UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September~~June 30, ~~2021~~2022


☐			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 of incorporation or organization)						(I.R.S. Employer Identification No.)


1331 L Street, NW
Washington,	DC	20005

(Address of principal executive offices) (Zip Code)

(202) 346-6500

(Registrant’s telephone 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 Exchange Act.


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ☐ No x

As of ~~October~~July 22, ~~2021,~~2022, there were ~~394,935,769~~395,949,425 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	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3430

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5145

Item 4.	Controls and Procedures	5246

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	5347

Item 1A.	Risk Factors	5347

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5448

Item 3.	Defaults Upon Senior Securities	5448

Item 4.	Mine Safety Disclosures	5448

Item 5.	Other Information	5448

Item 6.	Exhibits	5549

Signatures		5650

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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Revenues	Revenues	$	499,319	$	425,620	$	1,437,349	$	1,214,626		Revenues	$	536,308	$	480,333	$	1,052,133	$	938,030
Cost of revenues	Cost of revenues	92,597		77,865		270,911		230,814			Cost of revenues	100,971		89,566		196,450		178,314
Gross profit	Gross profit	406,722		347,755		1,166,438		983,812			Gross profit	435,337		390,767		855,683		759,716

Operating expenses:	Operating expenses:										Operating expenses:
Selling and marketing (excluding customer base amortization)	Selling and marketing (excluding customer base amortization)	180,055		146,634		483,354		402,202			Selling and marketing (excluding customer base amortization)	181,344		164,612		325,341		303,299
Software development	Software development	53,143		40,732		148,500		121,343			Software development	51,587		48,573		105,608		95,357
General and administrative	General and administrative	64,671		65,322		186,747		181,598			General and administrative	77,345		58,226		155,306		122,076
Customer base amortization	Customer base amortization	19,121		18,258		55,885		44,677			Customer base amortization	14,878		18,345		30,970		36,764
		316,990		270,946		874,486		749,820				325,154		289,756		617,225		557,496
Income from operations	Income from operations	89,732		76,809		291,952		233,992			Income from operations	110,183		101,011		238,458		202,220
Interest expense, net	Interest expense, net	(7,943)		(7,537)		(23,698)		(9,482)			Interest expense, net	(3,399)		(7,877)		(11,117)		(15,755)
Other income (expense)		1,546		(338)		2,343		29
Other income, net											Other income, net	1,343		847		2,207		797
Income before income taxes	Income before income taxes	83,335		68,934		270,597		224,539			Income before income taxes	108,127		93,981		229,548		187,262
Income tax expense	Income tax expense	19,031		10,748		70,933		33,200			Income tax expense	24,654		32,833		56,757		51,902
Net income	Net income	$	64,304	$	58,186	$	199,664	$	191,339		Net income	$	83,473	$	61,148	$	172,791	$	135,360

Net income per share - basic~~(1)~~	Net income per share - basic~~(1)~~	$	0.16	$	0.15	$	0.51	$	0.51		Net income per share - basic~~(1)~~	$	0.21	$	0.16	$	0.44	$	0.35
Net income per share - diluted~~(1)~~	Net income per share - diluted~~(1)~~	$	0.16	$	0.15	$	0.51	$	0.50		Net income per share - diluted~~(1)~~	$	0.21	$	0.16	$	0.44	$	0.34

Weighted-average outstanding shares - basic~~(1)~~	Weighted-average outstanding shares - basic~~(1)~~	392,419		391,586		392,101		377,177			Weighted-average outstanding shares - basic~~(1)~~	393,342		392,306		393,119		391,942
Weighted-average outstanding shares - diluted~~(1)~~	Weighted-average outstanding shares - diluted~~(1)~~	394,295		394,013		394,036		379,704			Weighted-average outstanding shares - diluted~~(1)~~	394,478		394,098		394,356		393,906
__________________________	__________________________										__________________________

~~(1)~~ ~~Prior period amounts have been retroactively adjusted to reflect the 10-for-one stock split effected in the form of a stock dividend in June 2021. See Note 2 for details.~~

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Net income	Net income	$	64,304	$	58,186	$	199,664	$	191,339		Net income	$	83,473	$	61,148	$	172,791	$	135,360
Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment	Foreign currency translation adjustment	(6,229)		7,535		(4,380)		(4,551)			Foreign currency translation adjustment	(17,842)		1,526		(24,198)		1,849
Unrealized gain on investments		—		—		—		189
Reclassification adjustment for realized loss on investments included in net income		—		—		—		541

Total other comprehensive (loss) income	Total other comprehensive (loss) income	(6,229)		7,535		(4,380)		(3,821)			Total other comprehensive (loss) income	(17,842)		1,526		(24,198)		1,849
Total comprehensive income	Total comprehensive income	$	58,075	$	65,721	$	195,284	$	187,518		Total comprehensive income	$	65,631	$	62,674	$	148,593	$	137,209

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	3,761,587	$	3,755,912	Cash, cash equivalents and restricted cash	$	3,964,116	$	3,827,126

Accounts receivable	Accounts receivable	128,700		119,059		Accounts receivable	161,811		138,191
Less: Allowance for credit losses	Less: Allowance for credit losses	(13,049)		(15,110)		Less: Allowance for credit losses	(9,638)		(13,374)
Accounts receivable, net	Accounts receivable, net	115,651		103,949		Accounts receivable, net	152,173		124,817

Income tax receivable						Income tax receivable	9,278		—

Prepaid expenses and other current assets	Prepaid expenses and other current assets	37,599		28,651		Prepaid expenses and other current assets	55,194		36,182

Total current assets	Total current assets	3,914,837		3,888,512		Total current assets	4,180,761		3,988,125

Deferred income taxes, net	Deferred income taxes, net	1,975		4,983		Deferred income taxes, net	5,034		5,034
Property and equipment, net	Property and equipment, net	238,866		126,325		Property and equipment, net	298,361		271,431
Lease right-of-use assets	Lease right-of-use assets	105,964		108,740		Lease right-of-use assets	98,495		100,680
Goodwill	Goodwill	2,293,514		2,235,999		Goodwill	2,314,176		2,321,015
Intangible assets, net	Intangible assets, net	447,900		426,745		Intangible assets, net	385,245		435,662
Deferred commission costs, net	Deferred commission costs, net	96,303		93,274		Deferred commission costs, net	119,778		101,879
Deposits and other assets	Deposits and other assets	16,971		15,856		Deposits and other assets	16,893		21,762
Income tax receivable	Income tax receivable	14,986		14,986		Income tax receivable	2,005		11,283

Total assets	Total assets	$	7,131,316	$	6,915,420	Total assets	$	7,420,748	$	7,256,871
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:

Accounts payable	Accounts payable	$	17,487	$	15,732	Accounts payable	$	32,132	$	22,244
Accrued wages and commissions	Accrued wages and commissions	82,905		80,998		Accrued wages and commissions	84,545		81,794
Accrued expenses	Accrued expenses	86,788		110,305		Accrued expenses	91,168		81,676

Income taxes payable	Income taxes payable	11,828		16,316		Income taxes payable	1,841		31,236

Lease liabilities	Lease liabilities	29,878		32,648		Lease liabilities	35,426		26,268
Deferred revenue	Deferred revenue	92,631		74,851		Deferred revenue	104,838		95,471
Total current liabilities	Total current liabilities	321,517		330,850		Total current liabilities	349,950		338,689

Long-term debt, net	Long-term debt, net	987,633		986,715		Long-term debt, net	988,572		987,944

Deferred income taxes, net	Deferred income taxes, net	83,399		72,991		Deferred income taxes, net	87,657		98,656
Income taxes payable	Income taxes payable	26,188		25,282		Income taxes payable	14,112		12,496
Lease and other long-term liabilities	Lease and other long-term liabilities	109,156		124,223		Lease and other long-term liabilities	96,104		107,414
Total liabilities	Total liabilities	1,527,893		1,540,061		Total liabilities	1,536,395		1,545,199

Total stockholders' equity	Total stockholders' equity	5,603,423		5,375,359		Total stockholders' equity	5,884,353		5,711,672
Total liabilities and stockholders’ equity		$	7,131,316	$	6,915,420
Total liabilities and stockholders' equity						Total liabilities and stockholders' equity	$	7,420,748	$	7,256,871

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Common Stock
Additional
Paid-In Capital(1)
Accumulated
Other
Comprehensive (Loss) Income Retained
Earnings Total
Stockholders’
Equity
Shares(1)
Amount(1)
Balance at December 31, 2020 394,285 $ 3,943 $ 4,204,703 $ (889) $ 1,167,602 $ 5,375,359
Net income — — — — 74,212 74,212
Other comprehensive income — — — 323 — 323
Exercise of stock options 206 2 6,339 — — 6,341
Restricted stock grants 766 8 (7) — — 1
Restricted stock grants surrendered (358) (4) (27,663) — — (27,667)
Stock-based compensation expense — — 15,264 — — 15,264
Employee stock purchase plan 36 — 3,092 — — 3,092
Balance at March 31, 2021 394,935 $ 3,949 $ 4,201,728 $ (566) $ 1,241,814 $ 5,446,925
Net income — — — — 61,148 61,148
Other comprehensive income — — — 1,526 — 1,526
Restricted stock grants 50 — — — — —
Restricted stock grants surrendered (75) (1) (737) — — (738)
Stock-based compensation expense — — 14,811 — — 14,811
Employee stock purchase plan 41 — 3,555 — — 3,555
Balance at June 30, 2021 394,951 $ 3,948 $ 4,219,357 $ 960 $ 1,302,962 $ 5,527,227
Net income — — — — 64,304 64,304
Other comprehensive income — — — (6,229) (6,229)
Restricted stock grants 35 — — — — —
Restricted stock grants surrendered (61) (1) (900) — — (901)
Stock-based compensation expense — — 16,021 — — 16,021
Employee stock purchase plan 35 — 3,001 — — 3,001
Balance at September 30, 2021 394,960 $ 3,947 $ 4,237,479 $ (5,269) $ 1,367,266 $ 5,603,423
__________________________

~~(1)~~ ~~Prior period amounts have been retroactively adjusted to reflect the 10-for-one stock split effected in the form of a stock dividend in June 2021. See Note 2 for~~ ~~details.~~


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	394,936	$	3,946	$	4,253,318	$	(5,758)	$	1,460,166	$	5,711,672
Net income	—	—		—		—		89,318		89,318
Other comprehensive loss	—	—		—		(6,356)		—		(6,356)

Restricted stock grants	1,277	13		(13)		—		—		—
Restricted stock grants surrendered	(403)	(4)		(19,455)		—		—		(19,459)
Stock-based compensation expense	—	—		18,005		—		—		18,005
Employee stock purchase plan	64	1		4,117		—		—		4,118
Balance at March 31, 2022	395,874	$	3,956	$	4,255,972	$	(12,114)	$	1,549,484	$	5,797,298
Net income	—	—		—		—		83,473		83,473
Other comprehensive loss	—	—		—		(17,842)		—		(17,842)

Restricted stock grants	65	1		(1)		—		—		—
Restricted stock grants surrendered	(108)	(1)		(295)		—		—		(296)
Stock-based compensation expense	—	—		17,680		—		—		17,680
Employee stock purchase plan	65	1		4,039		—		—		4,040
Balance at June 30, 2022	395,896	$	3,957	$	4,277,395	$	(29,956)	$	1,632,957	$	5,884,353

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


		Common Stock			Additional Paid-In Capital(1)				Accumulated Other Comprehensive Loss		Retained Earnings					Total Stockholders’ Equity					Common Stock				Additional Paid-In Capital(1)				Accumulated Other Comprehensive (Loss) Income				Retained Earnings				Total Stockholders’ Equity
		Shares(1)	Amount(1)												Shares(1)				Amount(1)
Balance at December 31, 2019		366,807	$	3,668			$	2,470,036					$	(8,585)				$	940,474		$	3,405,593
Balance at December 31, 2020																				Balance at December 31, 2020	394,285		$	3,943			$	4,204,703			$	(889)			$	1,167,602			$	5,375,359

Net income	Net income	—	—		—				—		72,793					72,793				Net income	—		—		—				—				74,212				74,212

Other comprehensive loss		—	—		—				(12,219)		—					(12,219)
Exercise of stock options		406	4		9,229				—		—					9,233
Restricted stock grants		830	8		(8)				—		—					—
Restricted stock grants surrendered		(559)	(6)		(30,139)				—		—					(30,145)
Stock-based compensation expense		—	—		15,006				—		—					15,006

Employee stock purchase plan		40	1		2,549				—		—					2,550

Balance at March 31, 2020		367,524	$	3,675	$	2,466,673			$	(20,804)	$	1,013,267				$	3,462,811
Net income		—	—		$	—			$	—	$	60,360				$	60,360

Other comprehensive income	Other comprehensive income	—	—		—				863		—					863				Other comprehensive income	—		—		—				323				—				323
Exercise of stock options	Exercise of stock options	109	1		2,923				—		—					2,924				Exercise of stock options	206		2		6,339				—				—				6,341
Restricted stock grants	Restricted stock grants	107	1		(1)				—		—					—				Restricted stock grants	766		8		(7)				—				—				1
Restricted stock grants surrendered	Restricted stock grants surrendered	(172)	(2)		(3,507)				—		—					(3,509)				Restricted stock grants surrendered	(358)		(4)		(27,663)				—				—				(27,667)
Stock-based compensation expense	Stock-based compensation expense	—	—		8,609				—		—					8,609				Stock-based compensation expense	—		—		15,264				—				—				15,264
Employee stock purchase plan	Employee stock purchase plan	35	—		2,292				—		—					2,292				Employee stock purchase plan	36		—		3,092				—				—				3,092
Balance at March 31, 2021																				Balance at March 31, 2021	394,935		$	3,949	$	4,201,728			$	(566)			$	1,241,814			$	5,446,925

Stock issued for equity offerings, net of transaction costs		26,336	263		1,689,708				—		—					1,689,971
Net income																				Net income	—		—		—				—				61,148				61,148
Other comprehensive income																				Other comprehensive income	—		—		—				1,526				—				1,526

Balance at June 30, 2020		393,939	$	3,938	$	4,166,697			$	(19,941)	$	1,073,627				$	5,224,321
Net income		—	—		—				—		58,186					58,186

Other comprehensive income		—	—		—				7,535		—					7,535
Exercise of stock options		438	4		9,710				—		—					9,714
Restricted stock grants	Restricted stock grants	25	—		—				—		—					—				Restricted stock grants	50		—		—				—				—				—
Restricted stock grants surrendered	Restricted stock grants surrendered	(25)	—		(398)				—		—					(398)				Restricted stock grants surrendered	(75)		(1)		(737)				—				—				(738)
Stock-based compensation expense	Stock-based compensation expense	—	—		16,542				—		—					16,542				Stock-based compensation expense	—		—		14,811				—				—				14,811
Employee stock purchase plan	Employee stock purchase plan	28	1		2,157				—		—					2,158				Employee stock purchase plan	41		—		3,555				—				—				3,555
Balance at September 30, 2020		394,405	$	3,943	$	4,194,708			$	(12,406)	$	1,131,813				$	5,318,058
Balance at June 30, 2021																				Balance at June 30, 2021	394,951		$	3,948	$	4,219,357			$	960			$	1,302,962			$	5,527,227
__________________________	__________________________																			__________________________

(1) Prior period amounts have been adjusted to reflect the 10-for-one stock split, effected in the form of a stock dividend, in June 2021. See Note 2 for details.

See accompanying notes.

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	199,664	$	191,339	Net income	$	172,791	$	135,360
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	102,390		83,911		Depreciation and amortization	64,127		68,516

Amortization of deferred commissions costs	Amortization of deferred commissions costs	46,728		45,017		Amortization of deferred commissions costs	35,996		30,847
Amortization of Senior Notes discount and issuance costs	Amortization of Senior Notes discount and issuance costs	1,742		1,082		Amortization of Senior Notes discount and issuance costs	1,178		1,159

Non-cash lease expense	Non-cash lease expense	21,118		18,801		Non-cash lease expense	15,080		13,136

Stock-based compensation expense	Stock-based compensation expense	46,988		40,783		Stock-based compensation expense	35,959		30,689
Deferred income taxes, net	Deferred income taxes, net	16,255		6,812		Deferred income taxes, net	(14,946)		9,929
Credit loss expense	Credit loss expense	7,797		21,395		Credit loss expense	6,890		6,086
Other operating activities, net	Other operating activities, net	10		(12)		Other operating activities, net	(1,149)		(24)

Changes in operating assets and liabilities, net of acquisitions:	Changes in operating assets and liabilities, net of acquisitions:					Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(17,715)		(34,131)		Accounts receivable	(33,318)		(8,526)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(18,820)		4,145		Prepaid expenses and other current assets	3,152		(14,567)
Deferred commissions	Deferred commissions	(49,798)		(48,704)		Deferred commissions	(54,155)		(31,922)
Accounts payable and other liabilities	Accounts payable and other liabilities	(27,912)		47,341		Accounts payable and other liabilities	14,098		(32,474)
Lease liabilities	Lease liabilities	(23,596)		(21,247)		Lease liabilities	(15,932)		(15,674)
Income taxes payable	Income taxes payable	(3,583)		(9,838)		Income taxes payable	(27,770)		9,415
Deferred revenue	Deferred revenue	15,800		7,123		Deferred revenue	8,520		16,148
Other assets	Other assets	2,150		1,521		Other assets	1,578		2,191
Net cash provided by operating activities	Net cash provided by operating activities	319,218		355,338		Net cash provided by operating activities	212,099		220,289

Investing activities:	Investing activities:					Investing activities:
Proceeds from sale and settlement of investments		—		10,259

Proceeds from sale of property and equipment and other assets	Proceeds from sale of property and equipment and other assets	245		—		Proceeds from sale of property and equipment and other assets	5,034		201
Purchase of Richmond assets and other intangibles	Purchase of Richmond assets and other intangibles	(123,623)		—		Purchase of Richmond assets and other intangibles	(25,664)		(123,623)
Purchases of property and equipment and other assets	Purchases of property and equipment and other assets	(21,533)		(42,137)		Purchases of property and equipment and other assets	(30,746)		(13,093)

Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(152,594)		(192,002)		Cash paid for acquisitions, net of cash acquired	(6,331)		(148,275)
Net cash used in investing activities	Net cash used in investing activities	(297,505)		(223,880)		Net cash used in investing activities	(57,707)		(284,790)

Financing activities:	Financing activities:					Financing activities:
Proceeds from long-term debt		—		1,744,210
Payments of debt issuance costs		—		(15,747)
Payments of long-term debt		—		(745,000)

Repayments of long-term debt assumed in acquisition						Repayments of long-term debt assumed in acquisition	(2,155)		—
Repurchase of restricted stock to satisfy tax withholding obligations	Repurchase of restricted stock to satisfy tax withholding obligations	(29,306)		(34,051)		Repurchase of restricted stock to satisfy tax withholding obligations	(19,755)		(28,405)
Proceeds from equity offering, net of transaction costs		—		1,689,971

Proceeds from exercise of stock options and employee stock purchase plan	Proceeds from exercise of stock options and employee stock purchase plan	15,025		28,169		Proceeds from exercise of stock options and employee stock purchase plan	7,340		12,324
Other financing activities	Other financing activities	(57)		(1,650)		Other financing activities	—		(57)
Net cash (used in) provided by financing activities		(14,338)		2,665,902
Net cash used in financing activities						Net cash used in financing activities	(14,570)		(16,138)

Effect of foreign currency exchange rates on cash and cash equivalents	Effect of foreign currency exchange rates on cash and cash equivalents	(1,700)		(286)		Effect of foreign currency exchange rates on cash and cash equivalents	(2,832)		(364)
Net increase in cash, cash equivalents and restricted cash		5,675		2,797,074
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	136,990		(81,003)
Cash, cash equivalents and restricted cash at the beginning of period	Cash, cash equivalents and restricted cash at the beginning of period	3,755,912		1,070,731		Cash, cash equivalents and restricted cash at the beginning of period	3,827,126		3,755,912
Cash, cash equivalents and restricted cash at the end of period	Cash, cash equivalents and restricted cash at the end of period	$	3,761,587	$	3,867,805	Cash, cash equivalents and restricted cash at the end of period	$	3,964,116	$	3,674,909

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid	Interest paid	$	31,030	$	5,948	Interest paid	$	14,953	$	16,510
Income taxes paid	Income taxes paid	$	58,234	$	36,475	Income taxes paid	$	99,507	$	32,545

Supplemental non-cash investing and financing activities:	Supplemental non-cash investing and financing activities:					Supplemental non-cash investing and financing activities:
Consideration owed for acquisitions	Consideration owed for acquisitions	$	376	$	—	Consideration owed for acquisitions	$	55	$	2,887
Accrued capital expenditures		$	660	$	393
Accrued capital expenditures and non-cash landlord incentives						Accrued capital expenditures and non-cash landlord incentives	$	9,538	$	3,184

See accompanying notes.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.ORGANIZATION

CoStar Group, Inc. (the “Company” ~~or “CoStar Group”~~) provides information, analytics, online marketplace and auction services to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate information and related tools. The Company provides online marketplaces for commercial real estate, apartment rentals, ~~lands~~residential real estate, land for sale and businesses for 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. 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.

On June 24, 2020, the Company acquired Ten-X Holding Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate. On October 26, 2020, the Company acquired Emporis GmbH, a Germany-based provider of international commercial real estate data and images. On December 22, 2020, the Company acquired Homesnap, Inc. (“Homesnap”), which operates an online mobile software platform for residential real estate agents and brokers. On May 24, 2021, the Company acquired ~~Homes.com~~Homes Group, LLC ("Homes.com"), a residential real estate advertising and marketing services company primarily operating through its property listing and marketing portal, Homes.com. On October 1, 2021, the Company acquired Comreal Info, a French société par actions simplifiée ("BureauxLocaux"), the owner and operator of BureauxLocaux, a commercial real estate digital marketplace in France. On April 5, 2022, the Company acquired all of the issued share capital of BIH, a French société par actions simplifiée ("Business Immo"), the owner and operator of Business Immo, a leading commercial real estate news service provider in France. See ~~Notes~~Note 5 ~~and 8 to the accompanying Notes to the condensed consolidated financial statements~~ for further discussion of these acquisitions.

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the results of its operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, its comprehensive income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, its changes in stockholders' equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and its cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

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, ~~2020.~~2021.

Common Stock Split

At the Company's 2021 Annual Meeting of Stockholders in June 2021, upon the recommendation of the Company's Board of Directors, the Company's stockholders approved the adoption of the Company's Fourth Amended and Restated Certificate of Incorporation, which increased the total number of shares of common stock that the Company is authorized to issue from 60 million to 1.2 ~~billion.~~billion The Fourth Amended and Restated Certificate of Incorporation became effective on June 7, 2021. On June 7, 2021, the Board of Directors approved a 10-for-one stock split of the Company's outstanding shares of common stock to be effected in the form of a stock dividend. Each stockholder of record on June 17, 2021 received a dividend of 9 additional shares of common stock for each then-held share, distributed after close of trading on June 25, 2021. The par value of the Company's common stock remained $0.01 per share. All applicable share and per-share amounts in the unaudited condensed consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the impact of the stock split.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 credit losses, the useful lives and recoverability of long-lived and intangible assets, goodwill, income taxes, 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, real estate agents and 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~~Other subscription based-services include (i) real estate and ~~online marketplace services offered over the Internet~~lease management solutions to commercial customers, real estate investors and lenders, (ii) access to applications to manage workflow and advertising and marketing services for residential real estate agents, (iii) benchmarking and analytics for the hospitality industry and ~~related professionals.~~ (iv) market research, portfolio and debt analysis, management and reporting capabilities.

Subscription contract rates are based on the number of sites, number of users, organization size, the client’s business focus, geography, the number of properties reported on or analyzed, 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.

The Company also ~~provides~~derives revenues from transaction-based services including: (i) market research, portfolio and debt analysis, management and reporting capabilities, (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, (iii) benchmarking and analytics for the hospitality industry through STR, LLC and STR Global, Ltd. (together with STR, LLC, referred to as “STR”), (iv) an online auction platform for commercial real estate through Ten-X, LLC and its subsidiaries, ~~which were acquired in June 2020, (v)~~(ii) providing online tenant applications, including background and credit checks, and rental payment processing and (iii) ancillary products and services that sold on an online and mobile software platform that provides applications to manage residential real estate agent workflow through Homesnap, which was acquired in December 2020, and (vi) advertising and marketing services for residential properties through Homes.com which was acquired in May 2021. See Note 5 for details of the Homes.com, Homesnap and Ten-X acquisitions.ad hoc basis.

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 obligations.

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. Revenues from transaction-based services are recognized when the promised product or services are delivered, which, in the case of Ten-X auctions, is at the time of a successful closing of the sale of the ~~property for Ten-X revenues.~~property.

In limited circumstances, the Company's contracts with customers 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, which involves the determination of the standalone selling price for each distinct performance obligation.

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of the Company's fulfillment of its performance obligation(s) and is recognized 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.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources and costs related to advertising purchased on behalf of customers, 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 certain other intangible assets.

~~Advertising Costs~~

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency for the majority of its operations is the local currency, with the exception of certain international locations ~~of STR~~ for which the functional currency is the British ~~Pound.~~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 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 ~~income.~~loss. Gains and losses resulting from transactions denominated in a currency other than the functional currency of the entity are included in other income, ~~(expense)~~net in the condensed consolidated statements of operations using the average exchange rates in effect during the period. The Company recognized a net foreign currency gains of ~~$0.5~~$0.9 million and losses of $0.2 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and net foreign currency gains of ~~$0.1~~$1.3 million and ~~$0.7~~losses of $0.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, which are included in other income, ~~(expense)~~net on the condensed consolidated statements of operations.

Accumulated Other Comprehensive Loss

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


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Foreign currency translation adjustment	Foreign currency translation adjustment	$	(5,269)	$	(889)	Foreign currency translation adjustment	$	(29,956)	$	(5,758)

Total accumulated other comprehensive loss	Total accumulated other comprehensive loss	$	(5,269)	$	(889)	Total accumulated other comprehensive loss	$	(29,956)	$	(5,758)

There were no amounts reclassified out of accumulated other comprehensive loss to the condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021.

~~During~~

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs include digital marketing, television, radio, print and other media advertising. Advertising costs were approximately $92 million and $90 million for the ~~nine~~three months ended ~~September~~June 30, ~~2020,~~2022 and 2021, respectively, and $146 million and $155 million for the ~~Company sold its long-term variable debt instruments with an auction reset feature, referred to as auction rate securities ("ARS")~~six months ended June 30, 2022 and reclassified out of accumulated other comprehensive loss a realized loss of $0.5 million to earnings which is included in other income (expense) in the condensed consolidated statements of operations.2021, respectively.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 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.

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

Three Months Ended
September 30, Nine Months Ended
September 30,

Numerator: 2021 2020 2021 2020
Net income $ 64,304 $ 58,186 $ 199,664 $ 191,339
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares(1)
392,419 391,586 392,101 377,177
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units(1)
1,876 2,427 1,935 2,527
Denominator for diluted net income per share — weighted-average outstanding shares(1)
394,295 394,013 394,036 379,704

Net income per share — basic(1)
$ 0.16 $ 0.15 $ 0.51 $ 0.51
Net income per share — diluted(1)
$ 0.16 $ 0.15 $ 0.51 $ 0.50
__________________________

~~(1)~~ ~~Prior period amounts have been retroactively adjusted to reflect the 10-for-one stock split effected in the form of a stock dividend in June 2021.~~


	Three Months Ended June 30,				Six Months Ended June 30,
Numerator:	2022		2021		2022		2021

Net income	$	83,473	$	61,148	$	172,791	$	135,360
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares	393,342		392,306		393,119		391,942
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units	1,136		1,792		1,237		1,964
Denominator for diluted net income per share — weighted-average outstanding shares	394,478		394,098		394,356		393,906

Net income per share — basic	$	0.21	$	0.16	$	0.44	$	0.35
Net income per share — diluted	$	0.21	$	0.16	$	0.44	$	0.34
__________________________

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

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

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Performance-based restricted stock awards(1)
718 794 718 794
Anti-dilutive securities(1)
192 367 433 708
__________________________

~~(1)~~ ~~Prior period amounts have been retroactively adjusted to reflect the 10-for-one stock split effected in the form of a stock dividend in June 2021.~~


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Performance-based restricted stock awards	621	718	621	718
Anti-dilutive securities	1,620	206	1,342	553
__________________________

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 based method and the fair value of such equity instruments is recognized as expense in the condensed consolidated statements of operations.

For stock-based awards that vest over 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~~service period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of both a performance and market condition, stock-based compensation expense is recognized over the ~~vesting~~service period of the awards based on the expected achievement of the related performance ~~condition~~conditions at the end of each reporting period. 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.

Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, stock purchases under the Employee Stock Purchase Plan, Deferred Stock Units ~~(“DSUs”)~~ and Matching RSUs awarded under the Company's ~~Management Stock Purchase Plan~~MSPP included in the Company’s ~~results~~statements of operations were as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Cost of revenues $ 2,835 $ 3,007 $ 8,283 $ 8,009
Selling and marketing (excluding customer base amortization) 1,620 2,091 4,644 5,886
Software development 3,316 2,821 9,289 7,635
General and administrative 8,528 8,811 24,772 19,907
Total stock-based compensation expense(1)
$ 16,299 $ 16,730 $ 46,988 $ 41,437
__________________________

~~(1)~~ Stock-based compensation expense for the nine months ended September 30, 2020 includes $0.7 million of expense related to the cash settlement of stock options in connection with the acquisition of Ten-X Holding Company, Inc. See Note 5 for details of the acquisition.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenues	$	2,991	$	2,479	$	5,961	$	5,448
Selling and marketing (excluding customer base amortization)	1,985		1,561		3,648		3,023
Software development	2,998		3,059		6,104		5,973
General and administrative	10,138		8,045		20,246		16,245
Total stock-based compensation expense	$	18,112	$	15,144	$	35,959	$	30,689

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. ~~Cash, cash equivalents, and~~The Company had no restricted cash ~~consisted of the following~~ as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020 (in thousands):~~2021.

~~COSTAR GROUP, INC.~~

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

September 30, 2021 December 31, 2020
Cash and cash equivalents $ 3,761,587 $ 3,693,813
Restricted cash:
RentPath termination fee held in escrow under the terms of the Asset Purchase Agreement — 58,750
Other restricted cash related to acquisitions — 3,349
Total restricted cash — 62,099
Cash, cash equivalents and restricted cash $ 3,761,587 $ 3,755,912

Allowance for Credit Losses

The Company maintains 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 collectability by reviewing the duration of collection pursuits on its delinquent trade receivables and historical write off trends. Based on the Company’s experience, the customer's delinquency

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

status, which is analyzed periodically, is the strongest indicator of the credit quality of the underlying trade ~~receivables, which is analyzed periodically.~~receivables. The Company’s policy is to ~~write-off~~write off trade receivables when they are deemed uncollectible. A majority of the Company's trade receivables are less than 365 days outstanding.

Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on ~~its~~5 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 Portfolio Segment - The CoStar portfolio segment consists of ~~two~~2 classes of trade receivables based on geographical location: North America and International.

•Information Services Portfolio Segment - The Information Services portfolio segment consists of ~~four~~4 classes of trade receivables: CoStar Real Estate Manager; Information Services, North America; STR, ~~US;~~North America; and STR, International.

•Multifamily Portfolio Segment - The Multifamily portfolio segment consists of ~~one~~1 class of trade receivables.

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

•Other Marketplaces Portfolio Segment - The Other Marketplaces portfolio segment consists of two classes of trade receivables: Ten-X and other marketplaces.

The majority of Residential revenue is e-commerce based and does not result in accounts receivable. Residential accounts receivable and the related allowance for credit losses are not material.

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~~the commencement of the arrangement, 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 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 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, offset by lease incentives. ~~The~~Upon commencement, the initial ROU asset also includes any lease 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, 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 and is determined at lease commencement, or as of January 1, 2019 for operating leases in existence upon adoption of ~~Accounting Standards Codification ("ASC") 842.~~the new lease standard. The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement.

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.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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. In the fourth quarter of 2021, the Company began removing fully amortized intangible assets from the cost and accumulated amortization amounts disclosed.

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 wethe Company 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.

Debt Issuance Costs

Costs incurred in connection with the issuance of 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. The Company made a policy election to classify deferred issuance costs on the revolving credit facility as a long-term asset on its condensed consolidated balance 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 accounting for its outstanding debt, revolving credit facility, and related issuance costs.

~~COSTAR GROUP, INC.~~

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

Business Combinations

The Company generally allocates the purchase consideration ~~related to business combinations~~ to the ~~identifiable~~ tangible ~~and intangible~~ assets acquired and liabilities assumed and intangible assets acquired, based on their estimated fair values. The purchase ~~consideration~~price is, generally, determined based on the fair value of the assets transferred, liabilities ~~incurred~~assumed 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~~The Company applies significant assumptions, estimates and ~~assumptions,~~judgments in determining the fair value of assets acquired and liabilities assumed on the acquisition date, 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 ~~fair value.~~amounts.

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.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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.

Further, contract assets and liabilities acquired or assumed in an acquisition are measured in accordance with the accounting framework for revenue from contracts with customers as if the Company had originated the acquired contract.

~~COSTAR GROUP, INC.~~Recent Accounting Pronouncements

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

Recent Accounting Pronouncements Not Yet Adopted

On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Accounting Standards Codification ("ASC") 848 contains optional expedients and exceptions for applying GAAP to debt, contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied to all contracts that are accounted for under a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. This guidance is effective for fiscal years beginning after January 1, 2021, including interim periods within those fiscal years. The Company's 2020 Credit Agreement (as defined in Note 10) provides for a $750 million revolving credit facility and a letter of credit sublimit of $20 million, with interest rates benchmarked to LIBOR. As of June 30, 2022, no amounts were issued or drawn under this facility. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates prior guidance on troubled debt restructurings ("TDRs") for creditors that have adopted ASU 2016-13, Measurement of Credit Losses in Financial Statements, and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. In addition, the ASU amends guidance on "vintage disclosures" to require the disclosure of current period gross write offs by year of origination. This guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

3.REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

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

Three Months Ended September 30,
2021 2020
North America International Total North America International Total
CoStar $ 174,071 $ 9,194 $ 183,265 $ 158,235 $ 7,753 $ 165,988
Information Services 29,177 6,749 35,926 26,357 6,817 33,174
Multifamily 171,125 — 171,125 155,184 — 155,184
LoopNet(1)
52,103 424 52,527 44,938 146 45,084
Residential(1)
24,747 — 24,747 — — —
Other Marketplaces(1)
31,729 — 31,729 26,190 — 26,190
Total revenues $ 482,952 $ 16,367 $ 499,319 $ 410,904 $ 14,716 $ 425,620
__________________________

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Three Months Ended June 30,
	2022						2021
	North America		International		Total		North America		International		Total

CoStar	$	197,380	$	9,186	$	206,566	$	167,845	$	9,134	$	176,979
Information Services	30,511		7,991		38,502		28,096		7,061		35,157

Multifamily	182,359		—		182,359		171,357		—		171,357
LoopNet(1)	54,603		1,694		56,297		50,731		364		51,095
Residential(1)	20,154		—		20,154		18,087		—		18,087
Other Marketplaces(1)	32,430		—		32,430		27,658		—		27,658
Total revenues	$	517,437	$	18,871	$	536,308	$	463,774	$	16,559	$	480,333
__________________________

(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

Nine Months Ended September 30,
2021 2020
North America International Total North America International Total
CoStar $ 505,470 $ 26,958 $ 532,428 $ 473,363 $ 22,634 $ 495,997
Information Services 84,959 20,820 105,779 77,069 19,023 96,092
Multifamily 508,629 — 508,629 438,185 — 438,185
LoopNet(1)
151,770 1,082 152,852 131,348 256 131,604
Residential(1)
53,939 — 53,939 — — —
Other Marketplaces(1)
83,722 — 83,722 52,748 — 52,748
Total revenues $ 1,388,489 $ 48,860 $ 1,437,349 $ 1,172,713 $ 41,913 $ 1,214,626
__________________________


	Six Months Ended June 30,
	2022						2021
	North America		International		Total		North America		International		Total

CoStar	$	386,484	$	18,731	$	405,215	$	331,399	$	17,764	$	349,163
Information Services	60,782		14,935		75,717		55,782		14,071		69,853

Multifamily	357,836		—		357,836		337,504		—		337,504
LoopNet(1)	107,291		3,453		110,744		99,667		658		100,325
Residential(1)	38,214		—		38,214		29,192		—		29,192
Other Marketplaces(1)	64,407		—		64,407		51,993		—		51,993
Total revenues	$	1,015,014	$	37,119	$	1,052,133	$	905,537	$	32,493	$	938,030
__________________________

Deferred Revenue

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


Balance at December 31, ~~2020~~2021(1)	$	~~77,363~~96,724
Revenue recognized in the current period from the amounts in the beginning balance	~~(70,339)~~(68,766)
New deferrals, net of amounts recognized in the current period	~~87,225~~79,158
Effects of foreign currency	~~(231)~~(1,766)

Balance at ~~September~~June 30, ~~2021~~2022~~(1)~~(2)	$	~~94,018~~105,350
__________________________

(1) Deferred revenue iswas comprised of ~~$93~~$95.5 million of current liabilities and $1$1.2 million of noncurrent liabilities classified within lease and other long-term liabilities on the Company’s consolidated balance sheet as of December 31, 2021.

(2)Deferred revenue is comprised of $104.8 million of current liabilities and $0.5 million of noncurrent liabilities classified within lease and other long-term liabilities on the Company’s condensed consolidated balance sheet as of ~~September~~June 30, ~~2021.~~2022. This balance includes $1$2 million of net new deferrals recognized in connection with ~~business acquisitions~~the Business Immo acquisition made in ~~2021.~~2022. See Note 5 for ~~details.~~further discussion of acquisitions.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Contract Assets

~~The Company had contract~~Contract assets ~~of $9 million as of September 30, 2021 and December 31, 2020, which~~ are generated when contractual billing schedules differ from revenue recognition ~~timing. Contract assets~~timing and represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied. ~~Current contract~~Contract assets ~~are included in prepaid expenses~~as of June 30, 2022 and ~~other current assets, and non-current contract assets are included in deposits and other assets on the Company's condensed consolidated balance sheets.~~ December 31, 2021 were as follows (in thousands):


Balance	Balance Sheet Caption	June 30, 2022		December 31, 2021
Current portion	Prepaid expenses and other current assets	$	2,994	$	3,094
Non-current portion	Deposits and other assets	6,964		6,146
Total contract assets		$	9,958	$	9,240

The revenue recognized from contract assets for the three and ~~nine~~six months ended ~~September~~June 30, 2022 and the three and six months ended June 30, 2021 was not material.

Commissions

Commissions expense is included in selling and marketing expense in the Company's condensed consolidated statements of operations. Commissions expense activity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was as follows (in thousands). The Company determined that no deferred commissions were impaired as of ~~September~~June 30, ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Commissions incurred	Commissions incurred	$	30,337	$	25,436	$	83,983	$	69,047		Commissions incurred	$	38,423	$	27,299	$	75,238	$	53,646
Commissions capitalized in the current period	Commissions capitalized in the current period	(17,876)		(16,582)		(49,798)		(48,704)			Commissions capitalized in the current period	(28,326)		(16,844)		(54,155)		(31,922)
Amortization of deferred commissions costs	Amortization of deferred commissions costs	15,881		15,355		46,728		45,017			Amortization of deferred commissions costs	18,413		15,530		35,996		30,847
Total commissions expense	Total commissions expense	$	28,342	$	24,209	$	80,913	$	65,360		Total commissions expense	$	28,510	$	25,985	$	57,079	$	52,571

Unsatisfied Performance Obligations

Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations was approximately ~~$319~~$452 million at ~~September~~June 30, ~~2021,~~2022, 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.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):

Nine Months Ended September 30, 2021
CoStar Information Services Multifamily
LoopNet(3)
Other Marketplaces(3)
Total
Beginning balance at December 31, 2020 $ 5,531 $ 2,739 $ 4,387 $ 1,667 $ 786 $ 15,110
Current-period provision (releases) for expected credit losses(1), (2)
3,932 (257) 2,167 1,955 — 7,797
Write-offs charged against the allowance, net of recoveries and other (3,933) (518) (3,779) (1,628) — (9,858)
Ending balance at September 30, 2021 $ 5,530 $ 1,964 $ 2,775 $ 1,994 $ 786 $ 13,049
__________________________

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Six Months Ended June 30, 2022
	CoStar		Information Services		Multifamily		LoopNet		Other Marketplaces		Total
Beginning balance at December 31, 2021	$	5,380	$	1,820	$	3,393	$	1,968	$	813	$	13,374
Current-period provision for expected credit losses(1), (2)	3,422		(1,063)		2,676		1,805		50		6,890
Write-offs charged against the allowance, net of recoveries and other	(4,708)		9		(2,849)		(3,078)		—		(10,626)
Ending balance at June 30, 2022	$	4,094	$	766	$	3,220	$	695	$	863	$	9,638
__________________________

(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 ~~nine~~six months ended ~~September~~June 30, ~~2021.~~

~~COSTAR GROUP, INC.~~

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

~~(3)~~ Amounts previously disclosed in the Commercial Property and Land portfolio segment have been further disaggregated into the LoopNet, Residential and Other Marketplaces portfolio segments. Majority of the Residential portfolio segment revenue is e-commerce based and does not result in accounts receivable.2022.

Nine Months Ended September 30, 2020
CoStar Information Services Multifamily
LoopNet(3)
Other Marketplaces(3)
Total
Beginning balance at December 31, 2019 $ 1,264 $ 624 $ 1,195 $ 576 $ 889 $ 4,548
Current-period provision for expected credit losses(1), (2)
9,616 2,634 6,579 2,482 84 21,395
Write-offs charged against the allowance, net of recoveries and other (5,457) (350) (4,135) (1,607) (189) (11,738)
Ending balance at September 30, 2020 $ 5,423 $ 2,908 $ 3,639 $ 1,451 $ 784 $ 14,205
__________________________


	Six Months Ended June 30, 2021
	CoStar		Information Services		Multifamily		LoopNet(3)		Other Marketplaces(3)		Total
Beginning balance at December 31, 2020	$	5,531	$	2,739	$	4,387	$	1,667	$	786	$	15,110
Current-period provision for expected credit losses(1), (2)	2,890		16		1,698		1,482		—		6,086
Write-offs charged against the allowance, net of recoveries and other	(2,857)		(304)		(2,852)		(750)		—		(6,763)
Ending balance at June 30, 2021	$	5,564	$	2,451	$	3,233	$	2,399	$	786	$	14,433
__________________________

(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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

(3) Amounts previously disclosed in the Commercial Property and Land portfolio segment have been further disaggregated into the LoopNet and Other Marketplaces portfolio segments.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5.ACQUISITIONS

Business Immo

On April 5, 2022, the Company acquired all of the issued share capital of BIH, a French société par actions simplifiée, the owner and operator of Business Immo, a leading commercial real estate news service provider in France, for €6 million ($6 million), net of cash acquired, and the assumption of outstanding debt. As part of the acquisition, the Company recorded goodwill and intangible assets of $8 million and $4 million, respectively. The net assets of Business Immo were recorded at their estimated fair value. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies. The Company retired the assumed debt in the second quarter of 2022.

BureauxLocaux

On October 1, 2021, CoStar UK Limited, a wholly owned subsidiary of the Company, M.A.J.E. Marketing & Strategie and an individual entered into a Share Sale and Purchase Agreement pursuant to which the Company acquired all of the share capital interests in Comreal Info, a French société par actions simplifiée, the owner and operator of BureauxLocaux, a leading commercial real estate digital marketplace in France, for a base purchase price of €35 million ($41 million) in cash, subject to customary working capital and other post-closing adjustments which were settled in the fourth quarter of 2021. As part of the acquisition, the Company recorded goodwill and intangibles assets of $27 million and $18 million, respectively, in the Company's International operating segment. The net assets of BureauxLocaux were recorded at their estimated fair value. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies.

Homes.com

On April 14, 2021, Landmark Media Enterprises, LLC (“Landmark”), ~~Home~~Homes Group, LLC ("Homes.com") and CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company entered, into a securities purchase agreement, pursuant to which the Company agreed to acquire all of the outstanding equity interests in Homes.com from Landmark for a purchase price of $150 million in cash, subject to customary working capital and other post-closing adjustments. The Company's acquisition of Homes.com closed on May 24, 2021. The securities purchase agreement required an initial payment of $148 million, net of working capital adjustments, at the time of closing, with the remainder of the purchase price payable four months following the acquisition date, subject to offset for adjustments to the purchase price after final determination of closing net working capital. These amounts were settled in the third quarter of ~~2021.~~2021 resulting in total consideration of $152 million. Homes.com is a residential real estate advertising and marketing services company primarily operating through its property listing and marketing portal, Homes.com.

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


		Preliminary: May 24, 2021		Measurement Period Adjustments		Updated Preliminary: May 24, 2021			Preliminary: May 24, 2021		Measurement Period Adjustments		Final: May 24, 2021
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	—	$	—	$	—	Cash, cash equivalents and restricted cash	$	—	$	—	$	—
Accounts receivable	Accounts receivable	1,798		—		1,798		Accounts receivable	1,798		—		1,798
Lease right-of-use assets	Lease right-of-use assets	371		—		371		Lease right-of-use assets	371		—		371
Goodwill	Goodwill	86,314		1,818		88,132		Goodwill	91,875		—		91,875
Intangible assets	Intangible assets	53,400		—		53,400		Intangible assets	53,400		—		53,400
Deferred tax assets	Deferred tax assets	11,171		—		11,171		Deferred tax assets	7,862		—		7,862
Lease liabilities	Lease liabilities	(371)		—		(371)		Lease liabilities	(371)		—		(371)
Deferred revenue	Deferred revenue	(1,086)		—		(1,086)		Deferred revenue	(1,521)		—		(1,521)
Other assets and liabilities	Other assets and liabilities	(1,240)		—		(1,240)		Other assets and liabilities	(1,239)		—		(1,239)
Fair value of identifiable net assets acquired	Fair value of identifiable net assets acquired	$	150,357	$	1,818	$	152,175	Fair value of identifiable net assets acquired	$	152,175	$	—	$	152,175

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The net assets of Homes.com 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. The ~~purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies. The~~ estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.

The following table summarizes the fair values of the identifiable intangible assets acquired in the Homes.com acquisition included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods (in thousands):


	Estimated Fair Value		Estimated Useful Life	Amortization Method
Customer base	$	32,000	8	Accelerated
Trade name	21,000		15	Straight-line
Technology	400		2	Straight-line
Total intangible assets	$	53,400

~~COSTAR GROUP, INC.~~

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

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 Homes.com 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 Homes.com operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The ~~$88~~$92 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment, of which ~~$17~~$20 million is expected to be deductible for income tax purposes.

~~As of September 30, 2021, transaction~~Transaction costs associated with the Homes.com acquisition were not material. In addition, the Company paid $5 million into a cash escrow account for stay bonuses for certain Homes.com employees, to be paid to active employees after the six month period following the acquisition or, if earlier, after the termination of a Homes.com employee's employment without cause or a Homes.com employee's resignation with good reason during the six month period following the acquisition. In the event some or all of those employees are not entitled to their stay bonus, the funds will be remitted to the seller. The Company is recognizingand recognized compensation expense for the stay bonus over the ~~six month~~six-month post-combination period. Upon acquisition, the Company assessed the probability Homes.com would be required to pay certain state tax liabilities and recorded an accrual of $7 million determined in accordance with the provisions of ASC 450, “Contingencies,” as the fair value was not determinable. Landmark has agreed to indemnify the Company for tax liabilities related to periods prior to the acquisition and an indemnification asset was established for $7 million in the purchase price allocation.

~~Homesnap~~

~~On December 22, 2020, pursuant to the Agreement and Plan of Merger, dated November 20, 2020,~~ by and among CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Snapped Halo Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), and Homesnap, Inc., a Delaware corporation ("Homesnap"), Merger Sub was merged with and into Homesnap (the “Homesnap Merger”), with Homesnap surviving the merger as a wholly-owned subsidiary of CRI. In connection with the Homesnap Merger, the Company acquired all of the issued and outstanding equity interests in Homesnap for a purchase price of $250 million in cash. Homesnap is an industry-leading online and mobile software platform that provides user-friendly applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Homesnap has relationships, data, software, and tools for residential real estate professionals that are complementary to CoStar Group’s existing offerings.

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

Preliminary: December 22, 2020 Measurement Period Adjustments Updated Preliminary: December 22, 2020
Cash, cash equivalents and restricted cash $ 10,225 $ — $ 10,225
Accounts receivable 662 — 662
Lease right-of-use assets 3,437 — 3,437
Goodwill 183,016 1,355 184,371
Intangible assets 67,000 — 67,000
Deferred tax assets (liabilities) (1,423) (1,355) (2,778)
Lease liabilities (3,375) — (3,375)
Deferred revenue (4,000) — (4,000)
Other assets and liabilities (5,188) — (5,188)
Fair value of identifiable net assets acquired $ 250,354 $ — $ 250,354

The net assets of Homesnap 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. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain contingencies. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins. See Note 8 for measurement period impact on goodwill.

~~COSTAR GROUP, INC.~~

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

The following table summarizes the fair values of the identifiable intangible assets acquired in the Homesnap acquisition included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods (in thousands):

Estimated Fair Value Estimated Useful Life Amortization Method
Customer base $ 45,000 10 Accelerated
Trade name 7,000 10 Straight-line
Technology 15,000 6 Straight-line
Total intangible assets $ 67,000

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 Homesnap 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 Homesnap's operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $184 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recorded in connection with this acquisition is not amortized, but is subject to an annual impairment test. Goodwill recognized is not deductible for income tax purposes.

~~As of September 30, 2021, transaction costs associated with the Homesnap acquisition were not material.~~

~~Ten-X~~

~~On June 24, 2020, pursuant to the Agreement and Plan of Merger, dated May 13, 2020,~~ by and among CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Crescendo Sub, Inc., a Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), Ten-X Holding Company, Inc., a Delaware corporation ("Ten-X Holding"), and Thomas H. Lee Equity Fund VII L.P., a Delaware limited partnership, solely in its capacity as representative thereunder, Merger Sub was merged with and into Ten-X Holding (the “Merger”), with Ten-X Holding surviving the Merger as a wholly-owned subsidiary of CRI. In connection with the Merger, the Company acquired all of the issued and outstanding equity interests in Ten-X Holding and Ten-X Holding's subsidiaries (collectively, "Ten-X") for a purchase price of $188 million in cash. Ten-X operates an online auction platform for commercial real estate. The Ten-X acquisition is expected to enable the Company to create a new end-to-end commercial real estate platform, combining LoopNet and CoStar's online audience of buyers with Ten-X’s leadership in online auctions for performing and distressed assets.

~~COSTAR GROUP, INC.~~

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

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

Final:
June 24, 2020

~~Cash and cash equivalents~~

~~3,290~~

~~Accounts receivable~~

~~131~~

~~Lease right-of-use assets~~

~~4,945~~

~~Goodwill~~

~~134,322~~

~~Intangible assets~~

~~58,000~~

~~Lease liabilities~~

~~(4,945)~~

~~Deferred tax liabilities~~

~~(2,981)~~

~~Other assets and liabilities~~

~~(5,047)~~

~~Fair value of identifiable net assets acquired~~

~~187,715~~

The net assets of Ten-X 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. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins. See Note 8 for measurement period impact on goodwill.

The following table summarizes the fair values of the identifiable intangible assets acquired in the Ten-X acquisition included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods (in thousands):

Estimated Fair Value Estimated Useful Life Amortization Method
Customer base $ 46,000 6 Accelerated
Technology 11,000 5 Straight-line
Other intangible assets 1,000 2 Straight-line
Total intangible assets $ 58,000

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 Ten-X 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 Ten-X's operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $134 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recorded in connection with this acquisition is not amortized, but is subject to an annual impairment test. Goodwill recognized is not deductible for income tax purposes.

As of September 30, 2021, transaction costs associated with the Ten-X acquisition were not material. The Company paid $3 million in incentive compensation to Ten-X employees negotiated as part of the acquisition, and this expense was recognized in the post-combination period during the three months ended September 30, 2020.

~~COSTAR GROUP, INC.~~

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

Pro Forma Financial Information

The unaudited pro forma financial information presented below summarizes the combined results of operations for the Company ~~Ten-X and Homesnap as though the companies were combined as of January 1, 2019, and the Company~~ and Homes.com as though the companies were combined as of January 1, 2020. The impact of the October 2021 BureauxLocaux and April 2022 Business Immo acquisitions on the pro forma financial information was not material and, therefore, has not been included. 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, and the related tax 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 ~~acquisitions~~Homes.com acquisition had taken place on January 1, ~~2019 for Ten-X and Homesnap and January 1, 2020 for Homes.com.~~2020.

The unaudited pro forma financial information for the three and ~~nine~~six months ended ~~September~~June 30, 2021 ~~and 2020~~ combine the historical results of the Company ~~Ten-X, Homesnap~~ and Homes.com for the periods prior to the acquisition date, and the effects of the pro forma adjustments listed above.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Revenue $ 499,319 $ 446,791 $ 1,455,316 $ 1,280,143
Net income $ 64,303 $ 50,821 $ 193,595 $ 159,330
Net income per share - basic(1)
$ 0.16 $ 0.13 $ 0.49 $ 0.43
Net income per share - diluted(1)
$ 0.16 $ 0.13 $ 0.49 $ 0.42
__________________________

~~(1)~~ ~~Prior period amounts have been retroactively adjusted to reflect the 10-for-one stock split effected in the form of a stock dividend in June 2021. See Note 2 for~~ ~~details.~~


	Three Months Ended June 30,		Six Months Ended June 30,
	2021		2021

Revenue	$	487,204	$	955,997
Net income	$	59,229	$	129,526
Net income per share - basic	$	0.15	$	0.33
Net income per share - diluted	$	0.15	$	0.33
__________________________

The impact of the Homes.com acquisition on ~~CoStar Group’s revenue~~the Company's revenues in the condensed consolidated statements of operations was an increase of ~~$8 million and $12~~$4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~2021. The impact of the Homes.com acquisition on ~~CoStar Group’s~~the Company's net income ~~in the condensed consolidated statements of operations~~ was a decrease of ~~$7 million and $10~~$3 million for the three and nine ended September 30, 2021. The impact of the Ten-X acquisition on CoStar Group’s revenue in the condensed consolidated statements of operations was an increase of $12 million and $12 million for the three and ninesix months ended ~~September~~June 30, 2020, respectively. The impact of the Ten-X acquisition on CoStar Group’s net income in the condensed consolidated statements of operations was a decrease of $5 million and $7 million for the three and nine months ended September 30, 2020.

2021.

6.INVESTMENTS AND FAIR VALUE MEASUREMENTS

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 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 ~~September~~June 30, 2022 and December 31, 2021, the Company's financial assets comprise Level 1 cash equivalents with original maturities of three months or less in the amount of $3.8 billion and $3.0 ~~billion.~~billion, respectively. As of ~~September~~June 30, 2022 and December 31, 2021, the Company had no Level 2 or Level 3 financial assets measured at fair value.

During the nine months ended September 30, 2020, the Company sold its ARS investments for $10.3 million and recognized a realized loss of $0.5 million for the nine months ended September 30, 2020 included in other (expense) income on the Company's condensed consolidated statements of operations.

~~COSTAR GROUP, INC.~~

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

~~In addition to the financial instruments listed above, the~~The Company holds other financial instruments, including cash equivalents, cash deposits, accounts receivable, accounts payable, accrued expenses and Senior ~~Notes.~~Notes (as defined in Note 10). The carrying value for such financial instruments, other than the Senior Notes, each approximated their fair values as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The estimated fair value of the Company's outstanding Senior Notes using quoted prices from the over-the-counter markets, considered Level 2 inputs, was ~~$1.02~~$0.8 billion and $1.0 billion as of ~~September~~June 30, ~~2021.~~2022 and December 31, 2021, respectively.

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

7.LEASES

The Company has operating leases for its office facilities and data centers, as well as finance leases for office equipment. The Company's leases have remaining terms of less than one year to ~~seven~~six years. The leases contain various renewal and termination options. The period 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 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 statements of operations were as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,								Six Months Ended June 30,
Operating lease costs:	Operating lease costs:	2021		2020		2021		2020		Operating lease costs:	2022				2021				2022				2021

Cost of revenues	Cost of revenues	$	2,717	$	2,992	$	7,446	$	8,732		Cost of revenues		$	1,725			$	2,405			$	4,278			$	4,729
Software development	Software development	1,910		1,628		4,913		4,412		Software development	1,345				1,610				3,129				3,003
Selling and marketing (excluding customer base amortization)	Selling and marketing (excluding customer base amortization)	3,452		2,636		8,876		7,725		Selling and marketing (excluding customer base amortization)	1,931				2,774				4,941				5,424
General and administrative	General and administrative	1,594		1,259		4,369		3,609		General and administrative	4,258				1,467				5,911				2,775
Total operating lease costs	Total operating lease costs	$	9,673	$	8,515	$	25,604	$	24,478	Total operating lease costs	$	9,259			$	8,256			$	18,259			$	15,931

The impact of lease costs related to finance leases and short-term leases was not material for the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021.

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


Balance	Balance	Balance Sheet Location	September 30, 2021			December 31, 2020			Balance	Balance Sheet Location	June 30, 2022			December 31, 2021

Operating lease liabilities	Operating lease liabilities		$	139,315		$	148,975		Operating lease liabilities		$	134,639		$	134,150
Less: imputed interest	Less: imputed interest		(8,779)			(10,998)			Less: imputed interest		(7,624)			(8,512)
Present value of lease liabilities	Present value of lease liabilities		130,536			137,977			Present value of lease liabilities		127,015			125,638
Less: current portion of lease liabilities	Less: current portion of lease liabilities	Lease liabilities	(29,878)			(32,648)			Less: current portion of lease liabilities	Lease liabilities	35,426			26,268
Long-term lease liabilities	Long-term lease liabilities	Lease and other long-term liabilities	$	100,658		$	105,329		Long-term lease liabilities	Lease and other long-term liabilities	$	91,589		$	99,370

Weighted-average remaining lease term in years	Weighted-average remaining lease term in years		4.2			4.0			Weighted-average remaining lease term in years		3.9			4.0
Weighted-average discount rate	Weighted-average discount rate		2.8		%	3.6		%	Weighted-average discount rate		3.1		%	3.1		%

Balance sheet information related to finance leases was not material as of ~~September~~June 30, ~~2021~~2022 and .December 31, 2021.

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


	Six Months Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	19,111	$	18,469

ROU assets obtained in exchange for lease obligations:
Operating leases	$	13,917	$	37,079

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Nine Months Ended
September 30,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases $ 28,082 $ 26,924
ROU assets obtained in exchange for lease obligations:
Operating leases $ 32,107 $ 11,124

8.GOODWILL

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


		North America		International		Total			North America		International		Total
Goodwill, December 31, 2019		$	1,738,360	$	143,660	$	1,882,020
Goodwill, December 31, 2020								Goodwill, December 31, 2020	$	2,085,494	$	150,505	$	2,235,999
Acquisitions, including measurement period adjustments(1)	Acquisitions, including measurement period adjustments(1)	347,134		1,273		348,407		Acquisitions, including measurement period adjustments(1)	60,352		27,441		87,793
Effect of foreign currency translation	Effect of foreign currency translation	—		5,572		5,572		Effect of foreign currency translation	—		(2,777)		(2,777)
Goodwill, December 31, 2020		2,085,494		150,505		2,235,999
Goodwill, December 31, 2021								Goodwill, December 31, 2021	2,145,846		175,169		2,321,015
Acquisitions, including measurement period adjustments(2)	Acquisitions, including measurement period adjustments(2)	60,012		—		60,012		Acquisitions, including measurement period adjustments(2)	3,401		7,548		10,949
Effect of foreign currency translation	Effect of foreign currency translation	—		(2,497)		(2,497)		Effect of foreign currency translation	—		(17,788)		(17,788)
Goodwill, September 30, 2021		$	2,145,506	$	148,008	$	2,293,514
Goodwill, June 30, 2022								Goodwill, June 30, 2022	$	2,149,247	$	164,929	$	2,314,176
__________________________	__________________________							__________________________

(1) North America goodwill ~~for~~recorded during the year ended December 31, 2020, includes goodwill recorded in connection with the acquisitions of Ten-X and Homesnap, as well as STR measurement period adjustments to goodwill of $0.3 million. International goodwill for the year ended December 31, 2020 includes goodwill recorded in connection with the acquisition of Emporis GmbH of $1.2 million and STR measurement period adjustments of $0.1 million.

~~(2)~~ ~~North America goodwill during the nine months ended September 30,~~ 2021, includes goodwill recorded in connection with the acquisition of Homes.com of $88.5 million, offset by measurement period adjustments of ~~$26~~$1.4 million ~~recorded during the nine months ended September 30, 2021~~for Ten-X and $26.7 million for Homesnap primarily related to the measurement of the fair value of Homesnap customer relationships in the first quarter of 2021. ~~See Note 5 for acquisition details.~~

~~The Company~~International goodwill recorded ~~goodwill of approximately $88 million, $184 million and $134 million~~ in connection with the ~~May 2021~~acquisition of BureauxLocaux was $27.4 million.

(2) North America goodwill recorded during the six months ended June 30, 2022 relates to a measurement period adjustment for income taxes for Homes.com ~~December 2020 Homesnap and June 2020 Ten-X acquisitions, respectively.~~of $3.4 million. International goodwill recorded in connection with the acquisition of Business Immo was $7.5 million.

No impairments of the Company's goodwill were recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020.~~2022 or 2021.

~~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):


		September 30, 2021		December 31, 2020		Weighted- Average Amortization Period (in years)		June 30, 2022		December 31, 2021		Weighted- Average Amortization Period (in years)

Acquired technology and data	Acquired technology and data	$	131,729	$	131,551	5	Acquired technology and data	$	39,679	$	41,979	5
Accumulated amortization	Accumulated amortization	(103,581)		(97,791)			Accumulated amortization	(16,911)		(15,333)
Acquired technology and data, net	Acquired technology and data, net	28,148		33,760			Acquired technology and data, net	22,768		26,646

Acquired customer base	Acquired customer base	612,092		545,643		10	Acquired customer base	485,309		569,666		10
Accumulated amortization	Accumulated amortization	(351,478)		(296,758)			Accumulated amortization	(267,345)		(319,039)
Acquired customer base, net	Acquired customer base, net	260,614		248,885			Acquired customer base, net	217,964		250,627

Acquired trade names and other intangible assets	Acquired trade names and other intangible assets	283,294		249,465		12	Acquired trade names and other intangible assets	252,052		262,136		12
Accumulated amortization	Accumulated amortization	(124,156)		(105,365)			Accumulated amortization	(107,539)		(103,747)
Acquired trade names and other intangible assets, net	Acquired trade names and other intangible assets, net	159,138		144,100			Acquired trade names and other intangible assets, net	144,513		158,389

Intangible assets, net	Intangible assets, net	$	447,900	$	426,745		Intangible assets, net	$	385,245	$	435,662

No impairments of the Company's intangible assets were recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. During the three months ended June 30, 2022, the Company removed $81 million of intangible assets that were fully amortized from the acquired intangible assets and accumulated amortization, which had no net impact on the Company's financial results.

2825

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10.LONG-TERM DEBT

The table below presents the components of outstanding debt (in thousands):


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
2.800% Senior Notes due July 15, 2030	2.800% Senior Notes due July 15, 2030	$	1,000,000	$	1,000,000	2.800% Senior Notes due July 15, 2030	$	1,000,000	$	1,000,000
2020 Credit Agreement, due July 1, 2025	2020 Credit Agreement, due July 1, 2025	—		—		2020 Credit Agreement, due July 1, 2025	—		—
Total face amount of long-term debt	Total face amount of long-term debt	1,000,000		1,000,000		Total face amount of long-term debt	1,000,000		1,000,000
Senior Notes unamortized discount and issuance costs	Senior Notes unamortized discount and issuance costs	(12,367)		(13,285)		Senior Notes unamortized discount and issuance costs	(11,428)		(12,056)
Long-term debt, net	Long-term debt, net	$	987,633	$	986,715	Long-term debt, net	$	988,572	$	987,944

Senior Notes

On July 1, 2020, the Company issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030 (the “Senior Notes”). The Senior Notes were sold to a group of financial institutions as initial purchasers who subsequently resold the Senior Notes to non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 99.921% of their principal amount. Interest on the Senior Notes is payable semi-annually in arrears ~~beginning~~ on January 15 ~~2021.~~and July 15. The Senior Notes may be redeemed in whole or in part by the Company (a) at any time prior to April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus the Applicable Premium (as calculated in accordance with the indenture governing the Senior Notes) ~~as of,~~, and any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date, and (b) on or after April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date. The Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the Company’s domestic wholly owned subsidiaries and ~~contain~~the indenture governing the Senior Notes contains covenants and other customary provisions with which the Company was in compliance as of ~~September~~June 30, ~~2021.~~2022.

Revolving Credit Facility

On July 1, 2020, the Company also entered into a second amended and restated credit agreement (the "2020 Credit Agreement"), which amended and restated in its entirety the then-existing credit agreement originally entered into in April 1, 2014 and amended and restated on October 19, ~~2017 (the “2017 Credit Agreement”).~~2017. The 2020 Credit Agreement provides for a $750 million revolving credit facility with a term of five years (maturing July 1, 2025) and a letter of credit sublimit of $20 million from a syndicate of financial institutions as lenders and issuing banks. A commitment fee of 0.25% to 0.30% per annum, depending on the Total Leverage Ratio (defined in 2020 Credit Agreement), is payable quarterly in arrears based on the unused revolving commitment.

Subject to certain conditions, on no more than ~~five~~5 occasions, the Company may request increases in the amount of revolving commitments and/or the establishment of term commitments under the 2020 Credit Agreement. Borrowings under the 2020 Credit Agreement will bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a LIBOR or EURIBOR (with a floor of 0.00%) for the specified interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case depending on the Company's Total Leverage Ratio (as defined in the 2020 Credit Agreement). As LIBOR may not always be available to the Company as a base interest rate for borrowings under the credit facility, the 2020 Credit Agreement allows the Company and the administrative agent under the 2020 Credit Agreement to amend the 2020 Credit Agreement to replace LIBOR with one or more Secured Overnight Financing Rate (“SOFR”) based rates or another alternative benchmark rate. Funds drawn down on the revolving credit facility pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate purposes of the Company and its restricted subsidiaries. The obligations under the 2020 Credit Agreement are guaranteed by each of the Company’s current and future direct or indirect wholly owned restricted domestic subsidiaries, other than certain excluded subsidiaries, in each case subject to certain exceptions, pursuant to guarantee agreements.

2926

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The 2020 Credit Agreement includes covenants, including ones that, subject to certain exceptions, restrict the ability of the Company and its subsidiaries to (i) merge and consolidate with other companies, (ii) incur indebtedness, (iii) grant liens or security interests on assets, (iv) make investments, acquisitions, loans or advances, (v) pay dividends and (vi) sell or otherwise transfer assets. During any period of time that the Company has obtained and maintained a corporate investment grade rating from at least two designated rating agencies and no Event of Default is continuing, the Company is not subject to certain covenants, such as restrictions on the ability to incur indebtedness (such period, a “Covenant Suspension Period”). As of ~~September~~June 30, ~~2021,~~2022, the Company is in a Covenant Suspension Period. The 2020 Credit Agreement also requires the Company to maintain a Total Leverage Ratio (as defined in the 2020 Credit Agreement) not exceeding 4.50 to 1.00. The Company was in compliance with the covenants in the 2020 Credit Agreement as of ~~September~~June 30, ~~2021.~~2022.

As of ~~September~~June 30, ~~2021,~~2022, the Company had not drawn any amounts under this facility.

The Company had ~~$4.1~~$3.3 million and ~~$4.9~~$3.8 million of deferred debt issuance costs as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, respectively, in connection with the 2020 Credit Agreement. These amounts are included in deposits and other assets on the Company's condensed consolidated balance sheets.

~~For the three and nine months ended September 30, 2021 and 2020, the~~The Company recognized interest expense as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Interest on outstanding borrowings	Interest on outstanding borrowings	$	7,000	$	7,000	$	21,000	$	11,509		Interest on outstanding borrowings	$	7,000	$	7,000	$	14,000	$	14,000
Amortization of Senior Notes discount and issuance costs	Amortization of Senior Notes discount and issuance costs	583		574		1,742		1,082			Amortization of Senior Notes discount and issuance costs	590		581		1,178		1,159
Commitment fees and other	Commitment fees and other	522		492		1,499		1,133			Commitment fees and other	484		466		955		977
Total interest expense	Total interest expense	$	8,105	$	8,066	$	24,241	$	13,724		Total interest expense	$	8,074	$	8,047	$	16,133	$	16,136

11.INCOME TAXES

The income tax provision reflects an effective tax rate of approximately 23% and ~~16%~~35% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~26%~~25% and ~~15%~~28% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase in the effective tax rate for the nine months ended September 30, 2021 was due to a~~ decrease ~~in excess tax benefits for the nine months ended September 30, 2021, as well as a discrete restructuring gain. The increase~~ in the effective tax rate for the three and six months ended ~~September~~June 30, ~~2021~~2022 was primarily due to a ~~decrease in excess tax benefits~~discrete restructuring gain for the three and six months ended ~~September~~June 30, 2021.

3027

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

12.COMMITMENTS AND CONTINGENCIES

The following summarizes the Company's significant contractual obligations, including related payments due by period, as of ~~September~~June 30, ~~2021~~2022 (in thousands):


Year Ending December 31,	Year Ending December 31,	Operating lease obligations		Long-term debt principal payments		Long-term interest payments		Year Ending December 31,	Operating lease obligations		Long-term debt principal payments		Long-term interest payments
Remainder of 2021		$	7,889	$	—	$	—
2022		28,817		—		28,000
Remainder of 2022								Remainder of 2022	$	18,328	$	—	$	14,000
2023	2023	36,032		—		28,000		2023	40,286		—		28,000
2024	2024	32,457		—		28,000		2024	35,378		—		28,000
2025	2025	15,704		—		28,000		2025	18,080		—		28,000
2026								2026	9,114		—		28,000
Thereafter	Thereafter	18,416		1,000,000		140,000		Thereafter	13,453		1,000,000		112,000
Total	Total	$	139,315	$	1,000,000	$	252,000	Total	$	134,639	$	1,000,000	$	238,000

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 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 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 Europe, Asia-Pacific and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment net income before interest expense (income) and other expense (income), 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.

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


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021

North America	North America	$	119,823	$	107,906	$	385,857	$	322,611		North America	$	138,527	$	130,176	$	294,489	$	266,034
International	International	2,849		579		5,683		(4,708)			International	1,481		3,156		3,949		2,834
Total EBITDA	Total EBITDA	$	122,672	$	108,485	$	391,540	$	317,903		Total EBITDA	$	140,008	$	133,332	$	298,438	$	268,868

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

3128

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Net income	Net income	$	64,304	$	58,186	$	199,664	$	191,339		Net income	$	83,473	$	61,148	$	172,791	$	135,360
Amortization of acquired intangible assets in cost of revenues	Amortization of acquired intangible assets in cost of revenues	7,209		6,612		21,565		18,671			Amortization of acquired intangible assets in cost of revenues	7,937		6,948		15,035		14,356
Amortization of acquired intangible assets in operating expenses	Amortization of acquired intangible assets in operating expenses	19,121		18,258		55,885		44,677			Amortization of acquired intangible assets in operating expenses	14,878		18,345		30,970		36,764
Depreciation and other amortization	Depreciation and other amortization	6,610		6,806		22,138		20,563			Depreciation and other amortization	7,010		7,028		13,975		15,528
Interest expense, net	Interest expense, net	7,943		7,537		23,698		9,482			Interest expense, net	3,399		7,877		11,117		15,755
Other (income) expense		(1,546)		338		(2,343)		(29)
Other income, net											Other income, net	(1,343)		(847)		(2,207)		(797)

Income tax expense	Income tax expense	19,031		10,748		70,933		33,200			Income tax expense	24,654		32,833		56,757		51,902
EBITDA	EBITDA	$	122,672	$	108,485	$	391,540	$	317,903		EBITDA	$	140,008	$	133,332	$	298,438	$	268,868

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

September 30,
2021 December 31,
2020
Property and equipment, net:
North America $ 237,010 $ 123,634
International 1,856 2,691
Total property and equipment, net $ 238,866 $ 126,325
Goodwill:
North America $ 2,145,506 $ 2,085,494
International 148,008 150,505
Total goodwill $ 2,293,514 $ 2,235,999
Assets:
North America $ 6,853,670 $ 6,674,974
International 277,646 240,446
Total assets $ 7,131,316 $ 6,915,420
Liabilities:
North America $ 1,484,686 $ 1,496,894
International 43,207 43,167
Total liabilities $ 1,527,893 $ 1,540,061

~~14.PURCHASE OF BUILDING~~

On January 22, 2021, the Company purchased an office building located in Richmond, Virginia (the "Richmond building"), together with the land and assumed an existing lease for a purchase price of $131 million, inclusive of property taxes, title insurance and other transaction costs. The purchase of the Richmond building was accounted for as an asset acquisition, including an intangible asset for the assumed lease. For the three and nine months ended September 30, 2021, the net impact from the lease arrangement is recorded in other (expense) income on the condensed consolidated statements of operations and was not material to the Company.


	June 30, 2022		December 31, 2021
Property and equipment, net:
North America	$	297,443	$	269,792
International	918		1,639
Total property and equipment, net	$	298,361	$	271,431

Goodwill:
North America	$	2,149,247	$	2,145,846
International	164,929		175,169
Total goodwill	$	2,314,176	$	2,321,015

Assets:
North America	$	7,160,408	$	6,976,752
International	260,340		280,119
Total assets	$	7,420,748	$	7,256,871







Liabilities:
North America	$	1,487,814	$	1,502,497
International	48,581		42,702
Total liabilities	$	1,536,395	$	1,545,199

~~COSTAR GROUP, INC.~~

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

~~15. SUBSEQUENT EVENTS~~

~~BureauxLocaux~~

On October 1, 2021, CoStar UK Limited ("CoStar UK"), a wholly-owned subsidiary of the Company, purchased from M.A.J.E Marketing & Stratégie and an individual all of the outstanding equity interests in ComReal Info, a French société par actions simplifiéee, for €35 million, $41 million equivalent, in cash subject to customary working capital and other post-closing adjustments. Based in Paris, ComReal Info owns and operates BureauxLocaux, a leading commercial real estate digital marketplace in France. The Company used cash on hand to finance the acquisition and expects to record most of the purchase price to identifiable intangible assets and goodwill.

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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~~stated under the heading “Cautionary Statement Concerning Forward-Looking Statements” at the end of this Item 2 and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021 (the “2021 Form 10-K”), 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~~2021 Form 10-K, ~~for the year ended December 31, 2020,~~ our subsequent Quarterly Reports on Form 10-Q and 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”~~“Company,” “CoStar Group,” “we,” “us” or ~~“CoStar Group”~~“our”) is ~~the number one~~a leading provider of information, analytics and online marketplaces to the commercial real estate industry in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact that we offer ~~the most~~a comprehensive commercial real estate database available; have the largest research department in the industry; own and operate leading online marketplaces for commercial real estate and apartment listings in the U.S., based on the numbers of unique visitors and site visits per month; and provide more information, analytics and marketing services than any of our competitors. We have created and compiled a standardized platform of information, analytics and online marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information. Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality. With our recent acquisitions of Homesnap, Inc. (“Homesnap”) and Homes Group, LLC ("Homes.com"), we also offer online platforms for marketing and workflow management for residential real estate agents and brokers and residential property listings for homebuyers.

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 most recent strategic acquisitions include Ten-X Holding Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate; Emporis GmbH, a Germany-based provider of international commercial real estate data and images; Homesnap; Homes.com andHomes.com; ComReal Info, the owner and operator of BureauxLocaux in France and BIH the owner and operator of Business Immo, a leading commercial real estate news service provider in France. See Notes 5 8 and 158 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 these acquisitions.

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. Depending on the type of service, contract rates are generally based on one or more of the following factors: the number of sites, number of users, organization size, the ~~client's~~client’s business focus, geography, the ~~client's geographic location,~~number of properties reported on or analyzed, 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. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis. Our transaction-based services primarily consist of auction fees from our Ten-X online auction platform, which are generally calculated as a percentage of the final sales price for the commercial real estate property sold and recognized as revenue upon the successful closure of an auction. Other transaction-based services are described by service offering below.

Our primary brands include CoStar®, LoopNet®, Apartments.comTM, STR®, Ten-X®, BizBuySell®, LandsofAmericaTM, HomeSnap®, and Homes.com®, which are accessible via the Internet and through our mobile applications. Our principal service offerings are discussed in more detail below.

3430

~~Impact~~Impacts of the COVID-19 Pandemic and Current Economic Conditions

The COVID-19 pandemic has created significant economic volatility, uncertainty and disruption around the world. Further, in response to the concerns over inflation risk, the U.S. Federal Reserve has raised interest rates in the first and second quarters of 2022 and signaled they expect additional rate increases. While the ~~impact~~impacts of the COVID-19 pandemic ~~continues~~and current economic conditions continue to evolve, ~~it did~~they have not materially ~~affect~~affected our consolidated financial statements during ~~2020~~2021 or our condensed consolidated financial statements for ~~March 31, 2021,~~ June 30, 2021 and September 30, 2021. We are closely and continually monitoring the impact of the COVID-19 pandemic on our business, employees, customers, and communities. We continue to monitor the guidelines and mandates provided by governmental and health authorities and 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. Most of our workforce has been fully vaccinated against COVID-19 and, where permitted, has returned to the office. We have resumed in-person marketing events and some business travel. The global workforce has been operating in an extraordinary and mostly digital and remote manner as the world adapted during the COVID-19 pandemic. During this time, many working adults moved to different locations and adjusted to a different way of living. As we transitioned our employees back to the office, we experienced, and we expect to continue to experience attrition among our workforce resulting in increased costs. Continued attrition or the inability to replenish and grow our work force may result in work disruptions in the future. Overall, the increased direct spend related to the COVID-19 pandemic, including office reconfiguration to enable social distancing and employee hiring and retention programs, has not been material to date and has had minimal impact on our financial position and operating results.

2022. It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements – allowing work from the office or home, or switch to all work from home. These activities may result in reduced demand for office space and rising interest rates may reduce demand for all types of real estate. If the demand for office space or other real estate decreases significantly, there could be a downturn in the commercial real estate market ~~which~~that may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

During 2021, excluding our multifamily service offering, which is discussed under Service Offerings below, our company-wide net new bookings and renewal rates for subscription-based services have returned to pre-pandemic levels. In addition, we saw improvements in collection trends along with improvements in the economy which led us to reduce our allowance for credit losses previously taken. Due to the uncertainty associated with the COVID-19 pandemic and any resulting economic impacts, we will continue to monitor these trends and the effect on our results of operations. Any anticipated changes in financial performance discussed in this report are based on our current observations and experience and involve estimates and assumptions. As the future extent and duration of the effects of the COVID-19 pandemic remain unclear, our estimates and assumptions may evolve as conditions change and actual results may vary. See Note 4 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q and the "Comparison of Nine Months Ended September 30, 2021 and Nine Months Ended September 30, 2020" below for further discussion.

~~We strengthened our liquidity position through an equity offering of common stock in May 2020 and an offering of Senior Notes and amendment and restatement of our credit facility in early July 2020.~~ ~~See~~ ~~Note~~ 10 ~~to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for further discussion~~ of our equity and Senior Notes offerings in 2020 and the 2020 Credit Agreement. The effects of the pandemic have not affected our ability to date to access funding on reasonably similar terms as were available to us prior to March 2020. We discuss the current and potential impact of select provisions of the CARES Act (defined below) on our company in our liquidity discussion.

Service Offerings

Our portfolio of information, analytics and online marketplace services are branded and marketed to our customers and marketplace end users. Our services are primarily derived from a database of building-specific information and ~~offer~~offering customers specialized tools for accessing, analyzing and using our information. Over time, we enhanced and expanded, and we expect to continue to enhance and expand, our existing information, analytics and online marketplace services and we have developed, and we expect to continue to develop, additional services that use our comprehensive database to meet the needs of our existing customers as well as potential new categories of customers.

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

CoStar

CoStar® is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news, and market and lease analytical capabilities. ~~CoStar~~CoStar's year-over-year revenue growth ~~rates~~rate for the ~~third~~second quarter of ~~2021~~2022 increased compared to the ~~third~~second quarter of ~~2020.~~2021. The number of subscribers has increased year-over-year and we have also realized the impact of price increases and existing customers upgrading to our global service offering. We began applying price increases in late 2021, which had been temporarily suspended earlier in the COVID-19 pandemic. We expect ~~CoStar~~CoStar's revenue growth ~~rates~~rate for 2022 to increase ~~through~~compared to the ~~remainder of~~revenue growth rate for 2021 as a result of ~~signing new customer agreements, existing customers upgrading their subscriptions~~expected increases in subscriber counts and ~~our resumption of annual~~ price increases and customer upgrades for ~~contract renewals that began in September 2021 after a temporary suspension.~~renewing contracts.

Information Services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics® service offerings. ~~STR, Inc. and STR Global, Ltd. (together with STR, Inc., "STR") provides~~We also provide benchmarking ~~and analytics~~reports for the hospitality industry. ~~STR sells the majority of its services~~STARTM reports are provided on a subscription basis ~~but~~and we also ~~receives~~provide one-time or ad hoc ~~transaction-based revenue.~~reports or analysis on a transaction basis. We provide information services internationally, through our Grecam, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively. Information ~~Services~~Services' year-over-year revenue growth ~~rates~~rate for the ~~third~~second quarter of ~~2021~~2022 decreased compared to the ~~third~~second quarter of ~~2020 due to~~2021 as a ~~decline~~result of a reduction in the ~~level of ad hoc~~sales growth rate for STR ~~report sales.~~products. We expect the Information Services revenue growth rate for ~~the fourth quarter of 2021~~2022 to ~~remain~~be consistent with the ~~third quarter of 2021 due to a seasonal decline in ad hoc STR report sales, which we expect will offset~~revenue growth ~~in CoStar Real Estate Manager sales.~~rate for 2021.

Multifamily

Apartments.com™ is part of our network of apartment marketing sites, which primarily includes ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.com™, Apartamentos.com™, Westside Rentals, and Off Campus Partners, LLC. Our network of subscription-based advertising services provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. Apartments.com also receives transaction-based revenue for tenant processing fees. ~~Apartments.com has continued~~Multifamily's year-over-year revenue growth rate in the second quarter of 2022 decreased compared to ~~successfully increase traffic to its network~~the second quarter of ~~sites, year-over-year, resulting in increased leads to customers. As leads per ad have increased, Apartments.com’s lower priced~~2021 as a result of fewer properties being listed and customers downgrading the ad packages ~~are generating more leads than top-level packages were generating approximately one year ago. In addition, rental~~purchased as multifamily vacancy rates have declined ~~relevant to~~from historical ~~averages reducing demand for top-level packages. As~~averages. In late 2021, we began initiating a ~~result, customers are selecting lower-priced ad packages. Consequently, while Multifamly subscription renewal rates remain consistent~~new pricing structure that has partially offset the impact of the decline in properties listed and customer downgrades. Therefore, we expect Multifamily's year-over-year ~~net new bookings declined year-over-year in the third quarter of 2021 resulting in a decrease in the Multifamily~~ revenue growth ~~rates in the third quarter of 2021~~rate for 2022 to decrease compared to the ~~third quarter of 2020. We expect Multifamily~~ revenue growth ~~rates to decrease through the remainder of 2021 as vacancy rates remain low and Apartments.com customers continue to select lower priced ad packages.~~rate for 2021.

LoopNet

Our LoopNet.com network of commercial real estate websites offer subscription-based online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants use the LoopNet.com network of online marketplace services to search for available property listings that meet their criteria. ~~LoopNet~~LoopNet's year-over-year revenue growth ~~rates during~~rate for the ~~third~~second quarter of ~~2021 were consistent~~2022 decreased compared with the ~~third~~second quarter of ~~2020.~~2021. We expect ~~LoopNet~~LoopNet's year-over-year revenue growth ~~rates~~rate for 2022 to decrease ~~through~~compared to the ~~remainder of~~revenue growth rate for 2021 ~~due~~as we continue to ~~our~~develop a dedicated sales force ~~spending more time selling CoStar subscriptions, resulting in slower sales growth~~ for ~~LoopNet while we work to recruit and train a dedicated LoopNet sales force.~~LoopNet.

Residential

On December 22, 2020, we acquired Homesnap, an online and mobile software platform that provides subscription-based access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms. On May 24, 2021, we acquired Homes.com, a residential advertising and marketing services company primarily operating through its portal, Homes.com. ~~Residential third~~Residential's second quarter ~~2021~~2022 revenue increased compared to the second quarter of 2021 as a result of ~~including a full quarter~~increased sales of ~~revenue for Homes.com.~~Homesnap products and services. We expect ~~Residential~~Residential's revenue for the ~~fourth quarter of 2021~~year ended December 31, 2022 to ~~decrease~~decline when compared to the ~~third quarter of~~year ended December 31, 2021 due to ~~seasonal reductions in Homesnap advertising sales and~~ the ~~discontinuance~~discontinuation of certain Homes.com products and services ~~previously offered on Homes.com~~ that ~~are~~were inconsistent with our long-term business strategy. This decline is expected to be partially offset by an increase in sales of Homesnap products and services.

Other Marketplaces

On June 24, 2020, we acquired Ten-X, an online auction platform for commercial real estate. Our BizBuySell network, which includes BizQuest® and FindaFranchise, and our Land.com network of sites, which includes LandsofAmerica, LandAndFarm and LandWatch®, are also included in Other Marketplaces revenue. The BizBuySell network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online marketplaces for rural lands for-sale. Other Marketplaces' revenue ~~for the third quarter of 2021 increased~~growth rate is expected to be lower in 2022 compared to 2021 given the ~~third quarter~~impact of ~~2020 due to an increase~~the Ten-X acquisition in ~~fees earned on Ten-X auctions. We expect Other Marketplaces revenue for the fourth quarter of 2021 to remain consistent with the third quarter of 2021.~~2020.

Subscription-based Services

The majority of our revenue is generated from service offerings which are distributed to our clients under subscription-based ~~license~~ agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, our annualized net new bookings of subscription-based services on all contracts were approximately $4784 million and ~~$53~~$51 million, ~~respectively,~~respectively. Net new bookings is calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upgrades on ~~all~~ existing subscription-based contracts, less ~~write-downs~~downgrades and cancellations for the period reported. Net new bookings is considered ~~a key~~an operating metric that is an indicator of future subscription revenue growth and is also used as a metric of ~~salesforce~~sales force productivity by ~~management~~us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. Revenue from our subscription-based contracts was approximately 93% and 92% of total revenue for the three months ended June 30, 2022 and June 30, 2021, respectively.

For the trailing twelve months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, our contract renewal rates for existing CoStar Group subscription-based services for contracts with a term of at least one year were approximately ~~92%~~91% and ~~89%~~92%, respectively, and therefore our cancellation rates for those services for the same periods were approximately 8%9% and ~~11%~~8% respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, ~~management believes~~we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing twelve-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending, or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year was approximately 78% of total revenue for the trailing twelve months ended June 30, 2022 and June 30, 2021.

Development, Investments and Expansion

We plan to continue to invest in our business and our services, evaluate strategic growth opportunities, and pursue our key priorities as described below, while we closely monitor the economic impacts of the COVID-19 pandemic and manage our response. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants, brokers, agents and residential renters. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. We reevaluate our priorities on a regular basis and may reevaluate our priorities as the COVID-19 pandemic continues to evolve.

Our key priorities for the remainder of ~~2021~~2022 currently include:

•Continuing to develop and invest in ~~CoStar, including:~~

◦developing capabilities that allow us to broaden the reach of CoStar internationally by offering a global platform to all CoStar users. As we begin to offer a global platform, we plan to expand our international presence.

◦developing commercial mortgage-backed securities ("CMBS") Analytics, which will aggregate loan and property data across covered markets. The initial CMBS Analytics release is expected to include loan origination metrics, distressed loan levels and maturity volumes, as well as detailed revenue and expense information. In later releases of this solution, we plan to include detailed prepayment information on disposed loans.

◦developing a solution for lenders that leverages the information we have developed with CoStar Risk Analytics to support lenders with risk management, underwriting, surveillance and compliance reporting. The first CoStar Lender release is expected to focus on portfolio risk analytics and surveillance to help lenders meet regulatory and accounting requirements. Subsequent releases are expected to focus on loan origination and underwriting.

◦enhancing benchmarking capabilities. We integrated STR's data into CoStar earlier in 2021 and continue to develop dynamic analytics for and additional coverage of hospitality properties. We plan to apply STR's benchmarking expertise to other commercial real estate segments we serve.

•Continuing to improve and market our Apartments.com service offerings to create the best and most comprehensive consumer rental search experience as well as continuing to advance the digital rental experience that allows renters to apply for leases and make rent payments, and for landlords to receive and assess tenant applications online through a single platform. We seek user feedback as we work to improve our services and continue to aggressively market our multifamily listing services in an effort to attract consumers and, in turn, provide more value to advertisers. Our Apartments.com marketing investment is focused on enhanced brand awareness and search engine marketing. 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 multifamily listing services for future periods and may adjust our marketing spend and focus as we deem appropriate. Apartments.com has been successful in generating increased traffic to the network and as a result is delivering increased leads per ad to customers. We are assessing and have begun adjusting pricing to reflect the increased lead generation we are delivering to our customers.

•~~Continuing to develop leading~~ residential ~~businesses. The acquisitions of Homes.com and Homesnap enable us to expand the markets in which we compete.~~marketplaces. Our residential team is creating new and improved tools to help consumers have a highly contextual experience when searching for homes supported by high quality media and in-depth attributes of homes and details of the surrounding neighborhoods, parks and schools and to help consumers collaborate with their agent and other consumers. We are also creating new and improved tools to help agents promote their residential listings, connect with buyers and sellers and streamline their daily workflow. ~~We expect to continue making investments in residential marketplace technology development and content generation resources and marketing expenditures.~~ In ~~October 2021, Homesnap reached an agreement to create, maintain and market~~the second quarter of 2022, we launched Citysnap™, a consumer-facing search website and mobile app ~~for the Real Estate Board of New York's Residential Listing Service. Homesnap will provide a custom version of its search portal, branded as Citysnap™,~~ specifically for the five boroughs of New York ~~City.~~City in conjunction with the Real Estate Board of New York. To support the expanded product offerings, we expect to increase our investment in residential products in 2022 by approximately $180 million compared to 2021 levels. The most significant components of our investment are expected to be content development, marketing costs and technology resources. The increase in our investment in residential products in 2022 is expected to reduce our results of operations and cash flow from operations for the year ended December 31, 2022. We plan to ~~grow Homes.com's site traffic by offering homebuyers information directly from local multiple listing services~~continue to monitor and ~~developing a website that allows homebuyers to collaborate with agents. We are also evaluating additional~~evaluate these investments ~~in residential marketplace services~~ and ~~assessing and formulating~~adjust our residential business ~~plan~~strategy and ~~go-forward strategies.~~level of investment as we determine appropriate.

•Continuing to invest in our international business. We plan to enhance our international CRE marketplaces leveraging our LoopNet brand and portfolio of brands in the ~~LoopNet marketplace. To support the LoopNet marketplace, we implemented training~~United Kingdom, Spain and ~~incentive programs for~~France. We plan to expand our ~~existing sales team to increase sales~~international presence by hiring managers and teams of ~~LoopNet advertisements, with a focus on brokers~~field researchers in certain European markets and property owners. We are enhancing the content on LoopNet.com (including high-quality imagery), seeking targeted advertisements, providing premium marketing services (such as LoopNet Diamond, Platinum, and Gold Ads) that increase a property listing’s exposure, and adding more content for premium listings to better meet the needshave completed an acquisition of a ~~broader cross section of the commercial~~ real estate industry. We are resuming our plans to recruit and develop a dedicated LoopNet sales team to help support and grow the business. To generate brand awareness and site traffic for the LoopNet.com network, we increased our investmentnews service in marketing in 2021, as compared to 2020, and are utilizing a multi-media marketing campaign, reinforced with search engine optimization efforts. We expect to continue to work to determine the optimal level of marketing investment in future periods.France.

38•Continuing to expand our sales forces. We have implemented initiatives to improve our retention and new employee training and have increased the size of our sales recruiting team. These actions have resulted in a net increase in our sales force headcount in the first half of 2022. We plan further increases in our sales force headcount and further development of sales teams dedicated to our key products.

•Continuing to invest in ~~the Ten-X auction platform.~~CoStar, including:

◦Enhancing benchmarking capabilities. We integrated STR's data into CoStar in 2021 and plan to apply STR's benchmarking expertise within CoStar. We will continue to integrate the ~~Ten-X~~STR products into our core platform throughout 2022.

◦Continuing to develop and market a solution for lenders that leverages CoStar's Risk Analytics capabilities to support lenders with ~~both CoStar~~risk management, underwriting, surveillance and ~~LoopNet to expand~~compliance reporting. We released our new Lender product in the ~~audience for Ten-X auctions to include our commercial real estate users. We also plan to enhance access to Ten-X's data room information from CoStar and LoopNet. To increase exposure~~first quarter of properties to be auctioned on Ten-X, we are allocating banner space on both our CoStar and LoopNet sites for advertising for Ten-X properties. We continue to execute our plan to expand the Ten-X sales force and2022. This solution provides a focus on ~~increasing the number of qualified bidders~~portfolio risk analytics and ~~the number of owners bringing properties~~surveillance to ~~the site. To generate brand awareness~~help lenders meet regulatory and ~~site traffic for the Ten-X platform, we increased our investment in marketing in 2021, as compared~~accounting requirements. Subsequent product releases are expected to ~~2020,~~focus on loan origination and ~~are utilizing a multi-media marketing campaign, reinforced with search engine optimization efforts.~~ underwriting.

We ~~expect~~intend to continue to ~~work~~assess the need for additional investments in our business in order to ~~determine~~develop and distribute new services and functionality within our current platform or expand the ~~optimal level~~reach of, ~~marketing investment~~or otherwise improve, our current service offerings. Any future ~~periods.~~product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles (“GAAP”). We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we may disclose include net income before interest (expense) income, ~~and~~ other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share. EBITDA is our net income before interest (expense) income, other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition- and integration-related costs, 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. 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.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

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

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EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, 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, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest (expense) income and other (expense) income, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

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

•Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of interest (expense) income and other (expense) income we generate and incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest (expense) income and other (expense) income to be a representative component of the day-to-day operating performance of our business.

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

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

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:

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•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 incurred may be useful for investors to consider because such costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters or impairments on acquired intangible assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. We do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration-related costs, 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 ~~2021~~2022 and ~~2020,~~2021, we assumed a 26% and 25% tax rate, respectively, which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Net income	Net income	$	64,304	$	58,186	$	199,664	$	191,339		Net income	$	83,473	$	61,148	$	172,791	$	135,360
Amortization of acquired intangible assets in cost of revenues	Amortization of acquired intangible assets in cost of revenues	7,209		6,612		21,565		18,671			Amortization of acquired intangible assets in cost of revenues	7,937		6,948		15,035		14,356
Amortization of acquired intangible assets in operating expenses	Amortization of acquired intangible assets in operating expenses	19,121		18,258		55,885		44,677			Amortization of acquired intangible assets in operating expenses	14,878		18,345		30,970		36,764
Depreciation and other amortization	Depreciation and other amortization	6,610		6,806		22,138		20,563			Depreciation and other amortization	7,010		7,028		13,975		15,528
Interest expense, net	Interest expense, net	7,943		7,537		23,698		9,482			Interest expense, net	3,399		7,877		11,117		15,755
Other (income) expense		(1,546)		338		(2,343)		(29)
Other income, net											Other income, net	(1,343)		(847)		(2,207)		(797)
Income tax expense	Income tax expense	19,031		10,748		70,933		33,200			Income tax expense	24,654		32,833		56,757		51,902
EBITDA	EBITDA	$	122,672	$	108,485	$	391,540	$	317,903		EBITDA	$	140,008	$	133,332	$	298,438	$	268,868

Net cash flows provided by (used in)	Net cash flows provided by (used in)										Net cash flows provided by (used in)
Operating activities	Operating activities	$	98,929	$	106,692	$	319,218	$	355,338		Operating activities	$	81,392	$	132,436	$	212,099	$	220,289
Investing activities	Investing activities	$	(12,715)	$	(36,855)	$	(297,505)	$	(223,880)		Investing activities	$	(45,306)	$	(150,470)	$	(57,707)	$	(284,790)
Financing activities	Financing activities	$	1,800	$	249,544	$	(14,338)	$	2,665,902		Financing activities	$	1,184	$	2,405	$	(14,570)	$	(16,138)

Comparison of Three Months Ended ~~September~~June 30, ~~2021~~2022 and Three Months Ended ~~September~~June 30, ~~2020~~

2021

The following table provides a comparison of our selected consolidated results of operations for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 (in thousands):


		Three Months Ended September 30,								Three Months Ended June 30,
		2021		2020		Increase (Decrease) ($)		Increase (Decrease) (%)				2022		2021		Increase (Decrease) ($)		Increase (Decrease) (%)
Revenues:	Revenues:										Revenues:
CoStar	CoStar	$	183,265	$	165,988	$	17,277	10	%		CoStar	$	206,566	$	176,979	$	29,587	17	%
Information Services	Information Services	35,926		33,174		2,752		8			Information Services	38,502		35,157		3,345		10
Multifamily	Multifamily	171,125		155,184		15,941		10			Multifamily	182,359		171,357		11,002		6
LoopNet(1)	LoopNet(1)	52,527		45,084		7,443		17			LoopNet(1)	56,297		51,095		5,202		10
Residential(1)	Residential(1)	24,747		—		24,747		NM			Residential(1)	20,154		18,087		2,067		11
Other Marketplaces(1)	Other Marketplaces(1)	31,729		26,190		5,539		21			Other Marketplaces(1)	32,430		27,658		4,772		17
Total revenues	Total revenues	499,319		425,620		73,699		17			Total revenues	536,308		480,333		55,975		12
Cost of revenues	Cost of revenues	92,597		77,865		14,732		19			Cost of revenues	100,971		89,566		11,405		13
Gross profit	Gross profit	406,722		347,755		58,967		17			Gross profit	435,337		390,767		44,570		11
Operating expenses:	Operating expenses:										Operating expenses:
Selling and marketing (excluding customer base amortization)	Selling and marketing (excluding customer base amortization)	180,055		146,634		33,421		23			Selling and marketing (excluding customer base amortization)	181,344		164,612		16,732		10
Software development	Software development	53,143		40,732		12,411		30			Software development	51,587		48,573		3,014		6
General and administrative	General and administrative	64,671		65,322		(651)		(1)			General and administrative	77,345		58,226		19,119		33
Customer base amortization	Customer base amortization	19,121		18,258		863		5			Customer base amortization	14,878		18,345		(3,467)		(19)
Total operating expenses	Total operating expenses	316,990		270,946		46,044		17			Total operating expenses	325,154		289,756		35,398		12
Income from operations	Income from operations	89,732		76,809		12,923		17			Income from operations	110,183		101,011		9,172		9
Interest expense, net	Interest expense, net	(7,943)		(7,537)		406		5			Interest expense, net	(3,399)		(7,877)		(4,478)		(57)
Other income (expense)		1,546		(338)		1,884		NM
Other income, net											Other income, net	1,343		847		496		59
Income before income taxes	Income before income taxes	83,335		68,934		14,401		21			Income before income taxes	108,127		93,981		14,146		15
Income tax expense	Income tax expense	19,031		10,748		8,283		77			Income tax expense	24,654		32,833		(8,179)		(25)
Net income	Net income	$	64,304	$	58,186	$	6,118	11			Net income	$	83,473	$	61,148	$	22,325	37
__________________________	__________________________										__________________________
NM - Not meaningful

(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.	(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.										(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.

Revenues. Revenues increased to ~~$499~~$536 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$426~~$480 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~$74~~$56 million increase was attributable to increases in revenues for several of our service offerings. Residential revenue increased $25 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $17 million and $8 million, respectively for the three months ended September 30, 2021. CoStar revenues increased ~~$17~~$30 million, or ~~10%~~17%, due to higher sales volume driven by an increase in ~~customers,~~subscribers, as well as, ~~customers upgrading their subscriptions, and our resumption~~the impact of annual price increases ~~for~~and customer upgrades on contract ~~renewals that began in September 2021.~~renewals. Multifamily revenues increased ~~$16~~$11 million, or 6%, due to increases in pricing on renewals, partially offset by a less favorable mix of ad packages purchased. LoopNet revenue increased $5 million or 10%, ~~driven by higher sales volume,~~primarily as a result of an increase in average prices, and to a lesser extent, ~~increases in pricing. LoopNet revenue~~due to the acquisition of BureauxLocaux. Other Marketplaces revenues increased $7$5 million, or 17% ~~as a result of stronger traffic, which drove sales of higher value advertisements as compared to the prior year. Other Marketplaces revenue increased $6 million, or 21%~~, driven by an increase ~~in Ten-X revenue~~ of ~~$3 million, as a result of higher value assets sold, and increased~~ Land for Sale, BizBuySell, and Ten-X revenue ~~of $1 million.~~in equivalent amounts. Information Services ~~revenue~~revenues increased $3 million, or 8%10%, ~~due~~primarily attributable to increased revenue ~~of $2 million and $1 million from~~for our ~~STR and~~CoStar Real Estate Manager product and STR service ~~offerings, respectively.~~offerings. Residential revenues increased $2 million, or 11%, primarily due to an increase in sales of Homesnap's products and services, partially offset by, the discontinuation of certain Homes.com products and services that were inconsistent with our long-term business strategy.

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Gross Profit. Gross profit increased to ~~$407~~$435 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$348~~$391 million for the three months ended ~~September~~June 30, ~~2020,~~2021, and the gross profit percentage was consistent at 81% for both the three months ended ~~September~~June 30, 2022 and 2021, ~~which~~The increase in gross profit was ~~consistent with the three months ended September 30, 2020,~~ due to higher revenues, ~~that were~~ partially offset by, an increase in cost of revenues of ~~$15~~$11 million, or ~~19%~~13%. The increase in cost of ~~revenue~~revenues was primarily due to an increase of ~~$14~~$6 million ~~due~~related to ~~the acquisitions~~our investment and further development of ~~Homesnap~~our residential marketplaces, including research equipment, data centers, data and ~~Homes.com, driven by increases in both~~content, personnel, and ~~data~~software and equipment expenses. In addition, there were increases of $1 million each in personnel costs ~~directly attributable~~and software and equipment, to ~~those services.~~support our researchers, and amortization of customer base intangible assets.

Selling and Marketing Expenses. Selling and marketing expenses increased to ~~$180~~$181 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$147~~$165 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~$33~~$17 million increase was mostly attributable to a ~~$19~~$7 million increase in personnel costs, primarily due to an increase in headcount and an increase in commissions of $3 million, as well as, a $5 million increase in marketing ~~expenses, primarily due to a $16 million~~spending. The increase in marketing ~~agency spending, led~~expenses was driven by ~~LoopNet and~~higher events costs for Apartments.com, Ten-X and CoStar, and search engine marketing expenses related to residential marketing initiatives, partially offset by, a ~~$3 million increase~~decrease in ~~events spending. There were also increases in personnel costs of $8 million, primarily due to the Homesnap~~advertising agency fees, driven by Ten-X and ~~Homes.com acquisitions, as well as, travel~~LoopNet. Travel and entertainment ~~and conference~~ costs ~~of $2 million and $1 million, respectively.~~also increased $3 million.

Software Development Expenses. Software development expenses increased to ~~$53~~$52 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$41~~$49 million for the three months ended ~~September~~June 30, ~~2020,~~2021, and ~~increased~~remained consistent as a percentage of revenues ~~to 11%~~at 10% for the three months ended ~~September~~June 30, ~~2021 from 10%~~2022 and ~~for the three months ended September 30, 2020.~~2021. The ~~$12~~$3 million increase was ~~primarily~~ due to ~~a $11~~increases of $1 million ~~increase~~each in both personnel ~~costs driven by the Homesnap~~ and ~~Homes.com acquisitions,~~occupancy expenses, primarily related to our investment and further development of our residential marketplaces, as well as, increased headcount to support the development of our other products.

General and Administrative Expenses. General and administrative expenses ~~remained consistent at $65~~increased to $77 million for the three months ended ~~September~~June 30, 2022, from $58 million, for the three months ended June 30, 2021 and ~~2020, and decreased~~increased as a percentage of revenues to ~~13%~~14% for the three months ended ~~September~~June 30, ~~2021~~2022 from ~~15%~~12% for the three months ended ~~September~~June 30, ~~2020. Increases~~2021. The increase of $19 million was due to a $6 million increase in personnel costs, driven by a $3 million increase in general and administrative expenses from the Homesnap and Homes.com acquisitions. In addition, there was an increase of of $1 million in software and $1 million in occupancy costs. These increases were offset by a $4 million decrease in credit loss expense due to better than expected collections,salaries, as well as, a $2 million ~~decrease~~increase in stock-based compensation expense, and a $6 million increase in professional ~~services.~~services fees. There were also increases of $3 million in software and equipment expenses, and a $3 million increase in travel and entertainment and conference costs.

Customer Base Amortization Expense. Customer base amortization expense ~~increased~~decreased to ~~$19~~$15 million for the three months ended ~~September~~June 30, ~~2021~~2022 from $18 million for the three months ended ~~September~~June 30, ~~2020,~~2021, and ~~remained consistent~~decreased as a percentage of revenues at 3% for the three months ended June 30, 2022 from 4% for the three months ended ~~September~~June 30, ~~2021~~2021. The decrease was primarily attributable to a decrease in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent, Ten-X, STR, and ~~2020. The~~Homesnap, which had been amortizing on an accelerated basis since their acquisitions. This decrease was partially offset by an increase in ~~customer base amortization~~ expense ~~was primarily due to~~from intangibles acquired through the ~~Homesnap and Homes.com acquisitions.~~

acquisition of Homes.com.

Interest Expense, net. Interest expense, net was a net expense of $3 million for the three months ended June 30, 2022, as compared to net expense of $8 million for the three months ended June 30, 2021. The decrease for the three months ended June 30, 2022 was primarily due to an increase in interest income of $4 million, mostly attributable to an increased rate of return on cash equivalents.

Other Income, net. Other income, net remained consistent for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

~~Other Income (Expense).~~ ~~Other income (expense), increased to $2 million in income for the three months ended September~~June 30, 2021 from $0.3 million of expense for the three months ended September 30, 2020. The increase in other income was due to rental income on the Richmond building, as well as, increases in foreign exchange gains.2021.

Income Tax Expense. Income tax expense ~~increased~~decreased to ~~$19~~$25 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$11~~$33 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease was primarily due to a ~~decrease in excess~~ tax ~~benefits as well as, higher income before taxes.~~restructuring gain recognized during the three months ended June 30, 2021.

Comparison of Business Segment Results for Three Months Ended ~~September~~June 30, ~~2021~~2022 and Three Months Ended ~~September~~June 30, ~~2020~~2021

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment EBITDA, which is our net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of our business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

See “
Non-GAAP Financial Measures” for further information regarding our segment operating results.

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Segment Revenues. North America revenues increased to ~~$483~~$517 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$411~~$464 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~$72~~$54 million increase in North America revenues was attributable to increases in revenues for several of our service offerings, including an increase in ~~Residential revenue of $25 million due to the acquisitions of Homesnap and Homes.com, which contributed~~CoStar revenues of $17 million and $8 million, respectively for the three months ended September 30, 2021. Multifamily revenues increased $16 million, due to higher sales volume, and to a lesser extent, increases in pricing. CoStar revenues increased $16$30 million due to higher sales volume driven by an increase in ~~customers,~~subscribers, as well as, ~~customers upgrading their subscriptions, and~~ the ~~resumption~~impact of annual price increases ~~for~~and customer upgrades on contract renewals. Multifamily revenues increased $11 million, due to increases in pricing on renewals, ~~that began in September 2021. LoopNet revenue increased $7 million as~~partially offset by a ~~result~~less favorable mix of ~~stronger traffic, which drove sales of higher value advertisements as compared to the prior year.~~ad packages purchased. Other Marketplaces ~~revenue~~revenues increased $6$5 million, driven by an increase in ~~Ten-X and~~ Land for Sale, ~~revenue.~~BizBuySell, and Ten-X revenue in equivalent amounts. LoopNet revenues increased $4 million as a result of price increases. Information Services ~~revenue~~revenues increased $3$2 million due to increased revenue from our ~~STR and~~CoStar Real Estate Manager product and STR service offerings. Residential revenues increased $2 million due to the increase in sales of Homesnap's products and services, partially offset by, the discontinuation of certain Homes.com products and services that were inconsistent with our long-term business strategy. International revenues increased to ~~$16~~$19 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$15~~$17 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase in International revenues was primarily ~~due to growth in our CoStar product revenue.~~driven by the acquisitions of BureauxLocaux and Business Immo.

Segment EBITDA. North America EBITDA increased to ~~$120~~$139 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$108~~$130 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase in North America EBITDA was primarily due to an increase in revenue, partially offset by, increases in personnel, marketing, and general and administrative costs. International EBITDA for the three months ended ~~September~~June 30, ~~2021 was $3 million, as compared~~2022 decreased to $1 million from $3 million for the three months ended ~~September~~June 30, ~~2020, the increase~~2021. The decrease was due to ~~increased revenue~~an increase in general and ~~decreased general~~ administrative, personnel, and marketing costs, partially offset by ~~increases~~an increase in ~~personnel and marketing costs.~~revenue.

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Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

The following table provides a comparison of our selected consolidated results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Nine Months Ended September 30,								Six Months Ended June 30,
		2021		2020		Increase (Decrease) ($)		Increase (Decrease) (%)				2022		2021		Increase (Decrease) ($)		Increase (Decrease) (%)
Revenues:	Revenues:										Revenues:
CoStar	CoStar	$	532,428	$	495,997	$	36,431	7	%		CoStar	$	405,215	$	349,163	$	56,052	16	%
Information Services	Information Services	105,779		96,092		9,687		10			Information Services	75,717		69,853		5,864		8
Multifamily	Multifamily	508,629		438,185		70,444		16			Multifamily	357,836		337,504		20,332		6
LoopNet(1)	LoopNet(1)	152,852		131,604		21,248		16			LoopNet(1)	110,744		100,325		10,419		10
Residential(1)	Residential(1)	53,939		—		53,939		NM			Residential(1)	38,214		29,192		9,022		31
Other Marketplaces(1)	Other Marketplaces(1)	83,722		52,748		30,974		59			Other Marketplaces(1)	64,407		51,993		12,414		24
Total revenues	Total revenues	1,437,349		1,214,626		222,723		18			Total revenues	1,052,133		938,030		114,103		12
Cost of revenues	Cost of revenues	270,911		230,814		40,097		17			Cost of revenues	196,450		178,314		18,136		10
Gross profit	Gross profit	1,166,438		983,812		182,626		19			Gross profit	855,683		759,716		95,967		13
Operating expenses:	Operating expenses:										Operating expenses:
Selling and marketing (excluding customer base amortization)	Selling and marketing (excluding customer base amortization)	483,354		402,202		81,152		20			Selling and marketing (excluding customer base amortization)	325,341		303,299		22,042		7
Software development	Software development	148,500		121,343		27,157		22			Software development	105,608		95,357		10,251		11
General and administrative	General and administrative	186,747		181,598		5,149		3			General and administrative	155,306		122,076		33,230		27
Customer base amortization	Customer base amortization	55,885		44,677		11,208		25			Customer base amortization	30,970		36,764		(5,794)		(16)
Total operating expenses	Total operating expenses	874,486		749,820		124,666		17			Total operating expenses	617,225		557,496		59,729		11
Income from operations	Income from operations	291,952		233,992		57,960		25			Income from operations	238,458		202,220		36,238		18
Interest expense, net	Interest expense, net	(23,698)		(9,482)		14,216		NM			Interest expense, net	(11,117)		(15,755)		(4,638)		(29)
Other income		2,343		29		2,314		NM
Other income, net											Other income, net	2,207		797		1,410		NM
Income before income taxes	Income before income taxes	270,597		224,539		46,058		21			Income before income taxes	229,548		187,262		42,286		23
Income tax expense	Income tax expense	70,933		33,200		37,733		NM			Income tax expense	56,757		51,902		4,855		9
Net income	Net income	$	199,664	$	191,339	$	8,325	4			Net income	$	172,791	$	135,360	$	37,431	28
__________________________	__________________________										__________________________
NM - Not meaningful	NM - Not meaningful										NM - Not meaningful
(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.	(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.										(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.

Revenues. Revenues increased to ~~$1,437~~$1,052 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$1,215~~$938 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$222~~$114 million increase was attributable to increases in revenues for several of our service offerings. Multifamily revenues increased $70 million, or 16%, primarily due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues increased $54 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $42 million and $12 million, respectively. CoStar revenues increased ~~$36~~$56 million, or 7%16%, due to higher sales volume driven by an increase in ~~customers,~~subscribers, as well as, ~~customers upgrading their subscriptions, and~~ the ~~resumption~~impact of annual price increases ~~for~~and customer upgrades on contract renewals. Multifamily revenues increased $20 million, or 6%, due to increases in pricing on renewals, ~~that began in September 2021.~~partially offset by a less favorable mix of ad packages purchased. Other Marketplaces ~~revenue~~revenues increased ~~$31~~$12 million, or ~~59%~~24%, primarily driven by ~~the~~increases in Ten-X ~~acquisition, which had~~and Land for Sale revenue in equivalent amounts, and to a lesser extent, an increase in revenue ~~of $27~~for BizBuySell. Residential revenues increased $9 million, or 31%, primarily due to ~~two additional quarters of revenue compared to the prior year. LoopNet revenues increased $21 million, or 16%, as a result of stronger traffic, which drove~~an increase in sales of ~~higher value advertisements as compared to~~Homesnap's products and services, partially offset by, the ~~prior year. Information Services revenue~~discontinuation of certain Homes.com products and services that were inconsistent with our long-term business strategy. LoopNet revenues increased $10 million, or 10%, primarily as a result of an increase in average prices, and to a lesser extent, due to the acquisition of BureauxLocaux. Information Services revenues increased $6 million, or 8%, primarily due to increased revenue ~~of $4 million each~~ from our CoStar Real Estate Manager product and STR service offerings.

4540

Gross Profit. Gross profit increased to ~~$1,166~~$856 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$984~~$760 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and the gross profit percentage remained consistent at 81% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The increase in gross profit was due to higher revenues, partially ~~impacted~~offset by, an increase in cost of revenues of ~~$40~~$18 million, or ~~17%~~10%, primarily due to an increase of ~~$37~~$12 million ~~due~~related to ~~the acquisitions~~our investment and further development of ~~Ten-X, Homesnap~~our residential marketplaces, including research equipment, data centers, personnel, software and ~~Homes.com, driven by increases in personnel~~equipment, and data ~~costs,~~ and ~~to a lesser extent,~~content costs. There were also increases of $2 million in software and equipment, ~~costs~~ and ~~bank~~$1 million each in occupancy expenses and ~~merchant fees.~~training costs.

Selling and Marketing Expenses. Selling and marketing expenses increased to ~~$483~~$325 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$402~~$303 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$81~~$22 million increase was ~~driven by a $51~~primarily attributable to increases of $21 million ~~increase~~ in ~~marketing expenses, driven by a $35~~conferences, events and travel costs, $11 million increase in marketing agency spending, primarily for LoopNet and Ten-X, and to a lesser extent, increases in digital and other forms of marketing including events. There was also a $27 million increase in personnel costs, primarily ~~attributable~~due to ~~the Ten-X, Homesnap,~~an increase in headcount and ~~Homes.com acquisitions, and to a lesser extent,~~ an increase in commissions ~~expense for other products of $8 million.~~earned, as well as, a $5 million increase in search engine marketing costs. These increases were partially offset by a $17 million decrease in advertising agency fees driven by LoopNet and Ten-X.

Software Development Expenses. Software development expenses increased to ~~$149~~$106 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$121~~$95 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and remained consistent as a percentage of revenues at 10% for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, and ~~the nine months ended September 30, 2020.~~2021. The ~~$27~~$10 million increase was primarily due to ~~a $25~~an increase of $7 million ~~increase~~ in personnel costs, ~~driven by the Ten-X, Homesnap,~~primarily related to our investment and ~~Homes.com acquisitions,~~further development of our residential marketplaces, as well as, an increase of $1 million in recruiting agency fees and increased headcount to support the development of our ~~products, and to a lesser extent, a~~other products. There was also an increase of $2 million ~~increase~~ in ~~software equipment expense.~~occupancy costs.

General and Administrative Expenses. General and administrative expenses increased to ~~$187~~$155 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$182~~$122 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and ~~decreased~~increased as a percentage of revenues to 15% for the six months ended June 30, 2022 from 13% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 from 15% for the nine months ended September 30, 2020.~~2021. The $5$33 million increase in the amount of general and administrative expense was driven by an increase of $8$11 million in ~~general~~personnel costs, primarily driven by increases in salaries and ~~administrative expenses from Ten-X, Homesnap~~stock-based compensation expense, and ~~Homes.com, as well as,~~to a lesser extent, increases ~~excluding acquisitions~~ of $4$5 million in each of travel and entertainment costs, driven partially by an increase in the average cost of air travel, software and equipment ~~expense, $3 million in depreciation,~~expenses, and professional services, and increases of $2 million in ~~professional services,~~each of recruiting agency fees and $2 million in personnel costs. These increases were partially offset by a $14 million decrease in credit loss expense due to better than expected collections, resulting in updated assumptions regarding credit losses and a decrease in reserves previously increased due to uncertainty about the economic effects of COVID-19 pandemic.property taxes.

Customer Base Amortization Expense. Customer base amortization expense ~~increased~~decreased to ~~$56~~$31 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 from ~~$45~~$37 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and ~~remained consistent~~decreased as a percentage of revenues atto 3% for the six months ended June 30, 2022 from 4% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020.~~2021. The ~~increase~~decrease in customer base amortization expense was primarily ~~due~~attributable to a decrease in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent, STR, Ten-X, and Homesnap, ~~and Homes.com~~which had been amortizing on an accelerated basis since their acquisitions. This decrease was partially offset by an increase in expense from intangibles acquired through the acquisition of Homes.com.

Interest Expense, net. Interest expense, net was ~~$23~~a net expense of $11 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to $9net expense of $16 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease of ~~$14~~$5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was primarily due to earned interest expense of $21 million recognized during the nine months ended September 30, 2021 on our Senior Notes issued on July 1, 2020 as compared to $7 million for the nine months ended September 30, 2020. In addition, there was a decreaseincome of $4 million ~~in interest income caused by lower rates~~mainly attributable to an increased rate of return on ~~our~~ cash and cash equivalent balances compared to the prior year. These changes were partially offset by prior year interest expense of $5 million incurred on the $745 million draw on our revolving credit facility in the first quarter of 2020.equivalents.

Other ~~Income.~~Income, net. Other income, net increased ~~to $2~~$1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase ~~in other income~~ was primarily due to ~~rental income on the Richmond building, partially offset by decreases~~increases in foreign exchange gains due to rate fluctuations.

Income Tax Expense. Income tax expense increased to ~~$71~~$57 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 from ~~$33~~$52 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase was ~~primarily~~mostly due to higher income before taxes and a decrease in excess tax benefits, ~~higher income before taxes, and~~partially offset by a tax restructuring ~~gain.~~gain recognized in the six months ended June 30, 2021.

Comparison of Business Segment Results for ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

4641

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment EBITDA, which is our net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of our business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

Segment Revenues. North America revenues increased to ~~$1,388~~$1,015 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$1,173~~$906 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$216~~$109 million increase in North America revenues was attributable to increases in revenues for several of our services. Multifamily revenues increased $70 million, primarily due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues increased $54 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $42 million and $12 million, respectively. CoStar revenues increased ~~$32~~$55 million, due to higher sales volume driven by an increase in ~~customers,~~subscribers, as well as, ~~customers upgrading their subscriptions, and~~ the ~~resumption~~impact of annual price increases ~~for~~and customer upgrades on contract renewals. Multifamily revenues increased $20 million, due to increases in pricing on renewals, ~~that began in September 2021.~~partially offset by a less favorable mix of ad packages purchased. Other Marketplaces ~~revenue~~revenues increased ~~$31~~$12 million, primarily driven by increases in Ten-X and Land for Sale revenue in equivalent amounts, and to a lesser extent, an increase in revenue for BizBuySell. Residential revenues increased $9 million, primarily due to an increase in sales of Homesnap's products and services partially offset by the ~~Ten-X acquisition.~~discontinuation of certain Homes.com products and services that were inconsistent with our long-term business strategy. LoopNet revenues increased ~~$20~~$8 million, primarily as a result of ~~stronger traffic, which drove sales of higher value advertisements as compared to the prior year.~~an increase in average prices. Information Services ~~revenue~~revenues increased $8$5 million, primarily due to increased revenue from our CoStar Real Estate Manager and STR service offerings. International revenues increased to ~~$49~~$37 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$42~~$32 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in International revenues was primarily driven by the acquisitions of BureauxLocaux and Business Immo, and to a lesser extent, due to ~~favorable changes in foreign exchange rates, as well as,~~ growth in our CoStar ~~and STR~~ product revenue.

Segment EBITDA. North America EBITDA increased to ~~$386~~$294 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$323~~$266 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in North America EBITDA was primarily due to an increase in revenue, partially offset by increases in personnel ~~marketing~~ and general and administrative costs. International EBITDA for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was income of $6$4 million, as compared to ~~a loss of $5~~$3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the increase was due to increased revenue, ~~and lower general and administrative costs,~~ partially offset by increases in personnel, general and administrative, and marketing costs.

Liquidity and Capital Resources

~~Our principal sources~~We believe the balance of ~~ongoing liquidity are cash from operations and proceeds from our debt and equity offerings. Total~~ cash, cash equivalents and restricted cash, ~~increased to~~which was approximately ~~$3,762 million~~$4.0 billion as of ~~September~~June 30, 2021, compared to cash and cash equivalents of approximately $3,756 million as of December 31, 2020. The increase in cash, cash equivalents and restricted cash for the nine months ended September 30, 2021 was primarily due to2022, along with cash generated ~~from~~by ongoing operations ~~of $319 million~~ and proceeds from exercise of stock options and employee stock purchase plan of $15 million, partially offset by cash paid for acquisitions of $153 million, purchases of property and equipment and other intangibles of $145 million, which includes $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia, as well as, repurchases of restricted stockcontinued access to capital markets, will be sufficient to satisfy ~~tax withholding obligations of $29 million.~~

~~Net~~our cash ~~provided by operating activities for~~requirements over the ~~nine~~next 12 months ~~ended September 30,~~and beyond. Our cash requirements have not changed materially since the 2021 was approximately $319 million compared to approximately $355 million for the nine months ended September 30, 2020. The $36 million decrease was primarily due to a decrease in net working capital of $70 million, driven by payment of the $52 million termination fee pursuant to the Asset Purchase Agreement with RentPath in the first quarter of 2021. These decreases were partially offset by an increase in net income excluding certain non-cash expenses such as depreciation and amortization.

Net cash used in investing activities for the nine months ended September 30, 2021 was approximately $298 million compared to approximately $224 million of cash used in investing activities for the nine months ended September 30, 2020. The $74 million increase in cash used in investing activities during the nine months ended September 30, 2021 was primarily due to an increase in purchases of property, equipment and other assets which included $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia, partially offset by a decrease in cash paid for acquisitions of $39 million, and proceeds from the sale of our ARS investments of $10 million received during the nine months ended September 30, 2020 .

Net cash used in financing activities for the nine months ended September 30, 2021 was approximately $14 million compared to approximately $2.7 billion provided by financing activities for the nine months ended September 30, 2020. The decrease in cash provided by financing activities is primarily due to proceeds from our May 2020 equity offering, net of transaction costs, of $1.7 billion, as well as, proceeds from the issuance of our Senior Notes, net of transaction costs, of $983 million during the nine months ended September 30, 2020.Form 10-K.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts, and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

~~On March 27, 2020,~~We currently plan to expand our Richmond, Virginia campus which may result in a material cash requirement in 2022 and beyond. We currently plan to fund the ~~U.S. Congress passed~~expansion with cash on hand.

Cash, cash equivalents and restricted cash increased to approximately $4.0 billion as of June 30, 2022, compared to cash, cash equivalents and restricted cash of approximately $3.8 billion as of December 31, 2021. The increase in cash, cash equivalents, and restricted cash for the ~~Coronavirus Aid, Relief~~six months ended June 30, 2022 was primarily due to cash generated from operations of $212 million and ~~Economic Security Act (the "CARES Act"). The CARES Act, among other things, includes provisions relating~~proceeds from participation in our employee stock purchase plan of $7 million, partially offset by, $20 million of repurchases of common stock from employees to satisfy the employees' minimum tax withholding obligations upon the vesting of restricted stock grants, $56 million of purchases of property and equipment, including assets related to the ~~deferral~~expansion of ~~taxes, valuation allowances,~~our campus in Richmond, Virginia, and ~~balance sheet classifications,~~capitalized software development costs, as well as, ~~provisions relating to refundable payroll tax credits, deferral~~cash paid for acquisitions of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. As permitted under the CARES Act, we deferred payroll taxes of $10 million as of September 30, 2021. We intend to remit all amounts previously deferred in the fourth quarter of 2021.$6 million.

On October 1, 2021, CoStar UK Limited ("CoStar UK"), a wholly-owned subsidiary of the Company, purchased from M.A.J.E Marketing & Stratégie and an individual all of the outstanding equity interests in ComReal Info, a French ~~société par actions simplifiéee, for €35 million, $41 million equivalent, in~~Net cash subject to customary working capital and other post-closing adjustments. Based in Paris, ComReal Info owns and operates BureauxLocaux, a leading commercial real estate digital marketplace in France. We used cash on hand to finance the acquisition.

~~As of the filing date of this~~ ~~Quarterly Report on Form 10-Q, we believe that our available cash combined with positive cash flow~~ provided by operating activities ~~should be sufficient~~ for usthe six months ended June 30, 2022 was approximately $212 million compared to ~~maintain~~approximately $220 million for the six months ended June 30, 2021. The $8 million decrease in cash provided by operating activities was primarily due an increase in net income excluding certain non-cash expenses such as deferred income taxes and ~~fund our operations~~stock-based compensation expense, offset by a decrease from changes in net working capital of $28 million.

Net cash used in investing activities for ~~at least~~ the ~~next twelve months. Our ability~~six months ended June 30, 2022 was approximately $58 million compared to ~~maintain adequate capital~~approximately $285 million of cash used in investing activities for ~~our operations~~the six months ended June 30, 2021. The $227 million decrease in the future depends upon numerous rapidly evolving factors, many of which we cannot accurately predict or assess, including, among others, the disruption of the international and national economy and credit markets associated with the COVID-19 pandemic; actions taken by governments, businesses and individualscash used in ~~response~~investing activities was primarily due to $98 million additional cash paid for assets related to the pandemic such as office and other workplace closures, worker turn over, worker absenteeism, remote work policies, quarantines, mass-transit disruptions or other travel or health-related restrictions; how quickly economies, including the commercial real estate industry in particular, recover after the pandemic subsides; salesexpansion of our ~~services;~~campus in Richmond, Virginia, as well as, $142 million additional cash paid for acquisitions during the six months ended June 30, 2021, partially offset by, an increase in cash used for the purchase of other property and ~~collection~~equipment, including capitalized software development costs, during the six months ended June 30, 2022.

Net cash used in financing activities for the six months ended June 30, 2022 was approximately $15 million compared to approximately $16 million used in financing activities for the six months ended June 30, 2021. The decrease in cash used in financing activities was due to a $9 million decrease in repurchases of ~~accounts receivables. We plan~~restricted stock to ~~continue to monitor~~satisfy employee tax withholding obligations upon vesting of restricted stock awards, partially offset by a $5 million decrease in proceeds from the exercise of employee stock options and ~~evaluate~~ the ~~financial impact~~repayment of debt assumed in a business acquisition of $2 million during the ~~COVID-19 pandemic as it evolves.~~six months ended June 30, 2022.

Critical Accounting ~~Policies~~Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider ~~policies relating to~~ the following ~~matters~~significant accounting policies to becontain critical accounting ~~policies:~~estimates:

•Long-lived assets, intangible assets and ~~goodwill~~goodwill;

•Income taxes;

•Revenue ~~recognition~~

•~~Income taxes~~recognition; and

•Business ~~combinations~~combinations.

For an in-depth discussion of each of our significant accounting policies, including ~~our~~the related critical accounting ~~policies~~estimates. and further information regarding estimates and assumptions involved in their application, see ~~our Annual Report on~~the 2021 Form 10-K ~~for the year ended December 31, 2020~~ and Note 2 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q. During the six months ended June 30, 2022, there were no material changes to our critical accounting estimates from those described in the 2021 Form 10-K.

Recent Accounting Pronouncements

~~None.~~See Note 2 of the Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Quarterly Report on Form 10-Q and make forward-looking statements in our press releases, investor conference calls, Annual Reports on Form 10-K, other Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission that are subject to risks and uncertainties. Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for ~~the fourth quarter of 2021~~2022 and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions or expectations about our revenues, revenue growth rates, gross margin percentage, net income, net income per share, fully diluted net income per share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per share, weighted-average outstanding shares, cash flow from operating activities, operating costs, capital and other expenditures, the ~~current and future impacts~~impact of COVID-19 on our ~~operations, our actions in response to the COVID-19 pandemic,~~revenues, revenue growth rates and profitability, key priorities for ~~2021,~~2022, trends in customer behavior, legal proceedings and claims, legal costs, effective tax rate, the anticipated benefits of completed or proposed acquisitions, the anticipated timing for integration of completed acquisitions, the anticipated benefits of cross-selling efforts,

product development and release, geographic and product expansion, planned service enhancements, expansion and development of our sales forces, planned sales and marketing activities and investments, the impact or results of sales and marketing initiatives, product integrations, elimination and de-emphasizing of services, ~~plans related to the Ten-X business,~~ investments in residential marketplace services and our residential marketplace strategy, net new sales, contract renewal rates, use of proceeds from equity and debt offerings, the use of proceeds of any draws under our $750 million credit facility (the “2020 Credit Agreement”), employee relations, attrition and retention, management’s plans, goals and objectives for future operations, deferral of tax payments, sources and adequacy of liquidity, and growth and markets for our stock. Sections of this Report which contain forward-looking statements include the Financial Statements and related Notes, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures,” “Legal Proceedings” and “Risk Factors.”

Our forward-looking statements ~~are also~~may be identified by words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. You should understand that these forward-looking statements are estimates reflecting our judgment, beliefs and expectations, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. The following important factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: potential declines in our revenues, revenue growth rates and profitability due to the ~~effects~~impacts of ~~and uncertainty surrounding~~ the COVID-19 pandemic ~~including~~and economic conditions on the ~~length~~commercial real estate industry and ~~severity of the economic~~our core customer base; our inability to attract and retain clients; our inability to successfully develop and introduce new or upgraded information, analytics and online marketplace services that are attractive to our users and advertisers or successfully combine or shift focus from current services with less demand; our inability to compete successfully against existing or future competitors in attracting advertisers; a downturn ~~associated with the COVID-19 pandemic, including disruption of the international and national economy and credit markets; actions taken by governments, businesses and individuals~~or consolidation in response to the COVID-19 pandemic such as office and other workplace closures, worker absenteeism or decreased productivity, quarantines, mass-transit disruptions or other travel or health-related restrictions; how quickly economies, including the real estate industry ~~in particular, recover after the COVID-19 pandemic subsides; real estate market conditions,~~that may decrease customer demand for our services; our inability to hire qualified persons or retain and continue to develop our sales force; downward pressure on our operating margins by our internal and external investments; our inability to increase awareness of our brands, including ~~commercial real estate office vacancies; general economic conditions, both domestic~~CoStar, LoopNet, Apartments.com, BizBuySell, LandsofAmerica, STR, Ten-X, Homes.com and ~~international, including the impacts of “Brexit” and uncertainty from the discontinuance of LIBOR~~Homesnap; our inability to maintain or increase traffic to our marketplaces and the ~~transition~~possibility of internet search engines not featuring our websites on the search engine results page; competition; our inability to ~~any other interest rate benchmarks;~~successfully identify, finance, integrate and/or manage costs related to acquisitions; our ability to identify, acquire and integrate additional acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including Ten-X, Homesnap, Homes.com and ComReal Info, on a timely basis or at all; our ability to combine acquired businesses successfully or in a timely and cost-efficient manner; business disruption relating to integration of acquired businesses or other business initiatives; the risk that expected investments in acquired businesses, or the timing of any such investments, may change or may not produce the expected results; our ability to transition acquired service platforms to our model in a timely manner or at all; changes and developments in business plans or operations; theft of any personally identifiable information we, or the businesses that we acquire, maintain, store or process; any actual or perceived failure to comply with privacy laws and standards; cyberattacks and security vulnerabilities; technical problems or ~~data protection~~disruptions that affect either our customers’ ability to access our services, or the software, internal applications, database and network systems underlying our services; the costs of a large infrastructure project to build out our campus in Richmond, Virginia; our current or future geographic expansion plans that may not result in increased revenues; fluctuations and market cyclicality; our inability to retain and attract highly capable management and operating personnel; changes in tax laws, regulations or ~~standards; any disruption~~fiscal and tax policies; risks related to acceptance of ~~our systems, including due to any cyberattack or~~credit cards and debit cards and facilitation of other similar event; the amount of investment for sales and marketing and our ability to realize a return on investments in sales and marketing; our ability to effectively and strategically combine, eliminate or de-emphasize service offerings; reductions in revenues as a result of service changes; the time and resources required to develop upgraded or new services and to expand service offerings; changes or consolidations within the real estate industry; customer retention; our ability to attract new clients and to sell additional or higher value services to existing clients; our ability to develop, successfully introduce and cross-sell new products or upgraded services in U.S. and foreign markets; our ability to attract consumerspayments; risks related to our online marketplaces; our ability to increase traffic on our network of sites; the success of our marketing campaigns in generating brand awareness and site traffic; our ability to protect and defend ourdata, intellectual property and listings; risks related to our international operations, including ~~against unauthorized or unlicensed use of our services; competition;~~fluctuating foreign currency fluctuations; global credit market conditions affecting investments; our ability to continue to expand successfully, timely and in a cost-efficient manner, including internationally; our ability to effectively penetrate and gain acceptance in new sectors and international geographies; our ability to control costs; litigation or government investigations in which we become involved; changes in accounting policies or practices; release of new and upgraded services or entry into new markets by us or our competitors; data quality; our ability to expand, develop or reorganize or reorient of our sales forces; employee retention, including retention of key employees and employees of acquired businesses; our ability to hire additional employees to fill vacant or new roles; technical problems with our services; managerial execution; changes in relationships with real estate agents, brokers, owners, property managers and other strategic partners; legal and regulatory issues, including any actual or perceived failure to comply with U.S. or international laws, rules or regulations; successful adoption of and training on our services;currencies and the ~~availability~~economic effects of ~~capital.~~“Brexit” and risks related to our indebtedness.

Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of this Quarterly Report on Form 10-Q (unless otherwise indicated). All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

We provide information, analytics and online marketplace services to commercial real estate and related business communities within the regions where we operate which primarily include, North America, Europe, Asia-Pacific and Latin America. The functional currency for a majority of our operations is the local currency, with the exception of certain STR international locations for which the functional currency is the British Pound.

Fluctuations in the British ~~Pound,~~pound, Canadian dollar and Euro may have an impact on our business, results of operations and financial position. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, revenues denominated in foreign currencies were approximately 4% ~~and 4%, respectively.~~. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 our revenues would have decreased by approximately $2 million and $5$4 million, respectively, if the U.S. dollar exchange rate used strengthened by 10%. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, our revenues would have increased by approximately $2 million and $5$4 million, respectively, if the U.S. dollar exchange rate used weakened by 10%. In addition, we have assets and liabilities denominated in foreign currencies. We currently do not use financial instruments to hedge our exposure to exchange rate fluctuations with respect to our foreign subsidiaries. We may seek to enter into hedging transactions in the future to reduce our exposure to exchange rate fluctuations, but we may be unable to enter into hedging transactions successfully, on acceptable terms or at all. As of ~~September~~June 30, ~~2021,~~2022, accumulated other comprehensive ~~income~~loss included a ~~gain~~loss from foreign currency translation adjustments of approximately ~~$5.3~~$30 million.

We do not have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of ~~September~~June 30, ~~2021.~~2022. As of ~~September~~June 30, ~~2021,~~2022, we had ~~$3.8~~approximately $4.0 billion of cash, cash equivalents and restricted cash. If there is an increase or decrease in interest rates, there will be a corresponding increase or decrease in the amount of interest earned on our cash and cash equivalents. We currently diversify our cash and cash equivalents holdings amongst multiple financial institutions and AAA rated Government and Treasury Money Market Funds.

We are subject to interest rate market risk in connection with our revolving credit facility. On July 1, 2020, we entered into the 2020 Credit Agreement, which provides for variable rate borrowings of up to $750 million. On July 1, 2020, we issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030. Changes in interest rates would not have a material impact to our current interest and debt financing expense, as all our borrowings except for our credit facility are fixed rate, and our credit facility is currently undrawn as of ~~September~~June 30, ~~2021.~~2022. See Note 10 to the accompanying condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for information regarding our 2020 Credit Agreement.

We had approximately $2.7 billion of goodwill and intangible assets as of ~~September~~June 30, ~~2021.~~2022. As of ~~September~~June 30, ~~2021,~~2022, we believe our intangible assets will be recoverable; however, changes in the economy, the industry in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. In the event that we determine that an asset has been impaired, we would recognize an impairment charge equal to the amount by which the carrying amount of the assets exceeds the fair value of the asset. We continue to monitor these assumptions and their effect on the estimated recoverability of our intangible assets.

5145

Item 4.Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of ~~September~~June 30, ~~2021,~~2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021~~2022 and were operating at a reasonable assurance level.

We continue to implement a financial system that is designed to improve the efficiency and effectiveness of our operational and financial accounting processes. This implementation is expected to continue beyond ~~2021.~~2022. Consistent with any process change that we implement, the design of the internal controls has and will continue to be evaluated for effectiveness as part of our overall assessment of the effectiveness of our disclosure controls and procedures. We expect that the implementation of this system will further improve our internal controls over financial reporting.

Other than the implementation of a new financial system noted above, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to monitor and assess the effects of the COVID-19 pandemic and our response to the pandemic on our internal controls so we can take appropriate actions to minimize any impact on the design and operating effectiveness.

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PART II — OTHER INFORMATION

Item 1.Legal Proceedings

Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. We are not currently a party to any lawsuit or proceeding that, in the opinion of our management based on consultations with legal counsel, is likely to have a material adverse effect on our financial position or results of operations. See Note 12 of the Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for further discussion.

Item 1A.Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors disclosed in Part I, “Item 1A Risk Factors” in our ~~Annual Report on~~2021 Form 10-K, ~~for the year ended December 31, 2020 (the “2020 Form 10-K”),~~ which could materially affect our business, financial condition or future results. The risks described in our ~~2020~~2021 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations. There have been no material changes to the Risk Factors as previously disclosed in Part I, “Item 1A Risk Factors” in our ~~2020~~2021 Form 10-K.

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

The following table is a summary of our repurchases of common stock during each of the three months in the quarter ended ~~September~~June 30, ~~2021:~~2022:

ISSUER PURCHASES OF EQUITY SECURITIES

2021
Total Number of
Shares
Purchased (1)
Average
Price Paid
per Share (1)
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
July 1 through 31 8,300 $ 82.82 — —
August 1 through 31 183 84.45 — —
September 1 through 30 2,071 85.38 — —
Total 10,554

$ 84.06 — —
__________________________


2022	Total Number of Shares Purchased (1)	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
April 1 through 30	49	$	61.82	—	—
May 1 through 31	4,184	61.58		—	—
June 1 through 30	5,440	60.13		—	—
Total	9,673	$	60.40	—	—
__________________________

(1) The number of shares purchased consists of shares of common stock tendered by employees to the Company to satisfy the employees' minimum tax withholding obligations arising as a result of vesting of restricted stock grants under the Company’s 2016 Stock Incentive Plan, as amended, which shares were purchased by the Company based on their fair market value on the trading day immediately preceding the vesting date. None of these share purchases were part of a publicly announced program to purchase common stock of the Company.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.Exhibits


Exhibit No.						Description
3.1						Fourth 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 Securities and Exchange Commission on June 7, 2021).
3.2						~~Third~~Fourth 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 Securities and Exchange Commission on ~~September 24, 2013)~~May 6, 2022).



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~~(furnished 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~~(furnished herewith).

101.INS						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity (v) Condensed Consolidated Statements of Cash Flows; and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
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 cover page from the Registrant's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted in Inline XBRL (included as Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COSTAR GROUP, INC.

Date:

~~October~~July 27, ~~2021~~2022

By:

/s/ Scott T. Wheeler

Scott T. Wheeler
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized Officer)

5650


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	3,761,587	$	3,693,813
Restricted cash:
RentPath termination fee held in escrow under the terms of the Asset Purchase Agreement	—		58,750
Other restricted cash related to acquisitions	—		3,349
Total restricted cash	—		62,099
Cash, cash equivalents and restricted cash	$	3,761,587	$	3,755,912


	Three Months Ended September 30,
	2021						2020
	North America		International		Total		North America		International		Total

CoStar	$	174,071	$	9,194	$	183,265	$	158,235	$	7,753	$	165,988
Information Services	29,177		6,749		35,926		26,357		6,817		33,174

Multifamily	171,125		—		171,125		155,184		—		155,184
LoopNet(1)	52,103		424		52,527		44,938		146		45,084
Residential(1)	24,747		—		24,747		—		—		—
Other Marketplaces(1)	31,729		—		31,729		26,190		—		26,190
Total revenues	$	482,952	$	16,367	$	499,319	$	410,904	$	14,716	$	425,620
__________________________


	Nine Months Ended September 30,
	2021						2020
	North America		International		Total		North America		International		Total

CoStar	$	505,470	$	26,958	$	532,428	$	473,363	$	22,634	$	495,997
Information Services	84,959		20,820		105,779		77,069		19,023		96,092

Multifamily	508,629		—		508,629		438,185		—		438,185
LoopNet(1)	151,770		1,082		152,852		131,348		256		131,604
Residential(1)	53,939		—		53,939		—		—		—
Other Marketplaces(1)	83,722		—		83,722		52,748		—		52,748
Total revenues	$	1,388,489	$	48,860	$	1,437,349	$	1,172,713	$	41,913	$	1,214,626
__________________________


	Nine Months Ended September 30, 2021
	CoStar		Information Services		Multifamily		LoopNet(3)		Other Marketplaces(3)		Total
Beginning balance at December 31, 2020	$	5,531	$	2,739	$	4,387	$	1,667	$	786	$	15,110
Current-period provision (releases) for expected credit losses(1), (2)	3,932		(257)		2,167		1,955		—		7,797
Write-offs charged against the allowance, net of recoveries and other	(3,933)		(518)		(3,779)		(1,628)		—		(9,858)
Ending balance at September 30, 2021	$	5,530	$	1,964	$	2,775	$	1,994	$	786	$	13,049
__________________________


	Nine Months Ended September 30, 2020
	CoStar		Information Services		Multifamily		LoopNet(3)		Other Marketplaces(3)		Total
Beginning balance at December 31, 2019	$	1,264	$	624	$	1,195	$	576	$	889	$	4,548
Current-period provision for expected credit losses(1), (2)	9,616		2,634		6,579		2,482		84		21,395
Write-offs charged against the allowance, net of recoveries and other	(5,457)		(350)		(4,135)		(1,607)		(189)		(11,738)
Ending balance at September 30, 2020	$	5,423	$	2,908	$	3,639	$	1,451	$	784	$	14,205
__________________________


	Preliminary: December 22, 2020		Measurement Period Adjustments		Updated Preliminary: December 22, 2020
Cash, cash equivalents and restricted cash	$	10,225	$	—	$	10,225
Accounts receivable	662		—		662
Lease right-of-use assets	3,437		—		3,437
Goodwill	183,016		1,355		184,371
Intangible assets	67,000		—		67,000
Deferred tax assets (liabilities)	(1,423)		(1,355)		(2,778)
Lease liabilities	(3,375)		—		(3,375)
Deferred revenue	(4,000)		—		(4,000)
Other assets and liabilities	(5,188)		—		(5,188)
Fair value of identifiable net assets acquired	$	250,354	$	—	$	250,354


2021	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		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
July 1 through 31	8,300	$	82.82	—	—
August 1 through 31	183	84.45		—	—
September 1 through 30	2,071	85.38		—	—
Total	10,554	$	84.06	—	—
__________________________