CoStar Group(US:CSGP)2023-07-25 16:00PART I FINANCIAL INFORMATION Financial Statements This section presents CoStar Group's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, covering operations, balance sheets, cash flows, and accounting policies Condensed Consolidated Statements of Operations This section details the company's H1 2023 financial performance, showing revenue growth, operating income decline, and net income increase Consolidated Statements of Operations (Six Months Ended June 30) | Financial Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $1,190,272 | $1,052,133 | 13% | | Gross Profit | $958,714 | $855,683 | 12% | | Selling and marketing | $476,260 | $325,341 | 46% | | Income from operations | $151,367 | $238,458 | -37% | | Interest income (expense), net | $95,459 | $(11,117) | NM | | Net income | $187,651 | $172,791 | 9% | | Net income per share - diluted | $0.46 | $0.44 | 4.5% | Condensed Consolidated Balance Sheets As of June 30, 2023, total assets increased to $8.69 billion, driven by higher cash, with total liabilities rising to $1.59 billion and equity growing to $7.10 billion Balance Sheet Summary | Account | June 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $5,205,295 | $4,967,970 | | Total current assets | $5,444,884 | $5,185,867 | | Goodwill | $2,321,205 | $2,314,759 | | Total assets | $8,691,674 | $8,402,470 | | Total current liabilities | $442,775 | $372,615 | | Long-term debt, net | $989,858 | $989,210 | | Total liabilities | $1,590,602 | $1,532,349 | | Total stockholders' equity | $7,101,072 | $6,870,121 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $298.4 million in H1 2023, with cash and cash equivalents rising by $237.3 million overall Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $298,380 | $212,099 | | Net cash used in investing activities | $(54,422) | $(57,707) | | Net cash used in financing activities | $(6,270) | $(14,570) | | Net increase in cash and cash equivalents | $237,325 | $136,990 | Notes to Condensed Consolidated Financial Statements The notes explain accounting policies and financial data, including revenue recognition, acquisitions, segment reporting, long-term debt, and goodwill - Subscription-based contracts are the primary revenue source, accounting for approximately 95% of total revenues for the first six months of 20238 - The company operates in two segments: North America (U.S. and Canada) and International (Europe, Asia-Pacific, Latin America)2 - Goodwill is tested for impairment annually or more frequently if indicators exist, with no impairments recognized during H1 202328233 Disaggregated Revenue by Service (Six Months Ended June 30, 2023) | Service | North America (in thousands) | International (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | CoStar | $435,386 | $18,796 | $454,182 | | Information Services | $64,313 | $19,237 | $83,550 | | Multifamily | $434,988 | $0 | $434,988 | | LoopNet | $124,447 | $4,353 | $128,800 | | Residential | $25,861 | $0 | $25,861 | | Other Marketplaces | $62,891 | $0 | $62,891 | | Total Revenues | $1,147,886 | $42,386 | $1,190,272 | Long-Term Debt (as of June 30, 2023) | Component | Amount (in thousands) | | :--- | :--- | | 2.800% Senior Notes due July 15, 2030 | $1,000,000 | | Senior Notes unamortized discount and issuance costs | $(10,142) | | Long-term debt, net | $989,858 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2023 financial performance, noting revenue growth, operating income decline from marketing investments, and a strong $5.2 billion cash liquidity position Overview and Services CoStar Group, a leading real estate information and marketplace provider, saw accelerated Multifamily revenue growth in H1 2023, while Residential revenue decreased - Multifamily (Apartments.com) revenue growth accelerated in H1 2023 due to higher sales volumes from increased pricing on renewals and more properties listed79 - LoopNet revenue growth also accelerated due to an increase in the average price for listings262 - Residential revenues decreased in H1 2023 due to the discontinuation of certain non-strategic products, a trend expected to continue for the full year8681 Development, Investments and Expansion The company prioritizes significant investment in Homes.com, LoopNet expansion, and CoStar platform enhancements, expecting increased marketing costs and reduced operating income - Continuing to develop and invest heavily in the Homes.com residential marketplace, with plans to increase marketing investment to build website traffic90 - Investing in LoopNet's sales capabilities and marketing to accelerate its revenue growth, including further brand expansion in Europe267 - Enhancing the CoStar platform by adding analytics for commercial property investment funds and integrating STR benchmarking products91268 Results of Operations This section details H1 2023 operating results, with total revenues growing 13% to $1.2 billion, operating income falling 37% due to marketing, and net income increasing 9% Revenue by Service (Six Months Ended June 30) | Service | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | CoStar | $454,182 | $405,215 | 12% | | Multifamily | $434,988 | $357,836 | 22% | | LoopNet | $128,800 | $110,744 | 16% | | Residential | $25,861 | $38,214 | -32% | | Total Revenues | $1,190,272 | $1,052,133 | 13% | - Selling and marketing expenses for H1 2023 increased by $151 million (46%), primarily due to a $100 million increase in marketing for residential brands and a $45 million increase in personnel and events costs111114295 - North America EBITDA decreased 32% to $201 million in H1 2023, while International EBITDA decreased 55% to $2 million, both impacted by higher personnel and marketing costs119 Liquidity and Capital Resources The company maintains strong liquidity with $5.2 billion in cash and equivalents and $298 million net cash from operations, with future capital needs for campus expansion - Cash and cash equivalents stood at $5.2 billion as of June 30, 2023, an increase from $5.0 billion at the end of 2022120128 - The company is expanding its Richmond, VA campus, with total expected cash expenditures of approximately $170 million for 2023, and the project is expected to be substantially completed in 2025124126 - Net cash provided by operating activities increased by $86 million to $298 million for the first six months of 2023 compared to the same period in 2022129 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate changes, with 4% of H1 2023 revenues in foreign currencies and interest rate exposure from its $5.2 billion cash holdings - Approximately 4% of H1 2023 revenues were foreign currency denominated; a 10% U.S. dollar strengthening would have increased revenues by about $4.5 million317 - The company holds $5.2 billion in cash and cash equivalents, subject to interest rate risk that impacts interest income304 - The company's $1.0 billion in Senior Notes are fixed-rate, and no amounts were outstanding under the $750 million variable-rate credit facility, minimizing current interest expense risk from rate changes318 Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023307 - No material changes were made to internal control over financial reporting during the most recent fiscal quarter308 PART II OTHER INFORMATION Legal Proceedings The company is involved in incidental litigation, but management does not expect any current lawsuit to materially affect its financial position or results - The company is not currently a party to any lawsuit or proceeding that is expected to have a material adverse effect on its financial position or results310 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors as previously disclosed in the 2022 Form 10-K323 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 9,834 common shares in Q2 2023 from employees for tax withholding on restricted stock vesting, not a public buyback Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1-30, 2023 | 285 | $68.94 | | May 1-31, 2023 | 39 | $76.95 | | June 1-30, 2023 | 9,510 | $80.91 | | Total | 9,834 | $80.55 |