CoStar Group (CSGP) 10-K risk factor changes: FY2018 vs FY2017

Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for [removed: 2018] [added: 2019] and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions about our revenues, [removed: ,] revenue growth rates, gross margin percentage, net income, net income per share, fully diluted net income per share, EBITDA, adjusted EBITDA, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per share, weighted-average outstanding shares, taxable income (loss), cash flow from operating activities, available cash, operating costs, amortization expense, intangible asset recovery, capital and other expenditures, legal proceedings and claims, legal costs, effective tax rate, equity compensation charges, future taxable income, pending acquisitions, the anticipated benefits of completed or proposed acquisitions, the anticipated timing of acquisition closings, the anticipated benefits of cross-selling efforts, product development and release, planned product enhancements, sales and marketing campaigns, product integrations, elimination and de-emphasizing of services, contract renewal rate, the timing of future payments of principal under our $750 million credit facility available to us under the amended and restated credit agreement dated October 19, 2017 (the “2017 Credit Agreement”), expectations regarding our compliance with financial and restrictive covenants in the 2017 Credit Agreement, financing plans, geographic expansion, capital structure, contractual obligations, our database, database growth, services and facilities, employee relations, future economic performance, our ability to liquidate or realize our long-term investments, management’s plans, goals and objectives for future [removed: operations,] [added: operations] and growth and markets for our stock.

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: commercial real estate market conditions; general economic conditions, both domestic and international; our ability to identify, acquire and integrate acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including ForRent, [added: Realla and Cozy,] 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; [removed: the businesses of CoStar, Apartments.com and ForRent may not be combined successfully or in a timely and cost-efficient manner;] business disruption relating to [removed: the ForRent acquisition] [added: acquisitions] may be greater than expected; our ability to transition acquired service platforms to our model in a timely manner or at all; changes and developments in business plans; theft of any personally identifiable information [added: we, or the businesses that] we [added: acquire,] maintain or process; any actual or perceived failure to comply with privacy or data protection laws, regulations or standards; 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 commercial real estate industry; customer retention; our ability to attract new clients; our ability to sell additional services to existing clients; our ability to integrate our North America and International product offerings; our ability to successfully [removed: transition LoopNet to a pure marketing site, where all listings are paid and searches are free, in a timely manner and minimize the impact of that transition on revenue; our ability to successfully] introduce and cross-sell new products or upgraded services in U.S. and foreign markets; our ability to attract consumers 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; competition; 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 geographies; our ability to control costs; our ability to [removed: establish] [added: continue to develop and maintain] our research operations headquarters in Richmond, Virginia as a technology innovation hub; litigation [removed: 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; expansion, growth, development or reorganization of our sales force; employee retention; technical problems with our services; managerial execution; changes in relationships with real estate brokers, property managers and other strategic partners; legal and regulatory issues; and successful adoption of and training on our services.

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 [removed: to in this section.]

If clients cancel services or decide not to renew their subscription agreements, and we do not sell new services to our existing clients or attract new clients, then our renewal [removed: rate] [added: rate, net new sales] and revenues may [removed: decline.][added: decline or fail to meet expectations.]

Our future business and financial success will depend on our ability to continue to anticipate the needs of customers and potential customers, and to [added: successfully] introduce new and upgraded services into the marketplace.

Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes heavy burdens on our systems department, [added: product development team,] management and researchers.

As we continue to combine our operations with those that we have acquired, we must continue to assess the purposes for which various services may be used alone or together, and how we can best address those uses through stand-alone services or combinations of coordinating [removed: applications thereof.][added: applications.]

In addition, successfully launching and selling a new or upgraded service puts [removed: pressure] [added: additional strain] on our sales and marketing resources.

[removed: To] [added: For example, to] generate brand awareness and site traffic for [removed: Apartments.com,] [added: our Apartments.com network of rental websites,] we utilize a multi-channel marketing campaign.

[removed: The launch of the sites and/or] [added: If] the marketing campaign [removed: may] [added: does] not continue to increase brand awareness, site traffic and/or [removed: revenues.][added: revenues, it could have an adverse effect on our financial results.]

If we are unsuccessful in obtaining greater market share, we may not be able to offset the expenses associated with the launch and marketing [removed: campaign,] [added: of the new or upgraded service,] which could have a material adverse effect on our financial results.

If we are unable to develop new or upgraded services or decide to combine, shift focus from, or phase out a [removed: service that overlaps or is redundant with other services we offer,] [added: service,] then our customers may choose a competitive service over ours and our revenues may decline and our profitability may be reduced.

[removed: In addition, if] [added: If] we incur significant costs in developing new or upgraded services or combining and coordinating existing services, if we are not successful in marketing and selling these new services or upgrades, or if our customers fail to accept these new or combined and coordinating services, then there could be a material adverse effect on our results of operations due to a decrease of our revenues and a reduction of our profitability.

A reversal of improvements in the commercial real estate industry’s leasing activity and absorption rates or a [removed: renewed] downturn in the commercial real estate market may affect our ability to generate revenues and may lead to more cancellations by our current or future customers, either of which could cause our revenues or our revenue growth rate to decline and reduce our profitability.

[removed: Consolidation, or other cost-cutting measures by our customers, may lead to] cancellations of our information, analytics and online marketplace services by our customers, reduce the number of our existing clients, reduce the size of our target market or increase our clients’ bargaining power, all of which could cause our revenues to decline and reduce our profitability.

Further actions or inactions of the U.S. or other major national [removed: governments] [added: governments, including "Brexit",] may also impact economic conditions, which could result in financial market disruptions or an economic downtown.

We expect to continue to invest in sales and [removed: marketing, including sales and] marketing [removed: for our other brands] as we seek to grow the numbers of subscribers to, and advertisers on, our marketplaces.

If we are unable to maintain or enhance user and advertiser awareness of our brands, or if we are unable to recover our marketing and advertising costs through increased usage of our services and increased advertising on [removed: the Apartments.com network of rental] [added: our] websites, our business, results of operations and financial condition could be adversely affected.

and other Internet search websites drive traffic to our websites, including CoStar.com, the Apartments.com network of rental websites, LoopNet.com, [removed: BizBuySell.com and LandsofAmerica.com.]

If we fail to maintain or increase traffic to our marketplaces, our ability to acquire additional subscribers or advertisers and deliver leads to [added: and retain] existing subscribers and advertisers could be adversely affected.

Our marketplace businesses, including LoopNet, the Apartments.com network of rental websites, CoStar Showcase, and the Land.com network of rural lands for sale, depend on advertising revenues generated primarily through sales to persons in the real estate industry, including property managers and [removed: owners,] [added: owners] and other advertisers.

Our success depends on our continued improvements to provide services that make our marketplaces useful for [removed: users,] [added: users] and attractive to our advertisers.

[removed: If we are] unable to continue offering innovative services, we may be unable to attract additional users and advertisers or retain our current users and advertisers, which could harm our business, results of operations and financial condition.

If we are not able to successfully identify, [removed: finance and/or] [added: finance,] integrate [added: and/or manage costs related to] acquisitions, our business operations and financial position could be adversely affected.

We may incur costs in [removed: the preliminary stages of] [added: connection with] an acquisition, but may ultimately be unable or unwilling to consummate the proposed transaction for various reasons.

We may be unable to obtain financing on favorable terms, or at all, if necessary to finance future [removed: acquisitions] [added: acquisitions,] making it impossible or more costly to [removed: acquire complementary businesses.][added: complete future acquisitions.]

Competition could render our services [removed: uncompetitive.][added: uncompetitive and reduce our profitability.]

[removed: Over the past few years, we have increased the rate of investments] [added: We continue to invest] in our business, including internal investments in product development to expand the breadth and depth of services we provide to our customers and investments in sales and marketing to generate brand awareness.

Furthermore, our investments may not have their intended [removed: effect.][added: effect or produce the expected results.]

The success of our business depends in large part on our intellectual property, including [removed: intellectual property involved in our methodologies, database, services and software.]

We [removed: are dependent] [added: depend] on information technology networks and systems to process, transmit and store electronic information and to communicate between our locations around the world and with our [removed: clients.][added: clients and vendors.]

We collect, store and use biometric [removed: data,] [added: data and] sensitive or confidential transaction [removed: information and, in certain circumstances, credit card] [added: and account] information.

In addition, we collect personal information from tenants and landlords, including social security numbers, [added: state or federal issued identification numbers,] dates of birth, financial [removed: information, tax returns,] [added: information and documents,] employment information, background checks and credit scores, [removed: which is used in] [added: to facilitate] the apartment rental application process [added: between a renter] and [removed: for the verification of landlords.][added: property manager.]

For example, in 2016, the EU formally adopted the General Data Protection Regulation, or GDPR, which [removed: will apply] [added: was implemented] in all EU member states effective May 25, 2018 and [removed: will replace] [added: replaced] the [removed: current] EU Data Protection [removed: Directive effective on that date.][added: Directive.]

The GDPR [removed: introduces] [added: introduced] new data protection requirements in the EU and [added: imposes] substantial fines for breaches of the data protection rules.

[removed: The GDPR will increase] [added: We continue to assess] our [removed: responsibility and liability] [added: compliance with GDPR] in [removed: relation to personal] [added: light of guidance from] data [removed: that we process,] [added: protection authorities, evolving best practices] and [added: evolving regulations and] we may [removed: be required] [added: need] to put in place additional mechanisms to ensure compliance with the new EU data protection rules.

[removed: A violation of] [added: We may incur substantial fines if we violate] any laws or regulations relating to the collection or use of personal [removed: information could result in the imposition of fines against us.][added: information.]

Our actual or alleged failure to comply with applicable privacy or data security laws, regulations and policies, or to protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, [removed: increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our business, financial condition and results of operations.]

Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features [added: of our products.]

We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States and other jurisdictions, and we cannot [removed: yet] determine the impact such future laws, regulations and standards may have on our business.

to in this section.

In addition, as we integrate acquired businesses, we continue to assess which services we believe will best meet the needs of our customers.

If we eliminate or phase out a service and are not able to offer and successfully market and sell an alternative service, our revenue may decrease, which could have a material adverse effect on our results of operations.

Consolidation, or other cost-cutting measures by our customers, may lead to

See the risk factor below titled “The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on our business and operating results” for further discussion of risks related to Brexit.

BizBuySell.com and the Land.com network of land for sale websites.

If we are

For example, we may be unable to fully integrate Cozy technology into the Apartments.com platform when and as expected or fully utilize and realize the benefits of Realla's expertise in capturing listings data to facilitate our expansion strategy in other European markets.

The GDPR increased our responsibility and liability in relation to personal data that we process.

increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our business, financial condition and results of operations.

Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition.

As stated above, our business involves the collection, storage, processing and transmission of customers’ personal data.

We also collect, store and process employee personal data.

An increasing number of organizations, including large merchants, businesses, technology companies and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.

The techniques used to obtain unauthorized, improper or illegal access to a target's systems, data or customers' data, disable or degrade services, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly and often are not recognized or detected until after they have been launched against a target.

We expect that unauthorized parties will continue to attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities or those of our customers or vendors, or attempting to fraudulently induce (for example, through spear phishing attacks or social engineering) our employees, customers, vendors or other users of our systems into disclosing user names, passwords, or other sensitive information, which may in turn be used to access our information technology systems.

Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, phishing and social engineering schemes, could compromise the confidentiality, availability, and integrity of the data in our systems.

Our cybersecurity programs and efforts to protect our systems and data, and to prevent, detect and respond to data security incidents, may not prevent these threats or provide security.

Further, the security measures and procedures our customers, vendors and other users of our systems have in place to protect sensitive consumer data and other information may not be successful or sufficient to counter all data breaches, cyberattacks or system failures.

Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our customers’ or employees’ personal or proprietary information that is stored on or accessible through those systems.

We have experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, system errors or vulnerabilities or other irregularities.

Actual or perceived breaches of our security could, among other things:

- interrupt our operations,

- result in our systems or services being unavailable,

- result in improper disclosures of data,

- materially harm our reputation and brands,

- result in significant regulatory scrutiny and legal and financial exposure,

- cause us to incur significant remediation costs,

- lead to loss of customer confidence in, or decreased use of, our products and services,

- divert the attention of management from the operation of our business,

- result in significant contractual penalties or other payments as a result of third party losses or claims, and

- adversely affect our business and result of operations.

In addition, any cyberattacks or data security breaches affecting companies that we acquire or our customers or vendors (including data center and cloud computing providers) could have similar negative effects on our business.

The coverage under our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

The occurrence of any of the

intellectual property involved in our methodologies, database, services and software.

a stock incentive plan and incentive bonuses for key employees.

their E.U. membership.

During 2018, the Department of the Treasury issued certain guidance in the form of notices and proposed regulations with respect to several provisions of the new legislation.

We expect that additional regulations or other guidance may be issued with respect to the Tax Act in 2019 and subsequent years.

In 2015, we launched the current Apartments.com and the ApartmentFinder.com websites, both after completing extensive product development.

For example, we continue to assess the impact of transitioning the LoopNet marketplace to a pure marketing site for commercial real estate where all listings are paid and users can search the site for free.

We expect to see a short-term reduction in revenues and earnings, as well as reduced search engine optimization.

We are working to convert customers to higher value, more profitable annual subscription information services, which should increase revenues and earnings over time, however we cannot predict with certainty whether we will be successful in shifting customers to higher value, more profitable subscriptions and, consequently, in offsetting any reduction in revenues and earnings.

Therefore, our revenues and earnings may ultimately decline as a result of the LoopNet conversion to a pure marketing site.

We have undertaken efforts to conform transfers of personal data from the EEA based on current regulatory obligations, the guidance of data protection authorities and evolving best practices.

We continue to review our business practices and the evolving regulations and may find it necessary or desirable to make further changes to our personal data handling or engage in additional efforts to cause our transfer and receipt of EEA residents’ personal data to be legitimized under applicable law.

As a result of the adoption of GDPR, we may find it necessary to establish systems to maintain EU-origin data in the European Economic Area, or EEA, which may involve substantial expense and distraction from other aspects of our business.

Despite our efforts, we may be unsuccessful in establishing legitimate means of transferring certain data from the EEA, which may vary the current data protection landscape.

of our products.

Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for additional discussion of the impact of tax reform on the business.

We cannot predict the impact, if any of potential future additional changes to our business.

As required by Securities and Exchange Commission Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we have provided a provisional estimate on the effect of the Tax Act in our consolidated financial statements.

However, we may be required to change our provisional estimates as a result of new accounting guidance, regulatory guidance, judicial interpretations or our continued analysis of the application of the law, which could materially affect our tax obligations and effective tax rate.

On October 19, 2017, we entered into an amended and restated credit agreement (the ‘‘2017 Credit Agreement’’), which amended and restated in its entirety the existing credit agreement dated April 1, 2014 (the "2014 Credit Agreement"), by and among CoStar, as borrower, CoStar Realty Information, Inc., as co-borrower, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities.

Our ARS investments are not currently actively trading and therefore do not currently have a readily determinable market value.

The estimated fair value of the ARS no longer approximates par value.

We have used a discounted cash flow model to determine the estimated fair value of our investment in ARS as of December 31, 2017.

The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit spreads, timing and amount of cash flows, liquidity risk premiums, expected holding periods and default risk of the ARS.

We update the discounted cash flow model on a quarterly basis to reflect any changes in the assumptions used in the model and settlements of ARS investments that occurred during the period.

Based on this assessment of fair value, as of December 31, 2017, we determined there was a decline in the fair value of our ARS investments of approximately $730,000.

The decline was deemed to be a temporary impairment and was recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity.

If the issuers of these ARS are unable to successfully close future auctions and/or their credit ratings deteriorate, we may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments, which would reduce our profitability and adversely affect our financial position.

We have not made any material changes in the accounting methodology used to determine the fair value of the ARS.

We do not expect any material changes in the near term to the underlying assumptions used to determine the unobservable inputs used to calculate the fair value of the ARS as of December 31, 2017.

However, if changes in these assumptions occur, and, should those changes be significant, we may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments.

We have incurred and will continue to incur acquisition-related costs.

under the headings “Risk Factors - Cautionary Statement Concerning Forward-Looking Statements” and [removed: “ Risk] [added: “Risk] Factors,” as well as those described from time to time in our filings with the Securities and Exchange Commission.

[removed: CoStar Group, Inc. (the “Company” or “CoStar”) is] [added: We are] the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the [removed: United States (“U.S.”)] [added: U.S.] and the [removed: United Kingdom (“U.K.”)] [added: U.K.] based on the fact that we offer the most 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; provide more information, analytics and marketing services than any of our [removed: competitors and believe that we generate more revenues than any of our commercial real estate information and online marketplace] competitors.

Our subscription-based information services consist primarily of CoStar [removed: Suite®] [added: Suite] services.

CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and through our mobile [removed: application,] [added: applications,] CoStar [removed: Go®.][added: Mobile App and CoStar Go.]

Our integrated suite of online service offerings includes information about space available for lease, comparable sales information, information about properties for sale, tenant information, [removed: Internet] [added: internet] marketing services, analytical capabilities, information for clients' websites, information about industry professionals and their business [removed: relationships, data integration] [added: relationships] and industry news.

We provide [removed: market research, consulting and analysis for commercial] real estate [removed: investors] and [removed: lenders via our CoStar Portfolio Strategy] [added: lease management solutions, including lease administration] and [added: abstraction services, through our] CoStar [removed: Suite] [added: Real Estate Manager] service [removed: offerings;] [added: offerings, as well as,] portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service [removed: offerings; and, real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate Manager service] offerings.

Our LoopNet [removed: subscription-based] [added: subscription-based,] online marketplace services enable commercial property owners, landlords and real estate agents working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.

Commercial real estate agents, buyers and tenants [removed: also] use LoopNet's online marketplace services to search for available property listings that meet their criteria.

[removed: Apartments.com] [added: Apartments.comTM] is part of our network of apartment marketing sites, which also includes ApartmentFinder.comTM, ForRent.com®, ApartmentHomeLiving.comTM, WestsideRentals.com®, AFTER55.com®, CorporateHousing.comTM, ForRentUniversity.com® and Apartamentos.comTM, our apartment-listing site offered exclusively in Spanish.

Our apartment marketing network of subscription-based services offers renters a searchable database of [removed: over one million] [added: apartment] listings and provides professional property management companies and landlords with an advertising destination.

[removed: We acquired the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com sites when] [added: On February 21, 2018,] we completed the acquisition of ForRent, a division of Dominion Enterprises, [removed: on February 21, 2018.][added: including the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com apartment marketing sites.]

[removed: Now that we have completed the ForRent acquisition, we plan] [added: We continue] to [added: integrate,] develop and cross-sell the services offered by ForRent.

To generate brand awareness and site traffic for [removed: the Apartments.com network,] [added: our listing sites,] we utilize a multi-channel marketing [removed: campaign featuring] [added: campaign, including] television and radio advertising, online/digital advertising, social media and out-of-home [removed: ads] [added: ads,] and [removed: reinforced that advertising with Search Engine Marketing.][added: search engine marketing.]

Our Land.com network of sites, which provide online marketplaces for rural lands for sale, includes LandsofAmerica, LandAndFarm and [removed: LandWatch®.][added: LandWatch®]

Upon renewal, [removed: many of the] subscription contract rates may change in accordance with contract provisions or as a result of contract renegotiations.

Depending on the type of service, contract rates are generally based on the number of sites, number of users, organization size, the client's business focus, geography, 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 [removed: results.][added: results, as applicable.]

As of December 31, [added: 2018,] 2017 and [removed: 2016,] [added: 2016] our annualized net bookings of subscription-based services on all contracts were approximately [added: $50 million,] $43 million and $29 million, respectively, calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upsales on all existing subscription-based contracts, less write downs and cancellations, for the period reported.

For [removed: each of] the [removed: twelve months] [added: years] ended December 31, [added: 2018,] 2017 and 2016, our contract renewal rate for existing CoStar subscription-based services on annual contracts was approximately [added: 90%,] 91% and [removed: 90%,] [added: 90%] respectively, [removed: and therefore] [added: and, therefore,] our cancellation rate for those services was approximately [removed: 9%] [added: 10%, 9%,] and 10%, [removed: respectively, for the same time periods.][added: respectively.]

We are committed to [removed: supporting and] [added: supporting,] improving [added: and enhancing] our information, news, [removed: analytic] [added: analytics] and online marketplace [removed: solutions.][added: solutions, including expanding and improving our offerings for property managers and renters.]

We expect to continue to invest in sales and [removed: marketing] [added: marketing, consistent with historical levels, to promote our sites] in [removed: 2018.][added: 2019.]

Our key priorities for [removed: 2018 and recent developments] [added: 2019] include:

[removed: On October 19, 2017, the Company entered] [added: The loss on extinguishment recognized in 2017 was due to entering] into [removed: an amended and restated credit agreement (the ‘‘2017] [added: the 2017] Credit [removed: Agreement’’),] [added: Agreement,] which amended and restated in its entirety the existing [removed: 2014 Credit Agreement.][added: credit agreement dated April 1, 2014, and resulted in a loss on debt extinguishment of approximately $4 million.]

We intend to continue to assess the need for additional investments in our business, in addition to the investments discussed above, in order to develop and distribute new services [added: and functionality] within our current platform or expand the reach of our current service offerings.

The non-GAAP financial measures that we may disclose include net income before interest and other income (expense), [added: loss on debt extinguishment,] income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, [added: adjusted EBITDA margin,] non-GAAP net income and non-GAAP net income per diluted share (also referred to as “non-GAAP EPS”).

EBITDA is our net income before [removed: interest,] [added: interest and other income (expense),] loss on debt extinguishment, income taxes, depreciation and amortization.

Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, [removed: acquisition] [added: acquisition-] and [removed: integration related] [added: integration-related] costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business.

Non-GAAP net income and non-GAAP net income per diluted share are similarly adjusted for stock-based compensation expense, [removed: acquisition] [added: acquisition-] and [removed: integration related] [added: integration-related] costs, restructuring costs, settlement and impairment costs [removed: and loss on debt extinguishment] incurred outside our ordinary course of business [added: and loss on debt extinguishment] as well as amortization of acquired intangible assets and other related costs.

We may disclose adjusted EBITDA, [added: 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.

In calculating EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income [removed: (loss)] 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.

EBITDA, adjusted EBITDA, 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 [removed: (loss)] or as an indicator of any other measure of performance derived in accordance with GAAP.

EBITDA, adjusted EBITDA, [added: 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 [removed: the] accompanying [removed: reconciliation,] [added: reconciliations,] provide additional information that is useful to understand the factors and trends affecting our business.

Due to the expansion of our information, analytics and online marketplace services, which has included acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, [removed: acquisition] [added: acquisition-] and [removed: integration related] [added: integration-related] costs, restructuring costs, and loss on debt extinguishment.

Adjusted EBITDA, 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, [removed: acquisition] [added: acquisition-] and [removed: integration related] [added: integration-related] costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business.

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, income taxes, stock-based compensation expenses, [removed: acquisition] [added: acquisition-] and [removed: integration related] [added: 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, [added: 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 [removed: income :][added: 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 [removed: database] 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. |

| • | The amount of interest and other income [added: and expense] we generate may be useful for investors to consider and may result in current cash inflows. However, we do not consider the amount of interest and other income [added: and expense] to be a representative component of the day-to-day operating performance of our business. |

| • | The amount of [removed: interest and other expense we incur] [added: loss on our debt extinguishment] may be useful for investors to consider [removed: and may result in current cash outflows.] [added: because it generally represents losses from the early extinguishment of debt.] However, we do not consider the amount of [removed: interest and other expense] [added: the loss on debt extinguishment] to be a representative component of the day-to-day operating performance of our business. |

We also provide market research, portfolio and debt analysis, management and reporting capabilities, and real estate and lease management solutions, including lease administration and abstraction services, to commercial customers, real estate investors and lenders via our other service offerings.

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

Information and Analytics

CoStar Suite®.

Information services.

We also provide information services internationally, through our Grecam, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively.

Online Marketplaces

Multifamily.

On November 8, 2018, we acquired Cozy Services, Ltd. ("Cozy"), a leading provider of online rental solutions that provides a broad spectrum of services to both landlords and tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments and expense tracking.

See Note 4 to the Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for further discussion of the acquisition of Cozy.

Commercial property and land.

On October 12, 2018, we acquired all of the issued share capital of Realla Ltd. ("Realla"), the operator of a commercial property listings and data management platform in the U.K., including a free-to-list search engine for commercial property listings.

See Note 4 to the Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for further discussion of the acquisition of Realla.

We have been, and plan to continue, integrating, further developing and cross-selling our services.

| • | Continuing to develop new, and improve existing, online rental property service offerings for the apartments industry. We plan to utilize acquired platforms, including Cozy, along with our previously developed and newly developed technologies, to create a complete digital rental experience that enables renters to apply for leases, for landlords to run tenant credit and background checks and for landlords and tenants to generate and enter into leases and to make and process payments, all online through a single platform. |

| • | Continuing to develop and enhance CoStar Suite by making additional investments in analytical capabilities and developing products offerings with new capabilities focused on owners and lenders of commercial real estate. We also plan to invest in integrating the technology and infrastructure from other existing products into the CoStar Suite platform, including CoStar Real Estate Manager, in order to leverage data across our platforms and provide customers with additional functionality. We plan to invest further in our daily newsletter for U.S. subscribers, including providing curated content to our largest markets, and more personalized information. |

| • | Continuing to invest in the LoopNet marketplace by enhancing the content on the site, including high-quality imagery, seeking targeted advertisements and adding more content for premium listings, to better meet the needs of a broader cross section of the commercial real estate industry. Continuing to invest in our research operations to support continued growth of our information and analytics offerings. In furtherance of both of these priorities, we plan to continue to generate awareness and promote usage of Listing Manager, an online tool that allows customers with CoStar or LoopNet listings to update and manage their listings directly online. LoopNet users can also monitor listing performance, access lead and prospect reports, and upgrade exposure of their listings. We expect the use of this tool to result in more updates made directly by brokers and owners entering data directly into the self-service tool, which we believe will result in significant long-term cost savings and better quality data. |

| • | Continuing to invest in the growth of our international business. We plan to integrate Realla with our CoStar U.K. operations, including development of a single point of data entry to allow our clients to simultaneously arrange to display their commercial real estate listings through the CoStar Suite service offering and to also make them visible to prospective tenants and investors through Realla’s marketing portal. |

For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1.

Business" in this Annual Report on Form 10-K.

From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income.

In 2018 we assumed a 25% tax rate which reflects our full year 2018 statutory tax rate.

The decrease in our tax rate in 2018 is mainly due to the Tax Act which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.

Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period.

| __________________________ | | | | | | | | | | | | | | | | | | | | |

(1) For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1.

Business" in this Annual Report on Form 10-K.

| | 2018 | | | | 2017 | | | | Increase (Decrease) ($) | | | | Increase (Decrease) (%) | |

| CoStar Suite | $ | 545,195 | | | $ | 463,185 | | | $ | 82,010 | | | 18 | % |

| Information services | 67,624 | | | | 72,618 | | | | (4,994 | | ) | | (7 | ) |

| Multifamily | 405,795 | | | | 279,855 | | | | 125,940 | | | | 45 | |

| Commercial property and land | 173,218 | | | | 149,572 | | | | 23,646 | | | | 16 | |

| Total revenues | 1,191,832 | | | | 965,230 | | | | 226,602 | | | | 23 | |

| Cost of revenues | 269,933 | | | | 220,403 | | | | 49,530 | | | | 22 | |

| Gross profit | 921,899 | | | | 744,827 | | | | 177,072 | | | | 24 | |

| Software development | 100,937 | | | | 88,850 | | | | 12,087 | | | | 14 | |

| General and administrative | 156,659 | | | | 146,128 | | | | 10,531 | | | | 7 | |

| Customer base amortization | 30,881 | | | | 17,671 | | | | 13,210 | | | | 75 | |

| Total operating expenses | 648,335 | | | | 571,011 | | | | 77,324 | | | | 14 | |

| Income from operations | 273,564 | | | | 173,816 | | | | 99,748 | | | | 57 | |

We have five flagship brands - CoStar®, LoopNet®, Apartments.comTM, BizBuySell® and LandsofAmericaTM.

Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals.

Our apartment marketing network draws on and leverages CoStar’s multifamily database, which contains detailed information on apartment properties.

We designed the Apartments.com, ApartmentFinder.com and Apartamentos.com websites to meet renter preferences and demands, creating qualified renter prospects for our advertisers.

Our network of apartment marketing sites provide a comprehensive selection of rentals, information on actual availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other facts important to renters.

To help renters find the information that meets their needs, the sites also offer innovative search tools such as the PolygonTM Search tool, which allows renters to specifically define the area in which they want to find an apartment.

The Screening ProsTM is an

online apartment leasing platform that includes tenant screening services, rental applications and payments processing and lease renewals.

On February 21 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, for a purchase price of approximately $385 million, payable approximately $350 million in cash and approximately $35 million in shares of CoStar Group common stock, subject to a customary working capital adjustment and other post-closing adjustments.

Approximately $11 million of the cash consideration was placed in escrow to be used for potential employee stay bonuses.

Similar to our other past acquisitions, we have been, and plan to continue, integrating, further developing and cross-selling the services offered by Apartments.com, ApartmentFinder.com and Westside Rentals and the other services we offer, including but not limited to CoStar Suite.

We have incurred and plan to continue to incur product development costs to improve the online Apartments.com and ApartmentFinder.com platforms and Apartamentos.com.

We have incurred and plan to continue to incur sales and marketing expenses in order to support the Apartments.com network and to increase brand awareness.

We plan to continue to utilize these marketing methods and will continue to work to determine the optimal level of marketing investment for our services for future periods.

Subscription-Based Services

Our net bookings is a quantitative measurement that is typically closely correlated with our subscription revenue results.

To generate brand awareness and site traffic for our listing sites, we utilize a variety of marketing campaigns, including television and radio advertising, online/digital advertising, social media and out-of-home ads, and Search Engine Marketing.

- We are migrating all of our commercial real estate information capabilities to our flagship CoStar Suite product and winding down the legacy LoopNet Information products.

This process began in the fall of 2017 with the integration of the CoStar and Loopnet databases.

In addition, we are transitioning the LoopNet marketplace to a pure pay-to-list marketing site for commercial real estate.

We completed integrating the backend systems of the LoopNet and CoStar databases during the second half of 2017; the two services now share a unified database of information, creating operating efficiencies and improving the data available to our customers.

We also introduced new enhancements on the CoStar homepage, including a Listing Manager feature that we believe will increase the quantity and quality of the listing information available by enabling brokers and other industry participants to load information directly into the integrated system.

This in turn is expected to reduce the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.

- On February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, ForRent’s primary service is digital advertising through a network of four multifamily websites - which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com.

We plan to integrate, develop and cross-sell the services offered by ForRent.

ForRent.com is expected to remain a distinct, complementary brand to Apartments.com, giving property managers and owners more exposure for their listings.

- We plan to continue developing new, and improve existing, product and service offerings to the apartments industry.

In particular, we expect to implement the ability for renters to apply for leases online, for landlords to run tenant credit and background checks and, eventually, for landlords and tenants to generate leases and process payments online.

- We continue to invest in our research operations to support continued growth of our information and analytics offerings.

We established our research operations headquarters in Richmond, Virginia, in December 2016, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services.

In connection with the opening of the Richmond research headquarters, we have expanded our research team to continue to meet the growing content needs of our clients.

In addition, we expect to continue to invest in our International research operations in Madrid, Spain and the U.K.

In support of our continued expansion and development, in October 2017, we completed a public equity offering of 3,317,308 shares of common stock for $260.00 per share.

Net proceeds from the public equity offering were approximately $834 million, after deducting approximately $29 million of underwriting discounts and fees.

We expect to use the net proceeds from the public equity offering to fund all or a portion of the costs of any strategic acquisitions we determine to pursue in the future, to finance the growth of our business and for working capital and other general corporate purposes.

General corporate purposes may include additions to working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries, possible acquisitions and the repurchase, redemption or retirement of securities, including the Company’s common stock.

The 2017 Credit Agreement provides for a $750

million revolving credit facility with a term of five years from a syndicate of financial institutions as lenders and issuing banks.

The Company also paid off the remaining balance of $310 million and interest on its existing $400 million term loan under the 2014 Credit Agreement on October 19, 2017 from existing cash balances.

The 2017 revolving credit facility may be used for working capital and other general corporate purposes of the Company and its subsidiaries.

For the year ended December 31, [removed: 2017,] [added: 2018,] revenues denominated in foreign currencies was approximately 3% of total revenue.

For the year ended December 31, [removed: 2017,] [added: 2018,] our revenues would have decreased by approximately $3 million if the U.S. dollar exchange rate used strengthened by 10%.

For the year ended December 31, [removed: 2017,] [added: 2018,] our revenues would have increased by approximately $3 million if the U.S. dollar exchange rate used weakened by 10%.

As of December 31, [removed: 2017,] [added: 2018,] accumulated other comprehensive loss included a loss from foreign currency translation adjustments of approximately [removed: $8] [added: $11] million.

We do not have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of December 31, [removed: 2017.][added: 2018.]

As of December 31, [removed: 2017,] [added: 2018,] $11 million of our investments in ARS failed to settle at auction.

See Notes [removed: 3] [added: 5] and [removed: 4] [added: 6] to the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.

We had approximately [removed: $1.5] [added: $2] billion in intangible assets as of December 31, [removed: 2017.][added: 2018.]

As of December 31, [removed: 2017,] [added: 2018,] we believe our intangible assets will be recoverable, however, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability.

As of December 31, 2018, we had $1.1 billion of cash and cash equivalents.

As of December 31, 2017, we had $1 billion of cash and cash equivalents and short-term investments.

Based on an assessment of fair value of these investments in ARS as of December 31, 2017, we determined that there was a decline in the fair value of our ARS investments of approximately $730,000, which was deemed to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity.

CoStar Group, Inc., a Delaware corporation, founded in 1987, is the number one 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 most 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; [added: and] provide more information, analytics and marketing services than any of our [removed: competitors and believe that we generate more revenues than any of our commercial real estate information and online marketplace] competitors.

Information about CoStar’s [removed: revenues from, and] [added: revenues,] long-lived assets and total assets [added: derived from and] located in, foreign countries is included in Notes [removed: 2] [added: 2, 3] and [removed: 11] [added: 13] of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Revenues; net income (loss) before interest and other income (expense), income taxes, depreciation and amortization (“EBITDA”); and total assets and liabilities for each of our segments are set forth in [removed: Note 11] [added: Notes 3 and 13] to our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market [removed: Risk.”][added: Risk” in this Annual Report on Form 10-K.]

We strive to cross-sell our services to our customers [removed: and] [added: in order] to [removed: upsell services that may] best suit their needs.

Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet [removed: to commercial real estate industry and related professionals.]

CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar [removed: Tenant®] [added: Tenant®, accessible via the Internet] and through our mobile [removed: application,] [added: applications,] CoStar [removed: Go®.][added: Mobile App and CoStar Go.]

Our LoopNet [removed: subscription-based] [added: subscription-based,] online marketplace enables commercial property owners, landlords, and [removed: real estate agents] [added: brokers] working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.

[removed: We] [added: Our apartment marketing sites are] designed [removed: the Apartments.com, ApartmentFinder.com and Apartamentos.com websites, which were launched in February 2015, December 2015 and February 2017, respectively,] to meet renter preferences and demands, [removed: which we believe drives] [added: in order to drive] traffic to those sites and attract advertisers who prefer to advertise on heavily trafficked apartment websites.

We [removed: acquired the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com sites when we] completed the acquisition of ForRent, a division of Dominion Enterprises, [added: including the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com apartment marketing sites] on February 21, 2018.

[removed: The Screening ProsTM is our online] [added: We also offer complementary services to the] apartment [removed: leasing platform that includes] [added: industry, including] tenant screening services, rental applications and payments processing and lease renewals.

We [added: also] provide [removed: market research, consulting and analysis for commercial] real estate [removed: investors] and [removed: lenders via our CoStar Portfolio Strategy] [added: lease management solutions, including lease administration] and [added: abstraction services, through our] CoStar [removed: Suite] [added: Real Estate Manager] service [removed: offerings;] [added: offerings, as well as, market research, consulting and analysis,] portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service [removed: offerings; and real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate Manager service] offerings.

In addition to our internal efforts to grow the database, we have obtained and assimilated [removed: approximately 106] [added: over 100] proprietary databases.

Our ability to utilize the same commercial real estate information across our standardized platform creates efficiencies in operations and improves data [added: quality] for our customers.

In addition to [removed: internal] [added: organic] growth, we have grown our business through strategic acquisitions.

[removed: Most recently, on February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises,] ForRent’s primary service is digital advertising through a network of four multifamily [removed: websites -] [added: websites,] which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com.

[removed: Development] [added: Development, Investments] and Expansion

We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell [removed: existing] services, and expand and develop supporting technologies for our research, sales and marketing organizations.

We are committed to [removed: supporting and] [added: supporting,] improving [added: and enhancing] our information, [removed: news, analytic] [added: analytics] and online marketplace [removed: solutions.][added: solutions, including expanding and improving our offerings for property managers and renters.]

We [removed: also] introduced new enhancements on the CoStar homepage, including a Listing Manager feature that we believe will increase the quantity and quality of the listing information available by enabling brokers and other industry participants to load information directly into the integrated system.

[removed: In turn,] [added: Over time,] we expect this feature will reduce the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.

However, we cannot predict with certainty the amount or timing of any reductions in revenues and earnings [added: or subsequent increases in revenues and earnings, if any, resulting from the elimination or phasing out of any service offering.]

We are expanding the geographic reach of our [removed: North America] services.

We have invested in the expansion and development of our field sales force to support the growth and expansion of our company and our service [removed: offerings in North America and internationally.][added: offerings.]

We also continue to invest in our research operations to support continued growth of our information and analytics [removed: offerings,] [added: offerings] to [removed: support] [added: meet] the [removed: Apartments.com network, to expand into additional Canadian markets and to provide services in Madrid, Spain and key markets in Germany.][added: growing content needs of our clients.]

[removed: In addition, we expect to continue to invest in our International research operations in Madrid, Spain and the U.K.] While we believe investments we make in our business create a platform for growth, those investments may reduce our profitability and adversely affect our financial position.

Market research (including historical and forecast conditions) and applied analytics [removed: have also become] [added: are] instrumental to the success of commercial real estate industry participants operating in the current economic environment.

[removed: There is a strong need for an efficient marketplace, where commercial] real estate professionals can exchange information, evaluate opportunities using standardized data and interpretive analyses, and interact with each other on a continuous basis.

By combining our extensive database, [removed: researchers ,] [added: researchers,] our experienced team of analysts and economists, technological expertise and broad customer base, we believe that we have created such a platform.

[removed: With the Apartments.com, ApartmentFinder.com and Apartamentos.com websites, we] [added: We] believe that we [added: have] created [added: and maintain] easily searchable [removed: sites] [added: apartment ILS websites] with a comprehensive selection of rentals, information on actual rental availabilities and rents, and in-depth data on [removed: neighborhoods, including restaurants, nightlife, history, schools and other important facts.][added: neighborhoods.]

This highly complex database is comprised of hundreds of data fields, tracking such categories as location, site and zoning information, building characteristics, space and unit availability, tax assessments, ownership, sales and lease comparables, space requirements, number [removed: of retail stores, number of listings, mortgage and deed information, for-sale and for-lease listings, income and expense histories, tenant names, lease expirations, contact information, historical trends, demographic information and retail sales per square foot.]

Our researchers collect and analyze commercial real estate information through [removed: millions of] phone calls, e-mails and Internet [removed: updates each year,] [added: updates,] in addition to field inspections, public records review, news monitoring and direct mail.

[removed: CoStar has an extensive] [added: CoStar's] field research effort [removed: that] includes physical inspection of properties in order to research new availabilities, find additional property inventory, photograph properties, collect tenant information, and verify existing information.

CoStar's field research effort [removed: also] includes creating high quality videos of interior spaces (including walk-through videos and 3D virtual tours), amenities and exterior features of properties.

CoStar utilizes high-tech, field research vehicles across the U.S., Canada, the [removed: U.K.] [added: U.K., Spain] and [removed: Spain.][added: Germany.]

A significant majority of these vehicles are customized, energy efficient hybrid cars that are equipped with computers, Global Positioning System tracking software, high resolution digital cameras and handheld laser instruments to [removed: help] precisely measure [removed: buildings,] [added: buildings and] geo-code [removed: them] and position them on digital maps.

Our [added: U.S.] drone operators are [removed: FAA] [added: Federal Aviation Administration] certified and trained to capture aerial photographs and videos of commercial real estate.

These license agreements generally grant us a non-exclusive license to use the data and images in the creation and supplementation of our information, analytics and online [removed: marketplaces and include what we believe are standard terms, such as a contract term ranging from one to five years, automatic renewal of the contract and fixed periodic license fees or a combination of fixed periodic license fees plus additional fees based upon our usage.][added: marketplaces.]

CoStar’s information technology professionals focus on developing new services [added: and features] for our customers, improving and maintaining existing services, integrating our current services, securing our comprehensive database of commercial real estate [removed: information and delivering research automation tools that improve the quality of our data and increase the efficiency of our research analysts.]

Our principal information, analytics and online marketplace [removed: services as of January 31, 2018,] [added: services,] are described in the following paragraphs:

Most recently, on October 12, 2018, we acquired Realla Ltd. ("Realla"), the operator of a commercial property listings and data management platform in the U.K., including a free-to-list search engine for commercial property listings.

to the commercial real estate industry and related professionals.

On November 8, 2018, we acquired Cozy Services, Ltd. ("Cozy"), a leading provider of online rental solutions that provides a broad spectrum of services to both landlords and tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments and expense tracking.

On February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises.

On October 12, 2018, we acquired Realla Ltd., the operator of a commercial property listings and data management platform in the U.K., including a free-to-list search engine for commercial property listings.

On November 8, 2018, we acquired Cozy, a leading provider in the U.S. of online rental solutions that provides a broad spectrum

of services to both landlords and tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments, and expense tracking.

In 2018, we completed the integration of ForRent, including the ForRent sales team and the services offered by ForRent and have worked to maintain ForRent's relationships with its customers that existed prior to the acquisition.

We are also continuing to develop new, and improve existing, online rental property service offerings for the apartments industry.

We plan to integrate the Cozy suite technology into the Aparments.com platform, creating an integrated online rental solution.

In particular, we expect to implement the ability for renters to apply for leases online, for landlords to run tenant credit and background checks online and, eventually, for landlords and tenants to generate and enter into leases and to make and process payments online.

We plan to integrate Realla with our CoStar UK operations, including development of a single point of data entry to allow our clients to display their commercial real estate listings through the CoStar Suite service offering and to make them visible to prospective tenants and investors through Realla’s marketing portal.

There is a strong need for an efficient marketplace, where commercial

The apartment rental advertising industry serves property managers and owners who are tasked with finding renters to occupy vacant apartments and renters who are searching for their next home.

Property managers have several options at their disposal, including their own websites, drive-by and outdoor advertising, traditional classified ads, free online listing services and internet listings services (“ILS”), like Apartments.com and the network of apartment listing websites we own and operate.

Many apartment ILS websites feature only the rental availabilities that larger property owners pay to advertise, resulting in a poor user experience in which the renter’s search criteria return either limited or no results, irrelevant results or stale results that do not represent actual availabilities.

Our apartment ILS websites include renter-focused features like the ability to filter search results according to various criteria (e.g., commute time to work); professional images of the properties, including immersive videos and 3-D interactive models; custom neighborhood profiles; and tenant reviews.

Our network of apartment listing websites draws on our multifamily database and includes researched and verified information.

We proactively gather information on available rentals to improve the accuracy of the listings on our apartment ILS websites, including real time unit-level availability, current pricing, and rent specials.

We have continually invested in our network to improve the features and services offered to property managers and website users.

Recent additions include: dynamic lead forms that provide more information about prospective residents, a reporting suite that provides customers with rent comparables, making rent trends information publicly available and free digital ad retargeting.

of retail stores, number of listings, mortgage and deed information, for-sale and for-lease listings, income and expense histories, tenant names, lease expirations, contact information, historical trends, demographic information and retail sales per square foot.

Our drone operators in the U.K. are certified and trained to Civil Aviation Authority standards with a permission for commercial operations pending.

information and delivering research automation tools that improve the quality of our data and increase the efficiency of our research analysts.

Information and analytics

demographics and the ability to view for-sale properties alongside sold properties in three formats – plotted on a map, aerial image or in a table.

CoStar Lease Comps also provides the ability to analyze this combined lease dataset from an aggregate analytic perspective.

CoStar Mobile App and CoStar Go CoStar Mobile App is an iOS and Android application that provides CoStar subscribers mobile access to their CoStar subscription.

Information services

Additionally, the software is used to help companies manage their lease accounting and reporting requirements.

This Enterprise Resource Planning platform allows users to manage their transactions, broker commissions, and customer information, and to track critical dates as well as employee or organization-wide results and current and prospective projects.

Online marketplaces

Multifamily

Cozy.co Cozy provides online rental solutions to both landlords and tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments, and expense tracking.

Commercial property and land

The LoopNet import service offers the opportunity to simplify the process of submitting listings to LoopNet

Listing ManagerTM Listing Manager is an online tool that allows users to add and manage their listings on CoStar and LoopNet, all in one place.

Among other features, LoopNet users can monitor listing performance, access lead and prospect reports and upgrade exposure for listings on LoopNet.

Realla Realla is a commercial property listings and data management platform in the U.K., including a free-to-list search engine for commercial property listings.

In the fall of 2018, we launched a customer service initiative across the U.K. to ensure client satisfaction with our product and to train customers on new features and services.

Our subscription-based services consist primarily of information, analytics, and online marketplace services offered over the Internet to commercial real estate industry and related professionals.

Our more recent acquisitions include the June 1, 2015 acquisition of Network Communications, Inc. (“NCI”), including its Apartment Finder business (collectively referred to as “Apartment Finder”), to further support our expansion into the multifamily vertical.

Apartment Finder provides lead generation, advertising, and Internet marketing solutions to property managers and owners through its main service, ApartmentFinder.com.

On July 1, 2015, we acquired the assets of Belbex Corporate, S.L. (“Belbex”), a small commercial real estate information provider operating in Madrid, Spain.

On May 3, 2016, we acquired Thomas Daily GmbH (“Thomas Daily”), a commercial real estate news and information provider operating in Freiburg, Germany.

On January 31, 2017, we acquired Koa Lei, Inc. (doing business as Westside Rentals and now known as Westside Rentals, LLC), an online marketplace specializing in Southern California real estate rentals, and its affiliated entity Westside Credit Services, LLC, a provider of credit checks and tenant screening for landlords in the Southern California real estate rental market.

On May 10, 2017, we added LandWatch.com to our network of land-dedicated sites through our acquisition of LandWatch.

On July 18, 2017, we acquired The Screening Pros, LLC, an online apartment leasing platform that includes tenant screening services, rental applications and payments processing and lease renewals.

We plan to integrate, develop and cross-sell the services offered by ForRent.

The launch of the Apartments.com website and the ApartmentFinder.com website in 2015 are examples of our software development efforts to improve existing services, introduce new services, and integrate and cross-sell existing services.

We believe the improved sites, enhanced search capabilities, availability of information regarding real-time vacancies and our continued development and introduction of enhancements to our online apartment rental marketplaces have attracted more consumers, making the sites more attractive to property managers, which has also increased our cross-selling opportunities.

In 2017, we launched Apartamentos.com, an apartment-listing site offered exclusively in Spanish and built and tailored to meet the needs of Spanish language households in the U.S., which is believed to represent approximately 20 percent of the U.S. renter population.

We believe greater functionality makes our services valuable to an even broader audience and helps us increase sales of our services to brokers, banks, owners, institutional investors and other industry participants.

We expect technology enhancements to drive continued revenue growth in 2018.

In 2017, we began to transition the LoopNet marketplace to a pure pay-to-list/free-to-search marketing site for commercial real estate, and to convert LoopNet information customers to higher value CoStar Suite information services.

We completed integrating the backend systems of the LoopNet and CoStar databases during the second half of 2017; the two services now share a unified database of information, creating operating efficiencies and improving the data available to our customers.

We continue to assess the potential impact of the transition of the LoopNet marketplace to a pure marketing site for commercial real estate where all listings are paid and users can search the site for free.

We are currently focused on converting LoopNet information customers to higher value, more profitable annual subscription information services, which should increase revenues and earnings over time.

or subsequent increases in revenues and earnings, if any, resulting from the elimination or phasing out of the LoopNet information services or any other service offering.

Our revenues have increased as a result of revenues from acquired businesses and from cross-selling opportunities among the customers of CoStar and the acquired companies.

We expect to continue to increase revenues as a result of such cross-selling opportunities.

We may incur increased expenses in connection with any marketing and sales campaigns involving cross-selling opportunities and initiatives, and in connection with promotion of our new services and brands.

In 2014, we began our Canadian research operations in Toronto; in 2015 we expanded into Calgary and Vancouver.

In 2016, we began offering services in Ottawa and Edmonton.

On July 1, 2015, we expanded our International services into Madrid, Spain through the acquisition of the assets of Belbex, a small commercial real estate information provider operating in Madrid, Spain.

Further, on May 3, 2016, we expanded our International services into key markets in Germany, through the acquisition of Thomas Daily, a commercial real estate news and information provider operating in Freiburg, Germany.

We established our research operations headquarters in Richmond, Virginia, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services.

In connection with the opening of the Richmond research headquarters, we expanded our research team to continue to meet the growing content needs of our clients.

We intend to continue to assess the need for additional investments in our business, in addition to the investments discussed above, in order to develop and distribute new services within our current platform or expand the reach of our current service offerings.

Any future 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 generate losses and negative cash flow from operations in the future.

We expect to continue our software development efforts to improve existing services, introduce new services, integrate products and services, cross-sell existing services, and expand and develop supporting technologies for our research and sales and marketing organizations.

We are committed to continuing to support and improve our information, analytics and online marketplace solutions.

Within the apartment rental community, most apartment listing websites primarily supply only the listings that property owners pay to advertise and often return results that are inconsistent with the renter's search criteria.

These limited results generally do not provide information about the actual rental availabilities.

To create the Apartments.com, ApartmentFinder.com, and Apartamentos.com websites, we drew on our multifamily database and undertook a research effort collecting and verifying information and visiting and photographing properties.

We have developed a sophisticated data collection organization utilizing a multi-faceted research process.

In 2017, our full time researchers and contractors conducted millions of interviews of brokers, owners, tenants, apartment community owners and property managers.

We recently established our research operations headquarters in Richmond, Virginia, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services.

In 2017, our field researchers drove millions of miles and conducted hundreds of thousands of on-site building inspections.

We are not [added: 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.

For the fiscal year ended December 31, [removed: 2017][added: 2018]

[removed: ][added: ]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit [removed: and post] such files.) Yes x No ¨

Based on the closing price of the common stock on June [removed: 30, 2017] [added: 29, 2018] on the Nasdaq Global Select Market, the aggregate market value of registrant’s common stock held by non-affiliates of the registrant as of June [removed: 30, 2017] [added: 29, 2018] was approximately [removed: $8] [added: $15] billion.

As of February [removed: 16, 2018,] [added: 22, 2019,] there were [removed: 36,094,701] [added: 36,451,829] shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, [removed: 2017,] [added: 2018,] are incorporated by reference into Part III of this Report.

| Item 1. | [removed: [Business](#s4679A082B626CAF84E75DA91EDF98844)] [added: [Business](#s2F4B8CC079FC5B09B10DC46D3077516C)] | [removed: [4](#s4679A082B626CAF84E75DA91EDF98844)] [added: [4](#s2F4B8CC079FC5B09B10DC46D3077516C)] |

| Item 1A. | [Risk [removed: Factors](#sEFF0F040A2376EAE9180DA91EE0A21FB)] [added: Factors](#s26713CAB8AB15A54A65ED71ED6CBDB14)] | [removed: [21](#sEFF0F040A2376EAE9180DA91EE0A21FB)] [added: [16](#s26713CAB8AB15A54A65ED71ED6CBDB14)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s7441FE53A2628CB0A69ADA91EE3A4D9C)] [added: Comments](#s53EF0FFF8E7A5C55A77779DC02A76786)] | [removed: [37](#s7441FE53A2628CB0A69ADA91EE3A4D9C)] [added: [28](#s53EF0FFF8E7A5C55A77779DC02A76786)] |

| Item 2. | [removed: [Properties](#s08297852908F5F05440CDA91EE5D5EC1)] [added: [Properties](#s57768EFA5C095900ACE504D7305C8B45)] | [removed: [37](#s08297852908F5F05440CDA91EE5D5EC1)] [added: [28](#s57768EFA5C095900ACE504D7305C8B45)] |

| Item 3. | [Legal [removed: Proceedings](#s3549F6521E3CD7563423DA91EE8D9260)] [added: Proceedings](#s9ACB7B0FD82D5695985C9F0937F1EFF7)] | [removed: [37](#s3549F6521E3CD7563423DA91EE8D9260)] [added: [29](#s9ACB7B0FD82D5695985C9F0937F1EFF7)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s7B8D9EA78F90BE419F5DDA91EEAFDAE5)] [added: Disclosures](#s8F9A3A7DAA8256C6B8A930CBC8701C38)] | [removed: [37](#s7B8D9EA78F90BE419F5DDA91EEAFDAE5)] [added: [29](#s8F9A3A7DAA8256C6B8A930CBC8701C38)] |

| Item 5. | [Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s95D4E781C5A372BC7F0CDA91CD123043)] [added: Securities](#s69DBBF45E4555085B9D7571416F5C0F1)] | [removed: [38](#s95D4E781C5A372BC7F0CDA91CD123043)] [added: [30](#s69DBBF45E4555085B9D7571416F5C0F1)] |

| Item 6. | [Selected Consolidated Financial and Operating [removed: Data](#s9ED0F2180969FB83C3E3DA91C9F4FAE8)] [added: Data](#s94F76D04C6A15D3C998882BFDA76BA89)] | [removed: [40](#s9ED0F2180969FB83C3E3DA91C9F4FAE8)] [added: [32](#s94F76D04C6A15D3C998882BFDA76BA89)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s50410BB55A77810A2BD8DA91EF56791B)] [added: Operations](#s9A9DEA38715D5045ABDBBBAAD7536C3D)] | [removed: [41](#s50410BB55A77810A2BD8DA91EF56791B)] [added: [33](#s9A9DEA38715D5045ABDBBBAAD7536C3D)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#sA573A159607743DE2D2EDA91BF92C4F7)] [added: Risk](#sB0C3214DEF035BD7A2ECEEA0A9681DF8)] | [removed: [63](#sA573A159607743DE2D2EDA91BF92C4F7)] [added: [49](#sB0C3214DEF035BD7A2ECEEA0A9681DF8)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s4FA4C120511DE06F6CCEDA91F2767460)] [added: Data](#s4F3D10B70E3C5A479111BB1D94C941BD)] | [removed: [64](#s4FA4C120511DE06F6CCEDA91F2767460)] [added: [50](#s4F3D10B70E3C5A479111BB1D94C941BD)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sF231F318012242782211DA91F29742A8)] [added: Disclosure](#s4BDA0D04FA3259649674993E40C7340F)] | [removed: [64](#sF231F318012242782211DA91F29742A8)] [added: [50](#s4BDA0D04FA3259649674993E40C7340F)] |

| Item 9A. | [Controls and [removed: Procedures](#s1D814694329498580FD7DA91F2C82CA3)] [added: Procedures](#s31AD80D179AF53FF8E5457569D959F89)] | [removed: [64](#s1D814694329498580FD7DA91F2C82CA3)] [added: [50](#s31AD80D179AF53FF8E5457569D959F89)] |

| Item 9B. | [Other [removed: Information](#s0F61F668D81D982A1937DA91F2EAFC8A)] [added: Information](#sB275A8C8143755D1932C38FAC01CDE55)] | [removed: [66](#s0F61F668D81D982A1937DA91F2EAFC8A)] [added: [51](#sB275A8C8143755D1932C38FAC01CDE55)] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s1145326798690ED7EBBDDA91F33EDFBA)] [added: Governance](#sB00E3E81ACD05A7995CE5B62D0450BFF)] | [removed: [66](#s1145326798690ED7EBBDDA91F33EDFBA)] [added: [51](#sB00E3E81ACD05A7995CE5B62D0450BFF)] |

| Item 11. | [Executive [removed: Compensation](#s5097DB9B2ADA41D812BFDA91F370DE8C)] [added: Compensation](#s4865B34135625D47A0A78C095003AFFD)] | [removed: [66](#s5097DB9B2ADA41D812BFDA91F370DE8C)] [added: [51](#s4865B34135625D47A0A78C095003AFFD)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s48AB60E8A77C37E84D0CDA91F3909EA4)] [added: Matters](#sE55470A0F2B952918F46BB80B32E17BF)] | [removed: [66](#s48AB60E8A77C37E84D0CDA91F3909EA4)] [added: [51](#sE55470A0F2B952918F46BB80B32E17BF)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sF8D3AC352F34246298E5DA91F3C3773F)] [added: Independence](#s3BA19AE9C17A5246912351274255CB1E)] | [removed: [66](#sF8D3AC352F34246298E5DA91F3C3773F)] [added: [51](#s3BA19AE9C17A5246912351274255CB1E)] |

| Item 14. | [Principal Accountant Fees and [removed: Services](#sA358757E5D300BDCD596DA91F3E57EE7)] [added: Services](#sB53B8B7B28155E13A0C99F87AC12324E)] | [removed: [66](#sA358757E5D300BDCD596DA91F3E57EE7)] [added: [51](#sB53B8B7B28155E13A0C99F87AC12324E)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s3D3C520759DB589FED4CDA91BF932388)] [added: Schedules](#s24CD50CF39BB50B294C4627C1284C179)] | [removed: [67](#s3D3C520759DB589FED4CDA91BF932388)] [added: [52](#s24CD50CF39BB50B294C4627C1284C179)] |

| | [Index to Consolidated Financial [removed: Statements](#s2DF8EA744F4A084B15DFDA91F4BC75BC)] [added: Statements](#s0A38BD8ECD595A7C979B1078C22D9FE4)] | [removed: [F-1](#s2DF8EA744F4A084B15DFDA91F4BC75BC)] [added: [F-1](#s0A38BD8ECD595A7C979B1078C22D9FE4)] |

| Item 16. | [Form 10-K [removed: Summary](#saa518851f0f64b3eb7f5265019845bdb)] [added: Summary](#sD09AF99340F15F61892A1D25E6D14EDB)] | [removed: [70](#saa518851f0f64b3eb7f5265019845bdb)] [added: [55](#sD09AF99340F15F61892A1D25E6D14EDB)] |

10-K 1 csgp20181231-10k.htm 10-K

| | [Signatures](#s9A0C7C0334E750A89F0E9D62BC417955) | [56](#s9A0C7C0334E750A89F0E9D62BC417955) |

10-K 1 csgp20171231-10k.htm 2017 10-K

| | [Signatures](#sA14B7A09E689AA26A0E5DA91F469D377) | [70](#sA14B7A09E689AA26A0E5DA91F469D377) |

Our headquarters is located at 1331 L Street, NW, in downtown Washington, DC, where we occupy approximately [removed: 157,480 square feet, of which 7,980 square feet is a sublease expiring January 31, 2019, and the remaining 149,500] [added: 157,494] square feet [removed: is] [added: of office space, with] a lease that expires May 31, 2025 (with two 5-year renewal options).

Our principal facility in the U.K. is located in London, where we occupy [removed: approximately 15,900] [added: 23,064] square feet of office space.

[removed: In addition to the Richmond research facility, we] [added: We] also operate our research functions out of leased [added: office] spaces in [added: Richmond, Virginia,] San Diego, [removed: California; Columbia, Maryland; Atlanta, Georgia;] [added: California] and [removed: Glasgow, Scotland.][added: Atlanta, Georgia.]

In addition to our downtown Washington, DC leased facility and our London facility, we established our research operations headquarters in Richmond, Virginia in 2016, in which we occupy 132,987 square feet of office space.

We did not issue any unregistered securities during the years ended December 31, [removed: 2016] [added: 2017] and [removed: 2017.][added: 2018 other than as disclosed in our Current Report on Form 8-K filed with the SEC on February 21, 2018.]

The following table is a summary of our repurchases of common stock during each of the three months in the quarter ended December 31, [removed: 2017:][added: 2018:]

| Month, [removed: 2017] [added: 2018] | | Total Number of Shares Purchased | | | 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 |

(1) The number of shares purchased consists of shares of common stock tendered by employees to the Company to satisfy the [removed: employees’] [added: employees'] minimum tax withholding obligations arising as a result of vesting of restricted stock grants under the [added: Company's 2007 Stock Incentive Plan, as amended (the "2007 Plan"), and 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.

The comparison covers the period beginning December 31, [removed: 2012,] [added: 2013,] and ending on December 31, [removed: 2017,] [added: 2018,] and assumes the reinvestment of any dividends.

[removed: ][added: ]

| Company / Index | | [removed: 12/31/12 | | | |] 12/31/13 | | | | 12/31/14 | | | | 12/31/15 | | | | 12/31/16 | | | | 12/31/17 | | | [added: | 12/31/18 | | |]

Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.” As of February 1, 2019, there were 1,422 holders of record of our common stock.

| October 1 through 31 | | 397 | | | $412.01 | | — | | — |

| December 1 through 31 | | 1,420 | | | 348.49 | | — | | — |

| Total | | 1,817 | (1) | | $362.37 | | — | | — |

| __________________________ | | | | | | | | | |

| CoStar Group, Inc. | | $ | 100.00 | | | $ | 99.49 | | | $ | 111.98 | | | $ | 102.12 | | | $ | 160.88 | | | $ | 182.76 | |

| S&P 500 Index | | 100.00 | | | | 113.69 | | | | 115.26 | | | | 129.05 | | | | 157.22 | | | | 150.33 | | |

| S&P 500 Internet Software & Services Index | | 100.00 | | | | 106.60 | | | | 142.11 | | | | 149.47 | | | | 210.38 | | | | 192.59 | | |

Price Range of Common Stock.

Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.” The following table sets forth, for the periods indicated, the high and low daily closing prices per share of our common stock, as reported by the Nasdaq Global Select Market.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | High | | | | Low | | |

| Year Ended December 31, 2016 | | | | | | | |

| First Quarter | $ | 199.73 | | | $ | 148.90 | |

| Second Quarter | $ | 218.66 | | | $ | 176.85 | |

| Third Quarter | $ | 224.10 | | | $ | 204.82 | |

| Fourth Quarter | $ | 215.75 | | | $ | 180.29 | |

| Year Ended December 31, 2017 | | | | | | | |

| First Quarter | $ | 211.37 | | | $ | 186.15 | |

| Second Quarter | $ | 266.93 | | | $ | 204.52 | |

| Third Quarter | $ | 287.02 | | | $ | 263.60 | |

| Fourth Quarter | $ | 310.19 | | | $ | 271.63 | |

As of February 1, 2018, there were 1,342 holders of record of our common stock.

The 2017 Credit Agreement includes covenants that, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to pay dividends or distributions.

Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable limitations under Delaware law, and will be dependent upon our results of operations, financial position and other factors deemed relevant by our Board of Directors.

| October 1 through 31 | | 388 | | | $269.67 | | — | | — |

| December 1 through 31 | | 1,645 | | | 297.27 | | — | | — |

| Total | | 2,033 | (1) | | $292.00 | | — | | — |

| CoStar Group, Inc. | | $ | 100.00 | | | $ | 206.53 | | | $ | 205.47 | | | $ | 231.27 | | | $ | 210.91 | | | $ | 332.27 | |

| S&P 500 Index | | 100.00 | | | | 132.39 | | | | 150.51 | | | | 152.59 | | | | 170.84 | | | | 208.14 | | |

| S&P 500 Internet Software & Services Index | | 100.00 | | | | 148.79 | | | | 158.60 | | | | 211.44 | | | | 222.39 | | | | 313.02 | | |

The following table provides selected consolidated financial and other operating data for the five years ended December 31, [removed: 2017.][added: 2018.]

The consolidated statements of operations data shown below for each of the three years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] and the consolidated balance sheet data as of December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] are derived from audited consolidated financial statements that are included in this report.

The consolidated statements of operations data for each of the years ended [removed: 2014] [added: 2015] and [removed: 2013] [added: 2014] and the consolidated balance sheet data as of December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] shown below are derived from audited consolidated financial statements for those years that are not included in this report.

Information about prior period acquisitions [added: and the adoption of recent accounting pronouncements] that may affect the comparability of the selected financial information presented below [removed: is] [added: are] included in "Item 1.

[removed: Business."] The total assets and total long-term liabilities reported in the consolidated balance sheet data have been reclassified to conform to our current presentation as a result of the retrospective application of the authoritative guidance to simplify the presentation of debt issuance costs.

| Consolidated Statements of Operations Data: | [removed: 2013 | | | |] 2014 | | | | 2015 | | | | 2016 | | | | 2017 | | | [added: | 2018 | | |]

| Revenues | $ | [removed: 440,943] [added: 575,936] | | | $ | [removed: 575,936] [added: 711,764] | | | $ | [removed: 711,764] [added: 837,630] | | | $ | [removed: 837,630] [added: 965,230] | | | $ | [removed: 965,230] [added: 1,191,832] | |

| Cost of revenues | [removed: 129,185 | | | |] 156,979 | | | | 188,885 | | | | 173,814 | | | | 220,403 | | | [added: | 269,933 | | |]

| Gross profit | [removed: 311,758 | | | |] 418,957 | | | | 522,879 | | | | 663,816 | | | | 744,827 | | | [added: | 921,899 | | |]

| Operating expenses | [removed: 257,604 | | | |] 338,079 | | | | 511,424 | | | | 518,911 | | | | 571,011 | | | [added: | 648,335 | | |]

| Income from operations | [removed: 54,154 | | | |] 80,878 | | | | 11,455 | | | | 144,905 | | | | 173,816 | | | [added: | 273,564 | | |]

| Interest and other income | [removed: 326 | | | |] 516 | | | | 537 | | | | 1,773 | | | | 4,044 | | | [added: | 13,281 | | |]

| Interest and other expense | [removed: (6,943] [added: (10,481] | | ) | | [removed: (10,481] [added: (9,411] | | ) | | [removed: (9,411] [added: (10,016] | | ) | | [removed: (10,016] [added: (9,014] | | ) | | [removed: (9,014] [added: (2,830] | | ) |

| Loss on debt extinguishment | — | | | | — | | | | — | | | | [removed: —] [added: (3,788] | | [added: )] | | [removed: (3,788] [added: —] | | [removed: )] |

| Income before income taxes | [removed: 47,537 | | | |] 70,913 | | | | 2,581 | | | | 136,662 | | | | 165,058 | | | [added: | 284,015 | | |]

| Income tax expense | [removed: 17,803 | | | |] 26,044 | | | | 6,046 | | | | 51,591 | | | | 42,363 | | | [added: | 45,681 | | |]

| Net income (loss) | $ | [removed: 29,734 | | | $ |] 44,869 | | | $ | (3,465 | ) | | $ | 85,071 | | | $ | 122,695 | | [added: | $ | 238,334 | |]

| Net income (loss) per share — basic | $ | [removed: 1.07 | | | $ |] 1.48 | | | $ | (0.11 | ) | | $ | 2.64 | | | $ | 3.70 | | [added: | $ | 6.61 | |]

| Net income (loss) per share — diluted | $ | [removed: 1.05 | | | $ |] 1.46 | | | $ | (0.11 | ) | | $ | 2.62 | | | $ | 3.66 | | [added: | $ | 6.54 | |]

| Weighted average shares outstanding — basic | [removed: 27,670 | | | |] 30,215 | | | | 31,950 | | | | 32,167 | | | | 33,200 | | | [added: | 36,058 | | |]

| Weighted average shares outstanding — diluted | [removed: 28,212 | | | |] 30,641 | | | | 31,950 | | | | 32,436 | | | | 33,559 | | | [added: | 36,448 | | |]

| Consolidated Balance Sheet Data: | [removed: 2013 | | | |] 2014 | | | | 2015 | | | | 2016 | | | | 2017 | | | [added: | 2018 | | |]

| Cash, cash equivalents and long-term investments | $ | [removed: 277,943] [added: 544,163] | | | $ | [removed: 544,163] [added: 437,325] | | | $ | [removed: 437,325] [added: 577,175] | | | $ | [removed: 577,175] [added: 1,221,533] | | | $ | [removed: 1,221,533] [added: 1,110,486] | |

| Working capital | [removed: 196,913 | | | |] 480,521 | | | | 337,452 | | | | 472,545 | | | | 1,141,269 | | | [added: | 1,059,139 | | |]

| Total assets | [removed: 1,250,440 | | | |] 2,070,483 | | | | 2,079,571 | | | | 2,185,063 | | | | 2,873,441 | | | [added: | 3,312,957 | | |]

| Total long-term liabilities | [removed: 213,674 | | | |] 440,982 | | | | 400,510 | | | | 375,904 | | | | 75,525 | | | [added: | 136,856 | | |]

| Stockholders’ equity | [removed: 927,862 | | | |] 1,513,546 | | | | 1,543,780 | | | | 1,654,213 | | | | 2,651,250 | | | [added: | 3,021,942 | | |]

Business" and Note 2 to the Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K.

The following data should be read in conjunction with “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Item 8.

Financial Statements and Supplementary Data,” and the other information contained elsewhere in this Annual Report on Form 10-K.

As of December 31, [removed: 2017,] [added: 2018,] 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.

During [removed: the fourth quarter of 2017,] [added: 2018,] we [removed: commenced the implementation of] [added: continued to implement] a new financial system that is designed to improve the efficiency and effectiveness of [removed: the Company’s] [added: our] operational and financial accounting processes.

In connection with the preparation of the Company's annual financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2017] [added: 2018] based on criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”).

[removed: Management's assessment included an evaluation of the] design of the Company's internal control over financial reporting and testing of the operational effectiveness of the Company's internal control over financial reporting.

Based on this assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, [removed: 2017.][added: 2018.]

The excluded aggregate financial position of [removed: Westside Rentals, LandWatch,] [added: ForRent, Realla Ltd.] and [removed: The Screening Pros] [added: Cozy Ltd.] represented less than 1% of our total assets as of December 31, [removed: 2017,] [added: 2018,] and less than [removed: 2%] [added: 4%] of our revenues for the year then ended.

We will include the internal controls of [removed: Westside Rentals, LandWatch, and The Screening Pros accounts receivable] [added: ForRent, Realla Ltd.] and [removed: revenue] [added: Cozy Services, Ltd.] in our assessment of the effectiveness of our internal control over financial reporting as of December 31, [removed: 2018.][added: 2019.]

Other than the implementation of a new financial system noted [removed: previously,] [added: above,] there have been no changes in our internal control over financial reporting during our most recent fiscal [removed: quarter] [added: year] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's assessment included an evaluation of the

On February 21, 2018, we completed the acquisition of ForRent.

On October 12, 2018, we completed the acquisition of Realla Ltd. On November 8, 2018, we completed the acquisition of Cozy Services, Ltd. As permitted by the Securities and Exchange Commission, we have elected to exclude the internal controls of these acquisitions that have not been integrated into our existing processes and controls from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2018.

This implementation is expected to continue through 2019.

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.

On January 31, 2017, we completed the acquisition of Westside Rentals.

On May 10, 2017, we completed the acquisition of LandWatch.

On July 18, 2017, we completed the acquisition of The Screening Pros.

As permitted by the Securities and Exchange Commission, we have elected to exclude the accounts receivable and revenue of Westside Rentals, LandWatch, and The Screening Pros from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2017.

The remaining information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2018] [added: 2019] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2018] [added: 2019] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2018] [added: 2019] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2018] [added: 2019] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2018] [added: 2019] annual meeting of stockholders.

| Year ended December 31, 2016 | | $ | 7,478 | | | $ | 7,358 | | | $ | [removed: — | | | $ |] 8,492 | | | $ | 6,344 | |

| Year ended December 31, 2017 | | $ | 6,344 | | | $ | 5,690 | | | $ | [removed: — | | | $ |] 5,565 | | | $ | 6,469 | |

| (1) | Additions to the allowance for doubtful accounts are charged to bad debt expense. [added: Additions to the allowance for sales credits are charged against revenues.] |

| [removed: *[10.2](http://www.sec.gov/Archives/edgar/data/1057352/000105735212000101/ex101.htm)] [added: *[10.3](http://www.sec.gov/Archives/edgar/data/1057352/000105735212000101/ex101.htm)] | | CoStar Group, Inc. 2007 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 8, 2012). |

| [removed: *[10.3](http://www.sec.gov/Archives/edgar/data/1057352/000105735208000004/frenchsub_plan.htm)] [added: *[10.4](http://www.sec.gov/Archives/edgar/data/1057352/000105735208000004/frenchsub_plan.htm)] | | CoStar Group, Inc. 2007 Stock Incentive Plan French Sub-Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 10-K filed February 29, 2008). |

| [removed: *[10.4](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex103.htm)] [added: *[10.5](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex103.htm)] | | Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.5](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex104.htm)] [added: *[10.6](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex104.htm)] | | Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement for Service Awards between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.6](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex105.htm)] [added: *[10.7](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex105.htm)] | | Form of CoStar Group, Inc. 2016 Plan Restricted Stock Unit Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.7](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex106.htm)] [added: *[10.8](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex106.htm)] | | Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.8](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex107.htm)] [added: *[10.9](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex107.htm)] | | Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.9](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex108.htm)] [added: *[10.10](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex108.htm)] | | Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.10](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex109.htm)] [added: *[10.11](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex109.htm)] | | Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.11](http://www.sec.gov/Archives/edgar/data/1057352/000105735207000051/ex_99-1.htm)] [added: *[10.12](http://www.sec.gov/Archives/edgar/data/1057352/000105735207000051/ex_99-1.htm)] | | Form of 2007 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed June 22, 2007). |

| [removed: *[10.12](http://www.sec.gov/Archives/edgar/data/1057352/000105735214000006/csgp-ex108_20131231.htm)] [added: *[10.13](http://www.sec.gov/Archives/edgar/data/1057352/000105735214000006/csgp-ex108_20131231.htm)] | | Form of 2007 Plan Restricted Stock Unit Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.8 to the Registrant's Report on Form 10-K filed February 20, 2014). |

| [removed: *[10.13](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/iso2007agrmt.htm)] [added: *[10.14](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/iso2007agrmt.htm)] | | Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: *[10.14](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/iso2007agrmt_w-florance.htm)] [added: *[10.15](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/iso2007agrmt_w-florance.htm)] | | Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.9 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: *[10.15](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt.htm)] [added: *[10.16](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt.htm)] | | Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: *[10.16](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt_w-dir.htm)] [added: *[10.17](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt_w-dir.htm)] | | Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its directors (Incorporated by reference to Exhibit 10.11 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: *[10.17](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt_w-florance.htm)] [added: *[10.18](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/nqso2007agrmt_w-florance.htm)] | | Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.12 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: *[10.18](http://www.sec.gov/Archives/edgar/data/1057352/000105735208000004/rest_stockform-frenchsubform.htm)] [added: *[10.19](http://www.sec.gov/Archives/edgar/data/1057352/000105735208000004/rest_stockform-frenchsubform.htm)] | | Form of 2007 Plan French Sub-Plan Restricted Stock Agreement between the Registrant and certain of its employees (Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K filed February 29, 2008). |

| [removed: *[10.19](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex102.htm)] [added: *[10.20](http://www.sec.gov/Archives/edgar/data/1057352/000105735216000143/csgp-6302016xex102.htm)] | | CoStar Group, Inc. 2016 Cash Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016). |

| [removed: *[10.20](http://www.sec.gov/Archives/edgar/data/1057352/000105735215000072/espp-amendedandrestatedtoi.htm)] [added: *[10.21](http://www.sec.gov/Archives/edgar/data/1057352/000105735215000072/espp-amendedandrestatedtoi.htm)] | | CoStar Group, Inc. Amended and Restated Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on September 14, 2015). |

| [removed: *[10.21](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex1021_20171207.htm)] [added: *[10.22](http://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex1021_20171207.htm)] | | CoStar Group, Inc. Management Stock Purchase Plan [removed: (filed herewith).] [added: (Incorporated by reference to Exhibit 10.21 to the Registrant’s Report on Form 10-K filed February 23, 2018).] |

| [removed: *[10.22](http://www.sec.gov/Archives/edgar/data/1057352/000105735213000078/csgp-9302013xex101.htm)] [added: *[10.23](http://www.sec.gov/Archives/edgar/data/1057352/000105735213000078/csgp-9302013xex101.htm)] | | Summary of Non-Employee Director Compensation (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q filed on October 24, 2013). |

| [removed: *[10.23](http://www.sec.gov/Archives/edgar/data/1057352/0001005150-98-000402.txt)] [added: *[10.24](http://www.sec.gov/Archives/edgar/data/1057352/0001005150-98-000402.txt)] | | Employment Agreement for Andrew C. Florance (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-1 of the Registrant (Reg. No. 333-47953) filed with the Commission on April 27, 1998). |

| [removed: *[10.24](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/firstamd-florance_empagrmt.htm)] [added: *[10.25](http://www.sec.gov/Archives/edgar/data/1057352/000105735209000013/firstamd-florance_empagrmt.htm)] | | First Amendment to Andrew C. Florance Employment Agreement, effective January 1, 2009 (Incorporated by reference to Exhibit 10.16 to the Registrant’s Report on Form 10-K filed February 24, 2009). |

| [removed: [10.25](http://www.sec.gov/Archives/edgar/data/1057352/000095013304001856/w96989exv10w1.htm)] [added: [10.26](http://www.sec.gov/Archives/edgar/data/1057352/000095013304001856/w96989exv10w1.htm)] | | Form of Indemnification Agreement between the Registrant and each of its officers and directors (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q filed on May 7, 2004). |

| [removed: [10.26](http://www.sec.gov/Archives/edgar/data/1057352/000105735211000072/lease.htm)] [added: [10.27](http://www.sec.gov/Archives/edgar/data/1057352/000105735211000072/lease.htm)] | | Deed of Office Lease by and between GLL L-Street 1331, LLC and CoStar Realty Information, Inc., dated February 18, 2011, and made effective as of June 1, 2010 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on form 10-Q filed on April 29, 2011). |

| [removed: [10.27](http://www.sec.gov/Archives/edgar/data/1057352/000105735217000053/form8-k9x11x17tidewaterxspa.htm)] [added: [10.28](http://www.sec.gov/Archives/edgar/data/1057352/000105735217000053/form8-k9x11x17tidewaterxspa.htm)] | | Securities Purchase Agreement, dated as of September 11, 2017, among CoStar Realty Information, Inc., CoStar Group, Inc., LTM Company Dominion, LLC, Dominion Enterprises, and Landmark Media Enterprises, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 13, 2017). |

| [removed: [10.28](http://www.sec.gov/Archives/edgar/data/1057352/000105735217000071/form8-k10x25x17earningsrel.htm)] [added: [10.29](http://www.sec.gov/Archives/edgar/data/1057352/000105735217000071/form8-k10x25x17earningsrel.htm)] | | Amendment and Restatement Agreement, dated as of October 19, 2017, by and among CoStar Group, Inc., CoStar Realty Information, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by referenced to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 25, 2017). |

| [removed: [21.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex211_20171231.htm)] [added: [21.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex211_20181231.htm)] | | Subsidiaries of the Registrant (filed herewith). |

| [removed: [23.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex231_20171231.htm)] [added: [23.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex231_20181231.htm)] | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith). |

| [removed: [31.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex311_20171231.htm)] [added: [31.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex311_20181231.htm)] | | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |

| [removed: [31.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex312_20171231.htm)] [added: [31.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex312_20181231.htm)] | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |

| [removed: [32.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex321_20171231.htm)] [added: [32.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex321_20181231.htm)] | | 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 herewith). |

| [removed: [32.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735218000011/csgp-ex322_20171231.htm)] [added: [32.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex322_20181231.htm)] | | 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 herewith). |

| 101 | | The following materials from CoStar Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, [removed: 2017,] [added: 2018,] formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively; (ii) Consolidated Statements of Comprehensive Income [removed: (Loss)] for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively; (iii) Consolidated Balance Sheets at December 31, [removed: 2017] [added: 2018] and December 31, [removed: 2016,] [added: 2017,] respectively; (iv) [added: Consolidated] Statements of Changes in Stockholders’ Equity for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively; (v) Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively; (vi) Notes to the Consolidated Financial Statements that have been detail tagged; and (vii) Schedule II – Valuation and Qualifying Accounts (submitted electronically with this report). |

The table below details the activity of the allowance for doubtful accounts and sales credits(1) for the years ended December 31, 2018, 2017, and 2016 (in thousands):

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | |

| | | Balance at Beginning of Year | | | | Charged to Expense | | | | Reductions | | | | Balance at End of Year | | |

| Year ended December 31, 2018 | | $ | 6,469 | | | $ | 6,542 | | | $ | 7,302 | | | $ | 5,709 | |

| __________________________ | | | | | | | | | | | | | | | | |

| *[10.2](http://www.sec.gov/Archives/edgar/data/1057352/000105735218000066/csgp-3312018xex101.htm) | | First Amendment to the CoStar Group, Inc. 2016 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed April 25, 2018). |

Years Ended December 31, 2017, 2016, and 2015 (in thousands):

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Allowance for Doubtful Accounts and Billing Adjustments (1) | | Balance at Beginning of Year | | | | Charged to Expense | | | | Charged to Other Accounts (2) | | | | Write-offs, Net of Recoveries | | | | Balance at End of Year | | |

| Year ended December 31, 2015 | | $ | 4,815 | | | $ | 7,002 | | | $ | 1,470 | | | $ | 5,809 | | | $ | 7,478 | |

| | |

| --- | --- |

| (2) | Amounts represent opening balances from acquired businesses. |

Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on the [removed: 22nd] [added: 28th] day of February [removed: 2018.][added: 2019.]

| /s/ Michael R. Klein | | Chairman of the Board | | February [removed: 22, 2018] [added: 28, 2019] |

| /s/ Andrew C. Florance | | Chief Executive Officer and | | February [removed: 22, 2018] [added: 28, 2019] |

| /s/ Scott T. Wheeler | | Chief Financial Officer | | February [removed: 22, 2018] [added: 28, 2019] |

| /s/ Michael J. Glosserman | | Director | | February [removed: 22, 2018] [added: 28, 2019] |

| /s/ Warren H. Haber | | Director | | February [removed: 22, 2018] [added: 26, 2019] |

| /s/ John W. Hill | | Director | | February [removed: 19, 2018] [added: 28, 2019] |

| /s/ Laura Cox Kaplan | | Director | | February [removed: 22, 2018] [added: 28, 2019] |

| /s/ Christopher J. Nassetta | | Director | | February [removed: 20, 2018] [added: 25, 2019] |

| /s/ David J. Steinberg | | Director | | February [removed: 21, 2018] [added: 25, 2019] |

| Reports of Independent Registered Public Accounting Firm | [removed: [F-2](#s089AF06923661857B9CCDA91F4DF26DA)] [added: [F-2](#s3833ED985A615DA8BC27B8ED25359659)] |

| Consolidated Statements of Operations | [removed: [F-5](#s72F72CFB2E468860BF9EDA91BF9A1170)] [added: [F-5](#s687B5362E9FA518CAABD98E20CC00680)] |

[removed: | Consolidated Statements of Comprehensive Income (Loss) | [F-6](#s74B3B3937AAB935BCA81DA91BFAA8705) |][added: CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME]

| Consolidated Balance Sheets | [removed: [F-7](#s572075D6179377CE7477DA91BFB1FCDD)] [added: [F-7](#s8579E179F3B95ED79440D1C57D64A773)] |

[removed: | Statement of Changes in Stockholders’ Equity | [F-8](#s471C6B64097ACFA57787DA91BFD08721) |][added: STOCKHOLDERS' EQUITY]

[removed: | Consolidated Statements of Cash Flows | [F-8](#sDEB05A62310D17FDB8F8DA91BFF4D0E8) |][added: CONSOLIDATED STATEMENTS OF CASH FLOWS]

[removed: | Notes to Consolidated Financial Statements | [F-9](#sCD6305E5D357B3C40F73DA91F60B90A7) |][added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. (the Company) as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February [removed: 22, 2018] [added: 28, 2019] expressed an unqualified opinion thereon.

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, CoStar Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of [removed: Westside Rentals, LandWatch] [added: ForRent, Realla Ltd.] and [removed: The Screening Pros] [added: Cozy Services, Ltd.] related to accounts receivable and revenues, which are included in the [removed: 2017] [added: 2018] consolidated financial statements of CoStar Group, Inc. and constituted less than 1% of total assets as of December 31, [removed: 2017] [added: 2018] and less than [removed: 2%] [added: 4%] of revenues for the year then ended.

Our audit of internal control over financial reporting of CoStar Group, Inc. did not include an evaluation of the internal control over financial reporting of [removed: Westside Rentals, LandWatch] [added: ForRent, Realla Ltd.] and [removed: The Screening Pros.][added: Cozy Services, Ltd.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of CoStar Group, Inc. as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the related consolidated statements of operations, comprehensive [removed: income (loss),] [added: income,] stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2017] [added: 2018] and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (Collectively referred to as the “financial statements”) of CoStar Group, Inc. and our report dated February [removed: 22, 2018] [added: 28, 2019] expressed an unqualified opinion thereon.

| | Year Ended December 31, | | | | | | | | | | | [added: | | | | | | | | | | | |]

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Revenues | $ | [removed: 965,230] [added: 1,191,832] | | | $ | [removed: 837,630] [added: 965,230] | | | $ | [removed: 711,764] [added: 837,630] | |

| Cost of revenues | [removed: 220,403] [added: 269,933] | | | | [removed: 173,814] [added: 220,403] | | | | [removed: 188,885] [added: 173,814] | | |

| Gross profit | [removed: 744,827] [added: 921,899] | | | | [removed: 663,816] [added: 744,827] | | | | [removed: 522,879] [added: 663,816] | | |

| Selling and marketing (excluding customer base amortization) | [removed: 318,362] [added: 359,858] | | | | [removed: 296,483] [added: 318,362] | | | | [removed: 302,226] [added: 296,483] | | |

| Software development | [removed: 88,850] [added: 100,937] | | | | [removed: 76,400] [added: 88,850] | | | | [removed: 65,760] [added: 76,400] | | |

| General and administrative | [removed: 146,128] [added: 156,659] | | | | [removed: 123,297] [added: 146,128] | | | | [removed: 115,507] [added: 123,297] | | |

| Customer base amortization | [removed: 17,671] [added: 30,881] | | | | [removed: 22,731] [added: 17,671] | | | | [removed: 27,931] [added: 22,731] | | |

| | [removed: 571,011] [added: 648,335] | | | | [removed: 518,911] [added: 571,011] | | | | [removed: 511,424] [added: 518,911] | | |

| Income from operations | [removed: 173,816] [added: 273,564] | | | | [removed: 144,905] [added: 173,816] | | | | [removed: 11,455] [added: 144,905] | | |

| Interest and other income | [removed: 4,044] [added: 13,281] | | | | [removed: 1,773] [added: 4,044] | | | | [removed: 537] [added: 1,773] | | |

| Interest and other expense | [removed: (9,014] [added: (2,830] | | ) | | [removed: (10,016] [added: (9,014] | | ) | | [removed: (9,411] [added: (10,016] | | ) |

| Loss on debt extinguishment | [removed: (3,788] [added: —] | | [removed: )] | | [removed: —] [added: (3,788] | | [added: )] | | — | | |

| Income before income taxes | [removed: 165,058] [added: 284,015] | | | | [removed: 136,662] [added: 165,058] | | | | [removed: 2,581] [added: 136,662] | | |

None.

| Consolidated Statements of Changes in Stockholders’ Equity | [F-8](#sD94CCA5220355360A3EC1E8FD044B77B) |

| Consolidated Statements of Cash Flows | [F-9](#sFCFC1A64132E50E588861258F0C82345) |

| Notes to Consolidated Financial Statements | [F-11](#sFA5538EF5A5A5B759C898B0C95E935BF) |

Adoption of ASU No. 2014-09

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.

February 28, 2019

February 28, 2019

| Cash and cash equivalents | $ | 1,100,416 | | | $ | 1,211,463 | |

| Deferred commission costs, net | 76,031 | | | | — | | |

| Other long-term liabilities | 4,000 | | | | — | | |

| Cumulative effect of adoption of new accounting standard, net of tax | — | | | — | | | | — | | | | — | | | | 54,464 | | | | 54,464 | | |

| Balance at January 1, 2018 | 36,107 | | | 361 | | | | 2,339,253 | | | | (9,020 | | ) | | 375,120 | | | | 2,705,714 | | |

| Net income | — | | | — | | | | — | | | | — | | | | 238,334 | | | | 238,334 | | |

| Exercise of stock options | 177 | | | 2 | | | | 21,991 | | | | — | | | | — | | | | 21,993 | | |

| Stock issued for acquisitions | 103 | | | 1 | | | | 36,365 | | | | — | | | | — | | | | 36,366 | | |

| Balance at December 31, 2018 | 36,446 | | | $ | 364 | | | $ | 2,419,812 | | | $ | (11,688 | ) | | $ | 613,454 | | | $ | 3,021,942 | |

| Net income | $ | 238,334 | | | $ | 122,695 | | | $ | 85,071 | |

| Amortization of deferred commissions costs | 48,313 | | | | — | | | | — | | |

| Deferred commissions | (53,497 | | ) | | — | | | | — | | |

(in thousands)

| Supplemental cash flow disclosures: | | | | | | | | | | | |

| Interest paid | $ | 1,421 | | | $ | 6,445 | | | $ | 6,712 | |

| Income taxes paid | 35,980 | | | | 41,283 | | | | 34,132 | | |

| Supplemental non-cash investing and financing activities: | | | | | | | | | | | |

| Stock issued in connection with acquisition - ForRent | $ | 36,366 | | | $ | — | | | $ | — | |

| Consideration owed for acquisitions | 1,534 | | | | — | | | | — | | |

Subsequent to the Adoption of Accounting Standards Update (“ASU") 2014-09, Revenue from Contracts with Customers, later codified as Accounting Standards Codification 606 ("ASC 606"), on January 1, 2018

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 obligation(s).

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.

The Company's contracts with customers often include promises to transfer multiple services.

For these contracts, the Company accounts for individual performance obligations separately if they are distinct.

Determining whether services are considered distinct performance obligations may require significant judgment.

Judgment is required to determine the standalone selling price (“SSP”)

for each distinct performance obligation.

In instances where SSP is not directly observable, such as when the Company does not sell the services separately, the Company determines the SSP using available information, including market conditions and other observable inputs.

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.

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.

Not applicable.

COSTAR GROUP, INC.

| | |

| --- | --- |

February 22, 2018

| Long-term debt, less current portion | — | | | | 306,473 | | |

| Balance at December 31, 2014 | 32,318 | | | $ | 323 | | | $ | 1,405,414 | | | $ | (6,384 | ) | | $ | 114,193 | | | $ | 1,513,546 | |

| Net loss | — | | | — | | | | — | | | | — | | | | (3,465 | | ) | | (3,465 | | ) |

| Exercise of stock options | 60 | | | 1 | | | | 5,068 | | | | — | | | | — | | | | 5,069 | | |

| Stock compensation expense, net of forfeitures | — | | | — | | | | 35,153 | | | | — | | | | — | | | | 35,153 | | |

| Excess tax benefit from stock-based compensation | — | | | — | | | | 8,528 | | | | — | | | | — | | | | 8,528 | | |

F-8

| Income tax receivable | (12,981 | | ) | | — | | | | — | | |

| Cash and cash equivalents at beginning of year | 567,223 | | | | 421,818 | | | | 527,012 | | |

Revenues are recognized when (1) there is persuasive evidence of an arrangement, (2) the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned and (4) collectability is reasonably assured.

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED) |

Revenue Recognition — (Continued)

The Company analyzes contracts with multiple elements under the accounting guidance for multiple-element arrangements.

The Company's multiple-element arrangements include information, analytics and/or online marketplace services that are generally provided to the customer over the same term.

When identifying multiple-element arrangements, the Company considers multiple purchases made by the same customer within a short time frame and assesses whether the purchases were negotiated together as one overall arrangement.

If a multiple-element arrangement is identified, then the arrangement consideration is allocated among the separate units of accounting based on their relative selling prices, which are estimated considering factors such as historical pricing, pricing strategy, market conditions and other factors.

The Company accounts for each deliverable in the transaction separately.

If the deliverables cannot be separated into multiple units of accounting, then the arrangement consideration is combined and recognition of revenue is determined for the combined unit of accounting.

Multiple-element transactions require judgment to determine the selling price or fair value of the different elements.

These judgments impact the amount of revenue recognized over the term of the contract, as well as the period in which they are recognized.

There were no amounts reclassified out of accumulated other comprehensive loss to the consolidated statements of operations for the year ended December 31, 2015.

These grants of restricted common stock are also subject to continuing employment requirements and a market condition based on total shareholder return (“TSR”).

The actual number of shares that vest at the end of each respective three-year period is determined based on the Company’s achievement of the three\-year performance goals described above, as well as its TSR relative to the Russell 1000 Index over the same three-year performance period.

Each reporting period, the Company reassesses the probability of achieving the performance and market conditions and determines whether it is probable that the performance and market conditions for the awards would be met.

Cash equivalents consist of money markets and commercial paper.

The Company determines the appropriate classification of debt and equity investments at the time of purchase and re-evaluates such designation as of each balance sheet date.

The Company considers all of its investments to be available-for-sale.

Investments are carried at fair value.

The Company maintains reserves for estimated inherent credit losses, and such losses have been within management’s expectations.

Goodwill represents the excess of costs over the fair value of assets of acquired businesses.

Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit.

See Note 7 for further details on the reclassification of the acquired trade names recorded in connection with the LoopNet acquisition from an indefinite-lived intangible asset to a definite-lived intangible asset.

The cost of capitalized building photography is amortized on a straight-line basis over periods ranging from three years to five years.

Intangible assets are reviewed for impairment at least annually, and more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The debt issuance costs are associated with our various previous credit agreements, and the current amended and restated 2017 Credit Agreement (the "2017 Credit Agreement").