UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR
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☐ | 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)
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Delaware | | 52-2091509 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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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:
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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.
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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 OctoberJuly 22, 2021,2022, there were 394,935,769395,949,425 shares of the registrant’s common stock outstanding.
COSTAR GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I | | FINANCIAL INFORMATION | |
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Item 1. | | | |
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Item 2. | | | |
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Item 3. | | | |
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Item 4. | | | |
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PART II | | OTHER INFORMATION | |
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Item 1. | | | |
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Item 1A. | | | |
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Item 2. | | | |
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Item 3. | | | |
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Item 4. | | | |
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Item 5. | | | |
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Item 6. | | | |
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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 | | |
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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)
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| 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 | | | |
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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 | | | |
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Other comprehensive income | — | | | — | | | — | | | (6,229) | | | | | (6,229) | | | |
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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) | | | |
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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) | | | |
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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 | | | |
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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, landsresidential 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.comHomes 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 NotesNote 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the results of its operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, its comprehensive income for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, its changes in stockholders' equity for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, and its cash flows for the ninesix months ended SeptemberJune 30, 20212022 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, analyticsOther subscription based-services include (i) real estate and online marketplace services offered over the Internetlease 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 providesderives 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
The Company expenses advertising costs as incurred. Advertising costs include digital marketing, television, radio, print and other media advertising. Advertising costs were approximately $97 million and $79 million for the three months ended September 30, 2021 and 2020, respectively, and $252 million and $202 million for the nine months ended September 30, 2021 and 2020, respectively.
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 SeptemberJune 30, 20212022 and 2020,2021, respectively, and net foreign currency gains of $0.1$1.3 million and $0.7losses of $0.4 million for the ninesix months ended SeptemberJune 30, 20212022 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 ninesix months ended SeptemberJune 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 ninethree months ended SeptemberJune 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 incomeearnings 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 vestingservice 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 vestingservice period of the awards based on the expected achievement of the related performance conditionconditions 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 PlanMSPP included in the Company’s resultsstatements 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, andThe Company had no restricted cash consisted of the following as of SeptemberJune 30, 20212022 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-offwrite 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 its5 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 two2 classes of trade receivables based on geographical location: North America and International.
•Information Services Portfolio Segment - The Information Services portfolio segment consists of four4 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 one1 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 leasethe 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. TheUpon 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 considerationprice is, generally, determined based on the fair value of the assets transferred, liabilities incurredassumed 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 makeThe 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 servicesmarketplaces 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 | | |
__________________________ | | | | | | | | | | | |
(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.
Deferred Revenue
Changes in deferred revenue for the period were as follows (in thousands):
| | | | | |
Balance at December 31, 20202021(1) | $ | 77,36396,724 | |
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 | 87,22579,158 | |
Effects of foreign currency | (231)(1,766) | |
| |
Balance at SeptemberJune 30, 20212022(1)(2) | $ | 94,018105,350 | |
__________________________ | |
| |
| |
(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 SeptemberJune 30, 2021.2022. This balance includes $1$2 million of net new deferrals recognized in connection with business acquisitionsthe 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 contractContract 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 assetstiming and represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied. Current contractContract assets are included in prepaid expensesas 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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20212022 and 20202021 was as follows (in thousands). The Company determined that no deferred commissions were impaired as of SeptemberJune 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 SeptemberJune 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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 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”), HomeHomes 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, transactionTransaction 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 monthsix-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 acquisitionsHomes.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 ninesix months ended SeptemberJune 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 revenuethe Company's revenues in the condensed consolidated statements of operations was an increase of $8 million and $12$4 million for the three and ninesix months ended SeptemberJune 30, 2021, respectively.2021. The impact of the Homes.com acquisition on CoStar Group’sthe 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 SeptemberJune 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 SeptemberJune 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 SeptemberJune 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, theThe 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 SeptemberJune 30, 20212022 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 SeptemberJune 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 sevensix 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 ninesix months ended SeptemberJune 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 SeptemberJune 30, 20212022 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 forrecorded 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, 2021for 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 CompanyInternational goodwill recorded goodwill of approximately $88 million, $184 million and $134 million in connection with the May 2021acquisition 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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20212022 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.
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 containthe indenture governing the Senior Notes contains covenants and other customary provisions with which the Company was in compliance as of SeptemberJune 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 five5 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.
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 SeptemberJune 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 SeptemberJune 30, 2021.2022.
As of SeptemberJune 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 SeptemberJune 30, 20212022 and December 31, 20202021, 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, theThe 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 SeptemberJune 30, 20212022 and 2020,2021, respectively, and 26%25% and 15%28% for the ninesix months ended SeptemberJune 30, 20212022 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 SeptemberJune 30, 20212022 was primarily due to a decrease in excess tax benefitsdiscrete restructuring gain for the three and six months ended SeptemberJune 30, 2021.
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 SeptemberJune 30, 20212022 (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):
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 | |
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| | | |
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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.
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 instated 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 on2021 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 onea 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 mosta 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'sclient’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.
ImpactImpacts 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 impactimpacts of the COVID-19 pandemic continuesand current economic conditions continue to evolve, it didthey have not materially affectaffected our consolidated financial statements during 20202021 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 whichthat 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 offeroffering 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. CoStarCoStar's year-over-year revenue growth ratesrate for the thirdsecond quarter of 20212022 increased compared to the thirdsecond 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 CoStarCoStar's revenue growth ratesrate for 2022 to increase throughcompared to the remainder ofrevenue growth rate for 2021 as a result of signing new customer agreements, existing customers upgrading their subscriptionsexpected 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") providesWe also provide benchmarking and analyticsreports for the hospitality industry. STR sells the majority of its servicesSTARTM reports are provided on a subscription basis butand we also receivesprovide 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 ServicesServices' year-over-year revenue growth ratesrate for the thirdsecond quarter of 20212022 decreased compared to the thirdsecond quarter of 2020 due to2021 as a declineresult of a reduction in the level of ad hocsales growth rate for STR report sales.products. We expect the Information Services revenue growth rate for the fourth quarter of 20212022 to remainbe consistent with the third quarter of 2021 due to a seasonal decline in ad hoc STR report sales, which we expect will offsetrevenue 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 continuedMultifamily's year-over-year revenue growth rate in the second quarter of 2022 decreased compared to successfully increase traffic to its networkthe second quarter of sites, year-over-year, resulting in increased leads to customers. As leads per ad have increased, Apartments.com’s lower priced2021 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, rentalpurchased as multifamily vacancy rates have declined relevant tofrom historical averages reducing demand for top-level packages. Asaverages. In late 2021, we began initiating a result, customers are selecting lower-priced ad packages. Consequently, while Multifamly subscription renewal rates remain consistentnew 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 2021rate 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. LoopNetLoopNet's year-over-year revenue growth rates duringrate for the thirdsecond quarter of 2021 were consistent2022 decreased compared with the thirdsecond quarter of 2020.2021. We expect LoopNetLoopNet's year-over-year revenue growth ratesrate for 2022 to decrease throughcompared to the remainder ofrevenue growth rate for 2021 dueas we continue to ourdevelop 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 thirdResidential's second quarter 20212022 revenue increased compared to the second quarter of 2021 as a result of including a full quarterincreased sales of revenue for Homes.com.Homesnap products and services. We expect ResidentialResidential's revenue for the fourth quarter of 2021year ended December 31, 2022 to decreasedecline when compared to the third quarter ofyear ended December 31, 2021 due to seasonal reductions in Homesnap advertising sales and the discontinuancediscontinuation of certain Homes.com products and services previously offered on Homes.com that arewere 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 increasedgrowth rate is expected to be lower in 2022 compared to 2021 given the third quarterimpact of 2020 due to an increasethe 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 SeptemberJune 30, 20212022 and SeptemberJune 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-downsdowngrades and cancellations for the period reported. Net new bookings is considered a keyan operating metric that is an indicator of future subscription revenue growth and is also used as a metric of salesforcesales force productivity by managementus 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 SeptemberJune 30, 20212022 and 20202021, 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 believeswe 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 20212022 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 marketthe 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 servicescontinue to monitor and developing a website that allows homebuyers to collaborate with agents. We are also evaluating additionalevaluate these investments in residential marketplace services and assessing and formulatingadjust our residential business planstrategy 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 trainingUnited Kingdom, Spain and incentive programs forFrance. We plan to expand our existing sales team to increase salesinternational presence by hiring managers and teams of LoopNet advertisements, with a focus on brokersfield 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-XSTR 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 CoStarrisk management, underwriting, surveillance and LoopNet to expandcompliance 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 exposurefirst 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 biddersportfolio risk analytics and the number of owners bringing propertiessurveillance to the site. To generate brand awarenesshelp lenders meet regulatory and site traffic for the Ten-X platform, we increased our investment in marketing in 2021, as comparedaccounting 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 expectintend to continue to workassess the need for additional investments in our business in order to determinedevelop and distribute new services and functionality within our current platform or expand the optimal levelreach of, marketing investmentor 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.
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:
•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 20212022 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 SeptemberJune 30, 20212022 and Three Months Ended SeptemberJune 30, 2020
The following table provides a comparison of our selected consolidated results of operations for the three months ended SeptemberJune 30, 20212022 and SeptemberJune 30, 20202021 (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 SeptemberJune 30, 2021,2022, from $426$480 million for the three months ended SeptemberJune 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 resumptionthe impact of annual price increases forand 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 revenuedue 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 revenuerevenues increased $3 million, or 8%10%, dueprimarily attributable to increased revenue of $2 million and $1 million fromfor our STR andCoStar 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.
Gross Profit. Gross profit increased to $407$435 million for the three months ended SeptemberJune 30, 2021,2022, from $348$391 million for the three months ended SeptemberJune 30, 2020,2021, and the gross profit percentage was consistent at 81% for both the three months ended SeptemberJune 30, 2022 and 2021, whichThe 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 revenuerevenues was primarily due to an increase of $14$6 million duerelated to the acquisitionsour investment and further development of Homesnapour residential marketplaces, including research equipment, data centers, data and Homes.com, driven by increases in bothcontent, personnel, and datasoftware and equipment expenses. In addition, there were increases of $1 million each in personnel costs directly attributableand 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 SeptemberJune 30, 2021,2022, from $147$165 million for the three months ended SeptemberJune 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 millionspending. The increase in marketing agency spending, ledexpenses was driven by LoopNet andhigher 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 increasedecrease in events spending. There were also increases in personnel costs of $8 million, primarily due to the Homesnapadvertising agency fees, driven by Ten-X and Homes.com acquisitions, as well as, travelLoopNet. 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 SeptemberJune 30, 2021,2022, from $41$49 million for the three months ended SeptemberJune 30, 2020,2021, and increasedremained consistent as a percentage of revenues to 11%at 10% for the three months ended SeptemberJune 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 $11increases of $1 million increaseeach 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 $65increased to $77 million for the three months ended SeptemberJune 30, 2022, from $58 million, for the three months ended June 30, 2021 and 2020, and decreasedincreased as a percentage of revenues to 13%14% for the three months ended SeptemberJune 30, 20212022 from 15%12% for the three months ended SeptemberJune 30, 2020. Increases2021. 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 decreaseincrease 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 increaseddecreased to $19$15 million for the three months ended SeptemberJune 30, 20212022 from $18 million for the three months ended SeptemberJune 30, 2020,2021, and remained consistentdecreased as a percentage of revenues at 3% for the three months ended June 30, 2022 from 4% for the three months ended SeptemberJune 30, 20212021. 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. TheHomesnap, 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 tofrom 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 SeptemberJune 30, 20212022 and 2020.
Other Income (Expense). Other income (expense), increased to $2 million in income for the three months ended SeptemberJune 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 increaseddecreased to $19$25 million for the three months ended SeptemberJune 30, 2021,2022, from $11$33 million for the three months ended SeptemberJune 30, 2020.2021. The increasedecrease 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 SeptemberJune 30, 20212022 and Three Months Ended SeptemberJune 30, 20202021
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.
Segment Revenues. North America revenues increased to $483$517 million for the three months ended SeptemberJune 30, 2021,2022, from $411$464 million for the three months ended SeptemberJune 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 contributedCoStar 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 resumptionimpact of annual price increases forand 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 aspartially offset by a resultless favorable mix of stronger traffic, which drove sales of higher value advertisements as compared to the prior year.ad packages purchased. Other Marketplaces revenuerevenues 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 revenuerevenues increased $3$2 million due to increased revenue from our STR andCoStar 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 SeptemberJune 30, 2021,2022, from $15$17 million for the three months ended SeptemberJune 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 SeptemberJune 30, 2021,2022, from $108$130 million for the three months ended SeptemberJune 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 SeptemberJune 30, 2021 was $3 million, as compared2022 decreased to $1 million from $3 million for the three months ended SeptemberJune 30, 2020, the increase2021. The decrease was due to increased revenuean increase in general and decreased general administrative, personnel, and marketing costs, partially offset by increasesan increase in personnel and marketing costs.revenue.
Comparison of NineSix Months Ended SeptemberJune 30, 20212022 and NineSix Months Ended SeptemberJune 30, 20202021
The following table provides a comparison of our selected consolidated results of operations for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Nine Months Ended September 30, | | | | Six Months Ended June 30, | | |
| | 2021 | | 2020 | | Increase (Decrease) ($) | | 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 ninesix months ended SeptemberJune 30, 2021,2022, from $1,215$938 million for the ninesix months ended SeptemberJune 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 resumptionimpact of annual price increases forand 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 revenuerevenues increased $31$12 million, or 59%24%, primarily driven by theincreases in Ten-X acquisition, which hadand Land for Sale revenue in equivalent amounts, and to a lesser extent, an increase in revenue of $27for 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 drovean increase in sales of higher value advertisements as compared toHomesnap's products and services, partially offset by, the prior year. Information Services revenuediscontinuation 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.
Gross Profit. Gross profit increased to $1,166$856 million for the ninesix months ended SeptemberJune 30, 2021,2022, from $984$760 million for the ninesix months ended SeptemberJune 30, 2020,2021, and the gross profit percentage remained consistent at 81% for the ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. The increase in gross profit was due to higher revenues, partially impactedoffset by, an increase in cost of revenues of $40$18 million, or 17%10%, primarily due to an increase of $37$12 million duerelated to the acquisitionsour investment and further development of Ten-X, Homesnapour residential marketplaces, including research equipment, data centers, personnel, software and Homes.com, driven by increases in personnelequipment, 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 ninesix months ended SeptemberJune 30, 2021,2022, from $402$303 million for the ninesix months ended SeptemberJune 30, 2020.2021. The $81$22 million increase was driven by a $51primarily attributable to increases of $21 million increase in marketing expenses, driven by a $35conferences, 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 attributabledue 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 ninesix months ended SeptemberJune 30, 2021,2022, from $121$95 million for the ninesix months ended SeptemberJune 30, 2020,2021, and remained consistent as a percentage of revenues at 10% for the ninesix months ended SeptemberJune 30, 2021,2022, and the nine months ended September 30, 2020.2021. The $27$10 million increase was primarily due to a $25an 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, aother 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 ninesix months ended SeptemberJune 30, 2021,2022, from $182$122 million for the ninesix months ended SeptemberJune 30, 2020,2021, and decreasedincreased as a percentage of revenues to 15% for the six months ended June 30, 2022 from 13% for the ninesix months ended SeptemberJune 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 generalpersonnel costs, primarily driven by increases in salaries and administrative expenses from Ten-X, Homesnapstock-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 increaseddecreased to $56$31 million for the ninesix months ended SeptemberJune 30, 20212022 from $45$37 million for the ninesix months ended SeptemberJune 30, 2020,2021, and remained consistentdecreased as a percentage of revenues atto 3% for the six months ended June 30, 2022 from 4% for the ninesix months ended SeptemberJune 30, 2021 and 2020.2021. The increasedecrease in customer base amortization expense was primarily dueattributable 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.comwhich 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 $23a net expense of $11 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $9net expense of $16 million for the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease of $14$5 million for the ninesix months ended SeptemberJune 30, 20212022 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 ratesmainly 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 ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020.2021. The increase in other income was primarily due to rental income on the Richmond building, partially offset by decreasesincreases in foreign exchange gains due to rate fluctuations.
Income Tax Expense. Income tax expense increased to $71$57 million for the ninesix months ended SeptemberJune 30, 2021,2022 from $33$52 million for the ninesix months ended SeptemberJune 30, 2020.2021. The increase was primarilymostly due to higher income before taxes and a decrease in excess tax benefits, higher income before taxes, andpartially offset by a tax restructuring gain.gain recognized in the six months ended June 30, 2021.
Comparison of Business Segment Results for NineSix Months Ended SeptemberJune 30, 20212022 and NineSix Months Ended SeptemberJune 30, 20202021
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 ninesix months ended SeptemberJune 30, 2021,2022, from $1,173$906 million for the ninesix months ended SeptemberJune 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 resumptionimpact of annual price increases forand 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 revenuerevenues 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 revenuerevenues 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 ninesix months ended SeptemberJune 30, 2021,2022, from $42$32 million for the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2021,2022, from $323$266 million for the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20212022 was income of $6$4 million, as compared to a loss of $5$3 million for the ninesix months ended SeptemberJune 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 sourcesWe 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 towhich was approximately $3,762 million$4.0 billion as of SeptemberJune 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 fromby 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.
Netour cash provided by operating activities forrequirements over the ninenext 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 passedexpansion 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, Reliefsix 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 relatingproceeds 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 deferralexpansion 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, deferralcash 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, inNet 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 maintainapproximately $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 operationsstock-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 abilitysix months ended June 30, 2022 was approximately $58 million compared to maintain adequate capitalapproximately $285 million of cash used in investing activities for our operationsthe 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 responseinvesting 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 collectionequipment, 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 planrestricted stock to continue to monitorsatisfy 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 impactrepayment 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 PoliciesEstimates
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 matterssignificant accounting policies to becontain critical accounting policies:estimates:
•Long-lived assets, intangible assets and goodwillgoodwill;
•Income taxes;
•Revenue recognition
•Income taxesrecognition; and
•Business combinationscombinations.
For an in-depth discussion of each of our significant accounting policies, including ourthe related critical accounting policiesestimates. and further information regarding estimates and assumptions involved in their application, see our Annual Report onthe 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 20212022 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 impactsimpact 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 alsomay 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 effectsimpacts of and uncertainty surrounding the COVID-19 pandemic includingand economic conditions on the lengthcommercial real estate industry and severity of the economicour 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 individualsor 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 domesticCoStar, LoopNet, Apartments.com, BizBuySell, LandsofAmerica, STR, Ten-X, Homes.com and international, including the impacts of “Brexit” and uncertainty from the discontinuance of LIBORHomesnap; our inability to maintain or increase traffic to our marketplaces and the transitionpossibility 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 protectiondisruptions 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 disruptionfiscal and tax policies; risks related to acceptance of our systems, including due to any cyberattack orcredit 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 availabilityeconomic 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.
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 ninesix months ended SeptemberJune 30, 2021,2022, revenues denominated in foreign currencies were approximately 4% and 4%, respectively.. For the three and ninesix months ended SeptemberJune 30, 20212022 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 ninesix months ended SeptemberJune 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 SeptemberJune 30, 2021,2022, accumulated other comprehensive incomeloss included a gainloss 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 SeptemberJune 30, 2021.2022. As of SeptemberJune 30, 2021,2022, we had $3.8approximately $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 SeptemberJune 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 SeptemberJune 30, 2021.2022. As of SeptemberJune 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.
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 SeptemberJune 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 SeptemberJune 30, 20212022 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.
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 on2021 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 20202021 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 20202021 Form 10-K.
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 SeptemberJune 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.
Item 6.Exhibits
| | | | | | | | |
Exhibit No. | | Description |
| | 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). |
| | ThirdFourth 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). |
| | |
| | |
| | |
| | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | 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). |
| | 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 SeptemberJune 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 SeptemberJune 30, 2021,2022, formatted in Inline XBRL (included as Exhibit 101). |
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.
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| | COSTAR GROUP, INC. |
Date: | OctoberJuly 27, 20212022 | By: | | /s/ Scott T. Wheeler |
| | | | Scott T. Wheeler Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) |