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CoStar Group Grows Second Quarter Revenue 21% and Drives Expenses Down 6% Year-over-Year

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WASHINGTON, July 27, 2016 (GLOBE NEWSWIRE) -- CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that revenue for the quarter ended June 30, 2016 was $207 million, an increase of 21% over revenue of $171 million for the second quarter of 2015. Cost of revenues and operating expenses were reduced by 6% in the second quarter of 2016 to $179 million versus $191 million in the second quarter of 2015.

"After a successful investment year in 2015, we have created a surge in profitability in the first half of 2016 as we continue to grow the top line impressively and deliver strong margin improvement," said Andrew C. Florance, Founder and Chief Executive Officer of CoStar Group. "We grew revenue by $36 million and cut expenses by $12 million in the second quarter of 2016 compared to the second quarter of 2015. CoStar Suite revenue growth accelerated to 14% in the second quarter of 2016 versus the second quarter of 2015 and multifamily revenue increased 58% with 24% pro-forma growth over the same period."

Florance stated, "In the first half of 2016, Apartments.com continued to break away from the pack as the most trafficked apartment internet listing site. According to comScore, in June 2016 Apartments.com generated nearly 23 million visits, which is more than all other apartment internet listing sites. In the same month compared to last year, Apartments.com unique visitors grew 40%, while our two primary competitors saw decreases of 9% and 14%, respectively."

Year 2015-2016 Quarterly Results - Unaudited
(in millions, except per share data)
 2015 2016
 Q1Q2Q3Q4 Q1Q2
        
Revenues$159 $171 $189 $193  $200 $207 
Net income (loss)(6)(15)(5)23  17 16 
Net income (loss) per share - diluted(0.19)(0.47)(0.17)0.71  0.52 0.48 
Weighted average outstanding shares - diluted31.8 31.9 32.0 32.3  32.4 32.4 
        
EBITDA14 (1)22 55  48 46 
Adjusted EBITDA24 11 36 65  58 56 
Non-GAAP Net Income11 2 17 36  31 29 
Non-GAAP Net Income per share - diluted0.34 0.08 0.53 1.10  0.95 0.91 
              

Net income for the second quarter of 2016 increased to $16 million or $0.48 per diluted share compared to a net loss of $(15) million in the second quarter of 2015. EBITDA in the second quarter of 2016 was $46 million compared to $(1) million in the second quarter of 2015, an increase of $47 million.

Non-GAAP net income (defined below) for the quarter ended June 30, 2016 was $29 million or $0.91 per diluted share, an increase of $27 million compared to non-GAAP net income of $2 million in the second quarter of 2015. Adjusted EBITDA (which excludes stock-based compensation and other items as defined below) was $56 million for the second quarter of 2016 versus $11 million in the second quarter of 2015, which is an increase of 394% year-over-year.

As of June 30, 2016, the Company had approximately $475 million in cash, cash equivalents and investments, which is an increase of $38 million since December 31, 2015. Short and long-term debt outstanding, net of debt issuance costs, totaled approximately $337 million as of June 30, 2016.

2016 Outlook 
"The Company continued to deliver strong revenue growth and better than expected earnings in the second quarter of 2016," stated Scott Wheeler, Chief Financial Officer of CoStar Group. "With our continued focus on cost management, we are increasing our full-year earnings outlook and expect further margin expansion in the second half of the year."

Wheeler continued, "In the second quarter of 2016, we achieved the second highest sales quarter in our history in both CoStar Suite and Multifamily. For the fifth consecutive quarter, we generated over $25 million in net bookings with $26 million in net bookings in the second quarter of 2016. Annualized net new sales on annual subscriptions were $23 million in the second quarter of 2016."

The Company expects revenue of approximately $211 million to $213 million for the third quarter of 2016. Adjusting for the shut-down of non-core services at Apartment Finder in 2015, the current outlook anticipates pro-forma revenue growth (defined below) in the range of 13% to 14% for the third quarter of 2016 over the third quarter of 2015. For the full year of 2016, the Company reaffirms its revenue outlook of approximately $834 million to $840 million.  

The Company exceeded its second quarter 2016 non-GAAP net income per share outlook by approximately $0.09 at the midpoint and expects to reinvest a portion of this favorability into growth initiatives in the third and fourth quarters of 2016. For the third quarter of 2016, the Company expects non-GAAP net income per diluted share (defined below) of approximately $1.00 to $1.04. For the full year of 2016, the Company expects non-GAAP net income per diluted share in a range of approximately $4.05 to $4.13, raising the midpoint by $0.04 from the prior outlook, and by $0.42 from the Company's initial 2016 guidance.

The preceding forward-looking statements reflect CoStar Group's expectations as of July 27, 2016, including forward-looking non-GAAP financial measures on a consolidated basis. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, the exact amounts or timing of investments, transition, 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 EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share 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. A reconciliation of forward-looking non-GAAP guidance to the most directly comparable GAAP measure, net income, can be found within the tables included in this release.

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 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, and (iv) 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 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. The company assumes 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. For periods with GAAP net losses and non-GAAP net income, the weighted-average outstanding shares used to calculate non-GAAP net income per share includes potentially dilutive securities that were excluded from the calculation of GAAP net income per share as the effect was anti-dilutive.

Pro-forma Revenue Definition
Pro-forma revenue growth rates presented in this release include the addition of Apartment Finder core online marketplace revenue recognized prior to the June 1, 2015 acquisition date and exclude any pre- or post- acquisition revenue for discontinued Apartment Finder services such as Finder Social. 

Earnings Conference Call
Management will conduct a conference call at 11:00 AM EDT on Thursday, July 28, 2016 to discuss earnings results for the second quarter of 2016 and the Company's outlook. The audio portion of the conference call will be broadcast live over the Internet at www.costargroup.com/investors/events. To join the conference call by telephone, please dial (800) 230-1059 (from the United States and Canada) or (612) 234-9959 (from all other countries) and refer to conference code 397279. An audio recording of the conference call will be available for replay approximately one hour after the call's completion and will remain available for a period of time following the call. To access the recorded conference call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 397279. The webcast replay will also be available in the Investors section of CoStar Group's website for a period of time following the call.

CoStar Group, Inc.
Condensed Consolidated Statements of Operations-Unaudited
(in thousands, except per share data)
         
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2016 2015 2016 2015
         
         
Revenues $206,869  $170,657  $406,608  $329,677 
Cost of revenues 42,679  44,634  85,579  90,030 
Gross margin 164,190  126,023  321,029  239,647 
         
Operating expenses:        
Selling and marketing 80,468  92,434  155,672  161,912 
Software development 19,547  16,844  37,182  31,992 
General and administrative 30,227  29,909  57,703  55,272 
Purchase amortization 5,829  6,965  12,052  14,107 
  136,071  146,152  262,609  263,283 
         
Income (loss) from operations 28,119  (20,129) 58,420  (23,636)
Interest and other income 159  137  243  431 
Interest and other expense (2,455) (2,354) (4,964) (4,697)
Income (loss) before income taxes 25,823  (22,346) 53,699  (27,902)
Income tax expense (benefit), net 10,247  (7,380) 21,402  (6,809)
Net income (loss) $15,576  $(14,966) $32,297  $(21,093)
         
Net income (loss) per share - basic $0.48  $(0.47) $1.01  $(0.66)
Net income (loss) per share - diluted $0.48  $(0.47) $1.00  $(0.66)
         
Weighted average outstanding shares - basic 32,186  31,991  32,135  31,911 
Weighted average outstanding shares - diluted 32,448  31,991  32,415  31,911 
             


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
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2016 2015 2016 2015
         
Net income (loss) $15,576  $(14,966) $32,297  $(21,093)
Income tax expense (benefit), net 10,247  (7,380) 21,402  (6,809)
Income (loss) before income taxes 25,823  (22,346) 53,699  (27,902)
Purchase amortization and other related costs 11,516  13,541  23,435  27,030 
Stock-based compensation expense 9,339  8,415  17,670  15,857 
Acquisition and integration related costs 811  2,936  2,258  3,560 
Settlements and impairments   1,376    2,778 
Non-GAAP income before income taxes 47,489  3,922  97,062  21,323 
Assumed rate for income tax expense, net * 38% 38% 38% 38%
Assumed provision for income tax expense, net (18,046) (1,491) (36,884) (8,103)
Non-GAAP net income $29,443  $2,431  $60,178  $13,220 
         
Net income (loss) per share - diluted $0.48  $(0.47) $1.00  $(0.66)
Non-GAAP net income per share - diluted** $0.91  $0.08  $1.86  $0.41 
         
Weighted average outstanding  shares - basic 32,186  31,991  32,135  31,911 
Weighted average outstanding  shares - diluted** 32,448  32,286  32,415  32,229 
         
* 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 and non-GAAP net income, the weighted-average outstanding shares used to calculate non-GAAP net income per share includes potentially dilutive securities that were excluded from the calculation of GAAP net income per share as the effect was anti-dilutive.
         
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2016 2015 2016 2015
         
Net income (loss) $15,576  $(14,966) $32,297  $(21,093)
Purchase amortization in cost of revenues 5,687  6,576  11,383  12,923 
Purchase amortization in operating expenses 5,829  6,965  12,052  14,107 
Depreciation and other amortization 5,924  5,133  11,526  9,457 
Interest income (159) (137) (243) (431)
Interest expense 2,455  2,354  4,964  4,697 
Income tax expense (benefit), net 10,247  (7,380) 21,402  (6,809)
EBITDA $45,559  $(1,455) $93,381  $12,851 
Stock-based compensation expense 9,339  8,415  17,670  15,857 
Acquisition and integration related costs 811  2,936  2,258  3,560 
Settlements and impairments   1,376    2,778 
Adjusted EBITDA $55,709  $11,272  $113,309  $35,046 
                 


CoStar Group, Inc.
Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
     
  June 30, 2016 December 31, 2015
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents $464,151  $421,818 
Short-term investments 1,130   
Accounts receivable, net 45,890  40,276 
Income tax receivable 154  430 
Prepaid expenses and other current assets 12,894  10,209 
Total current assets 524,219  472,733 
     
Long-term investments 9,906  15,507 
Deferred income taxes, net 8,581  9,107 
Property and equipment, net 86,508  88,311 
Goodwill 1,256,940  1,252,945 
Intangible assets, net 218,501  238,318 
Deposits and other assets 2,579  2,650 
Total assets $2,107,234  $2,079,571 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable and accrued expenses $79,756  $76,397 
Current portion of long-term debt 11,812  16,746 
Deferred revenue 41,262  42,138 
Total current liabilities 132,830  135,281 
     
Long-term debt, less current portion 324,910  338,366 
Deferred gain on sale of building 19,977  21,239 
Deferred rent 29,238  29,628 
Deferred income taxes, net 7,533  4,585 
Income taxes payable 6,805  6,692 
     
Stockholders' equity 1,585,941  1,543,780 
Total liabilities and stockholders' equity $2,107,234  $2,079,571 
         


CoStar Group, Inc.
Results of Segments-Unaudited
(in thousands)
        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2016 2015 2016 2015
Revenues       
North America$199,859  $164,486  $393,120  $317,503 
International       
External customers7,010  6,171  13,488  12,174 
Intersegment revenue *10  13  21  21 
Total International revenue7,020  6,184  13,509  12,195 
Intersegment eliminations(10) (13) (21) (21)
Total revenues$206,869  $170,657  $406,608  $329,677 
        
EBITDA       
North America **$45,127  $(1,854) $91,991  $11,823 
International ***432  399  1,390  1,028 
Total EBITDA$45,559  $(1,455) $93,381  $12,851 
        
*Intersegment revenue recorded during 2015 and 2016 was attributable to services performed for the Company's wholly owned subsidiary, CoStar Portfolio Strategy by Grecam S.A.S. ("Grecam"), a wholly owned subsidiary of CoStar Limited, the Company's wholly owned U.K. holding company.
        
**North America EBITDA includes an allocation of approximately $142,000 and $336,000 for the three months ended June 30, 2016 and 2015, respectively. North America EBITDA includes an allocation of approximately $309,000 and $538,000 for the six months ended June 30, 2016 and 2015, respectively. This allocation represents costs incurred for International employees involved in development activities of the Company's North America operating segment.
        
***International EBITDA includes a corporate allocation of approximately $78,000 and $69,000 for the three months ended June 30, 2016 and 2015, respectively. International EBITDA includes a corporate allocation of approximately $133,000 and $126,000 for the six months ended June 30, 2016 and 2015, respectively. This allocation represents costs incurred for North America employees involved in management and expansion activities of the Company's International operating segment.
 


CoStar Group, Inc.
Revenues by Services-Unaudited
(in thousands)
         
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2016 2015 2016 2015
         
Information and analytics        
CoStar Suite $101,074  $88,771  $198,708  $175,581 
Information services 19,425  18,752  38,850  37,289 
Online marketplaces        
Multifamily 54,860  34,742  107,098  60,875 
Commercial property and land 31,510  28,392  61,952  55,932 
Total revenues $206,869  $170,657  $406,608  $329,677 
                 


CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures with 2015-2016 Quarterly Results - Unaudited
(in millions, except per share data)
         
Reconciliation of Net Income (Loss) to Non-GAAP Net Income
         
  2015 2016
  Q1Q2Q3Q4 Q1Q2
         
Net income (loss) $(6.1)$(15.0)$(5.4)$23.0  $16.7 $15.6 
Income tax expense (benefit), net 0.6 (7.4)2.6 10.2  11.2 10.2 
Income (loss) before income taxes (5.5)(22.4)(2.8)33.2  27.9 25.8 
Purchase amortization and other related costs 13.5 13.5 17.1 13.9  11.9 11.5 
Stock-based compensation expense 7.4 8.4 9.3 9.4  8.3 9.3 
Acquisition and integration related costs 0.6 2.9 1.8 1.0  1.5 0.8 
Restructuring and related costs   2.3 (0.3)   
Settlements and impairments 1.4 1.4      
Non-GAAP income before income taxes 17.4 3.9 27.7 57.2  49.6 47.5 
Assumed rate for income tax expense, net * 38%38%38%38% 38%38%
Assumed provision for income tax expense, net (6.6)(1.5)(10.5)(21.7) (18.9)(18.0)
Non-GAAP net income $10.8 $2.4 $17.2 $35.5  $30.7 $29.4 
         
Non-GAAP net income per share - diluted** $0.34 $0.08 $0.53 $1.10  $0.95 $0.91 
         
Weighted average outstanding  shares - basic 31.8 32.0 32.0 32.0  32.1 32.2 
Weighted average outstanding  shares - diluted** 32.2 32.3 32.2 32.3  32.4 32.4 
         
* 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 and non-GAAP net income, the weighted-average outstanding shares used to calculate non-GAAP net income per share includes potentially dilutive securities that were excluded from the calculation of GAAP net income per share as the effect was anti-dilutive. 
  
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
         
  2015 2016
  Q1Q2Q3Q4 Q1Q2
         
Net income (loss) $(6.1)$(15.0)$(5.4)$23.0  $16.7 $15.6 
Purchase amortization 13.5 13.5 17.1 13.9  11.9 11.5 
Depreciation and other amortization 4.3 5.1 5.4 5.7  5.6 5.9 
Interest income (0.3)(0.1) (0.0)(0.1) (0.1)(0.2)
Interest expense 2.3 2.4 2.4 2.3  2.5 2.5 
Income tax expense (benefit), net 0.6 (7.4)2.6 10.2  11.2 10.2 
EBITDA $14.3 $(1.5)$22.1 $55.0  $47.8 $45.6 
Stock-based compensation expense 7.4 8.4 9.3 9.4  8.3 9.3 
Acquisition and integration related costs 0.6 2.9 1.8 1.0  1.5 0.8 
Restructuring and related costs   2.3 (0.3)   
Settlements and impairments 1.4 1.4      
Adjusted EBITDA $23.7 $11.2 $35.5 $65.1  $57.6 $55.7 
                     


CoStar Group, Inc.
Reconciliation of Forward-Looking Guidance-Unaudited
(in thousands, except per share data)
        
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income
 Guidance Range Guidance Range
 For the Three Months For the Twelve Months
 Ended September 30, 2016 Ended December 31, 2016
 Low High Low High
        
Net income$18,400  $20,400  $72,200  $77,400 
Income tax expense, net12,200  13,600  48,100  51,600 
Income before income taxes30,600  34,000  120,300  129,000 
Purchase amortization and other related costs11,200  11,200  46,000  46,000 
Stock-based compensation expense10,000  9,000  40,000  36,000 
Acquisition and integration related costs    2,300  2,300 
Restructuring and related costs600  300  3,000  2,500 
Non-GAAP income before income taxes52,400  54,500  211,600  215,800 
Assumed rate for income tax expense, net *38% 38% 38% 38%
Assumed provision for income tax expense, net(19,900) (20,700) (80,400) (82,000)
Non-GAAP net income$32,500  $33,800  $131,200  $133,800 
        
Net income per share - diluted$0.57  $0.63  $2.23  $2.39 
Non-GAAP net income per share - diluted$1.00  $1.04  $4.05  $4.13 
        
Weighted average outstanding  shares - diluted32,500  32,500  32,400  32,400 
        
* A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.
        
Reconciliation of Forward-Looking Guidance, Net Income to Adjusted EBITDA 
    
 Guidance Range Guidance Range
 For the Three Months For the Twelve Months
 Ended September 30, 2016 Ended December 31, 2016
 Low High Low High
Net income$18,400  $20,400  $72,200  $77,400 
Purchase amortization and other related costs11,200  11,200  46,000  46,000 
Depreciation and other amortization6,400  6,400  24,600  24,600 
Interest and other expense (income), net2,400  2,400  9,700  9,700 
Income tax expense, net12,200  13,600  48,100  51,600 
Stock-based compensation expense10,000  9,000  40,000  36,000 
Acquisition and integration related costs    2,300  2,300 
Restructuring and related costs600  300  3,000  2,500 
Adjusted EBITDA$61,200  $63,300  $245,900  $250,100 
                

About CoStar Group, Inc.

CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. 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. LoopNet is the most heavily trafficked commercial real estate marketplace online with more than 10 million registered members. Apartments.com, ApartmentFinder.com and ApartmentHomeLiving.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. Through an exclusive partnership with Move, a subsidiary of News Corporation, Apartments.com is the exclusive provider of apartment community listings across Move's family of websites, which include realtor.com®, doorsteps.com and move.com. CoStar Group's websites attracted an average of nearly 25 million unique monthly visitors in aggregate in the second quarter of 2016. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of approximately 2,700 worldwide, including the industry's largest professional research organization. For more information, visit www.costargroup.com.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar Group's financial expectations, the Company's plans, objectives, expectations and intentions and other statements including 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. Such statements are based upon the current beliefs and expectations of management of CoStar Group and are subject to significant risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the risk that the trends stated or implied by this release cannot or will not be sustained at the current pace, including trends related to sales bookings, earnings, profitability, revenue, margin improvement, unique visitors and monthly visits; the risk that the Company is unable to sustain current growth rates or increase them; the risk that cost management efforts do not produce the expected results; the risk that top line growth and/or margin expansion do not continue throughout 2016; the risk that revenues for the third quarter and full year 2016 will not be as stated in this press release; the risk that net income for the third quarter and full year 2016 will not be as stated in this press release; the risk that non-GAAP net income and non-GAAP net income per diluted share for the third quarter and full year 2016 will not be as stated in this press release; the risk that adjusted EBITDA for the third quarter and full year 2016 will not be as stated in this press release; and the risk that the Company's plans for reinvestment in growth initiatives in the third and fourth quarters change. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar's Annual Report on Form 10-K for the year ended December 31, 2015, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, each of which is filed with the SEC, including in the "Risk Factors" section of those filings, and the Company's other filings with the SEC available at the SEC's website (www.sec.gov). CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All Contacts Scott Wheeler Chief Financial Officer (202) 336-6920 swheeler@costar.com Richard Simonelli Vice President, Investor Relations (202) 346-6394 rsimonelli@costar.com

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