22 Oct CoStar Group Third Quarter 2019 Revenue Grows 15% and Net Income Increases 34% Year-over-Year; Company Closes STR Acquisition
WASHINGTON–(BUSINESS WIRE)–CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that revenue for the quarter ended September 30, 2019, was $353 million, an increase of 15% over revenue of $306 million for the third quarter of 2018. Net income for the third quarter of 2019 was $79 million, an increase of 34% over net income of $59 million for the third quarter of 2018.
EBITDA for the third quarter of 2019 was $113 million, an increase of 24% versus EBITDA of $91 million for the third quarter of 2018. Adjusted EBITDA (which excludes stock-based compensation, acquisition and integration related costs and other items as described below) for the third quarter of 2019 was $129 million, an increase of 18% compared to adjusted EBITDA of $110 million for the third quarter of 2018.
Earlier today, CoStar completed the previously announced acquisition of STR, Inc. and STR Global, Ltd. for an aggregate consideration of approximately $450 million in cash, subject to certain adjustments per the definitive agreements.
“We achieved very strong third quarter 2019 financial results,” said Andrew C. Florance, Founder and Chief Executive Officer of CoStar Group. “We continue to deliver excellent results as we generated Company-wide net new bookings of $50 million in the third quarter, an increase of 27% year-over-year. Through the first three quarters of this year, our quarterly net new bookings average was $52 million, a 32% increase over the average quarterly bookings for the comparable period in 2018. We are also very pleased with the continued growth of Apartments.com, which generated 20% year-over year revenue growth in the third quarter of 2019 and is now at an annual revenue run rate of over $500 million.”
Florance continued, “We are very excited about closing our acquisition of STR so quickly. We believe that combining STR’s superior hospitality service offerings with CoStar will benefit all industry participants as we work together to create valuable new and improved tools.”
Year 2018-2019 Quarterly Results – Unaudited
(in millions, except per share data)
2018
2019
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Revenues
$
274
$
297
$
306
$
316
$
328
$
344
$
353
Net income
52
44
59
84
85
63
79
Net income per share – diluted
1.44
1.20
1.61
2.29
2.33
1.73
2.15
Weighted average outstanding shares – diluted
36.4
36.5
36.5
36.5
36.6
36.6
36.7
EBITDA
70
64
91
125
113
94
113
Adjusted EBITDA
84
85
110
139
125
110
129
Non-GAAP net income
60
60
79
102
92
82
96
Non-GAAP net income per share – diluted
1.65
1.66
2.16
2.81
2.53
2.23
2.61
“CoStar Group profitability continues to be exceptional with year-over-year growth in net income of 34% in the third quarter of 2019,” said Florance. “I am very pleased that we have grown net income while investing for the future growth of the business.”
Non-GAAP net income for the third quarter of 2019 (which excludes amortization of acquired intangible assets, stock-based compensation and other items as described below) was $96 million or $2.61 per diluted share, an increase of $17 million or 22% versus the third quarter of 2018.
2019 Outlook
The Company expects that STR will contribute between $3 million to $4 million in revenue in the fourth quarter of 2019. Due to the impact of integration costs and purchase accounting adjustments for deferred revenue, we expect STR adjusted EBITDA of negative $5 million to $6 million in the fourth quarter of 2019. These estimated results for STR are included in our revised outlook.
The Company is increasing revenue guidance to a range of $1.385 billion to $1.391 billion for the full year of 2019, an increase of $2 million at the midpoint of the range compared to the prior outlook. We expect revenue for the fourth quarter of 2019 in the range of $360 million to $366 million, representing revenue growth of 15% over the fourth quarter of 2018 at the midpoint of the range.
The Company expects adjusted EBITDA in a range of $494 million to $500 million for the full year of 2019, a decrease of $5 million at the midpoint of the range. For the fourth quarter of 2019, the Company expects adjusted EBITDA in a range of $129 million to $135 million.
We expect full-year 2019 non-GAAP net income per diluted share in a range of $9.90 to $10.02 based on 36.6 million shares, a decrease of $0.11 at the midpoint versus the previously provided outlook. For the fourth quarter of 2019, we expect non-GAAP net income per diluted share in a range of $2.52 to $2.64 based on 36.7 million shares. These ranges include a non-GAAP tax rate of 25%.
The preceding forward-looking statements reflect CoStar Group’s expectations as of October 22, 2019, including forward-looking non-GAAP financial measures on a consolidated basis. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, the Company does not intend to update its forward-looking statements until its next quarterly results announcement.
Reconciliation of EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share and other disclosed non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms. A reconciliation of forward-looking non-GAAP guidance to the most directly comparable GAAP measure, net income, can be found within the tables included in this release.
Non-GAAP Financial Measures
For information regarding the purpose for which management uses the non-GAAP financial measures disclosed in this release and why management believes they provide useful information to investors regarding the Company’s financial condition and results of operations, please refer to the Company’s latest periodic report.
EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group before interest and other income (expense), loss on debt extinguishment, income taxes, depreciation and amortization.
Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside the Company’s normal course of business.
Non-GAAP net income is a non-GAAP financial measure determined by adjusting GAAP net income attributable to CoStar Group for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside the Company’s normal 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. In 2019, the Company is assuming a 25% tax rate in order to approximate our statutory corporate tax rate excluding the impact of discrete items.
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. For periods with GAAP net losses and non-GAAP net income, the weighted average outstanding shares used to calculate non-GAAP net income per share includes potentially dilutive securities that were excluded from the calculation of GAAP net income per share as the effect was anti-dilutive.
Earnings Conference Call
Management will conduct a conference call at 5:00 PM EDT on Tuesday, October 22, 2019 to discuss earnings results for the third quarter and the Company’s outlook. The audio portion of the conference call will be broadcast live over the Internet at investors.costargroup.com. To join the conference call by telephone, please dial (800) 230-1059 (from the United States and Canada) or (612) 234-9959 (from all other countries) and refer to conference code 472986. An audio recording of the conference call will be available for replay approximately one hour after the call’s completion and will remain available for a period of time following the call. To access the recorded conference call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 472986. The webcast replay will also be available in the Investors section of CoStar Group’s website for a period of time following the call.
CoStar Group, Inc.
Condensed Consolidated Statements of Operations – Unaudited
(in thousands, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Revenues
$
352,808
$
305,525
$
1,024,993
$
876,261
Cost of revenues
71,172
72,072
214,243
201,685
Gross profit
281,636
233,453
810,750
674,576
Operating expenses:
Selling and marketing (excluding customer base amortization)
101,582
89,251
308,751
290,706
Software development
32,639
26,173
89,022
75,357
General and administrative
45,530
39,012
127,943
117,658
Customer base amortization
7,616
8,329
22,473
22,948
187,367
162,765
548,189
506,669
Income from operations
94,269
70,688
262,561
167,907
Interest and other income
5,358
3,035
16,216
8,674
Interest and other expense
(704
)
(717
)
(2,133
)
(2,135
)
Income before income taxes
98,923
73,006
276,644
174,446
Income tax expense
20,304
14,247
49,608
19,621
Net income
$
78,619
$
58,759
$
227,036
$
154,825
Net income per share – basic
$
2.16
$
1.63
$
6.26
$
4.30
Net income per share – diluted
$
2.15
$
1.61
$
6.20
$
4.25
Weighted average outstanding shares – basic
36,333
36,129
36,293
36,032
Weighted average outstanding shares – diluted
36,652
36,518
36,615
36,439
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures – Unaudited
(in thousands, except per share data)
Reconciliation of Net Income to Non-GAAP Net Income
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net income
$
78,619
$
58,759
$
227,036
$
154,825
Income tax expense
20,304
14,247
49,608
19,621
Income before income taxes
98,923
73,006
276,644
174,446
Amortization of acquired intangible assets
12,543
13,639
37,946
38,190
Stock-based compensation expense
13,139
8,953
38,984
30,593
Acquisition and integration related costs
2,287
7,171
3,028
20,199
Restructuring and related costs
806
2,314
3,054
2,314
Non-GAAP income before income taxes
127,698
105,083
359,656
265,742
Assumed rate for income tax expense *
25
%
25
%
25
%
25
%
Assumed provision for income tax expense
(31,925
)
(26,271
)
(89,914
)
(66,436
)
Non-GAAP net income
$
95,773
$
78,812
$
269,742
$
199,306
Net income per share – diluted
$
2.15
$
1.61
$
6.20
$
4.25
Non-GAAP net income per share – diluted
$
2.61
$
2.16
$
7.37
$
5.47
Weighted average outstanding shares – basic
36,333
36,129
36,293
36,032
Weighted average outstanding shares – diluted
36,652
36,518
36,615
36,439
* A 25% tax rate is assumed for 2019 and 2018, which approximates our statutory corporate tax rate.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net income
$
78,619
$
58,759
$
227,036
$
154,825
Amortization of acquired intangible assets in cost of revenues
4,957
5,310
15,503
15,242
Amortization of acquired intangible assets in operating expenses
7,586
8,329
22,443
22,948
Depreciation and other amortization
6,279
6,794
19,289
19,810
Interest and other income
(5,358
)
(3,035
)
(16,216
)
(8,674
)
Interest and other expense
704
717
2,133
2,135
Income tax expense
20,304
14,247
49,608
19,621
EBITDA
$
113,091
$
91,121
$
319,796
$
225,907
Stock-based compensation expense
13,139
8,953
38,984
30,593
Acquisition and integration related costs
2,287
7,171
3,028
20,199
Restructuring and related costs
806
2,314
3,054
2,314
Adjusted EBITDA
$
129,323
$
109,559
$
364,862
$
279,013
CoStar Group, Inc.
Condensed Consolidated Balance Sheets – Unaudited
(in thousands)
September 30,
2019
December 31,
2018
ASSETS
Current assets:
Cash and cash equivalents
$
1,389,619
$
1,100,416
Accounts receivable, less allowance of $4,858 and $5,709 as of September 30, 2019 and December 31, 2018, respectively
91,325
89,192
Prepaid expenses and other current assets
23,778
23,690
Total current assets
1,504,722
1,213,298
Long-term investments
10,070
10,070
Deferred income taxes, net
4,426
7,469
Property and equipment, net
107,989
83,303
Lease right-of-use assets
105,516
—
Goodwill
1,616,538
1,611,535
Intangible assets, net
259,444
288,911
Deferred commission costs, net
85,623
76,031
Deposits and other assets
6,155
7,432
Income tax receivable
14,908
14,908
Total assets
$
3,715,391
$
3,312,957
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
8,082
$
6,327
Accrued wages and commissions
51,557
45,588
Accrued expenses
41,816
29,821
Deferred gain on the sale of building
—
2,523
Income taxes payable
9,116
14,288
Deferred rent
—
4,153
Lease liabilities
27,137
—
Deferred revenue
60,328
51,459
Total current liabilities
198,036
154,159
Deferred gain on the sale of building
—
13,669
Deferred rent
—
31,944
Deferred income taxes, net
83,120
69,857
Income taxes payable
17,172
17,386
Lease and other long-term liabilities
117,897
4,000
Total liabilities
$
416,225
$
291,015
Total stockholders’ equity
3,299,166
3,021,942
Total liabilities and stockholders’ equity
$
3,715,391
$
3,312,957
CoStar Group, Inc.
Condensed Consolidated Statements of Cash Flows – Unaudited
(in thousands)
Nine Months Ended
September 30,
2019
2018
Operating activities:
Net income
$
227,036
$
154,825
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
57,235
58,000
Amortization of deferred commissions costs
39,189
36,242
Amortization of debt issuance costs
657
657
Stock-based compensation expense
38,984
30,593
Deferred income taxes, net
13,288
7,644
Bad debt expense
7,458
4,519
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(8,797
)
(19,038
)
Prepaid expenses and other current assets
(754
)
(2,952
)
Deferred commissions
(48,791
)
(41,421
)
Lease right-of-use and other assets
16,326
(1,396
)
Accounts payable and other liabilities
(4,339
)
(13,443
)
Deferred revenue
12,525
6,454
Net cash provided by operating activities
350,017
220,684
Investing activities:
Purchases of property and equipment and other assets
(44,162
)
(21,801
)
Cash paid for acquisitions, net of cash acquired
(13,721
)
(340,074
)
Net cash used in investing activities
(57,883
)
(361,875
)
Financing activities:
Repurchase of restricted stock to satisfy tax withholding obligations
(25,040
)
(23,666
)
Proceeds from exercise of stock options and employee stock purchase plan
22,970
25,768
Other financing activities
(123
)
—
Net cash (used in) provided by financing activities
(2,193
)
2,102
Effect of foreign currency exchange rates on cash and cash equivalents
(738
)
(588
)
Net increase (decrease) in cash and cash equivalents
289,203
(139,677
)
Cash and cash equivalents at the beginning of period
1,100,416
1,211,463
Cash and cash equivalents at the end of period
$
1,389,619
$
1,071,786
CoStar Group, Inc.
Disaggregated Revenues – Unaudited
(in thousands)
Three Months Ended September 30,
2019
2018
North America
International
Total
North America
International
Total
Information and analytics
CoStar Suite
$
149,187
$
6,826
$
156,013
$
132,700
$
6,384
$
139,084
Information services
17,382
2,089
19,471
15,310
2,225
17,535
Online marketplaces
Multifamily
125,707
—
125,707
104,778
—
104,778
Commercial property and land
51,508
109
51,617
44,128
—
44,128
Total revenues
$
343,784
$
9,024
$
352,808
$
296,916
$
8,609
$
305,525
Nine Months Ended September 30,
2019
2018
North America
International
Total
North America
International
Total
Information and analytics
CoStar Suite
$
436,070
$
20,469
$
456,539
$
383,876
$
19,381
$
403,257
Information services
52,632
6,466
59,098
41,544
6,881
48,425
Online marketplaces
Multifamily
360,463
—
360,463
297,254
—
297,254
Commercial property and land
148,418
475
148,893
127,325
—
127,325
Total revenues
$
997,583
$
27,410
$
1,024,993
$
849,999
$
26,262
$
876,261
CoStar Group, Inc.
Results of Segments – Unaudited
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
EBITDA
North America
$
115,973
$
94,088
$
326,648
$
229,905
International
(2,882
)
(2,967
)
(6,852
)
(3,998
)
Total EBITDA
$
113,091
$
91,121
$
319,796
$
225,907
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures with 2018-2019 Quarterly Results – Unaudited
(in millions, except per share data)
Reconciliation of Net Income to Non-GAAP Net Income
2018
2019
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Net income
$52.2
$43.8
$58.8
$83.5
$85.2
$63.2
$78.6
Income tax expense
3.5
1.9
14.2
26.1
12.5
16.8
20.3
Income before income taxes
55.7
45.7
73.0
109.6
97.7
80.0
98.9
Amortization of acquired intangible assets
10.4
14.1
13.6
13.3
13.2
12.2
12.5
Stock-based compensation expense
10.4
11.2
9.0
12.1
12.0
13.8
13.1
Acquisition and integration related costs
3.5
9.5
7.2
1.5
0.2
0.5
2.3
Restructuring and related costs
—
—
2.3
—
0.1
2.2
0.8
Non-GAAP income before income taxes
80.1
80.6
105.1
136.5
123.2
108.7
127.6
Assumed rate for income tax expense *
25%
25%
25%
25%
25%
25%
25%
Assumed provision for income tax expense
(20.0)
(20.1)
(26.3)
(34.1)
(30.8)
(27.2)
(31.9)
Non-GAAP net income
$60.1
$60.4
$78.8
$102.3
$92.4
$81.5
$95.7
Non-GAAP net income per share – diluted
$1.65
$1.66
$2.16
$2.81
$2.53
$2.23
$2.61
Weighted average outstanding shares – basic
35.9
36.1
36.1
36.1
36.2
36.3
36.3
Weighted average outstanding shares – diluted
36.4
36.5
36.5
36.5
36.6
36.6
36.7
* A 25% tax rate is assumed for 2019 and 2018, which approximates our statutory corporate tax rate.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
2018
2019
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Net income
$
52.2
$
43.8
$
58.8
$
83.5
$
85.2
$
63.2
$
78.6
Amortization of acquired intangible assets
10.4
14.1
13.6
13.3
13.2
12.2
12.5
Depreciation and other amortization
6.6
6.4
6.8
6.5
6.5
6.5
6.3
Interest and other income
(3.0
)
(2.6
)
(3.0
)
(4.6
)
(4.9
)
(5.9
)
(5.4
)
Interest and other expense
0.7
0.7
0.7
0.7
0.7
0.7
0.7
Income tax expense
3.5
1.9
14.2
26.1
12.5
16.8
20.3
EBITDA
$
70.4
$
64.3
$
91.1
$
125.5
$
113.2
$
93.5
$
113.0
Stock-based compensation expense
10.4
11.2
9.0
12.1
12.0
13.8
13.1
Acquisition and integration related costs
3.5
9.5
7.2
1.5
0.2
0.5
2.3
Restructuring and related costs
—
—
2.3
—
0.1
2.2
0.8
Adjusted EBITDA
$
84.4
$
85.1
$
109.6
$
139.0
$
125.5
$
110.0
$
129.2
CoStar Group, Inc.
Reconciliation of Forward-Looking Guidance – Unaudited
(in thousands, except per share data)
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income
Guidance Range
Guidance Range
For the Three Months
For the Twelve Months
Ended December 31, 2019
Ended December 31, 2019
Low
High
Low
High
Net income
$
65,000
$
71,000
$
292,000
$
298,000
Income tax expense
22,000
24,000
72,000
74,000
Income before income taxes
87,000
95,000
364,000
372,000
Amortization of acquired intangible assets
16,000
16,000
54,000
54,000
Stock-based compensation expense
15,000
14,000
54,000
53,000
Acquisition and integration related costs
5,000
4,000
8,000
7,000
Restructuring and related costs
—
—
3,000
3,000
Non-GAAP income before income taxes
123,000
129,000
483,000
489,000
Assumed rate for income tax expense *
25
%
25
%
25
%
25
%
Assumed provision for income tax expense
(30,600
)
(32,100
)
(120,800
)
(122,300
)
Non-GAAP net income
$
92,400
$
96,900
$
362,200
$
366,700
Net income per share – diluted
$
1.77
$
1.93
$
7.98
$
8.14
Non-GAAP net income per share – diluted
$
2.52
$
2.64
$
9.90
$
10.02
Weighted average outstanding shares – diluted
36,700
36,700
36,600
36,600
* A 25% tax rate is assumed, which approximates our statutory corporate tax rate.
Reconciliation of Forward-Looking Guidance, Net Income to Adjusted EBITDA
Guidance Range
Guidance Range
For the Three Months
For the Twelve Months
Ended December 31, 2019
Ended December 31, 2019
Low
High
Low
High
Net income
$
65,000
$
71,000
$
292,000
$
298,000
Amortization of acquired intangible assets
16,000
16,000
54,000
54,000
Depreciation and other amortization
8,000
8,000
27,000
27,000
Interest and other expense, net
(2,000
)
(2,000
)
(16,000
)
(16,000
)
Income tax expense
22,000
24,000
72,000
74,000
Stock-based compensation expense
15,000
14,000
54,000
53,000
Acquisition and integration related costs
5,000
4,000
8,000
7,000
Restructuring and related costs
—
—
3,000
3,000
Adjusted EBITDA
$
129,000
$
135,000
$
494,000
$
500,000
About CoStar Group, Inc.
CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 6 million monthly unique visitors. Realla is the UK’s most comprehensive commercial property digital marketplace. Apartments.com, ApartmentFinder.com, ForRent.com, ApartmentHomeLiving.com, Westside Rentals, AFTER55.com, CorporateHousing.com, ForRentUniversity.com and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties.Contacts
Scott Wheeler
Chief Financial Officer
(202) 336-6920
[email protected]
Richard Simonelli
Investor Relations
(202) 346-6394
[email protected]
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