CoStar Group(US:CSGP)2024-07-24 21:31Part I - Financial Information Financial Statements CoStar Group reported a 12% revenue increase to $677.8 million in Q2 2024, yet net income significantly declined to $19.2 million due to rising operating expenses, with total assets reaching $9.07 billion and operating cash flow decreasing Financial Performance Summary | Financial Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $677.8 M | $605.9 M | $1,334.2 M | $1,190.3 M | | Gross Profit | $542.0 M | $493.5 M | $1,057.2 M | $958.7 M | | (Loss) Income from Operations | $(16.1) M | $79.1 M | $(58.9) M | $151.4 M | | Net Income | $19.2 M | $100.5 M | $25.9 M | $187.7 M | | Diluted EPS | $0.05 | $0.25 | $0.06 | $0.46 | Balance Sheet Summary | Balance Sheet Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $5,207.2 M | $5,476.1 M | | Total Assets | $9,067.3 M | $8,919.7 M | | Total Current Liabilities | $561.7 M | $455.8 M | | Total Liabilities | $1,671.6 M | $1,581.1 M | | Total Stockholders' Equity | $7,395.7 M | $7,338.6 M | Cash Flow Summary | Cash Flow Activity (Six Months Ended) | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $197.7 M | $298.4 M | | Net Cash used in Investing Activities | $(477.6) M | $(54.4) M | | Net Cash used in Financing Activities | $(15.3) M | $(6.3) M | | Net (Decrease) Increase in Cash | $(296.4) M | $237.3 M | Revenue Analysis Subscription-based services accounted for 96% of Q2 2024 revenue, with North America contributing $643.8 million of the $677.8 million total, and Multifamily being the largest service segment at $264.2 million - Subscription-based contracts accounted for approximately 96% of total revenues for the three and six months ended June 30, 202488 Revenue by Service (Q2 2024, in millions) | Revenue by Service (Q2 2024, in millions) | North America | International | Total | | :--- | :--- | :--- | :--- | | CoStar | $237.1 | $15.9 | $253.0 | | Information Services | $27.9 | $5.5 | $33.4 | | Multifamily | $264.2 | - | $264.2 | | LoopNet | $67.2 | $2.6 | $69.8 | | Residential | $16.2 | $10.0 | $26.2 | | Other Marketplaces | $31.2 | - | $31.2 | | Total Revenues | $643.8 | $34.0 | $677.8 | Acquisitions The company expanded through the $120.4 million acquisition of OnTheMarket in December 2023 and plans to acquire Matterport for an estimated $940 million cash consideration, pending regulatory and shareholder approval - In December 2023, CoStar UK acquired OnTheMarket for total consideration of £96.0 million ($120.4 million), adding $62.8 million in goodwill to the International operating segment177152 - On April 21, 2024, the company agreed to acquire Matterport, Inc. for $2.75 in cash per share plus CoStar shares, with an estimated total cash consideration of $940 million127153 - The Matterport merger is subject to customary conditions, including shareholder approval and HSR Act regulatory clearance, and is expected to close in the fourth quarter of 2024127153 Long-Term Debt As of June 30, 2024, the company's long-term debt includes $1.0 billion in 2.800% Senior Notes due 2030, supplemented by a new undrawn $1.1 billion revolving credit facility established in May 2024 - The company holds $1.0 billion in aggregate principal amount of 2.800% Senior Notes due July 15, 2030190 - On May 24, 2024, a new $1.1 billion revolving credit facility maturing in May 2029 was established, with no amounts drawn as of June 30, 2024164166 Management's Discussion and Analysis (MD&A) Management attributes Q2 2024's 12% revenue growth to strong Multifamily and Residential segments, despite a significant 43% increase in selling and marketing expenses leading to an operating loss and reduced net income, while maintaining strong liquidity for strategic investments - Key priorities for the remainder of 2024 include continued investment in residential marketplaces (Homes.com and OnTheMarket), expansion of the Richmond, VA technology center, and build-out of a new headquarters in Arlington, VA243212213 - The company's contract renewal rate for subscription-based services with terms of at least one year was approximately 90% for the trailing 12 months ended June 30, 2024241 Results of Operations Q2 2024 revenues increased 12% to $677.8 million, driven by Multifamily and Residential growth, but a 43% surge in selling and marketing expenses led to a $16.1 million operating loss and an 81% decline in net income Selected Financial Performance (Q2 2024 vs Q2 2023) | Selected Items (Q2 2024 vs Q2 2023) | Q2 2024 ($M) | Q2 2023 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 677.8 | 605.9 | 71.9 | 12% | | Multifamily Revenue | 264.2 | 224.3 | 39.9 | 18% | | Residential Revenue | 26.2 | 12.7 | 13.5 | 106% | | Selling & Marketing Expense | 358.4 | 250.0 | 108.4 | 43% | | (Loss) Income from Operations | (16.1) | 79.1 | (95.2) | NM | | Net Income | 19.2 | 100.5 | (81.3) | (81%) | - The increase in selling and marketing expenses was primarily driven by a $93 million increase in marketing expenses for advertising the company's brands and a $15 million increase in personnel costs269258303 - The effective tax rate for Q2 2024 was 47%, a significant increase from 24% in Q2 2023, while income tax expense decreased by $14 million due to lower pre-tax income305 Business Segment Results In Q2 2024, North America's revenue grew 10% to $644 million, but EBITDA fell 71% to $31 million due to increased costs, while International revenue surged 57% to $34 million, resulting in a $19 million EBITDA loss Segment EBITDA (Q2 2024 vs Q2 2023) | Segment EBITDA (Q2 2024 vs Q2 2023) | Q2 2024 ($M) | Q2 2023 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | North America | 30.8 | 104.6 | (73.8) | | International | (18.7) | 0.6 | (19.3) | | Total EBITDA | 12.1 | 105.2 | (93.1) | - The decrease in North America EBITDA was primarily due to increases in marketing costs, personnel costs, and professional service fees307 - The decrease in International EBITDA was primarily due to the OnTheMarket Acquisition and an increase in personnel costs associated with the expansion of the international research team307 Liquidity and Capital Resources The company maintained strong liquidity with $4.9 billion in cash as of Q2 2024, despite a $296 million cash decrease driven by $478 million in investing activities and reduced operating cash flow, but believes resources are sufficient for future commitments including the Matterport acquisition - Cash and cash equivalents were $4.9 billion as of June 30, 2024, down from $5.2 billion at December 31, 2023352356 - Net cash provided by operating activities decreased by $101 million to $198 million for the first six months of 2024 compared to the same period in 2023, primarily due to lower net income330 - Significant cash outlays include the pending Matterport acquisition (estimated $940 million cash consideration) and the Richmond campus expansion (expected total cost of $450 million - $600 million)353355326 Market Risk Disclosures The company faces market risks from foreign currency fluctuations, impacting approximately 5% of revenues, and interest rate changes related to its undrawn $1.1 billion variable-rate credit facility, alongside potential impairment of $2.7 billion in goodwill and intangible assets - Approximately 5% of revenues for the first six months of 2024 were denominated in foreign currencies, with a hypothetical 10% strengthening of the U.S. dollar decreasing these revenues by approximately $3.3 million363 - Interest rate risk is tied to the $1.1 billion revolving credit facility with a variable interest rate, which had no outstanding balance as of June 30, 2024364 - The company held approximately $2.7 billion of goodwill and intangible assets as of June 30, 2024, which are subject to impairment risk based on economic and industry conditions340 Controls and Procedures As of June 30, 2024, the CEO and CFO concluded the company's disclosure controls and procedures are effective, with ongoing implementation of a new financial system expected to further enhance internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024342 - The company is engaged in a multi-year implementation of a new financial system intended to enhance operational and financial accounting processes367 Part II - Other Information Legal Proceedings The company is involved in routine litigation, but management believes no current legal matters will have a material adverse effect on its financial position or results of operations - The company is not currently a party to any lawsuit or proceeding that management believes is likely to have a material adverse effect on its financial position or results of operations345 Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2023 Form 10-K and the Q1 2024 Form 10-Q - No material changes have been made to the risk factors disclosed in the 2023 Form 10-K and the Q1 2024 Form 10-Q346