAP Net Income
   
 For the Three Months
 Ended March 31,
 20132012
   
Net income (loss) $ (2,410) $ 5,132
Income tax expense (benefit), net(1,839)3,720
Income (loss) before income taxes (4,249) 8,852
Purchase amortization and other related costs 7,152 1,056
Stock-based compensation expense 17,326 2,187
Acquisition and integration related costs 505 1,170
Restructuring and related costs 271 --
Non-GAAP income before income taxes 21,005 13,265
Assumed rate for income tax expense, net *38%38%
Assumed provision for income tax expense, net (7,982) (5,041)
Non-GAAP net income $ 13,023 $ 8,224
   
Net income (loss) per share - diluted $ (0.09) $ 0.20
Non-GAAP net income per share - diluted $ 0.47 $ 0.32
   
Weighted average outstanding shares - diluted** 27,896 25,528
   
* A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.
** For periods with GAAP net losses, the basic weighted-average outstanding shares are used to calculate the GAAP net loss per share as including the effect of the potentially dilutive securities would have an anti-dilutive effect. For periods with Non-GAAP net income, the diluted weighted-average outstanding shares are used to calculate Non-GAAP net income per share in order to reflect the impact of potentially dilutive securities.
   
   
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
   
 For the Three Months
 Ended March 31,
 20132012
   
Net income (loss) $ (2,410) $ 5,132
Purchase amortization in cost of revenues3,027422
Purchase amortization in operating expenses4,125634
Depreciation and other amortization3,0142,264
Interest income(104)(250)
Interest expense1,7550
Income tax expense (benefit), net(1,839)3,720
EBITDA $ 7,568 $ 11,922
Stock-based compensation expense17,3262,187
Acquisition and integration related costs 505 1,170
Restructuring and related costs 271 --
Adjusted EBITDA $ 25,670 $ 15,279
 
CoStar Group, Inc.
Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
   
 March 31,December 31,
 20132012
 (Unaudited) 
ASSETS  
Current assets:  
 Cash and cash equivalents $ 167,394 $ 156,027
 Short-term investments -- 37
 Accounts receivable, net24,42016,392
 Deferred income taxes, net19,2019,256
 Income tax receivable1,7965,357
 Prepaid and other current assets9,7699,560
 Debt issuance costs, net2,8852,934
Total current assets225,465199,563
   
Long-term investments21,67521,662
Property and equipment, net48,65346,308
Goodwill716,569718,078
Intangible and other assets, net163,672170,632
Deposits and other assets1,9002,274
Debt issuance costs, net5,9246,622
Total assets $ 1,183,858 $ 1,165,139
   
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
 Accounts payable and accrued expenses $ 43,565 $ 51,590
 Current portion of long-term debt 17,500 17,500
 Deferred revenue36,65432,548
Total current liabilities97,719101,638
   
Long-term debt, less current portion148,750153,125
Deferred gain on sale of building 28,178 28,809
Deferred rent 19,357 17,305
Deferred income taxes, net 36,359 34,071
Income taxes payable2,8442,818
Other long-term liabilities --  1,030
   
Stockholders' equity850,651826,343
Total liabilities and stockholders' equity $ 1,183,858 $ 1,165,139
 
CoStar Group, Inc.
Results of Segments-Unaudited
(in thousands)
   
 For the Three Months
 Ended March 31,
 20132012
Revenues  
United States $ 99,296 $ 63,985
International  
 External customers 4,737 4,644
 Intersegment revenue * 116 343
Total international revenue 4,853 4,987
Intersegment eliminations (116) (343)
Total revenues $104,033 $ 68,629
   
EBITDA  
United States $ 9,286 $ 13,225
International ** (1,718) (1,303)
Total EBITDA $ 7,568 $ 11,922
   
*Intersegment revenue is attributable to services performed for the Company's wholly owned subsidiary, Property and Portfolio Research, Inc ("PPR"), by Property and Portfolio Research Ltd., a wholly owned subsidiary of PPR. Intersegment revenue is recorded at an amount 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 $100,000 and $800,000 for the three months ended March 31, 2013 and March 31, 2012, respectively.
 
Reconciliation of Non-GAAP Financial Measures with 2012-2013 Quarterly Results - Unaudited
(in millions, except per share data)
      
Reconciliation of Net Income (Loss) to Non-GAAP Net Income
      
 20122013
 Q1Q2Q3Q4Q1
      
Net income (loss) $ 5.1 $ (6.7) $ 6.8 $ 4.7 $ (2.4)
Income tax expense (benefit), net  3.7 5.6 0.4 3.5 (1.8)
Income (loss) before income taxes 8.8 (1.1) 7.2 8.2 (4.2)
Purchase amortization and other related costs 1.0 5.8 7.9 7.6 7.1
Stock-based compensation expense 2.2 2.7 3.7 3.6 17.3
Acquisition and integration related costs 1.2 9.5 2.3 1.0 0.5
Restructuring and related costs --  --  --  --  0.3
Non-GAAP income before income taxes 13.2 16.9 21.1 20.4 21.0
Assumed rate for income tax expense, net *38%38%38%38%38%
Assumed provision for income tax expense, net (5.0) (6.4) (8.0) (7.8) (8.0)
Non-GAAP net income $ 8.2 $ 10.5 $ 13.1 $ 12.6 $13.0
      
Non-GAAP net income per share - diluted $ 0.32 $ 0.39 $ 0.47 $ 0.46 $0.47
      
Weighted average outstanding shares - diluted** 25.5 26.9 27.7 27.7 27.9
      
* A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate. 
** For periods with GAAP net losses, the basic weighted-average outstanding shares are used to calculate the GAAP net loss per share as including the effect of the potentially dilutive securities would have an anti-dilutive effect. For periods with Non-GAAP net income, the diluted weighted-average outstanding shares are used to calculate Non-GAAP net income per share in order to reflect the impact of potentially dilutive securities.
      
      
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
      
 20122013
 Q1Q2Q3Q4Q1
      
Net income (loss) $ 5.1 $ (6.7) $ 6.8 $ 4.7 $ (2.4)
Purchase amortization 1.0 5.8 7.9 7.6 7.1
Depreciation and other amortization 2.3 2.4 2.8 3.0 3.0
Interest income (0.2) (0.1) (0.1) (0.1) (0.1)
Interest expense --  1.2 1.8 1.8 1.8
Income tax expense (benefit), net  3.7 5.6 0.4 3.5 (1.8)
EBITDA $ 11.9 $ 8.2 $ 19.6 $ 20.5 $ 7.6
Stock-based compensation expense 2.2 2.7 3.7 3.6 17.3
Acquisition and integration related costs 1.2 9.5 2.3 1.0 0.5
Restructuring and related costs --  --  --  --  0.3
Adjusted EBITDA $ 15.3 $ 20.4 $ 25.6 $ 25.1 $25.7
 
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 June 30, 2013Ended December 31, 2013
 LowHighLowHigh
     
Net income $ 4,100 $ 5,500 $ 13,000 $ 17,600
Income tax expense, net 2,9004,0008,70011,800
Income before income taxes 7,000 9,500 21,700 29,400
Purchase amortization and other related costs 6,900 6,900 27,000 27,000
Stock-based compensation expense 7,500 7,000 42,000 40,000
Acquisition and integration related costs 100 -- 650 550
Restructuring and related costs 1,000 500 4,000 3,000
Non-GAAP Income before income taxes 22,500 23,900 95,350 99,950
Assumed rate for income tax expense, net *38%38%38%38%
Assumed provision for income tax expense, net (8,550) (9,082) (36,233) (37,981)
Non-GAAP Net Income $ 13,950 $ 14,818 $ 59,117 $ 61,969
     
Net Income per share - diluted $ 0.15 $ 0.20 $ 0.47 $ 0.63
Non-GAAP Net Income per share - diluted $ 0.50 $ 0.53 $ 2.12 $ 2.22
     
Weighted average outstanding shares - diluted 27,900 27,900 27,900 27,900
     
* A 38% tax rate is assumed 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 7 million registered members. CoStar operates websites that have approximately 10 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 2,000 worldwide, including the industry's largest professional research organization. For more information, visit www.costar.com.