CoStar Integration of LoopNet Leads to 227% Year-Over-Year EBITDA Increase

Revenue Increases 50% Year-Over-Year and Company Raises Guidance for 2012

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| Source: CoStar Group, Inc.

WASHINGTON, Oct. 24, 2012 (GLOBE NEWSWIRE) -- CoStar Group, Inc. (Nasdaq:CSGP), commercial real estate's leading provider of information, analytics and marketing services, announced today that revenue for the third quarter of 2012 was $96.0 million versus $63.8 million in the third quarter of 2011, which represents an increase of 50% year-over-year.

Non-GAAP net income (defined below) in the third quarter of 2012 was $13.1 million or $0.47 per diluted share which represents an increase of $5.9 million or 82% year-over-year. Net income in the third quarter of 2012 increased to $6.8 million or an increase of 196% year-over-year.  

Adjusted EBITDA (defined below) was $25.6 million for the third quarter of 2012, which is an increase of 83% year-over-year.  Adjusted EBITDA margins for the third quarter of 2012 increased to 26.7% from 21.9% in the third quarter of 2011.  EBITDA (defined below) in the third quarter of 2012 was $19.6 million versus $6.0 million in the third quarter of 2011, an increase of 227% year-over-year.    

"I am very pleased with the progress we are making on the integration of LoopNet," said Andrew C. Florance, Founder and Chief Executive Officer of CoStar. "All areas of our business are coming together to realize the synergies associated with the LoopNet acquisition and provide the best products and services to the participants in commercial real estate. In particular, our combined sales force is successfully cross-selling CoStar's information services and LoopNet's marketing solutions to our respective customer bases. As a result, we have added an all-time high number of new customers in the third quarter, and we are seeing the positive effects on our revenue and earnings."

Year 2011-2012 Quarterly Results - Unaudited
(in millions, except per share data)
               
  2011 2012
  Q1 Q2 Q3 Q4 Q1 Q2 Q3
               
Revenues $59.6 $62.1 $63.8  $ 66.2 $68.6 $85.2 $96.0
EBITDA  10.5 7.1 6.0 11.0 11.9 8.2 19.6
Net income (loss) 4.5 2.6 2.3  5.2 5.1 (6.7) 6.8
Net income (loss) per share - diluted 0.22 0.12 0.09 0.20 0.20 (0.25) 0.24
Weighted average outstanding shares - diluted 21.0 22.4 25.3 25.4 25.5 26.5 27.7
               
Adjusted EBITDA 12.6 14.3 14.0  16.0 15.3 20.4 25.6
Non-GAAP Net Income 6.2 7.3 7.2 8.4 8.2 10.5 13.1
Non-GAAP Net Income per share - diluted 0.29 0.33 0.28 0.33 0.32 0.39 0.47

In the third quarter of 2012, the Company's 12-month trailing renewal rate for annual subscription-based services was 94% and the renewal rate for CoStar's over 5,000 customer firms of five years or longer was 99%. Both remain at all-time highs.

As of September 30, 2012, the Company had approximately $151.8 million in cash, cash equivalents, short-term and long-term investments. This represents an increase of $22.7 million from the second quarter of 2012. Short and long-term debt associated with the LoopNet acquisition totaled approximately $170.6 million as of September 30, 2012.

The third quarter of 2012 was the first full quarter including LoopNet. The transaction closed on April 30, 2012.

2012 Outlook

"Based on the strong earnings results in the third quarter of 2012, we are raising our annual guidance for non-GAAP net income per diluted share (defined below) to a range of approximately $1.59 to $1.64 for the year, an increase of $0.16 at the midpoint," stated Brian J. Radecki, Chief Financial Officer of CoStar. For the fourth quarter of 2012, the Company expects non-GAAP net income per diluted share of $0.40 to $0.45.

"I am excited that the progress we are making integrating the companies is translating to cost synergies as reflected in our third quarter results and increased earnings guidance," continued Radecki. As disclosed last quarter, the Company plans to invest in marketing initiatives totaling $0.10 to $0.12 of non-GAAP net income per diluted share in order to drive revenue synergies through cross-selling. These programs will be aligned with selling activities throughout Q4 of 2012 and into Q1 of 2013.

For the full year of 2012, the Company is also raising the lower end of estimates for revenue to a range of approximately $347 million to $349 million.  For the fourth quarter of 2012, the Company expects revenue in the range of $97 million to $99 million.

For the combined company, forward-looking non-GAAP net income per diluted share includes the non-GAAP net income of CoStar's existing business, the pro-rata non-GAAP net income of LoopNet for approximately eight months, as well as the impact of the reduction in LoopNet deferred revenue and higher interest expense related to the debt incurred to finance the acquisition. The Company issued approximately 1.9 million shares for the stock component of the merger consideration, which we estimate will result in fully diluted weighted shares of approximately 27.7 million for the fourth quarter and 26.8 million for the full year 2012.

The preceding forward-looking statements reflect CoStar's expectations as of October 24, 2012, including forward-looking non-GAAP financial measures on a consolidated basis – including LoopNet and related costs. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, restructuring, settlements or impairments will occur in any given quarter. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, the Company does not intend to update its forward-looking statements until its next quarterly results announcement.

Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all of the non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms.

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, Inc. before (i) interest income (expense), (ii) provision for income taxes, and (iii) depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before (i) stock-based compensation expense, (ii) acquisition and integration related costs, (iii) restructuring charges and related costs, (iv) costs related to the acquisition and transition of the Company's corporate headquarters, and (v) settlements and impairments incurred outside the Company's normal business operations.

Non-GAAP net income is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) purchase amortization and other related costs, (ii) stock-based compensation expense, (iii) acquisition and integration related costs, (iv) purchase accounting adjustments, (v) restructuring charges and related costs, (vi) costs related to the acquisition and transition of the Company's corporate headquarters, and (vii) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. In 2011, we assumed a 40% tax rate, and in 2012 we assume a 38% tax rate in order to approximate our long-term effective corporate tax rate.   

Non-GAAP net income per diluted share (also referred to as non-GAAP EPS) is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

Earnings Conference Call

Management will conduct a conference call to discuss earnings results for the third quarter of 2012 and the Company's outlook for the fourth quarter of 2012 at 11:00 a.m. EDT on Thursday, October 25, 2012. The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/investors.aspx. To join the conference call by telephone, please dial (800) 230-1096 (from the United States and Canada) or (612) 332-0107 (from all other countries) and refer to conference code 266046. An audio recording of the conference call will be available approximately one hour after the live call concludes and remain available for a period of time following the call. To access the recorded call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 266046. The webcast replay will also be available in the Investors section of CoStar's web site for a period of time following the call.

CoStar Group, Inc.
Condensed Consolidated Statements of Operations-Unaudited
(in thousands, except per share data)
         
  For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
  2012 2011 2012 2011
         
         
Revenues  $ 96,001  $ 63,829  $ 249,853  $ 185,574
Cost of revenues 30,882 21,175 83,388 66,153
Gross margin 65,119 42,654 166,465 119,421
         
Operating expenses:        
Selling and marketing 22,010 17,467 57,576 44,993
Software development 9,722 5,017 22,714 15,420
General and administrative 19,617 16,631 59,602 43,375
Purchase amortization 4,824 535 9,038 1,624
  56,173 39,650 148,930 105,412
         
Income from operations 8,946 3,004 17,535 14,009
Interest and other income (expense), net (1,763) 194 (2,582) 574
Income before income taxes 7,183 3,198 14,953 14,583
Income tax expense, net 404 887 9,752 5,103
Net income  $ 6,779  $ 2,311  $ 5,201  $ 9,480
         
Net income per share - basic  $ 0.25  $ 0.09  $ 0.20  $ 0.42
Net income per share - diluted  $ 0.24  $ 0.09  $ 0.19  $ 0.41
         
Weighted average outstanding shares - basic 27,243 24,973 26,279 22,505
Weighted average outstanding shares - diluted 27,673 25,317 26,691 22,903
 
 
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
         
  For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
  2012 2011 2012 2011
         
Net income  $ 6,779  $ 2,311  $ 5,201  $ 9,480
Income tax expense, net  404 887 9,752 5,103
Income before income taxes  7,183  3,198  14,953  14,583
Purchase amortization and other related costs  7,851  874  14,645  2,578
Stock-based compensation expense  3,739  1,845  8,667  6,110
Acquisition and integration related costs  2,275  5,798  12,917  11,128
Restructuring and related costs  --  1,509  --  1,509
Settlements and Impairments  --  (1,207)  --  (1,479)
Non-GAAP Income before income taxes  21,048  12,017  51,182  34,429
Assumed rate for income tax expense, net * 38% 40% 38% 40%
Assumed provision for income tax expense, net  (7,998)  (4,807)  (19,449)  (13,772)
Non-GAAP Net Income  $ 13,050  $ 7,210  $ 31,733  $ 20,657
         
Net Income per share - diluted  $ 0.24  $ 0.09  $ 0.19  $ 0.41
Non-GAAP Net Income per share - diluted  $ 0.47  $ 0.28  $ 1.19  $ 0.90
         
Weighted average outstanding shares - diluted  27,673  25,317  26,691  22,903
         
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
         
         
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
         
  For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
  2012 2011 2012 2011
         
Net income  $ 6,779  $ 2,311  $ 5,201  $ 9,480
Purchase amortization in cost of revenues 3,027 339 5,607 954
Purchase amortization in operating expenses 4,824 535 9,038 1,624
Depreciation and other amortization 2,844 2,129 7,554 7,065
Interest income (expense), net 1,763 (194) 2,582 (574)
Income tax expense, net 404 887 9,752 5,103
EBITDA  $ 19,641  $ 6,007  $ 39,734  $ 23,652
Stock-based compensation expense 3,739 1,845 8,667  6,110
Acquisition and integration related costs  2,275  5,798  12,917  11,128
Restructuring and related costs  --  1,509  --  1,509
Settlements and Impairments  --  (1,207)  --  (1,479)
Adjusted EBITDA  $ 25,655  $ 13,952  $ 61,318  $ 40,920
 
 
CoStar Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
     
  September 30,
2012
December 31,
2011
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents  $ 129,462  $ 545,280
Short-term investments 817 3,515
Accounts receivable, net 21,397 16,589
Deferred income taxes, net 15,145 11,227
Income tax receivable 6,560 850
Prepaid and other current assets 7,999 5,722
Debt issuance costs 2,953  -- 
Total current assets 184,333 583,183
     
Long-term investments 21,561 24,584
Deferred income taxes, net  --   10,224
Property and equipment, net 42,962 37,571
Goodwill 718,080 91,784
Intangible and other assets, net 178,205 20,530
Deposits and other assets 2,160 2,241
Debt issuance costs 7,358  918
Total assets  $ 1,154,659  $ 771,035
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable and accrued expenses  $ 47,242  $ 38,533
Current portion of long-term debt  13,125  -- 
Income taxes payable  --   978
Deferred revenue 32,661 22,271
Total current liabilities 93,028 61,782
     
Long-term debt, less current portion 157,500  -- 
Deferred gain on sale of building  29,440  31,333
Deferred rent  16,895  16,592
Deferred income taxes, net  38,142  -- 
Income taxes payable 2,826 2,151
Other long-term liabilities  977  -- 
     
Stockholders' equity 815,851 659,177
Total liabilities and stockholders' equity  $ 1,154,659  $ 771,035
 
 
CoStar Group, Inc.
Results of Segments-Unaudited
(in thousands)
         
  For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
  2012 2011 2012 2011
Revenues        
United States  $ 91,153  $ 59,192  $235,606  $171,768
International        
External customers  4,848  4,637  14,247  13,806
Intersegment revenue *  388  327  1,154  805
Total international revenue  5,236  4,964  15,401  14,611
Intersegment eliminations  (388)  (327)  (1,154)  (805)
Total revenues  $ 96,001  $ 63,829  $249,853  $185,574
         
EBITDA        
United States  $ 22,688  $ 6,828  $ 46,302  $ 26,451
International **  (3,047)  (821)  (6,568)  (2,799)
Total EBITDA  $ 19,641  $ 6,007  $ 39,734  $ 23,652
         
* Intersegment revenue is attributable to services performed by Property and Portfolio Research Ltd., a wholly owned subsidiary of Property and Portfolio Research, Inc. (PPR), for PPR. Intersegment revenue is recorded at what the Company believes approximates fair value. U.S. EBITDA includes a corresponding cost for the services performed by Property and Portfolio Research Ltd. for PPR.
         
** International EBITDA includes a corporate allocation of approximately $2,300,000 and $100,000 for the three months ended September 30, 2012 and 2011, and approximately $4,500,000 and $200,000 for the nine months ended September 30, 2012 and 2011, respectively.
 
 
Reconciliation of Non-GAAP Financial Measures with 2011-2012 Quarterly Results - Unaudited
(in millions, except per share data)
               
Reconciliation of Net Income (Loss) to Non-GAAP Net Income
               
  2011 2012
  Q1 Q2 Q3 Q4 Q1 Q2 Q3
               
Net income (loss)  $ 4.5  $ 2.6  $ 2.3  $ 5.2  $ 5.1  $ (6.7)  $ 6.8
Income tax expense, net   2.8  1.5  0.9  2.8  3.7  5.6  0.4
Income (loss) before income taxes  7.3  4.1  3.2  8.0  8.8  (1.1)  7.2
Purchase amortization and other related costs  0.8  0.8  0.9  1.1  1.0  5.8  7.9
Stock-based compensation expense  2.1  2.2  1.9  1.9  2.2  2.7  3.7
Acquisition and integration related costs  0.3  5.0  5.8  3.1  1.2  9.5  2.3
Restructuring and related costs  --   --   1.5  --   --   --   -- 
Settlements and Impairments  (0.3)  --   (1.2)  --   --   --   -- 
Non-GAAP Income before income taxes  10.2  12.1  12.1  14.1  13.2  16.9  21.1
Assumed rate for income tax expense, net * 40% 40% 40% 40% 38% 38% 38%
Assumed provision for income tax expense, net  (4.0)  (4.8)  (4.9)  (5.7)  (5.0)  (6.4)  (8.0)
Non-GAAP Net Income  $ 6.2  $ 7.3  $ 7.2  $ 8.4  $ 8.2  $ 10.5  $ 13.1
               
Non-GAAP Net Income per share - diluted  $ 0.29  $ 0.33  $ 0.28  $ 0.33  $0.32  $ 0.39  $ 0.47
               
Weighted average outstanding shares - diluted  21.0  22.4  25.3  25.4  25.5  26.9  27.7
               
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
               
               
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
               
  2011 2012
  Q1 Q2 Q3 Q4 Q1 Q2 Q3
               
Net income (loss)  $ 4.5  $ 2.6  $ 2.3  $ 5.2  $ 5.1  $ (6.7)  $ 6.8
Purchase amortization  0.8  0.8  0.9  1.0  1.0  5.8  7.9
Depreciation and other amortization  2.6  2.4  2.1  2.2  2.3  2.4  2.8
Interest expense (income), net  (0.2)  (0.2)  (0.2)  (0.2)  (0.2)  1.1  1.7
Income tax expense, net  2.8  1.5  0.9  2.8  3.7  5.6  0.4
EBITDA  $ 10.5  $ 7.1  $ 6.0  $ 11.0  $11.9  $ 8.2  $ 19.6
Stock-based compensation expense  2.1  2.2  1.9  1.9  2.2  2.7  3.7
Acquisition and integration related costs  0.3  5.0  5.8  3.1  1.2  9.5  2.3
Restructuring and related costs  --   --   1.5  --   --   --   -- 
Settlements and Impairments  (0.3)  --   (1.2)  --   --   --   -- 
Adjusted EBITDA  $ 12.6  $ 14.3  $ 14.0  $ 16.0  $15.3  $ 20.4  $ 25.6
 
 
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income
(in thousands, except per share data)
  Guidance Range
For the Three Months
Ended December 31, 2012
Guidance Range
For the Twelve Months
Ended December 31, 2012
  Low High Low High
         
Net income  $ 2,800  $ 4,800  $ 8,000  $ 10,000
Income tax expense, net  2,500 3,900 12,200 13,600
Income before income taxes  5,300  8,700  20,200  23,600
Purchase amortization and other related costs  7,600  7,600  22,200  22,200
Stock-based compensation expense  3,500  3,000  12,200  11,700
Acquisition and integration related costs  1,300  600  14,200  13,500
Non-GAAP Income before income taxes  17,700  19,900  68,800  71,000
Assumed rate for income tax expense, net * 38% 38% 38% 38%
Assumed provision for income tax expense, net  (6,726)  (7,562)  (26,144)  (26,980)
Non-GAAP Net Income  $ 10,974  $ 12,338  $ 42,656  $ 44,020
         
Net Income per share - diluted  $ 0.10  $ 0.17  $ 0.30  $ 0.37
Non-GAAP Net Income per share - diluted  $ 0.40  $ 0.45  $ 1.59  $ 1.64
         
Weighted average outstanding shares - diluted  27,700  27,700  26,800  26,800
         
* A 38% tax rate is assumed for 2012 in order to approximate the Company's long-term effective corporate tax rate.

About CoStar Group, Inc.

CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytics and marketing services. 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. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 6.4 million registered members and 3.5 million unique monthly visitors. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe including the industry's largest professional research organization. For more information, visit www.costar.com.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar's financial expectations, the company's plans, objectives, expectations and intentions and other statements including words such as "hope," "anticipate," "may," "believe," "expect," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of management of CoStar and are subject to significant risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the risk that the trends stated or implied by this release cannot be sustained at the current pace, including trends related to sales, earnings, and revenue growth and renewal rates; the risk that the combination of CoStar and LoopNet does not result in or create the anticipated benefits for CoStar; the risk that the sales and marketing programs directed at cross-selling of services will not drive the anticipated revenue synergies through cross-selling or position the company for high margin revenue growth in 2013 and beyond or that such synergies may take longer to realize than expected; the risk that CoStar will not achieve continued strong revenue and earnings growth throughout 2012 and in 2013; the risk that revenues for the fourth quarter of 2012 and full year 2012 will not be as stated in this press release; the risk that non-GAAP net income per diluted share for the fourth quarter of 2012 and full year 2012 will not be as stated in this press release; the risk that the integration of LoopNet will not continue to result in anticipated cost savings or synergies; the risk that the additional marketing initiatives will not be executed as stated in this press release; and the risk that the businesses of LoopNet and CoStar may not be combined successfully or in a timely and cost-efficient manner. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar's Annual Report on Form 10-K for the year ended December 31, 2011, and CoStar's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, each filed with the SEC, including in the "Risk Factors" section of each of these filings, and the company's other filings with the SEC available at the SEC's website (www.sec.gov). CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Brian J. Radecki
Chief Financial Officer
(202) 336-6920


Richard Simonelli
Director Investor Relations
(202) 346-6394