UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020

~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)~~



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 0-24531

CoStar Group, Inc.

(Exact name of registrant as specified in its charter)



Delaware		52-2091509
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)

~~1331 L Street, NW~~

~~Washington, DC~~



1331 L Street, NW
Washington,	DC	20005

(Address of principal executive offices) ~~(zip code)~~(Zip Code)

(202)346-6500

(Registrant’s telephone number, including area code)

(877) 739-0486

(Registrant’s facsimile number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock ($0.01 par value)	CSGP	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the ~~Securities~~ Exchange ~~Act of 1934.~~Act.



Large accelerated filerx	x	Accelerated filero	☐
Non-accelerated filer o	☐	Smaller reporting companyo	☐
		Emerging growth companyo	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

As of April ~~19, 2019,~~24, 2020, there were ~~36,541,576~~36,726,443 shares of the registrant’s common stock outstanding.

COSTAR GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Comprehensive Income	5

	Condensed Consolidated Balance Sheets	6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity	7

	Condensed Consolidated Statements of Cash Flows	89

	Notes to Condensed Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3840

Item 4.	Controls and Procedures	3941

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4042

Item 1A.	Risk Factors	4042

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4144

Item 3.	Defaults Upon Senior Securities	4144

Item 4.	Mine Safety Disclosures	4144

Item 5.	Other Information	4144

Item 6.	Exhibits	4245

Signatures		4346

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Revenues	$	328,425		$	273,718		$	391,847		$	328,425
Cost of revenues	71,153			62,477			78,909			71,153
Gross profit	257,272			211,241			312,938			257,272

Operating expenses:
Selling and marketing (excluding customer base amortization)	88,094			88,490			125,107			88,094
Software development	27,928			22,913			41,610			27,928
General and administrative	40,076			40,590			58,873			40,076
Customer base amortization	7,682			5,803			11,484			7,682
	163,780			157,796			237,074			163,780
Income from operations	93,492			53,445			75,864			93,492
Interest and other income	4,945			2,987			4,518			4,945
Interest and other expense	(732		)	(690		)	(2,026		)	(732		)
Income before income taxes	97,705			55,742			78,356			97,705
Income tax expense	12,536			3,511			5,563			12,536
Net income	$	85,169		$	52,231		$	72,793		$	85,169

Net income per share - basic	$	2.35		$	1.46		$	2.00		$	2.35
Net income per share - diluted	$	2.33		$	1.44		$	1.98		$	2.33

Weighted average outstanding shares - basic	36,237			35,893
Weighted average outstanding shares - diluted	36,567			36,350
Weighted-average outstanding shares - basic							36,471			36,237
Weighted-average outstanding shares - diluted							36,776			36,567

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020			2019
Net income	$	85,169	$	52,231	$	72,793		$	85,169
Other comprehensive income, net of tax
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment	380		951		(12,949		)	380
Total other comprehensive income	380		951
Unrealized gain on investments					189			—
Reclassification adjustment for realized loss on investments included in net income					541			—
Total other comprehensive (loss) income					(12,219		)	380
Total comprehensive income	$	85,549	$	53,182	$	60,574		$	85,549

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	March 31, 2019		December 31, 2018		March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,232,817	$	1,100,416
Accounts receivable, less allowance of $4,790 and $5,709 as of March 31, 2019 and December 31, 2018, respectively	92,841		89,192
Cash, cash equivalents and restricted cash					$	1,927,923		$	1,070,731
Accounts receivable					120,559			96,788
Less: Allowance for credit losses					(8,311		)	(4,548		)
Accounts receivable, net					112,248			92,240
Prepaid expenses and other current assets	20,713		23,690		30,219			36,194
Total current assets	1,346,371		1,213,298		2,070,390			1,199,165

Long-term investments	10,070		10,070		—			10,070
Deferred income taxes, net	6,451		7,469		4,762			5,408
Property and equipment, net	85,978		83,303		106,409			107,529
Lease right-of-use assets	112,042		—		112,811			115,084
Goodwill	1,612,065		1,611,535		1,873,987			1,882,020
Intangible assets, net	275,750		288,911		400,689			421,196
Deferred commission costs, net	77,375		76,031		91,000			89,374
Deposits and other assets	7,274		7,432		9,743			9,232
Income tax receivable	14,908		14,908		14,806			14,908
Total assets	$	3,548,284	$	3,312,957	$	4,684,597		$	3,853,986
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,919	$	6,327	$	22,486		$	7,640
Accrued wages and commissions	49,264		45,588		49,302			53,087
Accrued expenses	36,291		29,821		40,310			38,680
Deferred gain on the sale of building	—		2,523
Income taxes payable	22,536		14,288		12,183			10,705
Deferred rent	—		4,153
Lease liabilities	26,062		—		27,681			29,670
Deferred revenue	56,155		51,459		84,717			67,274
Total current liabilities	198,227		154,159		236,679			207,056

Deferred gain on the sale of building	—		13,669
Deferred rent	—		31,944
Long-term debt					745,000			—
Deferred income taxes, net	76,682		69,857		88,799			87,096
Income taxes payable	17,443		17,386		20,611			20,521
Lease and other long-term liabilities	127,318		4,000		130,697			133,720
Total liabilities	419,670		291,015		1,221,786			448,393

Total stockholders’ equity	3,128,614		3,021,942		3,462,811			3,405,593
Total liabilities and stockholders’ equity	$	3,548,284	$	3,312,957	$	4,684,597		$	3,853,986

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total Stockholders’ Equity			Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
	Shares		Amount					Shares				Retained Earnings			Amount									Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
Balance at December 31, 2018	36,446		$	364	Additional Paid-In Capital			$	Accumulated Other Comprehensive Loss	2,419,812		$	(11,688	)		Total Stockholders’ Equity	$	613,454			$	3,021,942
Cumulative effect of adoption of new accounting standard, net of tax	—		—		—				—			12,057				12,057
Balance at January 1, 2019	36,446		$	364	$	2,419,812			$	(11,688	)	$	625,511			$	3,033,999
Balance at December 31, 2019																			36,668			366		$	2,473,338		$	(8,585	)	$	940,474	$	3,405,593
Net income	—		—		—				—			85,169				85,169			—			—		—			—			72,793		72,793
Other comprehensive income	—		—		—				380			—				380
Other comprehensive loss																			—			—		—			(12,219		)	—		(12,219		)
Exercise of stock options	79		1		10,637				—			—				10,638			41			1		9,232			—			—		9,233
Restricted stock grants	132		1		(1		)		—			—				—			83			1		(1		)	—			—		—
Restricted stock grants surrendered	(43	)	—		(18,679		)		—			—				(18,679		)	(56	)		(1	)	(30,144		)	—			—		(30,145		)
Stock-based compensation expense	—		—		12,034				—			—				12,034			—			—		15,006			—			—		15,006
Management stock purchase plan	—		—		3,491				—			—				3,491
Employee stock purchase plan	4		—		1,582				—			—				1,582			4			—		2,550			—			—		2,550
Balance at March 31, 2019	36,618		$	366	$	2,428,876			$	(11,308	)	$	710,680			$	3,128,614
Balance at March 31, 2020																			36,740			367		$	2,469,981		$	(20,804	)	$	1,013,267	$	3,462,811

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
	Shares		Amount					Shares				Retained Earnings			Amount								Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
Balance at December 31, 2017	36,107		$	361	Additional Paid-In Capital			$	Accumulated Other Comprehensive Loss	2,339,253		$	(9,020	)		Total Stockholders’ Equity	$	320,656			$	2,651,250
Balance at December 31, 2018																			36,446			364	$	2,419,812		$	(11,688	)	$	613,454	$	3,021,942
Cumulative effect of adoption of new accounting standard, net of tax	—		—		—				—			54,464				54,464			—			—	—			—			12,057		12,057
Balance at January 1, 2018	36,107		$	361	$	2,339,253			$	(9,020	)	$	375,120			$	2,705,714
Balance at January 1, 2019																			36,446			364	2,419,812			(11,688		)	625,511		3,033,999
Net income	—		—		—				—			52,231				52,231			—			—	—			—			85,169		85,169
Other comprehensive income	—		—		—				951			—				951			—			—	—			380			—		380
Exercise of stock options	111		1		9,327				—			—				9,328			79			1	10,637			—			—		10,638
Restricted stock grants	114		1		(1		)		—			—				—			132			1	(1		)	—			—		—
Restricted stock grants surrendered	(47	)	—		(15,392		)		—			—				(15,392		)	(43	)		—	(18,679		)	—			—		(18,679		)
Stock-based compensation expense	—		—		10,335				—			—				10,335			—			—	12,034			—			—		12,034
Management stock purchase plan																			—			—	3,491			—			—		3,491
Employee stock purchase plan	4		—		1,431				—			—				1,431			4			—	1,582			—			—		1,582
Stock issued for acquisitions	103		1		36,365				—			—				36,366
Balance at March 31, 2018	36,392		$	364	$	2,381,318			$	(8,069	)	$	427,351			$	2,800,964
Balance at March 31, 2019																			36,618			366	$	2,428,876		$	(11,308	)	$	710,680	$	3,128,614

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Operating activities:
Net income	$	85,169		$	52,231		$	72,793		$	85,169
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,659			16,983			24,256			19,659
Amortization of deferred commissions costs	12,407			12,006			14,747			12,407
Amortization of debt issuance costs	219			219			292			219
Realized loss on investments							541			—
Non-cash lease expense							6,261			5,197
Stock-based compensation expense	12,029			10,412			15,180			12,029
Deferred income taxes, net	3,702			1,851			2,825			3,702
Bad debt expense	2,185			1,431
Credit loss expense							6,183			2,185
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(5,835		)	(2,511		)	(26,613		)	(5,835		)
Income taxes payable							1,624			8,311
Prepaid expenses and other current assets	206			(9,522		)	1,838			206
Deferred commissions	(13,729		)	(16,263		)	(16,523		)	(13,729		)
Lease right-of-use and other assets	5,138			(3,412		)
Other assets							1,215			(59		)
Accounts payable and other liabilities	18,636			4,288			15,564			15,068
Lease liabilities							(6,967		)	(4,743		)
Deferred revenue	8,708			5,272			18,248			8,708
Net cash provided by operating activities	148,494			72,985			131,464			148,494

Investing activities:
Proceeds from sale and settlement of investments							10,259			—
Purchases of property and equipment and other assets	(9,429		)	(8,617		)	(7,133		)	(9,429		)
Cash paid for acquisitions, net of cash acquired	—			(340,074		)	(432		)	—
Net cash used in investing activities	(9,429		)	(348,691		)
Net cash provided by (used in) investing activities							2,694			(9,429		)

Financing activities:
Proceeds from long-term debt							745,000			—
Repurchase of restricted stock to satisfy tax withholding obligations	(18,679		)	(15,392		)	(30,144		)	(18,679		)
Proceeds from exercise of stock options and employee stock purchase plan	12,061			10,616			10,295			12,061
Net cash used in financing activities	(6,618		)	(4,776		)
Net cash provided by (used in) financing activities							725,151			(6,618		)

Effect of foreign currency exchange rates on cash and cash equivalents	(46		)	448			(2,117		)	(46		)
Net increase (decrease) in cash and cash equivalents	132,401			(280,034		)
Cash and cash equivalents at the beginning of period	1,100,416			1,211,463
Cash and cash equivalents at the end of period	$	1,232,817		$	931,429
Net increase in cash, cash equivalents and restricted cash							857,192			132,401
Cash, cash equivalents and restricted cash at the beginning of period							1,070,731			1,100,416
Cash, cash equivalents and restricted cash at the end of period							$	1,927,923		$	1,232,817

Supplemental cash flow disclosures:
Interest paid	$	519		$	381		$	499		$	519
Income taxes paid	521			533			$	1,111		$	521

Supplemental non-cash investing and financing activities:
Stock issued in connection with acquisition - ForRent	$	—		$	36,366

See accompanying notes.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


1.	ORGANIZATION

CoStar Group, Inc. (the “Company” or “CoStar”) provides information, analytics and online marketplace services to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate ~~information covering the United States (“U.S.”), the United Kingdom (“U.K.”), and parts of Canada, Spain, Germany and France.~~information. The Company provides online marketplaces for commercial real estate, apartment rentals, lands for sale and businesses for ~~sale. The Company operates within two operating segments, North America and International,~~sale, and its services are typically distributed to its clients under subscription-based license agreements that renew automatically, a majority of which have a term of at least one ~~year~~.year. The Company operates within 2 operating segments, North America, which includes the United States ("U.S.") and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating segment.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. In the opinion of the Company’s management, the financial statements reflect all adjustments, consisting only of a normal recurring nature, necessary to present fairly the Company’s financial position at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the results of its operations for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, its comprehensive income for the three months ended March 31, ~~2019~~2020 and ~~2018~~,2019, its changes in stockholders' equity for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, and its cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~.2019.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for ~~doubtful accounts,~~credit losses, the useful lives and recoverability of ~~property and equipment~~long-lived and intangible assets, ~~recoverability of long-lived assets~~ and ~~intangible assets with definite lives,~~ goodwill, income taxes, ~~fair value of equity instruments, fair value of auction rate securities,~~ accounting for business combinations, stock-based compensation, estimating the Company's incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ from these estimates.

Revenue Recognition

The Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate information and (ii) providing online marketplaces for professional property management companies, property owners, brokers and landlords, in each case typically through a fixed monthly fee for its subscription-based services. The Company's subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals. Subscription contract rates are based on the number of sites, number of users, organization size, the client’s business focus, geography, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. The Company’s subscription-based license agreements typically renew automatically, and a majority have a term of at least one year.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The Company also provides (i) market research, portfolio and debt analysis, management and reporting capabilities and (ii) real estate and lease management solutions, including lease administration and abstraction services, to commercial customers, real estate investors, and lenders via the Company’s other service offerings, as well as (iii) benchmarking and analytics for the hospitality industry through STR, LLC (formerly known as STR, Inc.) and STR Global, Ltd. (together with STR, LLC, referred to as “STR”), which were acquired in the fourth quarter of 2019.

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations, and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation(s).

The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement.

~~The~~In limited circumstances, the Company's contracts with customers ~~often~~ include promises to transfer multiple services, such as contracts for its subscription-based services and professional services. For these contracts, the Company accounts for individual performance obligations separately if they are ~~distinct. Determining whether services are considered~~ distinct, ~~performance obligations may require significant judgment. Judgment is required to determine~~which involves the determination of the standalone selling price ~~(“SSP”)~~ for each distinct performance obligation. In instances where SSP is not directly observable, such as when the Company does not sell the services separately, the Company determines the SSP using available information, including market conditions and other observable inputs.

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of the ~~sale~~Company's fulfillment of ~~subscription licenses~~its performance obligation(s) and is recognized ~~over the term of the license agreement.~~as those obligations are satisfied.

Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from revenue recognition timing.

Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a straight-line basis over a period of benefit that the Company has determined to be three years. The three-year amortization period was determined based on several factors, including the nature of the technology and proprietary data underlying the services being purchased, customer contract renewal rates and industry competition. Certain commission costs are not capitalized as they do not represent incremental costs of obtaining a contract.

See Note 3 for further discussion of the Company's revenue recognition.

Cost of Revenues

Cost of revenues principally consists of salaries, benefits, bonuses and stock-based compensation expenses and other indirect costs for the Company's researchers who collect and analyze the commercial real estate data that is the basis for the Company's information, analytics and online ~~marketplaces.~~marketplaces and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources, credit card and other transaction fees relating to processing customer transactions, which are expensed as incurred, and the amortization of acquired trade names, technology and other intangible assets.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs include ~~e-commerce,~~digital marketing, television, ~~radio,~~company-sponsored events, print and other media advertising. Advertising costs were approximately ~~$33~~$53 million and ~~$23~~$33 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Foreign Currency ~~Translation~~

The Company’s reporting currency is the U.S. dollar. The functional currency infor the majority of its ~~foreign locations~~operations is the local ~~currency.~~currency, with the exception of certain international locations of STR for which the functional currency is the British Pound. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using the exchange rates in effect as of the balance sheet ~~dates. Revenues, expenses, gains and losses are translated at the average exchange rates in effect during each period.~~date. Gains and losses resulting from translation are included in accumulated other comprehensive loss. Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included in accumulated other comprehensive loss. Net gains or losses resulting from ~~foreign~~transactions denominated in a currency ~~exchange transactions~~other than the functional currency of the entity are included in interest and other income (expense) in the condensed consolidated statements of operations using the average exchange rates in effect during the period. For the three months ended March 31, 2020, the Company recognized net foreign currency gains of $1.4 million included in interest and other income (expense) on the condensed consolidated statements of operations. There were no0 material gains or losses from ~~foreign currency exchange~~these transactions for the three months ended March 31, ~~2019 and 2018.~~2019.

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):



	March 31, 2020			December 31, 2019
Foreign currency translation adjustment	$	(20,804	)	$	(7,855	)
Net unrealized loss on investments, net of tax	—			(730		)
Total accumulated other comprehensive loss	$	(20,804	)	$	(8,585	)

March 31,
2019 December 31,
2018
Foreign currency translation adjustment $ (10,578 ) $ (10,958 )
Net unrealized loss on investments, net of tax (730 ) (730 )
Total accumulated other comprehensive loss $ (11,308 ) $ (11,688 )

During the three months ended March 31, 2020, the Company sold its long-term variable debt instruments with an auction reset feature, referred to as auction rate securities ("ARS") and reclassified out of accumulated other comprehensive loss a realized loss of $0.5 million to earnings which is included in interest and other income expense in the condensed consolidated statements of operations. There were no0 amounts reclassified out of accumulated other comprehensive loss to the condensed consolidated statements of operations for the three months ended March 31, 2019 ~~and 2018. The foreign currency translation adjustment includes intra-entity foreign currency transactions that are of a long-term investment nature.~~.

See Note 56 for additional information regarding ~~unrealized gains and losses recognized on~~ investments.

Income Taxes

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported in the ~~Company's condensed~~Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted rates in effect during the year in which the Company expects differences to reverse. Valuation allowances are provided against assets, including net operating losses, if the Company determines it is more likely than not that some portion or all of an asset may not be realized. Interest and penalties related to income tax matters are recognized in income tax expense.

See Note 11 for additional information regarding income taxes.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period on a basic and diluted basis.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share data):



	Three Months Ended March 31,
Numerator:	2020		2019
Numerator:
Net income	$	72,793	$	85,169
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares	36,471		36,237
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units	305		330
Denominator for diluted net income per share — weighted-average outstanding shares	36,776		36,567

Net income per share — basic	$	2.00	$	2.35
Net income per share — diluted	$	1.98	$	2.33

Three Months Ended
March 31,

Numerator:
2019 2018

Net income $ 85,169
$ 52,231
Denominator:

Denominator for basic net income per share — weighted-average outstanding shares 36,237
35,893
Effect of dilutive securities:

Stock options and restricted stock awards 330
457
Denominator for diluted net income per share — weighted-average outstanding shares 36,567
36,350

Net income per share — basic $ 2.35
$ 1.46
Net income per share — diluted $ 2.33
$ 1.44

The Company’s potentially dilutive securities include outstanding stock options and unvested ~~performance-based~~stock-based awards which include restricted stock awards ~~and~~that vest over a specific service period, restricted ~~stock units and awards. Shares underlying restricted common~~ stock awards that vest based on ~~Company~~achievement of a performance condition, restricted stock awards with a performance and ~~service~~a market condition, restricted stock units and matching restricted stock units awarded under the Company's Management Stock Purchase Plan. Shares underlying unvested restricted stock awards that vest based on performance and market conditions that have not been achieved as of the end of the period are not included in the computation of basic or diluted earnings per share.

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

~~The following table summarizes the shares underlying the performance-based restricted stock awards excluded from the basic and diluted earnings per share calculations (in thousands):~~

Three Months Ended
March 31,
2019 2018
Performance-based restricted stock awards 89
84

Diluted net income per share considers the impact of potentially dilutive securities except when the inclusion of the potentially dilutive securities would have an anti-dilutive effect. ~~Stock options to purchase approximately 52,000~~

The following table summarizes the shares underlying the unvested performance-based restricted stock and ~~83,000 shares that were outstanding for~~anti-dilutive securities excluded from the ~~three months ended March 31, 2019~~basic and ~~2018, respectively, were not included in the computation of~~ diluted ~~net income~~earnings per share ~~because the inclusion of the potentially dilutive securities would have an anti-dilutive effect.~~calculations (in thousands):



	Three Months Ended March 31,
	2020	2019
Performance-based restricted stock awards	84	89
Anti-dilutive securities	96	141

Stock-Based Compensation

Equity instruments issued in exchange for services performed by officers, employees, and directors of the Company are accounted for using a ~~fair value~~fair-value based method ~~where~~and the fair value of such equity instruments is recognized as expense in the ~~condensed~~ consolidated statements of ~~operations as they are earned.~~operations.

For stock-based awards that vest over ~~set time periods,~~a specific service period, compensation expense is measured based on the fair value of the awards at the grant date, and is recognized on a straight-line basis over the vesting ~~periods~~period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of a performance condition, and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards. Stock-basedstock-based compensation expense is ~~updated~~recognized based on the expected achievement of the related performance conditions at the end of each reporting ~~period.~~period over the vesting period of the awards. If the Company's initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed. For awards with both a performance and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Stock-based compensation expense for stock options and restricted stock awards issued under equity incentive plans and stock purchases under the Employee Stock Purchase Plan included in the Company’s results of operations were as follows (in thousands):

Three Months Ended
March 31,
2019 2018
Cost of revenues $ 2,058
$ 1,431
Selling and marketing (excluding customer base amortization) 1,638
1,835
Software development 2,056
1,729
General and administrative 6,277
5,417
Total stock-based compensation expense $ 12,029
$ 10,412



	Three Months Ended March 31,
	2020		2019
Cost of revenues	$	2,472	$	2,058
Selling and marketing (excluding customer base amortization)	2,024		1,638
Software development	2,528		2,056
General and administrative	8,156		6,277
Total stock-based compensation expense	$	15,180	$	12,029

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~Allowance for Credit Losses

~~Leases~~

On January 1, ~~2019,~~2020, the Company adopted Accounting Standards ~~Update (“ASU”~~Updates ("ASU") ~~2016-02,~~ 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses; ASU 2019-04, Codification Improvements to Financial Instruments - Credit Losses (Topic 326); ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument; ASU 2019-11, Codification Improvements to Financial Instruments - Credit Losses (Topic 326) and ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842), later codified as Accounting Standards Codification ("ASC") ~~842 (~~"326 ("ASC ~~842"~~326"), using the modified retrospective ~~method. For periods presented prior to the adoption date, the Company continues to follow its previous policy under~~ ~~ASC 840, Leases~~.transition approach. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission on February ~~28, 2019,~~26, 2020, for further details of the Company’s policy prior to the adoption of ASC ~~842~~.326.

As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses ("CECL") on its trade receivables and contract assets arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables and contract assets based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectibility by reviewing the duration of collection pursuits on its delinquent trade receivables. Based on the Company’s experience, the customer's delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly. In most instances, the Company’s policy is to write-off trade receivables when they are deemed uncollectible. A majority of the Company's trade receivables are less than 365 days.

Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on four portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of the Company’s business operations and the characteristics of the underlying trade receivables, as follows:


•	CoStar Suite Portfolio Segment - The CoStar Suite portfolio segment consists of two classes of trade receivables based on geographical location: CoStar Suite, North America and CoStar Suite, International.


•	Information Services Portfolio Segment - The information services portfolio segment consists of four classes of trade receivables: Real Estate Manager; information services, North America; STR, US; and STR, International.


•	Multifamily Portfolio Segment - The multifamily portfolio segment consists of one class of trade receivables.


•	Commercial property and land Portfolio Segment - The commercial property and land portfolio segment consists of two classes of trade receivables: LoopNet and other commercial property and land online marketplaces.

See Note 4 for further discussion of the Company’s accounting for allowance for credit losses.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Leases

The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at lease commencement, at which time the Company also measures and recognizes a right-of-use ("ROU") asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. For the purposes of recognizing ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less. The lease term is defined as the noncancelable portion of the lease term, plus any periods covered by an option to extend the lease if it is reasonably certain that that the option will be exercised.

In determining the amount of lease payments used in measuring ROU assets and lease liabilities, the Company has elected the practical expedient not to separate non-lease components from lease components for all classes of underlying assets. Consideration ~~considered~~deemed part of the lease payments used to measure ROU assets and lease liabilities generally includes fixed payments and variable payments based on either an index or a ~~rate.~~rate, offset by lease incentives. The ROU asset also includes any lease ~~prepayments, offset by lease incentives.~~prepayments. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally not ~~determinable, therefore,~~determinable. Therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. Because the Company currently has no outstanding debt, the incremental borrowing rate for each lease is primarily based on publicly-available information for companies within the same industryjudgment and with similar credit profiles. The rate is then adjusted for the impact of collateralization, the lease term and other specific terms included in the Company’s lease arrangements. The incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating leases in existence upon adoption of ASC 842. The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement. ~~ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.~~

Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.

See Note 7 for further discussion of the Company’s accounting for leases.

Long-Lived Assets, Intangible Assets and Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Goodwill is tested annually for impairment by each reporting unit on October 1 of each year or more frequently if an event or other circumstance indicates that we may not recover the carrying value of the asset. The Company may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or elect to bypass such assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company elects to bypass such assessment, the Company then determines the fair value of each reporting unit. The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference.

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

Debt Issuance Costs

Costs incurred in connection with the issuance of ~~long term~~long-term debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method for term debt and on a straight-line basis for revolving debt. ToThe Company made a policy election to classify deferred issuance costs on the ~~extent that debt is outstanding, these amounts are reflected in the~~revolving credit facility as a long-term asset on its condensed consolidated balance ~~sheets as direct deductions from a combination of the current and long-term portions of debt, otherwise, they are reflected as current and long-term assets.~~sheets. Upon a refinancing or amendment, previously capitalized debt issuance costs are expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification of the related debt. If the Company determines that there has not been a substantial modification of the related debt, any previously capitalized debt issuance costs are amortized as interest expense over the term of the new debt instrument.

See Note 10 for additional information regarding the Company's revolving credit facility.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Business Combinations

The Company allocates the purchase consideration related to business combinations to the identifiable tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values. The purchase consideration is determined based on the fair value of the assets transferred, liabilities incurred and equity interests issued, after considering any transactions that are separate from the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired technology and acquired trade names and other intangible assets, useful lives, royalty rates and discount rates. Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated ~~amounts.~~fair value.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been assumed at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in the Company's estimates of such contingencies will affect earnings and could have a material effect on its results of operations and financial position.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items based upon facts and circumstances that existed as of the acquisition date with any adjustments to its preliminary estimates being recorded to goodwill, provided that the Company is within the measurement period. Subsequent to the measurement period, changes to these uncertain tax positions and tax related valuation allowances will affect the Company's provision for income taxes in its condensed consolidated statements of operations and comprehensive income and could have a material impact on its results of operations and financial position.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

On January 1, ~~2019,~~2020, the Company adopted ASU ~~2016-02,~~ ~~Leases, using~~2019-12, Simplifying the ~~modified retrospective method which allows~~Accounting for Income Taxes on a prospective basis. The amounts related to the reclassification of franchise taxes from income from operations to income tax expense for the application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these condensed consolidated financial statements. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date andthree months ended March 31, 2020 did not ~~reassess contracts entered into prior to the adoption date for the existence of~~have a ~~lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less.~~

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

As a result of the adoption of the standard, the Company recognized ROU assets of $116 million, including prepaid rent and deferred rent that was reclassified and recognized as of the adoption date as a component of the ROU asset, as well as lease liabilities of $150 million, on its condensed consolidated balance sheet. The assets and liabilities recognized upon application of the transition provisions were primarily associated with existing office leases. The Company also recognized a cumulative-effect adjustment to beginning retained earnings of $12 million, net of tax, as of January 1, 2019 to recognize the remaining deferred gainmaterial impact on the ~~sale-leaseback of the~~ Company's ~~corporate headquarters building, pursuant to the guidance in~~ ~~ASC 842~~.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurements (subsequent to adoption of ASU 2018-13, Fair Value Measurement).~~ The ASU was issued to eliminate certain disclosure requirements for fair value measurements, and add and modify other disclosure requirements, as part of its disclosure framework project, including additional requirements for public companies to disclose certain information about the significant unobservable inputs for Level 3 fair value measurements. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on itscondensed consolidated financial statements and related disclosures.

~~In August 2018,~~On January 1, 2020, the ~~FASB issued~~Company adopted ASU 2018-15,Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service ~~Contract.~~Contract on a prospective basis. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ~~Accounting Standards Codification~~ASC 350-40 to determine which implementation costs to defer and recognize as an asset. ~~For public business entities,~~The adoption did not have a material impact on the ~~guidance is effective for annual and interim periods beginning after December 15, 2019. The Company is currently evaluating the impact this guidance will have on its~~Company's condensed consolidated financial statements and related disclosures.

~~In June 2016,~~

On January 1, 2020, the ~~FASB issued~~Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ~~which is designed to provide financial statement users~~using the modified retrospective method. This accounting standard replaced the prior incurred loss accounting model with ~~more information about the~~a current expected credit ~~losses on financial instruments and other commitments~~loss approach. As of January 1, 2020, no cumulative transition adjustment was recorded to ~~extend credit held by~~the beginning balance of retained earnings, as the adoption did not result in a ~~reporting entity at each reporting date. When determining such expected~~higher allowance for credit losses under the ~~guidance requires companies to apply~~CECL impairment model. The adoption did not have a ~~methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective~~material impact on ~~a modified retrospective basis for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Companies may adopt~~ the ~~standard as early as annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its~~Company's condensed consolidated financial statements and related disclosures.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


3.	REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

The Company provides information, analytics and online marketplaces to the commercial real estate industry and related professionals. The revenues by operating segment and type of service consist of the following (in thousands):



	Three Months Ended March 31,
	2020						2019
	North America		International		Total		North America		International		Total
Information and analytics
CoStar Suite	$	157,335	$	7,621	$	164,956	$	140,973	$	6,728	$	147,701
Information services	25,690		6,692		32,382		16,591		2,259		18,850
Online marketplaces
Multifamily	137,460		—		137,460		114,268		—		114,268
Commercial property and land	56,962		87		57,049		47,405		201		47,606
Total revenues	$	377,447	$	14,400	$	391,847	$	319,237	$	9,188	$	328,425

Three Months Ended March 31,
2019 2018
North America International Total North America International Total
Information and analytics
CoStar Suite $ 140,973
$ 6,728
$ 147,701
$ 123,886
$ 6,475
$ 130,361
Information services 16,591
2,259
18,850
12,612
2,448
15,060
Online marketplaces
Multifamily 114,268
—
114,268
87,683
—
87,683
Commercial property and land 47,405
201
47,606
40,614
—
40,614
Total revenues $ 319,237
$ 9,188
$ 328,425
$ 264,795
$ 8,923
$ 273,718

Deferred Revenue

Changes in deferred revenue for the period were as follows (in thousands):



Balance at December 31, 2019	$	70,620
Revenue recognized in the current period from the amounts in the beginning balance	(38,354		)
New deferrals, net of amounts recognized in the current period	56,602
Effects of foreign currency	(824		)
Balance at March 31, 2020⁽¹⁾	$	88,044
__________________________

Balance at December 31, 2018 $ 51,459
Revenue recognized in the current period from the amounts in the beginning balance (30,015 )
New deferrals, net of amounts recognized in the current period 38,723
Effects of foreign currency 134
Balance at March 31, 2019⁽¹⁾
$ 60,301
__________________________

⁽¹⁾Deferred revenue is comprised of ~~$56~~$85 million of current liabilities and $4$3 million of noncurrent liabilities classified within lease and other long-term liabilitieson the Company’s condensed consolidated balance sheet as of March 31, ~~2019.~~2020.

Contract Assets

The Company had contract assets of $2$5 million and $4 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied.

~~Commissions~~

Current contract assets are included in prepaid expenses and other current assets, and non-current contract assets are included in deposits and other assets on the Company's condensed consolidated balance sheets. The Company recognized ~~$12~~revenue of $1 million ~~of amortization of deferred commissions~~from contract assets for the three months ended March 31, 2020.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Commissions

Commissions expense is included in selling and marketing expense in the Company's condensed consolidated statements of ~~operations~~operations. Commissions expense activity for ~~both~~ the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was as follows (in thousands). The Company determined that no deferred commissions were impaired as of March 31, ~~2019.~~

2020:



	Three Months Ended March 31,
	2020			2019
Commissions incurred	$	22,437		$	18,551
Commissions capitalized in the current period	(16,523		)	(13,729		)
Amortization of deferred commissions costs	14,747			12,407
Total commissions expense	$	20,661		$	17,229

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

~~Commissions expense activity for the three months ended March 31, 2019 and~~ ~~2018~~ ~~was as follows (in thousands):~~

Three Months Ended
March 31,
2019 2018
Commissions incurred $ 18,551
$ 23,595
Commissions capitalized in the current period (13,729 ) (16,263 )
Amortization of deferred commissions costs 12,407
12,006
Total commissions expense $ 17,229
$ 19,338

Unsatisfied Performance Obligations

Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations was approximately ~~$206~~$249 million at March 31, ~~2019,~~2020, which the Company expects to recognize over the next five years. This amount does not include contract consideration for contracts with a duration of one year or less.


4.	~~ACQUISITIONS~~ALLOWANCE FOR CREDIT LOSSES

The following table details the activity related to the allowance for credit losses for trade receivables by portfolio segment (in thousands):



	Three Months Ended March 31, 2020
	CoStar Suite			Information services		Multifamily			Commercial property and land			Total
Beginning balance at December 31, 2019	$	1,264		$	624	$	1,195		$	1,465		$	4,548
Current-period provision for expected credit losses^{(1), (2)}	2,634			1,247		1,403			899			6,183
Write-offs charged against the allowance, net of recoveries and other	(1,372		)	—		(565		)	(483		)	(2,420		)
Ending balance at March 31, 2020	$	2,526		$	1,871	$	2,033		$	1,881		$	8,311
__________________________

⁽¹⁾Credit loss expense is included in general and administrative expenses on the condensed consolidated statement of operations.

⁽²⁾Credit loss expense related to contract assets was not material for the three months ended March 31, 2020.

5. ACQUISITIONS

RentPath

On February ~~21, 2018~~11, 2020, RentPath Holdings, Inc. (“RentPath”), certain direct or indirect wholly-owned subsidiaries of RentPath (together with RentPath, the “Sellers”), and, solely for the purposes set forth therein, CSGP Holdings, LLC (“CSGP”), an indirect wholly owned subsidiary of the Company ("Buyer") entered into an asset purchase agreement (the ~~"Acquisition Date"~~“Asset Purchase Agreement”), dated as of February 12, 2020. Pursuant to the Asset Purchase Agreement, and subject to the terms and conditions set forth therein, CSGP agreed to acquire for $588 million in cash all of the equity interests of RentPath, as reorganized following an internal restructuring of the Sellers (“Reorganized RentPath") pursuant to and under the joint chapter 11 plan of reorganization of the Sellers and certain of their affiliates to be filed in the U.S. Bankruptcy Court for the District of Delaware. Under the terms of the

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Asset Purchase Agreement, the Company agreed to guarantee the full and timely performance of CSGP’s obligations under the Asset Purchase Agreement. The completion of the transaction is subject to customary conditions, including the expiration or termination of any applicable waiting period under applicable antitrust laws and bankruptcy court approvals. As required by the purchase agreement, the Company paid a $59 million break fee into a cash escrow account. In the event the agreement is terminated under specified circumstances in which 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 the Company. As the transaction had not closed as of March 31, 2020, the break fee is recorded as restricted cash within cash, cash equivalents and restricted cash on the Company's condensed consolidated balance sheets.

STR, LLC and STR Global Ltd.

On October 22, 2019, the Company acquired all of the issued and outstanding ~~capital stock~~equity interests of ~~DE Holdings, Inc., including its ForRent division ("ForRent"), a wholly owned subsidiary of Dominion Enterprises ("Seller"),~~STR for a purchase price of ~~approximately $376~~$435 million. STR is a global provider of benchmarking and analytics for the hospitality industry. The ~~purchase price was comprised~~combination of ~~approximately $340 million in cash~~STR's and ~~103,280 shares of Company common stock, valued at approximately $36 million. ForRent's primary service is digital advertising provided through a network of four multifamily websites. The acquisition~~CoStar's offerings is expected to ~~yield increased revenue, significant cost synergies~~allow for the creation of valuable new and an improved ~~competitive position in the industry.~~tools for industry participants. The Company applied the acquisition method to account for the ~~ForRent~~STR transaction, which requires that assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the ~~Acquisition Date~~acquisition date (in thousands):



	Preliminary: October 22, 2019			Measurement Period Adjustments			Updated Preliminary: October 22, 2019
Cash and cash equivalents	$	11,710		$	(90	)	$	11,620
Accounts receivable	8,067						8,067
Lease right-of-use assets	7,306						7,306
Goodwill	261,436			432			261,868
Intangible assets	178,000						178,000
Lease liabilities	(7,306		)				(7,306		)
Deferred revenue	(10,966		)				(10,966		)
Deferred tax liabilities	(7,980		)				(7,980		)
Other assets and liabilities	(4,815		)				(4,815		)
Fair value of identifiable net assets acquired	$	435,452		$	342		$	435,794

Final:
February 21, 2018
Cash and cash equivalents $ 59
Accounts receivable 8,769
Indemnification asset 5,443
Goodwill 266,595
Intangible assets 141,300
Deferred tax liabilities (34,032 )
Contingent sales tax liability (6,260 )
State uncertain income tax position liability (2,047 )
Other assets and liabilities (3,535 )
Fair value of identifiable net assets acquired $ 376,292

The net assets of ~~ForRent~~STR were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. Measurement period adjustments ~~related~~primarily relate to the determination of working capital as of the ~~Acquisition Date and recognized in 2018, were not material.~~

acquisition date. The ~~acquired~~purchase price allocation is preliminary, subject to the completion of the Company's assessment of certain tax matters. The customer base ~~for~~assets incorporated significant assumptions that had a material impact on the ~~acquisition is composed~~estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and projected profit margins. The following table summarizes the fair values (in thousands) of ~~acquired customer contracts and~~ the identifiable intangible assets included in each of the Company's operating segments, their related ~~customer relationships, and has a weighted average~~ estimated useful life of ten years. The acquired technology has an estimated useful life of three years. The acquired trade name has a weighted average estimated useful life of ten years. The acquired building photography

lives (in years) and their respective amortization methods:



	North America			International
	Estimated Fair Value		Estimated Useful Life	Estimated Fair Value		Estimated Useful Life	Amortization Method
Customer base	$	97,000	13	$	42,000	10	Accelerated
Trade name	24,000		15				Straight-line
Other intangible assets	10,000		5	5,000		5	Straight-line
Total intangible assets	$	131,000		$	47,000

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

has an estimated useful life of one year. Amortization of the acquired customer base is recognized on an accelerated basis related to the expected economic benefit of the intangible asset, while amortization of the acquired technology, acquired building photography and acquired trade names and other intangible assets is recognized on a straight-line basis over their respective estimated useful lives. Goodwill recorded in connection with this acquisition is not amortized, but is subject to an annual impairment test. The $267 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. $8 million of the goodwill recognized is expected to be deductible for income tax purposes in future periods.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the ~~ForRent~~STR acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with ~~ForRent's~~STR's operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce.

~~Upon~~ Goodwill recorded in connection with this acquisition is not amortized, but is subject to an annual impairment test. Of the ~~Company assessed the (i) probability~~$262 million of a contingent sales tax liability and (ii) a state uncertain income tax position liability due to apportionment factors, and recorded accruals of $6 million and $2 million, respectively. The Company could not determine the fair value for the pre-acquisition state sales tax liability and therefore estimated a liability in accordance with ~~ASC 450 Contingencies, using a state-by-state assessment. The uncertain income tax position was determined in accordance with the provisions of~~ ~~ASC 740 Income Tax,~~ ~~and was~~goodwill recorded as part of the ~~purchase price allocation.~~acquisition, $159 million and $103 million are associated with the Company's North America and International operating segments, respectively. The ~~Seller has provided an indemnity for tax liabilities related to periods prior to the acquisition. The Seller's indemnification for sales taxes~~goodwill recognized in the ~~state of Texas~~North America operating segment is ~~limited~~expected to ~~approximately $2 million. The total indemnification asset established as of the acquisition date was $5 million. $1 million of the uncertain~~be deductible for income tax position liability and related indemnification asset recognized as of the acquisition date was reversed during 2018, upon expiration of the statute of limitations applicable to the uncertain income tax position.purposes in future periods.

As part of the ~~ForRent~~STR acquisition, the Company incurred $3$2 million of transaction ~~costs~~ ~~during the~~ ~~three months ended March 31, 2018.~~costs. Additionally, the Company paid ~~$12~~$15 million ~~cash~~ into a cash escrow account for ~~retention~~deferred compensation for certain ~~ForRent~~STR employees, ~~payable if they remained employed by the Company for~~to be paid to active employees after a defined ~~six-month~~one year period following the acquisition or ~~were~~when earlier terminated by the Company without cause or ~~resigned~~by the employee for good reason. In the event some or all of those employees are not entitled to their retention bonus, the funds ~~remained in the escrow account after the employees were compensated and the defined six-month period ended, those funds were~~will be remitted to the ~~Seller.~~seller. The Company ~~expensed all of~~is recognizing compensation expense for the ~~retention~~deferred compensation asover the ~~services were performed in the~~one-year post-combination ~~period in 2018.~~period.

~~Other Acquisitions~~Off Campus Partners, LLC Acquisition

On ~~October~~June 12, ~~2018,~~2019, the Company acquired ~~Realla Ltd.~~Off Campus Partners, LLC ("~~Realla"~~OCP"), ~~the operator~~a provider of ~~a commercial property listings~~student housing marketplace content and ~~data management platform in the U.K.,~~technology to U.S. universities for ~~£12 million ($15 million).~~$16 million. The purchase agreement required an initial payment of ~~£10~~$14 million, ~~($13 million),~~ net of cash acquired, at the time of closing, ~~and~~with the remainder of the purchase price ~~is due~~payable one year following the acquisition ~~date. In connection with~~date, subject to offset for indemnification claims or adjustments to the purchase price after final determination of closing net working capital. As part of the acquisition, the Company recorded goodwill and ~~intangible~~intangibles assets of £8$8 million ~~($10 million)~~ and £4$9 million, ~~($5 million),~~ respectively. The net assets of ~~Realla~~OCP were recorded at their estimated fair value. The estimated fair values are preliminary, subject to the ~~final determination of net working capital as of the acquisition date and completion of the~~ Company's assessment of certain tax matters. Measurement period adjustments recognized in 2019 were not material.

On November 8, 2018, the Company acquired Cozy Services, Ltd. ("Cozy"), a leading provider of online rental solutions that provides a broad spectrum of services to both landlords and tenants, for $65 million, net of cash acquired. As part of the acquisition, the Company recorded goodwill and intangible assets of $53 million and $11 million, respectively. The net assets of Cozy were recorded at their estimated fair value. The estimated fair values are preliminary, subject to the final determination of net working capital and completion of the Company's assessment of certain tax matters.

Pro Forma Financial Information

The unaudited pro forma financial information presented below summarizes the combined results of operations for the Company and ~~ForRent~~STR as though the companies were combined as of January 1, ~~2017.~~2018. The unaudited pro forma financial information for all periods presented includes amortization charges from acquired intangible assets, retention compensation, as referenced above, and the related tax effects, along with certain other accounting effects, but excludes the impacts of any expected operational synergies. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, ~~2017.~~2018.

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

The unaudited pro forma financial information for the three months ended March 31, ~~2018~~2019 combine the historical results of the Company and STR for the ~~three months ended March 31, 2018 and the historical results of ForRent for the period~~periods prior to the ~~Acquisition Date~~acquisition date, and the effects of the pro forma adjustments listed above.

The unaudited pro forma financial information, in the aggregate, was as follows (in thousands, except per share data):



	Three Months Ended March 31, 2019
Revenue	$	340,180
Net income	$	79,423
Net income per share - basic	$	2.19
Net income per share - diluted	$	2.17

Three Months Ended
March 31,
2018
Revenue $ 287,470
Net income $ 52,839
Net income per share - basic 1.47
Net income per share - diluted 1.45

Revenue and net loss attributable to ForRent from February 21, 2018 through March 31, 2018 were $8 million and $8 million, respectively. The net loss was primarily due to personnel costs, including retention compensation, and the amortization of intangible assets upon acquisition.


5.	~~INVESTMENTS~~

6. INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company's investments consist of long-term variable rate debt instruments with an auction reset feature, referred to as auction rate securities ("ARS"), classified as available-for-sale and carried at fair value.

~~Scheduled maturities of investments classified as available-for-sale as of~~ ~~March 31, 2019~~ ~~are as follows (in thousands):~~

Maturity Fair Value
Due:
April 1, 2019 — March 31, 2020 $ —
April 1, 2020 — March 31, 2024 —
April 1, 2024 — March 31, 2029 —
After March 31, 2029 10,070
Available-for-sale investments $ 10,070

The Company had no realized gains or losses on its investments for each of the three months ended March 31, 2019 and 2018, respectively. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis.

Changes in unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive loss in stockholders’ equity until realized. A decline in market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend and interest income are recognized when earned.

~~As of~~ ~~March 31, 2019, the amortized cost basis and fair value of investments classified as available-for-sale were as follows (in thousands):~~

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Auction rate securities $ 10,800
$ —
$ (730 ) $ 10,070
Available-for-sale investments $ 10,800
$ —
$ (730 ) $ 10,070

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

~~As of~~ ~~December 31, 2018, the amortized cost basis and fair value of investments classified as available-for-sale were as follows (in thousands):~~

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Auction rate securities $ 10,800
$ —
$ (730 ) $ 10,070
Available-for-sale investments $ 10,800
$ —
$ (730 ) $ 10,070

~~The unrealized losses on the Company’s investments as of~~ ~~March 31, 2019~~ ~~and~~ ~~December 31, 2018~~ were generated primarily from changes in interest rates and ARS that failed to settle at auction, due to adverse conditions in the global credit markets. The losses are considered temporary, as the contractual terms of these investments do not permit the issuer to settle the security at a price less than the amortized cost of the investment. Because the Company does not intend to sell these instruments and it is not more likely than not that the Company will be required to sell these instruments prior to anticipated recovery, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of March 31, 2019 and December 31, 2018. See Note 6 for further discussion of the fair value of the Company’s financial assets.

~~The components of the Company’s investments in an unrealized loss position for twelve months or longer were as follows (in thousands):~~

March 31,
2019 December 31,
2018

Aggregate
Fair
Value

Gross
Unrealized
Losses

Aggregate
Fair
Value

Gross
Unrealized
Losses
Auction rate securities $ 10,070
$ (730 ) $ 10,070
$ (730 )
Investments in an unrealized loss position $ 10,070
$ (730 ) $ 10,070
$ (730 )

~~The Company did not have any investments in an unrealized loss position for less than twelve months as of March 31, 2019 and December 31, 2018, respectively.~~


6.	~~FAIR VALUE~~

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of March 31, 2020, the Company's financial assets comprise Level 1 cash equivalents with original maturities of three months or less in the amount of $586 million. As of March 31, 2020, the Company had no Level 2 or Level 3 financial assets measured at fair value.

During the first quarter of 2020, the Company sold its ARS investments for $10.3 million and recognized a realized loss of $0.5 million for the three months ended March 31, 2020 included in interest and other expense on the Company's condensed consolidated statements of operations.

The following table represents the Company's investments in marketable securities and fair value ~~hierarchy for its financial assets (cash~~measurements by investment category reported as cash equivalents and ~~investments) measured at fair value on a recurring basis~~investments as of ~~March~~December 31, 2019 (in thousands):



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	576,761	$	—	$	—		$	576,761	$	576,761	$	—	$	—
Auction rate securities	10,800		—		(730		)	10,070		—		—		10,070
Total cash equivalents and long-term investments	$	587,561	$	—	$	(730	)	$	586,831	$	576,761	$	—	$	10,070

Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 594,036
$ —
$ —
$ 594,036
Auction rate securities —
—
10,070
10,070
Total assets measured at fair value $ 594,036
$ —
$ 10,070
$ 604,106

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

~~The following table represents the Company's fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of~~ ~~December 31, 2018~~ ~~(in thousands):~~

Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 590,567
$ —
$ —
$ 590,567
Auction rate securities —
—
10,070
10,070
Total assets measured at fair value $ 590,567
$ —
$ 10,070
$ 600,637

~~The carrying value of accounts receivable, accounts payable and accrued expenses approximates fair value.~~

The Company’s Level 3 assets ~~consist~~consisted of ARS, whose underlying assets ~~are~~were primarily student loan securities supported by guarantees from the Federal Family Education Loan Program ~~(“FFELP”) of the U.S. Department of Education.~~

~~The following table summarizes changes in fair value of the Company’s Level 3 assets from December 31, 2017 to~~ ~~March 31, 2019~~ ~~(in thousands):~~

Auction
Rate
Securities
Balance at December 31, 2017 $ 10,070
Decrease in unrealized loss included in accumulated other comprehensive loss —
Balance at December 31, 2018 10,070
Decrease in unrealized loss included in accumulated other comprehensive loss —
Balance at March 31, 2019 $ 10,070

~~ARS are variable rate debt instruments whose interest rates are reset approximately every~~ ~~28 days. The underlying securities have contractual maturities greater than twenty years. The ARS are recorded at fair value.~~

As of March 31, 2019, the Company held ARS with $11 million par value, all of which failed to settle at auction. The majority of these investments are of high credit quality and are primarily student loan securities supported by guarantees from the FFELP of the U.S. Department of Education. As of December 31, 2019, these investments were in an unrealized loss position for a period of twelve months or greater. The unrealized losses were generated primarily from changes in interest rates and ARS that failed to settle at auction due to adverse conditions in the global credit markets. The losses were considered temporary, as the contractual terms of these investments do not permit the issuer to settle the security at a price less than the amortized cost of the investment. The Company ~~may not be able to liquidate and fully recover~~had no realized gains or losses on its investments during the year ended December 31, 2019.

The carrying value of ~~the ARS in the near term. As a result, these securities are classified as long-term investments on the Company’s condensed consolidated balance sheet as of~~ ~~March 31, 2019. See Note 5 for further discussion of the scheduled maturities of investments classified as available-for-sale.~~

~~While the Company continues to earn interest on its ARS investments at the contractual rate, these investments are not currently actively trading~~cash equivalents, accounts receivable, accounts payable and ~~therefore do not currently have a readily determinable market value. The estimated fair value of the ARS no longer~~accrued expenses approximates ~~par value. The Company used a discounted cash flow model to determine the estimated fair value of its investment in ARS as of~~ ~~March 31, 2019~~. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit spreads, timing and amount of contractual cash flows, liquidity risk premiums, expected holding periods and default risk. The Company updates the discounted cash flow model on a quarterly basis to reflect any changes in the assumptions used in the model and settlements of ARS investments that occurred during the period.

The only significant unobservable input in the discounted cash flow model is the discount rate. The discount rate used represents the Company's estimate of the yield expected by a market participant from the ARS investments. The weighted average discount rate used in the discounted cash flow models as of March 31, 2019 and December 31, 2018 was approximately 6%. Selecting another discount rate within the range used in the discounted cash flow model would not result in a significant change to the fair value of the ARS.

~~Based on this assessment of~~ fair value as of March 31, 2019, the Company determined there was no decline in the fair value of its ARS investments. If the issuers are unable to successfully close future auctions and/or their credit ratings deteriorate, the2020 and December 31, 2019.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

~~Company may be required to record unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments.~~

7. LEASES

The Company has operating leases for its office facilities, data centers and certain vehicles, as well as finance leases for office equipment. The Company's leases have remaining terms of less than one year to ~~ten~~nine years. The leases contain various renewal and termination options. The period ~~which~~that is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. The period ~~which~~that is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised.

Lease costs related to the Company's operating leases included in the condensed consolidated ~~statement~~statements of operations were as follows (in thousands):



	Three Months Ended March 31,
Operating lease costs:	2020		2019
Operating lease costs:
Cost of revenues	$	2,894	$	3,238
Software development	1,396		952
Selling and marketing (excluding customer base amortization)	2,539		2,191
General and administrative	1,174		292
Total operating lease costs	$	8,003	$	6,673

Three Months Ended
March 31, 2019
Operating lease costs:
   Cost of revenues $ 3,238
   Software development 952
   Selling and marketing (excluding customer base amortization) 2,191
   General and administrative 292
Total operating lease costs $ 6,673

The impact of lease costs related to finance leases and short-term leases was not material for the three months ended March 31, ~~2019. Rent expense related to operating leases for office facilities was $7 million for the three months ended March 31, 2018.~~2020.

Supplemental balance sheet information related to operating leases was as follows (in thousands):


Balance	Balance Sheet Location	March 31, 2019			Balance Sheet Location	March 31, 2020			December 31, 2019
Long-term lease liabilities	Lease and other long-term liabilities	$	119,172		Lease and other long-term liabilities	$	116,785		$	120,153

Weighted average remaining lease term in years		5.7
Weighted average discount rate		4.2		%
Weighted-average remaining lease term in years						4.8			5.0
Weighted-average discount rate						3.9		%	4.0		%

Balance sheet information related to finance leases was not material as of March 31, ~~2019~~2020.

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended March 31,
Cash paid for amounts included in the measurement of lease liabilities:	2020		2019

Operating cash flows used in operating leases	$	8,709	$	7,716

ROU assets obtained in exchange for lease obligations:
Operating leases	$	5,080	$	170

Three Months Ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases $ 7,716

ROU assets obtained in exchange for lease obligations:
Operating leases $ 170

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Maturities of operating lease liabilities at March 31, ~~2019~~2020 were as follows (in thousands):



2020⁽¹⁾	$	26,214
2021	32,115
2022	31,915
2023	30,674
2024	25,040
Thereafter	12,981
Total lease payments	158,939
Less imputed interest	(14,473		)
Present value of lease liabilities	$	144,466
__________________________
(1) Represents the nine months ending December 31, 2020

April 1, 2019 - March 31, 2020 $ 31,652
April 1, 2020 - March 31, 2021 30,116
April 1, 2021 - March 31, 2022 27,193
April 1, 2022 - March 31, 2023 26,377
April 1, 2023 - March 31, 2024 24,421
Thereafter 23,941
Total lease payments 163,700
Less imputed interest (18,466 )
Present value of lease liabilities $ 145,234

~~Future minimum lease payments as of December 31, 2018 were as follows (in thousands):~~

2019 $ 30,485
2020 29,255
2021 27,421
2022 25,634
2023 24,515
Thereafter 31,768
Total future minimum lease payments $ 169,078

8.GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):



	North America		International			Total
Goodwill, December 31, 2018	$	1,573,088	$	38,447		$	1,611,535
Acquisitions, including measurement period adjustments	165,272		102,532			267,804
Effect of foreign currency translation	—		2,681			2,681
Goodwill, December 31, 2019	1,738,360		143,660			1,882,020
Acquisitions, including measurement period adjustments	319		113			432
Effect of foreign currency translation			(8,465		)	(8,465		)
Goodwill, March 31, 2020	$	1,738,679	$	135,308		$	1,873,987

North America International Total
Goodwill, December 31, 2017 $ 1,253,494
$ 29,963
$ 1,283,457
Acquisitions 319,594
10,344
329,938
Effect of foreign currency translation —
(1,860 ) (1,860 )
Goodwill, December 31, 2018 1,573,088
38,447
1,611,535
Effect of foreign currency translation —
530
530
Goodwill, March 31, 2019 $ 1,573,088
$ 38,977
$ 1,612,065

The Company recorded goodwill of approximately $267 million in connection with the February 21, 2018 acquisition of ForRent, a digital advertising service provided through a network of four multifamily websites. The Company recorded goodwill of approximately $10$262 million in connection with the October ~~12, 2018~~22, 2019 acquisition of ~~Realla, the operator of a commercial property listings~~STR and ~~data management platform in the U.K., including a free-to-list search engine for commercial property listings. The Company recorded goodwill of~~ approximately ~~$53~~$8 million in connection with the ~~November 8, 2018~~June 2019 acquisition of OCP. In connection with the acquisition of Cozy, during 2019, the Company recorded a ~~leading provider~~measurement period adjustment which resulted in a $1 million reduction to the initial amount of ~~online rental solutions that provides a broad spectrum~~goodwill of ~~services to both landlords~~approximately $53 million.

No impairments of the Company's goodwill were recognized during the three months ended March 31, 2020 and ~~tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments and expense tracking.~~2019.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

9.INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands, except amortization period data):



	March 31, 2020			December 31, 2019			Weighted- Average Amortization Period (in years)
Acquired technology and data	$	104,933		$	105,168		5
Accumulated amortization	(91,929		)	(90,542		)
Acquired technology and data, net	13,004			14,626

Acquired customer base	484,131			487,532			11
Accumulated amortization	(243,803		)	(233,202		)
Acquired customer base, net	240,328			254,330

Acquired trade names and other intangible assets	237,821			236,358			12
Accumulated amortization	(90,464		)	(84,118		)
Acquired trade names and other intangible assets, net	147,357			152,240

Intangible assets, net	$	400,689		$	421,196

March 31,
2019 December 31,
2018
Weighted-
Average
Amortization
Period (in years)
Capitalized product development cost $ 2,173
$ 2,173
4
Accumulated amortization (2,173 ) (2,173 )
Capitalized product development cost, net —
—

Building photography 9,087
9,035
2
Accumulated amortization (8,949 ) (8,809 )
Building photography, net 138
226

Acquired technology 101,887
103,128
5
Accumulated amortization (85,963 ) (85,344 )
Acquired technology, net 15,924
17,784

Acquired customer base 339,685
339,574
10
Accumulated amortization (207,199 ) (199,405 )
Acquired customer base, net 132,486
140,169

Acquired trade names and other intangible assets 190,614
190,717
12
Accumulated amortization (63,412 ) (59,985 )
Acquired trade names and other intangible assets, net 127,202
130,732

Intangible assets, net $ 275,750
$ 288,911

Intangible assets are reviewed for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. No impairments of the Company's intangible assets were recognized during the three months ended March 31, 2020 and 2019.

10.LONG-TERM DEBT

On October 19, 2017, the Company entered into an amended and restated ~~2017 Credit Agreement~~credit agreement (the "2017 Credit Agreement"), which amended and restated in its entirety the ~~existing 2014 Credit Agreement~~then-existing credit agreement dated April 1, 2014 (the "2014 Credit Agreement"). The 2017 Credit Agreement, through a syndicate of financial institutions as lenders and issuing banks, provides for a $750 million revolving credit facility with a term of five years, ~~from a syndicate~~ of ~~financial institutions as lenders and issuing banks. The 2017 facility may be used for working capital and other general corporate purposes of the Company and its subsidiaries.~~

Upwhich up to $20 million ~~of the revolving credit facility~~ is available for the issuance of letters of credit. On March 25, 2020, the Company borrowed $745 million under the revolving credit facility. At March 31, 2020, $4.8 million of the revolving credit facility remained available. The Company expects to use the proceeds of the borrowing to fund the pending acquisition of RentPath Holdings, Inc., as well as other potential strategic acquisitions, and for other working capital and general corporate purposes.

The Company had an irrevocable standby letter of credit outstanding totaling ~~$0.2~~$0.2 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, which ~~was~~is required to secure its San Francisco office lease. The letter of credit was established in 2014 and automatically renews annually through January 31, 2025.

The loans under the 2017 Credit Agreement bear interest, at the Company’s option, of either (i) during any interest period selected by the Company, at ~~either (i)~~ the London interbank offered rate for deposits in U.S. dollars with a maturity comparable to such interest period, adjusted for statutory reserves (“LIBOR”), plus an initial spread of 1.25% per annum, subject to adjustment based on the Company’s First Lien Secured Leverage Ratio (as defined in the 2017 Credit Agreement) ~~of the Company,~~ or (ii) at the greatest of (x) the prime rate from time to time announced by JPMorgan Chase Bank, N.A., (y) the ~~federal funds effective~~New York Federal Reserve Bank rate, plus ~~half~~½ of 1% and (z) LIBOR for a one-month interest period plus 1.00%, plus an initial spread of 0.25% per annum, subject to adjustment based on the Company’s First Lien Secured Leverage ~~Ratio of the Company.~~Ratio. If an event of default occurs under the 2017 Credit Agreement, the interest rate on overdue amounts will increase by 2.00% per annum. The obligations under the 2017 Credit Agreement are guaranteed by all material subsidiaries of the Company and are secured by a lien on substantially all of the assets of the Company and its material subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee ~~agreements entered into~~agreements. LIBOR may not always be available to the Company as a base interest rate for borrowings under the credit facility. The transition away from LIBOR is anticipated to begin in 2021, though it may become unavailable as a base interest rate earlier. The Company may need or seek to negotiate with its lenders for an alternative rate. The Company may not be able to agree with its lenders on a replacement reference rate that is as favorable as LIBOR, which may increase the ~~closing date of the 2017 Credit Agreement.~~Company's capital costs.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The 2017 Credit Agreement requires the Company to maintain (i) a First Lien Secured Leverage Ratio not exceeding 3.50 to 1.00 and (ii) after the incurrence of additional indebtedness under certain specified exceptions in the 2017 Credit Agreement, a Total Leverage Ratio (as defined in the 2017 Credit Agreement) not exceeding 4.50 to 1.00. The 2017 Credit Agreement also includes other covenants, including ones that, subject to certain exceptions, restrict the ability of the Company and its subsidiaries to (i) incur additional indebtedness, (ii) create, incur, assume or permit to exist any liens, (iii) enter into mergers, consolidations or similar transactions, (iv) make investments and acquisitions, (v) make certain dispositions of assets, (vi) make dividends, distributions and prepayments of certain indebtedness, and (vii) enter into certain transactions with affiliates. The Company was in compliance with the covenants in the 2017 Credit Agreement as of March 31, ~~2019.~~2020.

The Company had no$745 million debt outstanding ~~long-term debt~~ at March 31, ~~2019~~2020 with a weighted average interest rate of 2.2% and 0 debt outstanding at December 31, ~~2018.~~2019. Borrowings under the revolving credit facility are recorded on the Company's condensed consolidated balance sheets as long-term debt and are due in October 2022. For the three months ended March 31, 2020, the Company recognized interest expense of $1.2 million, including interest on outstanding borrowings of $0.3 million, amortization of debt issuance costs of $0.3 million, and commitment fees of $0.6 million on its revolving credit facility. For the three months ended March 31, 2019, ~~and 2018,~~ the Company recognized interest expense of ~~$0.7~~$0.7 million, including amortization of debt issuance costs of $0.2 million and commitment fees of $0.5 million on its revolving credit facility. The Company had $3$2 million of deferred debt issuance costs included in deposits and other assets on the Company's condensed consolidated balance sheets as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

11. INCOME TAXES

The income tax provision reflects an effective tax rate of approximately 7% and 13% for the three months ended March 31, ~~2019~~2020 and ~~2018 reflects an effective tax rate of approximately 13% and 6%,~~2019, respectively. The ~~increase~~decrease in the effective tax rate was primarily due to ~~higher~~lower income before income taxes for the three months ended March 31, ~~2019, partially offset by~~2020, as well as an increase in excess tax benefits. The amounts for other discrete items for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 were consistent.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act did not have a material impact on the Company's condensed financial statements for the three months ended March 31, 2020.

12. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under various non-cancelable operating leases. The leases contain various renewal options. See Note 7 for further discussion of the Company's operating lease commitments. ~~In addition, the Company has other commitments related to purchase obligations for goods and services.~~

Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. In accordance with GAAP, the Company records a provision for a liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is reasonably possible that an unfavorable outcome may occur as a result of one or more of the Company’s current litigation matters, at this time management has concluded that the resolutions of these matters are not expected to have a material ~~adverse~~ effect on the Company's consolidated financial position, future results of operations or liquidity. Legal defense costs are expensed as incurred.

13. SEGMENT REPORTING

Segment Information

The Company manages its business geographically in ~~two~~2 operating segments, with the primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes ~~the U.K., Spain, Germany~~Europe, Asia-Pacific and ~~France.~~Latin America. Management relies on an internal management reporting process that provides revenue and operating segment net income before interest and other income (expense), loss on debt extinguishment, income taxes, depreciation and amortization (“EBITDA”). Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of the Company’s operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of the 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.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Summarized information by operating segment consists of the following (in thousands):



	Three Months Ended March 31,
	2020			2019
EBITDA
North America	$	102,413		$	115,268
International	(2,293		)	(2,117		)
Total EBITDA	$	100,120		$	113,151

Three Months Ended
March 31,
2019
2018
EBITDA

North America $ 115,268

$ 71,055
International (2,117 )
(627 )
Total EBITDA $ 113,151

$ 70,428

The reconciliation of net income to EBITDA consists of the following (in thousands):



	Three Months Ended March 31,
	2020			2019
Net income	$	72,793		$	85,169
Amortization of acquired intangible assets in cost of revenues	6,005			5,513
Amortization of acquired intangible assets in operating expenses	11,484			7,682
Depreciation and other amortization	6,767			6,464
Interest and other income	(4,518		)	(4,945		)
Interest and other expense	2,026			732
Income tax expense	5,563			12,536
EBITDA	$	100,120		$	113,151

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Three Months Ended
March 31,
2019 2018
Net income $ 85,169
$ 52,231
Amortization of acquired intangible assets in cost of revenues 5,513
4,608
Amortization of acquired intangible assets in operating expenses 7,682
5,803
Depreciation and other amortization 6,464
6,572
Interest and other income (4,945 ) (2,987 )
Interest and other expense 732
690
Income tax expense 12,536
3,511
EBITDA $ 113,151
$ 70,428

Summarized information by operating segment consists of the following (in thousands):



	March 31, 2020		December 31, 2019
Property and equipment, net:
North America	$	102,843	$	103,383
International	3,566		4,146
Total property and equipment, net	$	106,409	$	107,529

Goodwill:
North America	$	1,738,679	$	1,738,360
International	135,308		143,660
Total goodwill	$	1,873,987	$	1,882,020

Assets:
North America	$	4,462,340	$	3,615,258
International	222,257		238,728
Total assets	$	4,684,597	$	3,853,986

Liabilities:
North America	$	1,176,504	$	402,759
International	45,282		45,634
Total liabilities	$	1,221,786	$	448,393

March 31,
2019 December 31,
2018
Property and equipment, net
North America $ 81,867
$ 79,493
International 4,111
3,810
Total property and equipment, net $ 85,978
$ 83,303

Goodwill

North America $ 1,573,088
$ 1,573,088
International 38,977
38,447
Total goodwill $ 1,612,065
$ 1,611,535

Assets

North America $ 3,475,272
$ 3,253,035
International 73,012
59,922
Total assets $ 3,548,284
$ 3,312,957

Liabilities

North America $ 386,122
$ 272,776
International 33,548
18,239
Total liabilities $ 419,670
$ 291,015

~~COSTAR GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~


14.	SUBSEQUENT EVENTS

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 rapidly evolving. The COVID-19 pandemic did not materially affect the Company's condensed consolidated financial statements for the three months ended March 31, 2020. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.

Certain estimates and assumptions that affect the Company's financial statements take into account historical and forward-looking factors that the Company believes are reasonable, including assumptions as to the potential impacts arising from COVID-19. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation, allowance for credit losses and share based compensation. COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 ~~the~~ 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 ~~our~~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.

~~Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the internet to commercial real estate industry and related professionals.~~ 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 service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality. Depending on the type of service, contract rates are generally based on the number of sites, number of users, organization size, the client's business focus, geography, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results, as applicable. Our subscription clients generally pay contract fees ~~in advance~~ on a monthly basis, but in some cases may pay us ~~in advance~~ 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, BizBuySell and LandsofAmerica. We also provide ~~market research, portfolio and debt analysis, management and reporting capabilities, and~~other services that complement those offered through our primary brands. These include real estate and lease management solutions, ~~including~~ 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

We are closely 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 ~~commercial~~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. We 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 ~~real estate investors~~ and ~~lenders via~~ 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. Those expenses have not been material to date. In response to the COVID-19 pandemic, we have also taken steps to manage our costs including minimizing hiring to essential positions, restricting business travel and canceling in-person marketing events. 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. 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 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, we are not able to accurately forecast our revenue or earnings for the full year 2020. 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. Current observations and past experience and results may not be an indicator of on-going trends or future results.

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 ~~offerings.~~reductions and failures to pay amounts owed to us. Towards the end of the first quarter of 2020, we began to see an increase in customer requests for cancellations or suspensions. We are more likely to incur asset impairment charges or restructuring charges, or increase our allowance for credit losses, as a result of this crisis and related economic downturn. The amount and frequency of such actions will be affected by the severity and duration of the COVID-19 pandemic. If we do take such actions, they are likely to adversely affect our results of operations.

We discuss the current and potential impact of select provisions of the CARES Act (defined below) in our liquidity discussion.

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 Professional®~~Property®, CoStar ~~COMPS Professional®~~COMPS®, CoStar Market Analytics, CoStar Tenant®, CoStar Lease Comps and CoStar ~~Tenant® and~~Public Record through our online and mobile ~~applications, CoStar Mobile App and CoStar Go.~~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~~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 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 as well as the impact of COVID-19 on our current and potential customer base, we anticipate CoStar Suite revenue growth rates will decline during the second quarter of 2020 relative to historical year-over-year growth rates.

Information services. We provide real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate ~~Manager~~Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk ~~Analytics~~Analytics® service offerings. We ~~also~~ 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 growth rates throughout 2019. We expect the growth rate for CoStar Real Estate Manager to decline during the second quarter of 2020 as the surge of the demand has eased and customer behavior changes in response to current economic conditions, which may include potential delays of the implementation of new services. 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 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, we expect some impact to the revenue growth rates for STR during the second quarter of 2020, particularly as a result of a decline in ad hoc transaction fee revenues as customers delay purchases. Overall, we expect the information services growth rate to decline relative to historical year-over-year growth rates. See Note 5 to the accompanying Notes to the Condensed Consolidated Financial Statements for further discussion of this acquisition.

Online Marketplaces

Multifamily. Apartments.com^TM is part of our network of apartment marketing sites, which ~~also~~primarily includes ~~ApartmentFinder.com~~^TMApartmentFinder®, ForRent.com®, ApartmentHomeLiving.com^TM, ~~WestsideRentals.com~~®~~, AFTER55.com®, CorporateHousing.com~~Apartamentos.com^TM, ~~ForRentUniversity.com®~~Westside Rentals, and ~~Apartamentos.com~~^TM~~, our apartment-listing site offered exclusively in Spanish.~~Off Campus Partners, LLC ("OCP"). Our ~~apartment marketing~~ network of subscription-based advertising services ~~offers renters a searchable database of apartment listings and~~ provides ~~professional~~ property management companies and landlords with ana comprehensive advertising ~~destination.~~destination for their available rental units and offers renters a platform for searching for available rentals. On ~~February 21, 2018,~~June 12, 2019, we ~~completed the acquisition~~acquired OCP, a provider of ~~ForRent, a division of Dominion Enterprises, including the ForRent.com, AFTER55.com, CorporateHousing.com~~student housing marketplace content and ~~ForRentUniversity.com apartment marketing sites.~~technology to U.S. universities. We continue to integrate ~~develop~~OCP and ~~cross-sell~~ the services ~~offered by ForRent.~~they offer into our Apartments.com network. During the ~~remaining quarters in 2019,~~second quarter of 2020, we expect ~~a lower~~the multifamily ~~year-over-year~~annual revenue growth rate ~~compared~~ to ~~our results for the current period~~decline slightly relative to historical year-over-year growth rates due to the lapsing of the acquisition anniversary date, continued integration of our service offerings and the discontinuation of certain ForRent products which were included in our 2018 results. On November 8, 2018, we acquired Cozy Services, Ltd. ("Cozy"), a leading provider of online rental solutions that provides a broad spectrum of servicescurrent market conditions, but to ~~both landlords and tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments and expense tracking.~~ remain relatively strong as market participants continue to utilize digital marketing for their properties. See Note 45 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 acquisition of Cozy.~~these acquisitions.

Commercial property and land. Our ~~LoopNet~~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, buyers and tenants use ~~LoopNet's~~the LoopNet.com network of online marketplace services to search for available property listings that meet their criteria. ~~On October 12, 2018, we acquired all~~Loopnet.com represents a majority of the ~~issued share capital of Realla Ltd. ("Realla"), the operator of a~~ commercial property ~~listings~~ and ~~data management platform~~land revenue. As part of our rebuild and launch of the LoopNet Signature Ads product, we rolled out new ad packages in the ~~U.K., including~~fourth quarter of 2019 and shifted the focus of our commercial real estate sales force to LoopNet Signature Ads. As a ~~free-to-list search engine for~~result, the 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 ~~property listings. See Note 4~~real estate industry, LoopNet.com sales volumes dropped during the second half of March 2020 and remained at that lower level in April. Assuming sales volume remain at or near April levels, we expect growth rates to decline in the ~~accompanying Notes~~second quarter of 2020 relative to ~~the Condensed Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for further discussion of the acquisition of Realla.~~historical year-over-year growth rates. Our ~~BizBuySell services,~~BizBuySell.com network, which ~~include BizQuest~~®~~, provide an online marketplace for businesses for sale. Our~~includes BizQuest® and FindaFranchise, and our Land.com network of sites, which include LandsofAmerica, LandAndFarm and LandWatch®, are also included in our commercial property and land service revenue. The BizBuySell.com network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online marketplaces for rural lands ~~for sale, includes LandsofAmerica, LandAndFarm and LandWatch®.~~for-sale.

As of March 31, ~~2019~~2020 and ~~2018,~~2019, our annualized net bookings of subscription-based services on all contracts ~~was~~were approximately $48 million, ~~and $35 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~~write-downs and cancellations, for the period reported. 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 three months ended March 31, 2020 and 2019, our contract renewal rate for existing CoStar subscription-based services on annual contracts was approximately 90%, ~~as compared with 91% for the three months ended March 31, 2018,~~ and therefore our cancellation ~~rates~~rate for those services for ~~those~~the same periods ~~were~~was approximately 10% ~~and 9%, respectively.~~. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, management ~~also~~ believes that the rate may be a reliable indicator of short-term and long-term ~~performance. Our~~performance absent extraordinary circumstances. We expect that our trailing twelve-month contract renewal rate may decline ~~if, among other reasons,~~in light of the recent COVID-19 developments and the resulting negative economic conditions ~~lead~~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 and plan to continue to pursue our key priorities for 2020 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, ~~news,~~ analytics and online marketplace solutions, including expanding and improving our offerings for property owners, property managers and renters. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, and expand and develop supporting technologies for our research, sales and marketing organizations. We ~~have been, and~~ plan to continue ~~integrating, further developing~~to reevaluate our priorities as the COVID-19 pandemic continues to evolve.

Our key priorities for 2020 include:

Continue to develop, improve and ~~cross-selling~~market our ~~services. To generate brand awareness~~recently launched Apartments.com service offerings that focus on the digital rental experience and ~~site traffic~~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 continue to aggressively market our multifamily listing ~~sites, we utilize a multi-channel~~services in an effort to provide more value to advertisers and, in turn, to attract advertisers. Our marketing ~~campaign, including television and radio advertising, online/digital advertising, social media and out-of-home ads, and~~investment is focused on search engine ~~marketing. We expect to continue to invest in sales~~marketing and ~~marketing, consistent with recent historical~~

~~levels, to promote our listing sites in 2019.~~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.~~periods and may adjust our marketing spend as deemed appropriate.

•

Obtaining necessary bankruptcy court and regulatory approvals to close the pending acquisition of RentPath and integrating RentPath with the Apartments.com network post-closing. On February 11, 2020, a wholly owned subsidiary of the Company entered into an agreement to acquire for $588 million in cash all of the equity interests of RentPath Holdings, Inc., as reorganized following an internal restructuring pursuant to and under the joint chapter 11 plan of reorganization of RentPath and certain of its subsidiaries. Closing of the acquisition is subject to customary closing conditions, including the expiration or termination of any applicable waiting period under applicable antitrust laws and approval by the bankruptcy court. See Note 5 to the accompanying Notes to the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for further discussion.

~~Our key priorities for 2019 include:~~

Continuing to develop new, and improve existing, online rental property service offerings for the apartments industry. We plan to utilize acquired platforms, including Cozy, along with our previously developed and newly developed technologies, to create a complete digital rental experience that enables renters to apply for leases, landlords to run tenant credit and background checks and landlords and tenants to generate and enter into leases and to make and process payments, all online through a single platform.

Continuing to develop and enhance CoStar Suite by making additional investments in analytical capabilities and developing products offerings with new capabilities focused on owners and lenders of commercial real estate. We also plan to invest in integrating the technology and infrastructure from other existing products into the CoStar Suite platform, including CoStar Real Estate Manager, in order to leverage data across our platforms and provide customers with additional functionality. We plan to invest further in our daily newsletter for U.S. subscribers, including providing curated content to our largest markets and more personalized information.

~~Continuing~~Continue to invest in the LoopNet marketplace by enhancing the content on the site ~~including~~(including high-quality ~~imagery,~~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. ~~Continuing~~To support the LoopNet marketplace, we initiated training and incentive programs for our sales team to increase sales of LoopNet Signature Ads, with a focus on property owners.

•

Integrating recently completed acquisitions, including STR, with CoStar’s business operations. We plan to consolidate 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.

Continue to invest in ~~our research operations~~CoStar Suite, including capabilities that allow us to ~~support continued growth~~broaden the reach of ~~our information~~CoStar Suite in Europe by offering multiple languages and ~~analytics offerings.~~currencies on the platform. We plan to enhance CoStar Suite by making additional investments in analytical capabilities focused on owners and lenders of commercial real estate. In ~~furtherance of both of these priorities,~~addition, we plan to continue to generate awareness and promote usage of Listing Manager, an online tool that allows customers with CoStar or LoopNet listings to update and manage their listings directly online. LoopNet users can also monitor listing performance, access lead and prospect reports, and upgrade exposure of their listings. We expect the use of this tool to result in more updates made directly by brokers and owners entering data directly into the self-service tool, which we believe will result in significant long-term cost savings and better quality data.

~~Continuing to~~ invest in integrating the growth of our international business. We plan to integrate Realla with our CoStar U.K. operations, including development of a single point of data entry to allow our clients to simultaneously arrange to display their commercial real estate listings throughtechnology and infrastructure from other existing service offerings into the CoStar Suite ~~service offering~~platform, including CoStar Real Estate Manager, in order to leverage data and ~~to also make them visible to prospective tenants~~technology across our platforms and ~~investors through Realla’s marketing portal.~~provide customers with additional functionality.

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 and other income (expense), 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 and other income (expense), 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, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures and, as such, 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 ~~measure~~measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.

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.~~business without the impact of items such as the following. 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 the expansion of our information, analytics and online marketplace services, which has included 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.~~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, income taxes, stock-based compensation expenses, acquisition- and integration-related costs for pending and completed acquisitions, restructuring ~~costs;~~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 and other income and expense 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 and other income and expense to be a representative component of the day-to-day operating performance of our business.

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

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 ~~they~~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 ~~such costs~~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 ~~2019~~2020 and ~~2018,~~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.

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 March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	85,169		$	52,231		$	72,793		$	85,169
Amortization of acquired intangible assets in cost of revenues	5,513			4,608			6,005			5,513
Amortization of acquired intangible assets in operating expenses	7,682			5,803			11,484			7,682
Depreciation and other amortization	6,464			6,572			6,767			6,464
Interest and other income	(4,945		)	(2,987		)	(4,518		)	(4,945		)
Interest and other expense	732			690			2,026			732
Income tax expense	12,536			3,511			5,563			12,536
EBITDA	$	113,151		$	70,428		$	100,120		$	113,151

Net cash flows provided by (used in)
Operating activities	$	148,494		$	72,985		$	131,464		$	148,494
Investing activities	(9,429		)	(348,691		)	2,694			(9,429		)
Financing activities	(6,618		)	(4,776		)	725,151			(6,618		)



	Final: February 21, 2018
Cash and cash equivalents	$	59
Accounts receivable	8,769
Indemnification asset	5,443
Goodwill	266,595
Intangible assets	141,300
Deferred tax liabilities	(34,032		)
Contingent sales tax liability	(6,260		)
State uncertain income tax position liability	(2,047		)
Other assets and liabilities	(3,535		)
Fair value of identifiable net assets acquired	$	376,292



Maturity	Fair Value
Due:
April 1, 2019 — March 31, 2020	$	—
April 1, 2020 — March 31, 2024	—
April 1, 2024 — March 31, 2029	—
After March 31, 2029	10,070
Available-for-sale investments	$	10,070



	March 31, 2019					December 31, 2018
	Aggregate Fair Value		Gross Unrealized Losses			Aggregate Fair Value		Gross Unrealized Losses
Auction rate securities	$	10,070	$	(730	)	$	10,070	$	(730	)
Investments in an unrealized loss position	$	10,070	$	(730	)	$	10,070	$	(730	)



	Auction Rate Securities
Balance at December 31, 2017	$	10,070
Decrease in unrealized loss included in accumulated other comprehensive loss	—
Balance at December 31, 2018	10,070
Decrease in unrealized loss included in accumulated other comprehensive loss	—
Balance at March 31, 2019	$	10,070



April 1, 2019 - March 31, 2020	$	31,652
April 1, 2020 - March 31, 2021	30,116
April 1, 2021 - March 31, 2022	27,193
April 1, 2022 - March 31, 2023	26,377
April 1, 2023 - March 31, 2024	24,421
Thereafter	23,941
Total lease payments	163,700
Less imputed interest	(18,466		)
Present value of lease liabilities	$	145,234



2019	$	30,485
2020	29,255
2021	27,421
2022	25,634
2023	24,515
Thereafter	31,768
Total future minimum lease payments	$	169,078


Month, 2019	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month, 2020							Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 through January 31	1,625		$	363.76	—	—	2,002		$	651.69	—	—
February 1 through February 28	9,598		451.05		—	—
February 1 through February 29							14,537		670.83		—	—
March 1 through March 31	29,728		462.77		—	—	29,432		639.59		—	—
Total	40,951	⁽¹⁾	$	456.09	—	—	45,971	⁽¹⁾	$	651.52	—	—
__________________________



Exhibit No.		Description
3.1		Third Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on June 6, 2013).
3.2		Third Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on September 24, 2013).
10.1		Asset Purchase Agreement, dated as of the Petition Date (on or about February 12, 2020), among CSGP Holdings, LLC, CoStar Group, Inc. (solely for the specified purposes), RentPath Holdings, Inc. and the other Sellers named therein (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2020).
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
~~101~~101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
104		The ~~following materials~~cover page from ~~CoStar Group, Inc.'s~~the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019,~~2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018, respectively; (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018, respectively; (iii) Unaudited Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018, respectively; (iv) Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity at March 31, 2019 and March 31, 2018; (v) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018, respectively; and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements that have been detail tagged.(included as Exhibit 101).



		COSTAR GROUP, INC.
Date:	April ~~24, 2019~~29, 2020	By:	/s/ Scott T. Wheeler
			Scott T. Wheeler Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)