CoStar Group (CSGP) 10-K risk factor changes: FY2019 vs FY2018

[removed: Cautionary] [added: Cautionary] Statement Concerning Forward-Looking [removed: Statements][added: Statements]

Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for [removed: 2019] [added: 2020] and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions about our revenues, 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, [added: development of new products and services,] 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 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 [removed: international;] [added: international , including the impacts of “Brexit” and uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark;] our ability to identify, acquire and integrate acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including [removed: ForRent, Realla] [added: STR] and [removed: Cozy,] [added: OCP,] 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; business disruption relating to 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 we, or the businesses that we 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 [removed: integrate our North America and International product offerings; 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; [removed: our ability to continue to develop and maintain our research operations headquarters in Richmond, Virginia as a technology innovation hub;] 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 [removed: issues;] [added: issues, including any actual or perceived failure to comply with U.S. or international laws, rules or regulations;] and successful adoption of and training on our services.

[removed: 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 [added: to in this section.]

[removed: Risk Factors][added: Risk Factors]

[removed: Our] [added: *Our] revenues and financial position will be adversely affected if we are not able to attract and retain [removed: clients.][added: clients*.]

[removed: We] [added: *We] may not be able to successfully introduce new or upgraded information, analytics and online marketplace services or combine or shift focus from services with less demand, which could decrease our revenues and our [removed: profitability.][added: profitability*.]

To be successful, we must [added: be able to quickly] adapt to changes in the industry, as well as rapid technological changes by continually enhancing our information, analytics and online marketplace services.

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

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

[removed: A] [added: *A] downturn or consolidation in the commercial real estate industry may decrease customer demand for our [removed: services.][added: services*.]

The commercial real estate market may be adversely impacted by many different factors, including lower than expected job growth or job losses resulting in reduced real estate demand; rising interest rates and slowing transaction volumes that negatively impact investment returns; excessive speculative new construction in localized markets resulting in increased vacancy rates and diminished [removed: rent growth; and unanticipated disasters and other adverse events such as slowing of the growth in the working age population resulting in reduced demand for all types of real estate.]

[added: 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.

[removed: Negative] [added: *Negative] general economic conditions could increase our expenses and reduce our [removed: revenues.][added: revenues*.]

The success of our business depends on a number of factors relating to general global, national, regional and local economic conditions, including perceived and actual economic conditions, recessions, inflation, deflation, exchange rates, interest rates, taxation policies, availability of credit, employment levels, [removed: and] wage and salary [removed: levels.][added: levels, and uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark.]

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 [removed: Brexit.][added: Brexit*.*]

[removed: If] [added: *If] we are unable to hire qualified persons for, or retain and continue to develop, our sales force, or if our sales force is unproductive, our revenues could be adversely [removed: affected.][added: affected.* In order to support revenues and future revenue growth, we need to continue to develop, train and retain our sales force.]

[removed: We] [added: *We] may not be able to compete successfully against existing or future competitors in attracting advertisers, which could harm our business, results of operations and financial [removed: condition.][added: condition.* We compete to attract advertisers.]

[removed: We] [added: *We] may be unable to increase awareness of our brands, including CoStar, LoopNet, Apartments.com, BizBuySell and LandsofAmerica, which could adversely affect our [removed: business.][added: business.* We rely heavily on our brands, which we believe are key assets of our company.]

Awareness and differentiation of our brands are important for attracting and expanding the number of users of, and subscribers to, our online marketplaces, such as LoopNet, the Apartments.com network of rental websites, CoStar Showcase, and the Land.com network of rural lands [removed: for sale.][added: for-sale.]

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

[removed: We] [added: *We] rely on Internet search engines to drive traffic to our websites.

For example, when a user [removed: types] [added: enters in a search query for] an apartment building [added: name or] address into an Internet search engine, [removed: organic] [added: the Internet] search [added: engine’s] ranking of our Apartments.com webpages will determine how prominently such webpages are displayed [removed: in] [added: on] the search [removed: results.][added: engine results page.]

[removed: However, our] [added: Our] ability to maintain [removed: high organic] [added: prominent] search result rankings [added: and positioning] is not entirely within our control.

Our websites have experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations [added: will occur] in the future.

[removed: If] [added: *If] we are unable to maintain or increase traffic to our marketplaces, our business and operating results could be adversely [removed: affected.][added: affected.* Our ability to generate revenues from our marketplace businesses depends, in part, on our ability to attract users to our websites.]

[removed: If] [added: *If] real estate professionals or other advertisers reduce or cancel their advertising spending with us and we are unable to attract new advertisers, our operating results would be [removed: harmed.][added: harmed.* Our marketplace businesses, including LoopNet, the Apartments.com network of rental websites, 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 owners and other advertisers.]

[removed: If] [added: *If] we do not invest in product development and provide services that are attractive to our [added: marketplace] users and to our advertisers, our business could be adversely [removed: affected.][added: affected.* Our success depends on our continued improvements to provide services that make our marketplaces useful for users and attractive to our advertisers.]

If we are unable to provide services that users [removed: want to use,] [added: want,] then users may become dissatisfied and use competitors’ websites.

[added: 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.

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

We [removed: may] [added: are likely to] incur costs in connection with [removed: an acquisition,] [added: proposed acquisitions,] but may ultimately be unable or unwilling to consummate [removed: the] [added: any particular] proposed transaction for various reasons.

In addition, acquisitions involve numerous risks, including [removed: the ability] [added: risks that we will not be able] to realize or capitalize on synergies created through combinations; [removed: managing] [added: manage] the integration of personnel and products or services; [removed: managing] [added: manage] the integration of acquired infrastructure and controls; [added: control] potential increases in operating costs; [removed: managing] [added: manage] geographically remote operations; [removed: the diversion of] [added: maintain] management’s attention [removed: from] [added: on] other business concerns and [added: avoid] potential disruptions in ongoing operations during [removed: integration; the inherent risks in entering] [added: an acquisition process or integration efforts; successfully enter] markets and sectors in which we have either limited or no direct [removed: experience;] [added: experience, including foreign markets whose practices, regulations or laws may pose increased risk;] and [removed: the potential loss of] [added: retain] key employees, clients or vendors and other business partners of the acquired companies.

We [removed: have incurred] [added: often incur] severance costs and [removed: expect to incur additional] [added: other integration] costs [removed: to integrate prior acquisitions,] [added: post-acquisition,] such as IT integration expenses and costs related to the renegotiation of redundant vendor agreements.

An acquired business could strain our system of internal controls and diminish its [removed: effectiveness.][added: effectiveness, including as a result of unsuccessful integration or because integration with our existing systems puts additional stress on our core infrastructure.]

[removed: Further, certain acquisitions may be subject to] [added: If] regulatory [removed: approval, which can be time consuming and costly to obtain or may be denied, and if] [added: approval is] obtained, the terms of [added: any] such [removed: regulatory approvals] [added: approval] may impose limitations on our ongoing operations or require us to divest assets or lines of business.

[removed: Our] [added: *Our] actual or perceived failure to comply with privacy laws and standards could adversely affect our business, financial condition and results of [removed: operations.][added: operations*.]

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

As a result, we are subject to a variety of state, national, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data, including the Fair Credit Reporting [removed: Act.][added: Act, the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA).]

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

All subsequent written and oral forward-looking statements attributable to

rent growth; and unanticipated disasters and other adverse events such as slowing of the growth in the working age population resulting in reduced demand for all types of real estate.

We expect to increase our investments in sales and marketing in 2020 as we seek

If Internet search engines do not prominently feature our websites on the search engine results page, traffic to our websites would decrease and our business could be adversely affected.* Google, Bing, DuckDuckGo and other Internet search engines drive traffic to our websites, including CoStar.com, the Apartments.com network of rental websites, the LoopNet.com network of commercial real estate websites, the BizBuySell.com network of business for-sale websites and the Land.com network of land for-sale websites.

Our competitors’ Search Engine Optimization (SEO) and Search Engine Marketing (SEM) efforts may result in webpages from their websites receiving higher rankings than the webpages from our websites.

Internet search engines could revise their algorithms and methodologies in ways that would adversely affect our search result rankings.

Internet search engine providers could form partnerships or enter into other business relationships with our competitors resulting in competitors’ sites receiving higher search result rankings.

Internet search engines are increasingly placing alternative search features (such as featured snippets, local map results and other immersive experiences) on the search engine results page above or more prominently than search engine results.

If our search result rankings are not prominently displayed, traffic to our websites may decline which could slow the growth of our user base.

For example, we may be unable to close the RentPath acquisition when or as expected and we may be unable to fully integrate STR with CoStar when and as expected.

Further, certain acquisitions may be subject to regulatory approval, which can be time consuming and costly to obtain or may be denied.

If regulatory approval is denied, we may incur significant, additional costs payable to an acquisition target as a result of failure to close the transaction.

The CCPA, which became effective on January 1, 2020, expands the rights of California residents to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used.

The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation.

security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.

We find our proprietary content on competitors' sites.

We could be subject to third party claims, lawsuits, or government investigations into whether our business practices comport with applicable law, including antitrust law.

Regardless of the merit of such claims or investigations, defending against them could cost us a significant amount of time and money, result in negative publicity, and/or adversely affect our stock price.

and regulations relating to privacy and data protection.

We generally see higher sales of Apartments.com listing services during the peak summer rental season and higher CoStar Suite sales towards the end of the year, however sales fluctuate from year-to-year.

In addition, we generally incur greater marketing expenses during the second quarter, which coincides with the peak season for apartment rentals.

to in this section.

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 applications.

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

In order to support revenues and future revenue growth, we need to continue to develop, train and retain our sales force.

We compete to attract advertisers.

We rely heavily on our brands, which we believe are key assets of our company.

If search results do not feature our websites prominently, traffic to our websites would decrease and our business could be adversely affected.

Google, Bing, Yahoo!

and other Internet search websites drive traffic to our websites, including CoStar.com, the Apartments.com network of rental websites, LoopNet.com,

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

Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than the rankings our websites receive, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings, each of which could slow the growth of our user base.

Further, search engine providers could align with our competitors, which could adversely affect traffic to our websites.

Our ability to generate revenues from our marketplace businesses depends, in part, on our ability to attract users to our websites.

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 owners and other advertisers.

Our success depends on our continued improvements to provide services that make our marketplaces useful for users and attractive to our advertisers.

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.

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.

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

We accept payments for our services through credit and debit card transactions.

The occurrence of any of the

Our focus on internal and external investments may place downward pressure on our operating margins.

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

Third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies.

Currently and from time to time, we are a party to various third party claims, lawsuits, or government investigations.

Any lawsuits, threatened lawsuits or government investigations in which we are involved, whether as plaintiff or defendant, could cost us a significant amount of time and money, could distract management’s attention away from operating our business, could result in negative publicity and could adversely affect our stock price.

Our insurance may not be sufficient to cover any losses we incur in connection with litigation claims.

a stock incentive plan and incentive bonuses for key employees.

Goodwill and identifiable intangible assets not subject to amortization are tested annually by each reporting unit on October 1 of each year for impairment and are tested for impairment more frequently based upon the existence of one or more indicators.

The value of our CRE marketplace services to our customers depends on our ability to increase the number of property listings provided and searches conducted.

The primary source of new customers for our CRE marketplace services is participants in the commercial real estate community.

Due to our acquisitions of CoStar U.K. Limited (formerly FOCUS Information Limited), Property and Portfolio Research Ltd., Grecam S.A.S., Realla Ltd., the assets of Belbex Corporate, S.L., Thomas Daily, as well as our expansion into Canada, a portion of our business is denominated in the British Pound, Euro and Canadian dollar.

On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” On March 29, 2017, the United Kingdom provided its official notice to the European Council that it intends to leave the European Union, commencing a period of up to two years for the U.K. and the other E.U. member states to negotiate the terms of the withdrawal.

We translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements.

their E.U. membership.

New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could increase our cost of doing business.

In particular, there may be significant changes in U.S. laws and regulations by the current U.S. presidential administration that could affect a wide variety of industries and businesses, including our business.

The current U.S. presidential administration has called for substantial change to fiscal and tax policies, and recently adopted tax reform legislation.

If the current U.S. presidential administration materially modifies U.S. laws and regulations or fiscal and other tax policies, our business, financial condition, and results of operations could be adversely affected.

Negative conditions in the global credit markets may affect the liquidity of a portion of our long-term investments.

[removed: Overview][added: Overview]

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

[removed: Information] [added: *Information] and [removed: Analytics][added: Analytics*]

[removed: CoStar Suite®.][added: *CoStar Suite®*.]

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

Our integrated suite of online service offerings includes information about space available [removed: for lease,] [added: for-lease,] comparable sales information, information about properties [removed: for sale,] [added: 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] [added: relationships,] and industry news.

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

[removed: Online Marketplaces][added: *Online Marketplaces*]

On November 8, 2018, we acquired Cozy Services, Ltd. ("Cozy"), a [removed: 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 [added: accompanying] 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 [removed: Cozy.][added: STR.]

[removed: Commercial] [added: *Commercial] property and [removed: land.][added: land*.]

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

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

[removed: On] [added: In addition, 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 [added: accompanying] 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.

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

[removed: As of] [added: For the years ended] December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] our annualized net [added: new] bookings of subscription-based services on all contracts were approximately [removed: $50] [added: $210] million, [removed: $43] [added: $169] million and [removed: $29] [added: $148] 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 the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] our contract renewal rate for existing CoStar subscription-based services on annual contracts was approximately 90%, [removed: 91% and] 90% [added: and 91%] respectively, and, therefore, our cancellation rate for those services was approximately 10%, [removed: 9%, and] 10%, [added: and 9%,] respectively.

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

Our key priorities for [removed: 2019] [added: 2020] include:

| • | [removed: Continuing] [added: Continue] to [removed: develop] [added: invest in CoStar Suite, including capabilities that allow us to broaden the reach of CoStar Suite in Europe by offering multiple languages] and [added: currencies on the platform. We plan to] enhance CoStar Suite by making additional investments in analytical capabilities [removed: and developing products offerings with new capabilities] focused on owners and lenders of commercial real estate. [removed: We also] [added: In addition, we] plan to invest in integrating the technology and infrastructure from other existing [removed: products] [added: service offerings] into the CoStar Suite platform, including CoStar Real Estate Manager, in order to leverage data [added: and technology] across our platforms and provide customers with additional functionality. [removed: 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.] |

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 and functionality within our current platform or expand the reach [removed: of] [added: of, or otherwise improve,] our current service offerings.

[removed: Non-GAAP] [added: Non-GAAP] Financial [removed: Measures][added: Measures]

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

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

Non-GAAP net income [removed: and non-GAAP] [added: is determined by adjusting our] net income [removed: per diluted share are similarly adjusted] for stock-based compensation expense, acquisition- and integration-related [removed: costs,] [added: costs for pending and completed acquisitions,] restructuring costs, settlement and impairment costs incurred outside our ordinary course of business and loss on debt [removed: extinguishment] [added: extinguishment,] as well as amortization of acquired intangible assets and other related [removed: costs.][added: costs, and then subtracting an assumed provision for income taxes.]

[removed: From this figure,] [added: In addition to these exclusions from net income,] we [removed: then] subtract an assumed provision for income taxes to [removed: arrive at] [added: calculate] non-GAAP net income.

We view EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures and as such we believe that the most directly comparable GAAP financial measure [added: to EBITDA, adjusted EBITDA and non-GAAP net income] is net income.

[removed: In calculating EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP] [added: GAAP] net income per diluted share, we exclude from net income 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, [added: adjusted EBITDA margin,] 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 or as an indicator of any other measure of performance derived in accordance with GAAP.

Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, [added: adjusted EBITDA margin,] non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net [removed: income.][added: income and net income per diluted share.]

In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, [added: adjusted EBITDA margin,] non-GAAP net income and non-GAAP net income per diluted share.

We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information [added: to investors] 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, acquisition- and integration-related [removed: costs,] [added: costs for pending and completed acquisitions,] restructuring costs, and loss on debt extinguishment.

Adjusted EBITDA, [added: adjusted EBITDA margin,] 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, acquisition- and integration-related [removed: costs,] [added: costs for pending and completed acquisitions,] 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, acquisition- and integration-related [removed: costs,] [added: costs for pending and completed acquisitions,] 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.

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

| • | The amount of acquisition- and integration- related costs [added: for pending and completed acquisitions] incurred may be useful for investors to consider because [removed: they] [added: such costs] generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable [removed: cycle] [added: cycle,] we do not consider the amount of acquisition- and integration- related costs [added: for pending and completed acquisitions] to be a representative component of the day-to-day operating performance of our business. |

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration- related [removed: costs,] [added: costs for pending and completed acquisitions,] restructuring and related costs and settlement and impairment costs incurred outside our ordinary course of business.

In [removed: 2017] [added: 2019] and [removed: 2016,] [added: 2018,] we assumed a [removed: 38%] [added: 25%] tax [removed: rate,] [added: rate] which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Our sales force is responsible for selling multiple product lines, including CoStar Suite and LoopNet.

During 2020, we plan to shift the focus of our sales force to sales of LoopNet Signature Ads.

As a result, we anticipate CoStar Suite revenue growth will moderate during the year.

Sales of CoStar Real Estate Manager represent a significant portion of our information services revenue.

CoStar Real Estate Manager's revenue growth rates increased significantly in 2018 as new clients adopted, and existing clients expanded their use of, CoStar Real Estate Manager to manage compliance with new lease accounting and reporting requirements which became effective for public companies for financial reporting periods beginning after December 15, 2018.

As a result, we expect the growth rate for CoStar Real Estate Manager to normalize as the initial surge of the demand has eased.

On October 22, 2019, we acquired STR and we now also provide STR’s complementary benchmarking and analytics services to the hospitality industry.

We expect that the acquisition of STR and the combination of STR's and CoStar's offerings will allow us to create valuable new and improved tools for industry participants.

*Multifamily*.

Apartments.comTM is part of our network of apartment marketing sites, which primarily includes ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.comTM, Apartamentos.comTM, Westside Rentals and Off Campus Partners, LLC ("OCP").

On June 12, 2019, we acquired OCP, a provider of student housing marketplace content and technology to U.S. universities.

We expect the multifamily annual revenue growth rate to remain consistent with 2019 as we have fully integrated our ForRent and Cozy acquisitions into our service offerings.

We continue to work on integrating the OCP acquisition and the

services they offer into our Apartments.com network.

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

As part of our rebuild and launch of the LoopNet Signature Ads product, we rolled out new packages in the fourth quarter of 2019.

As a result, the growth rate increased in the fourth quarter of 2019, and LoopNet is expected to continue to grow in the subsequent periods.

Our BizBuySell.com network, which includes BizQuest® and FindaFranchise, provides online marketplaces for businesses for-sale.

| • | Continue to develop, improve and market our recently launched Apartments.com service offerings that focus on the digital rental experience and enable renters to apply for-leases, and for landlords to run tenant credit and background checks and make rent payments, all online through a single platform. We plan to aggressively market our multifamily listing services in an effort to provide more value to advertisers and, in turn, to attract advertisers. As such, we plan to increase our investment in Apartments.com marketing in 2020 by approximately $100 million, which may reduce our margins and profitability while we invest in future growth. The increased investment is focused on search engine marketing and enhanced brand awareness. We also plan to continue to invest in our multifamily business by increasing the size of our sales force with a focus on increasing sales to midsize and smaller apartment communities. |

| • | Obtaining necessary bankruptcy court and regulatory approvals to close the pending acquisition of RentPath and integrating RentPath with the Apartments.com network post-closing. On February 11, 2020, a wholly owned subsidiary of the Company entered into an agreement to acquire for $588 million in cash all of the equity interests of RentPath Holdings, Inc., as reorganized following an internal restructuring pursuant to and under the joint chapter 11 plan of reorganization of RentPath and certain of its subsidiaries. Closing of the acquisition is subject to customary closing conditions, including the expiration or termination of any applicable waiting period under applicable antitrust laws and approval by the bankruptcy court. See Note 19 to the accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for further discussion. |

| • | Continue to invest in the LoopNet marketplace by enhancing the content on the site (including high-quality imagery), seeking targeted advertisements, providing premium listing services (such as LoopNet Signature Ads) that increase a property listing’s exposure, and adding more content for premium listings to better meet the needs of a broader cross section of the commercial real estate industry. Additionally, we initiated training and incentive programs for our sales team to increase sales of LoopNet Signature Ads, with a focus on property owners. |

| • | Integrating recently completed acquisitions, including STR, with CoStar’s business operations. We plan to consolidate STR data and services with CoStar Suite to create an integrated platform. We plan to drive international expansion, in part, through STR's global operations and to apply STR's benchmarking expertise to other commercial real estate segments served by CoStar. |

We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively.

In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-

| CoStar Suite | $ | 617,798 | | | $545,195 | | | | $ | 72,603 | | | 13 | % |

| Multifamily | 490,631 | | | | 405,795 | | | | 84,836 | | | | 21 | |

| Total revenues | 1,399,719 | | | | 1,191,832 | | | | 207,887 | | | | 17 | |

| Gross profit | 1,110,480 | | | | 921,899 | | | | 188,581 | | | | 20 | |

| Income before income taxes | 390,949 | | | | 284,015 | | | | 106,934 | | | | 38 | |

| Net income | $ | 314,963 | | | $ | 238,334 | | | $ | 76,629 | | | 32 | % |

Revenues increased to $1.4 billion in 2019, from $1.2 billion in 2018.

The $208 million increase was primarily attributable to an $85 million, or 21%, increase in multifamily revenue.

The multifamily increase was due to upgrades of existing customer packages to higher value advertising packages, higher volume as a result of recent investments in marketing, and to a lesser extent, growth from the acquisitions of Cozy and OCP.

CoStar Suite revenues increased $73 million, or 13%, primarily due to further increases in pricing and, to a lesser extent, further market penetration and cross-selling of our services.

Information services revenue increased $21 million, or 31%, primarily due to increased revenue of $13 million from our CoStar Real Estate Manager service offerings and $9 million due to the acquisition of STR.

The gross profit percentage was 79% for 2019 compared to 77% for 2018 as revenues increased at a higher rate than cost of revenues.

The increase in cost of revenues of $19 million, or 7%, was primarily due to additional merchant fees and data and content costs of $9 million, primarily attributable to the acquisition of Cozy, additional personnel costs of $8 million and additional costs for research equipment of $3 million.

The increase from the prior year was partially offset by nonrecurring research personnel restructuring costs incurred in the prior year of $3 million.

Selling and marketing expenses increased to $409 million in 2019, from $360 million in 2018.

The increase was primarily attributable to $41 million in additional marketing spend, including $23 million in search engine marketing, $7 million in co-branding and $11 million in other forms of marketing, primarily for Apartments.com.

We are the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the U.S. and the 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 competitors.

We created and compiled our standardized platform of information, analytics and online marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information.

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 services are typically distributed to our clients under subscription-based license agreements that renew automatically, a majority of which have a term of one year.

Upon renewal, subscription contract rates may change in accordance with contract provisions or as a result of contract renegotiations.

To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based services rather than charging fees based on actual system usage or number of paid clicks.

Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality.

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 results, as applicable.

Our subscription clients generally pay contract fees in advance on a monthly basis, but in some cases may pay us in advance on a quarterly or annual basis.

Information services.

We provide real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate Manager service offerings, as well as, portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service offerings.

Multifamily.

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.

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

Our BizBuySell services, which include BizQuest®, provide an online marketplace for businesses for sale.

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

To generate brand awareness and site traffic for our listing sites, we utilize a multi-channel marketing campaign, including television and radio advertising, online/digital advertising, social media and out-of-home ads, and search engine marketing.

We expect to continue to invest in sales and marketing, consistent with historical levels, to promote our sites in 2019.

As we continue to assess the success and effectiveness of our marketing campaign, we will continue to work to determine the optimal level of marketing investment for our services for future periods.

| • | 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 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. |

We subtract an assumed provision for income taxes to calculate 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.

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

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

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

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

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

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

| Loss on extinguishment | — | | | | (3,788 | | ) | | (3,788 | | ) | | NM | |

| Income before income taxes | 284,015 | | | | 165,058 | | | | 118,957 | | | | 72 | |

| Net income | $ | 238,334 | | | $ | 122,695 | | | $ | 115,639 | | | 94 | % |

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

| NM - Not meaningful | | | | | | | | | | | | | | |

Revenues.

Revenues increased to $1,192 million in 2018, from $965 million in 2017.

The $227 million increase was primarily attributable to increased revenues of approximately $82 million or 18% from continued organic growth of CoStar Suite, as well as, conversion of our LoopNet customers to our CoStar platform as a result of integration of the LoopNet and CoStar databases.

Information services revenue decreased $5 million or 7% primarily due to the continued wind down of LoopNet information services, including Premium Searcher, resulting in a loss of $29 million of revenues, partially offset by a $22 million increase in revenues from the continued growth of our CoStar Real Estate Manager offering.

[removed: As such, fluctuations] [added: Fluctuations] in the British Pound, Canadian dollar and Euro may have an impact on our business, results of operations and financial position.

For the year ended December 31, [added: 2019 and December 31,] 2018, revenues denominated in foreign currencies [removed: was] [added: were] approximately [removed: 3%] [added: 4% and 3%, respectively,] of total revenue.

For the year ended December 31, [added: 2019 and December 31,] 2018, our revenues would have decreased by approximately [added: $6 million and] $3 million if the U.S. dollar exchange rate used strengthened by 10%.

For the year ended December 31, [added: 2019 and December 31,] 2018, our revenues would have increased by approximately [added: $6 million and] $3 million if the U.S. dollar exchange rate used weakened by 10%.

As of December 31, [removed: 2018,] [added: 2019,] accumulated other comprehensive loss included a loss from foreign currency translation adjustments of approximately [removed: $11] [added: $8] million.

We do not [added: believe we] have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of December 31, [removed: 2018.][added: 2019.]

As of December 31, [removed: 2018,] [added: 2019,] we had $1.1 billion of cash and cash equivalents.

As of December 31, [removed: 2018,] [added: 2019,] $11 million of our investments in ARS failed to settle at auction.

We had approximately [removed: $2] [added: $2.3] billion [removed: in] [added: of goodwill and] intangible assets as of December 31, [removed: 2018.][added: 2019.]

As of December 31, [removed: 2018,] [added: 2019,] we believe our intangible assets will be [removed: recoverable,] [added: 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.

We provide information, analytics and online marketplace services to commercial real estate and related business communities within the regions where we operate which primarily include, North America, Europe, Asia-Pacific and Latin America.

The functional currency for a majority of our operations is the local currency, with the exception of certain STR international locations for which the functional currency is the British Pound.

Fluctuations in the exchange rates of revenues denominated in any other foreign currencies would have had an immaterial impact on our consolidated results.

We provide information, analytics and online marketplace services to the commercial real estate and related business community in the U.S., the U.K., and parts of Canada, Spain, Germany and France.

Our functional currency for our operations in the U.K., Canada, Spain, Germany and France is the local currency.

We [added: have] created and compiled [removed: our] [added: a] standardized platform of information, analytics and online marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information.

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which [added: primarily] includes [removed: the U.K., Spain, Germany] [added: Europe, Asia-Pacific] and [removed: France.][added: Latin America.]

[removed: Strategy][added: Strategy]

Over time, we have [removed: expanded] [added: expanded, and we continue to expand,] our services for commercial real estate information, analytics and online marketplaces in an effort to continue to meet the needs of the industry as it grows and evolves.

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

We deliver our [added: comprehensive] commercial real estate information content to our U.S. [added: and certain] customers [added: in Europe] primarily via an integrated suite of online service offerings that includes information about space available [removed: for lease,] [added: for-lease,] comparable sales information, information about properties [removed: for sale,] [added: for-sale,] tenant information, Internet marketing services, analytical capabilities, information for clients’ websites, information about industry professionals and their business relationships, data integration and industry news.

[removed: Most recently, on October 12, 2018,] [added: In 2019,] we [removed: acquired] [added: completed the integration of] Realla Ltd. [removed: ("Realla"),] [added: (“Realla”),] the operator of a commercial property listings and data management platform [added: that we acquired] in [removed: the U.K., including a free-to-list search engine for commercial property listings.][added: October 2018, with our CoStar UK operations.]

Information about [removed: CoStar’s] [added: our] revenues, long-lived assets and total assets derived from and located [removed: in,] [added: in] foreign countries is included in Notes 2, 3 and [removed: 13] [added: 14] 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 Notes 3 and [removed: 13] [added: 14] to our consolidated financial statements.

We have five flagship brands - [removed: CoStar®, LoopNet®,] [added: CoStar*®*, LoopNet*®*,] Apartments.comTM, [removed: BizBuySell®] [added: BizBuySell*®*] and [removed: LandsofAmericaTM.][added: LandsofAmericaTM, which are accessible via the Internet and through our mobile applications.]

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

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

[added: COMPS Professional® and] CoStar [removed: Suite] [added: Tenant®, and] is our [removed: primary] [added: largest] service offering in our North America and International operating segments.

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

Our apartment marketing network draws on and leverages CoStar’s multifamily database, which contains detailed information on apartment [removed: properties.][added: properties and is designed to meet renter preferences and demands, in order to drive traffic to those sites and attract advertisers who prefer to advertise on heavily trafficked apartment websites.]

Our network of apartment marketing sites [removed: provide] [added: provides] 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, [removed: the] [added: we have] sites [added: that] also offer innovative search tools such as the PolygonTM Search tool, which [removed: allows] [added: allow] renters to specifically define the area in which they want to find an [removed: apartment.][added: apartment and Plan Commute tools, which allow renters to search property listings that meet their transportation needs.]

We also offer complementary services to the apartment industry, including [removed: tenant screening services, rental applications] [added: the ability for renters to apply for rentals online,] and [added: for landlords to receive applications, screen tenants, and process rental] payments [removed: processing] and lease renewals.

On November [removed: 8,] [added: 18,] 2018, we acquired Cozy Services, Ltd. [removed: ("Cozy"),] [added: (“Cozy”),] a leading provider of online rental solutions [removed: that provides] [added: offering] a broad spectrum of services to both landlords and [removed: tenants, including property listings, rent estimates, rental applications, tenant screening, online rent payments and expense tracking.][added: tenants.]

Our BizBuySell services, which include [removed: BizQuest®,] [added: BizQuest® and FindaFranchise,] provide an online marketplace for businesses [removed: for sale.][added: and franchises for-sale.]

Our LandsofAmerica services, which include LandAndFarm and LandWatch®, provide an online marketplace for rural lands [removed: for sale that is] [added: for-sale and are] also accessible via our Land.com domain.

[removed: We also provide] [added: These include] real estate and lease management solutions, [removed: including] lease administration and abstraction services, through our CoStar Real Estate Manager service [removed: offerings, as well as,] [added: offerings;] market research, consulting and analysis, portfolio and debt analysis, [added: and] management and reporting [removed: capabilities] [added: capabilities,] through our CoStar Investment Analysis and CoStar Risk Analytics service [added: offerings; and benchmarking and analytics for the hospitality industry through our STR service] offerings.

Our services are typically distributed to our clients under subscription-based license agreements that renew automatically, a majority of which have a term of [added: at least] one year.

[removed: Expansion] [added: Expansion] and [removed: Growth][added: Growth]

We have [removed: continually] expanded [added: and continue to expand] the [removed: geographical] coverage [added: and depth] of our [removed: existing information services and developed new] information, analytics and online marketplace services.

[removed: ForRent’s primary service is] [added: | *•* | *ForRent.com®* provides] digital advertising through a network of four multifamily [removed: websites,] [added: websites -] which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com. [added: |]

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

We [removed: plan] [added: continue] to integrate [removed: the Cozy suite] [added: Cozy's online rental and payments] technology into the [removed: Aparments.com] [added: Apartments.com] platform, creating an integrated online rental solution.

[removed: In particular, we expect to implement the ability for] [added: The new platform allows] renters to apply [removed: for leases] [added: for-leases] online, for landlords to run tenant credit and background checks [removed: online and, eventually, for landlords] and [removed: tenants to generate and enter into leases and to] make and process [removed: payments online.][added: online payments.]

[removed: We plan to integrate Realla with our CoStar UK operations, including development of a] [added: A] single point of data entry [removed: to allow] [added: now allows] 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.

We believe that our integration efforts and continued investments in our services, including [added: acquisitions and] expansion of our existing service offerings, have created a platform for long-term revenue growth.

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.][added: offerings, and plan to continue to invest in, evaluate and strategically position our sales force as the Company continues to develop and grow.]

[removed: We also] [added: Specifically, we] continue to invest in [added: marketing] our [added: services, as well as in our] research operations to support continued growth of our information and analytics offerings to meet the growing content needs of our clients.

While we believe [added: the] investments we make in our business create a platform for growth, those investments may reduce our profitability and adversely affect our [added: near-term] financial position.

[removed: Industry Overview][added: Industry Overview]

Members of the commercial real estate and related business community require daily access to current data such as space availability, properties [removed: for sale,] [added: for-sale,] rental units available, rental rates, vacancy rates, tenant movements, sales comparables, supply, new construction, absorption rates and other important market developments to carry out their businesses effectively.

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

[added: 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.

| • | Investment [added: and commercial] bankers | • | Building services vendors |

| • | [removed: Commercial] [added: Mortgage] bankers | • | Communications providers |

On October 22, 2019, we acquired STR, Inc. and STR Global, Ltd. (together with STR, Inc., "STR"), which provides benchmarking and analytics for the hospitality industry.

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

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®, Apartamentos.comTM, which is our apartment-listing site offered exclusively in Spanish, and OffCampusPartners.com, which we acquired on June 12, 2019, and which provides student housing marketplace content and powers off campus housing sites for many universities across the U.S. Our apartment marketing network of subscription-based services offers renters a searchable database of apartment listings and provides property owners, professional property management companies and landlords with an advertising destination.

We provide other services that complement those offered through our five flagship brands.

We generally see higher sales of Apartments.com listing services during the peak summer rental season and higher CoStar suite sales towards the end of the year, however sales fluctuate from year-to-year and revenue is not generally seasonal because our services are typically sold on a subscription basis.

Most recently, on June 12, 2019, we acquired Off Campus Partners, LLC (“OCP”), a provider of student housing marketplace content and technology to U.S. universities, and on October 22, 2019, we acquired STR, a global provider of benchmarking and analytics for the hospitality industry.

We continue to integrate our recent acquisitions and the services they offer into our CoStar network.

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

On February 11, 2020, we agreed to acquire, for $588 million in cash, all the equity interests of RentPath, as reorganized following an internal restructuring pursuant to and under the joint chapter 11 plan of reorganization of RentPath and certain of its subsidiaries.

Closing of the acquisition is subject to customary closing conditions, including the expiration or termination of any applicable waiting period under applicable antitrust laws and approval by the bankruptcy court.

RentPath is a provider of digital marketing solutions for rental properties through a network of Internet listing websites, including Rent.com, ApartmentsGuide.com, Rentals.com and LiveLovely.com.

See Note 19 to the accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for further discussion of this acquisition.

Over time, we plan to integrate STR data and services with CoStar Suite to create new products and services for our customers.

We plan to drive international expansion, in part, through STR's global operations and to apply STR's benchmarking expertise to other commercial real estate segments served by CoStar.

We plan to significantly increase our investment in Apartments.com marketing in 2020, including search engine marketing and TV and digital video advertising.

CoStar Suite® is our integrated suite of online commercial real estate service offerings, which includes information about space available for-lease, information about properties for-sale, comparable sales information, tenant information, market analytics including leasing, sales and construction trends, information about industry professionals and their business relationships and industry news.

CoStar Suite includes the following products and services, which are delivered through desktop, mobile and other Internet-connected devices to our subscribers primarily in our North American and European markets.

| *•* | *CoStar Property® and for-sale* provide a comprehensive inventory of office, industrial, retail, multifamily and student housing properties and land. We also provide for-lease and for-sale listings, historical data, property analytics, building photographs, demographics, maps and floor plans. Commercial real estate professionals use CoStar Property to identify available space for-lease, evaluate leasing and sale opportunities, value assets and position properties in the marketplace. Our clients also use CoStar Property to analyze market conditions by calculating current vacancy rates, absorption rates or average rental rates, and forecasting future trends based on user selected variables. CoStar Property provides subscribers with powerful map-based search & reporting capabilities. |

| • | *CoStar Market Analytics* provides owners, investors, brokers property managers, lenders, appraisers and other commercial real estate professionals the ability to view and report on aggregated market and submarket trends, including leasing, vacancy, rental rates, construction, investment sales activity and overall economic conditions that affect commercial real estate markets. CoStar Market Analytics covers all major real estate sectors including office, industrial, retail, multifamily and student housing, and provides quantitatively driven and economist curated forecasts of supply, demand, vacancy, and rent at the submarket level, and job growth and asset pricing at the market level. |

| *•* | *CoStar Tenant*® is a detailed online business-to-business prospecting and analytical tool providing commercial real estate professionals with the most comprehensive commercial real estate-related tenant information available in our North American markets. CoStar Tenant profiles tenants occupying space in commercial buildings and provides updates on lease expirations - one of the service’s key features - as well as occupancy levels, growth rates and numerous other facts. Delivering this information via the Internet allows users to target prospective clients quickly through a searchable database that identifies only those tenants meeting certain criteria. |

| *•* | *CoStar Lease Comps* provides subscribers comprehensive data regarding CoStar researched lease transactions and a software tool to capture, manage and maintain their own user-entered lease data. In addition, CoStar Lease Comps provides subscribers the ability to analyze this combined lease dataset from an aggregate analytic perspective and generate various reports. |

| *•* | *CoStar Lease Analysis®* is a workflow tool that is part of CoStar Suite and allows subscribers to incorporate CoStar data with their own data to perform in-depth lease analyses and share those analyses with other subscribers or non-subscribers. CoStar Lease Analysis can be used to produce an understandable cash flow analysis as well as key metrics about any proposed or existing lease. It combines financial modeling with CoStar’s comprehensive property information, enabling the subscriber to compare lease alternatives, either from a landlord or tenant perspective. |

| • | *CoStar Public Record* is CoStar’s newest commercial real estate servicing offering. It provides access to a searchable database of nearly 38 million commercially-zoned parcels in the U.S. Users can search for property attributes, sale transaction, loan, lien and tax assessments information. Information in this module is sourced from numerous counties and jurisdictions that provide this data for ownership, title and property tax assessment purposes. |

*STAR Report* is STR’s data analytics report.

It provides hospitality benchmarking, measuring a hotel’s performance against a self-selected aggregated competitive set.

STR's confidential data reports enable customers to understand their market position based on trends and indices.

Reports are provided on a monthly, weekly or daily basis and provide insights about key metrics

such as occupancy, average daily rate (ADR) and revenue per available room (RevPAR).

STAR Reports are only available to industry participants who provide data to STR -- typically hotel brands, third party management companies and owners.

STR also offers ad hoc reports with a customizable data set providing aggregated hotel performance data for a bespoke set of hotels or standardized industry segments (e.g. market or submarket).

Apartments.com also provides tools to facilitate the rental process, including online applications, background and credit checks and rental payment processing.

The Apartments.com network consists of numerous other apartment marketing sites, including:

| *•* | *Off Campus Partners* provides student housing marketplace content and technology to U.S. universities, simplifying the off-campus housing search process for universities, property managers, and students. |

Our overall sales strategy is to attract new clients, renew existing customers and cross-sell the numerous solutions we have to offer.

Our inside sales professionals actively work lead lists, prospect for new customers and perform product demonstrations over the telephone.

They utilize the Internet and remote presentation tools to convey the multiple solutions we have to offer.

This enables our clients to benefit from a local presence.

Our local offices act as hubs for training, sources of market insight, product feedback sessions and connecting industry participants.

We use incentives, including discounts to encourage existing clients to buy additional products and services.

This deepens our customer relationships and offers more value.

We have also extended our offering of comprehensive commercial real estate information geographically to include the U.K., Canada, Spain, Germany and France, through acquisitions and internal growth and development.

to the commercial real estate industry and related professionals.

Our subscription-based information services consist primarily of CoStar Suite® services.

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 apartment listings and provides professional property management companies and landlords with an advertising destination.

Our apartment marketing sites are designed to meet renter preferences and demands, in order to drive traffic to those sites and attract advertisers who prefer to advertise on heavily trafficked apartment websites.

Apartments.com and Apartamentos.com also offer Plan Commute tools, which allow renters to search property listings that meet their transportation needs.

We completed the acquisition of ForRent, a division of Dominion Enterprises, including the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com apartment marketing sites on February 21, 2018.

We have created and are continually improving our standardized platform of information, analytics and online marketplaces where members of the commercial real estate and related business community can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized commercial real estate information.

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.

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

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

We are expanding the geographic reach of our services.

We plan to continue to invest in, evaluate and strategically position our sales force as the Company continues to develop and grow.

We 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.

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.

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

Research Department.

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

Data and Image Providers.

Management and Quality Control Systems.

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

CoStar Suite® is our platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and is accessible via the Internet and through our mobile applications, CoStar Mobile App and CoStar Go.

CoStar Property Professional® CoStar Property Professional, or “CoStar Property,” is the Company’s flagship service.

It provides subscribers a comprehensive inventory of office, industrial, retail and multifamily properties and land in markets throughout the U.S., the U.K. and parts of Canada, including for-lease and for-sale listings, historical data, building photographs, maps and floor plans.

Commercial real estate professionals use CoStar Property to identify available space for lease, evaluate leasing and sale opportunities, value assets and position properties in the marketplace.

Our clients also use CoStar Property to analyze market conditions by calculating current vacancy rates, absorption rates or average rental rates, and forecasting future trends based on user selected variables.

CoStar Property provides subscribers with powerful map-based search capabilities as well as a user controlled, password protected extranet (or electronic “file cabinet”) where brokers may share space surveys and transaction-related documents online, in real time, with team members.

When used together with CoStar Connect®, CoStar Property enables subscribers to share space surveys and transaction-related documents with their clients, accessed through their corporate website.

CoStar Property, along with all of CoStar’s other core information, analytics and online marketplaces, is delivered to desktop, mobile and other Internet-connected devices.

CoStar COMPS Professional® CoStar COMPS Professional, or “CoStar COMPS,” provides comprehensive coverage of comparable commercial real estate sales information in the U.S., the U.K. and parts of Canada.

CoStar COMPS offers subscribers numerous fields of property information, access to support documents (e.g., deeds of trust) for new comparables,

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 Tenant® CoStar Tenant is a detailed online business-to-business prospecting and analytical tool providing commercial real estate professionals with the most comprehensive commercial real estate-related tenant information available in the U.S., the U.K. and parts of Canada.

CoStar Tenant profiles tenants occupying space in commercial buildings and provides updates on lease expirations - one of the service’s key features - as well as occupancy levels, growth rates and numerous other facts.

Delivering this information via the Internet allows users to target prospective clients quickly through a searchable database that identifies only those tenants meeting certain criteria.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] DC [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[removed: ANNUAL] [added: | ☒ | ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF [added: THE SECURITIES EXCHANGE ACT OF 1934 |]

[added: | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF] THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934 |]

[removed: For] [added: For] the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2018][added: 2019]

[removed: Commission] [added: Commission] file [removed: number 0-24531][added: number 0-24531]

[removed: ][added: ]

[removed: | CoStar] [added: CoStar] Group, [removed: Inc. |][added: Inc.]

[removed: | (Exact] [added: *(Exact] name of registrant as specified in its [removed: charter) |][added: charter)*]

| [removed: Delaware] [added: Delaware] | [removed: 52-2091509] | [added: 52-2091509 |]

| [removed: (State] [added: *(State] or other jurisdiction [removed: of incorporation] [added: of* *incorporation] or [removed: organization)] [added: organization)*] | [removed: (I.R.S. Employer Identification No.)] | [added: *(I.R.S. Employer* *Identification No.)* |]

| [removed: 1331] [added: 1331] L Street, [removed: NW, Washington, DC 20005] [added: NW] | | [added: |]

[removed: | (Address] [added: *(Address] of principal executive offices) (zip [removed: code) | |][added: code)*]

[removed: | (202) 346-6500 | |][added: (202) 346-6500]

[removed: | (Registrant’s] [added: *(Registrant’s] telephone number, including area [removed: code) | |][added: code)*]

[removed: | (877) 739-0486 | |][added: (877) 739-0486]

[removed: | (Registrant’s] [added: *(Registrant’s] facsimile number, including area [removed: code) | |][added: code)*]

| [removed: Title] [added: Title] of [removed: Each Class] [added: each class] | [removed: Name] [added: Trading Symbol | Name] of [removed: Each Exchange] [added: each exchange] on [removed: Which Registered] [added: which registered] |

| Common [removed: Stock, $.01] [added: Stock ($0.01] par [removed: value] [added: value)] | [removed: NASDAQ] [added: CSGP | Nasdaq] Global Select Market |

Securities registered pursuant to [removed: Section] [added: section] 12(g) of the Act: [added: None]

Yes x No [removed: ¨][added: o]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the [removed: Exchange] Act.

Yes [removed: ¨] [added: o] No x

Indicate by check mark whether the [removed: registrant:] [added: registrant] (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such [removed: reports),] [added: reports)] and (2) has been subject to such filing requirements for the past 90 days.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or [added: an] emerging growth company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer,”] [added: filer”,] “smaller reporting [removed: company”] [added: company,”] and "emerging growth company" in Rule 12b-2 of the [removed: Securities] Exchange [removed: Act of 1934.][added: Act.]

| Large accelerated filer [added: |] x | Accelerated filer [removed: ¨] | [added: o |]

| Non-accelerated filer [removed: ¨] | [added: o |] Smaller reporting company [removed: ¨] | [added: ☐ |]

| | [added: |] Emerging growth company [removed: ¨] | [added: ☐ |]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the [removed: Exchange] Act).

[removed: Based on] [added: As of June 28, 2019,] the [added: aggregate market value of the common stock (based upon the] closing price of the [removed: common] stock on [removed: June 29, 2018 on] the Nasdaq Global Select [removed: Market, the aggregate market value] [added: Market)] of [removed: registrant’s common stock] [added: the registrant] held by non-affiliates [removed: of the registrant as of June 29, 2018] was approximately [removed: $15] [added: $20] billion.

As of February [removed: 22, 2019, there were 36,451,829] [added: 21, 2020, 36,644,734] shares of [removed: the registrant’s] common stock [added: were] outstanding.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

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: 2018,] [added: 2019,] are incorporated by reference into Part III of this Report.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| [removed: PART I] [added: PART I] | | |

| Item 1. | [removed: [Business](#s2F4B8CC079FC5B09B10DC46D3077516C)] [added: [Business](#s6B1A6B21040653E095EE4183327303AA)] | [removed: [4](#s2F4B8CC079FC5B09B10DC46D3077516C)] [added: [4](#s6B1A6B21040653E095EE4183327303AA)] |

OR

For the transition period from ______ to ______

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

| Washington, | DC | 20005 |

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

| | | |

Yes x No o

Yes x No o

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

| | | | |

Yes ☐ No x

| | | |

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

| | | |

| | | |

| | | |

| | | |

| | [Signatures](#s1A0390F591B25736ABDE103A8B9D6335) | [53](#s1A0390F591B25736ABDE103A8B9D6335) |

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

| |

| --- |

| | |

| --- | --- |

None

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Our headquarters is located at 1331 L Street, NW, in downtown Washington, DC, where we occupy approximately [removed: 157,494] [added: 159,331] square feet of office space, with a lease that expires May 31, 2025 (with two 5-year renewal options).

We also operate our research functions out of leased office spaces in Richmond, [removed: Virginia,] [added: Virginia;] San Diego, [removed: California] [added: California;] and Atlanta, Georgia.

These locations include, among others, the following: [removed: Austin, Texas;] [added: Hendersonville, Tennessee; Irvine, California;] Boston, Massachusetts; [removed: Chicago, Illinois; Irvine,] [added: San Francisco,] California; [removed: Los Angeles,] [added: Ontario,] California; and [removed: San Francisco,] [added: Los Angeles,] California.

[removed: PART II][added: PART II]

Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.” As of [removed: February 1, 2019,] [added: January 31, 2020,] there were [removed: 1,422] [added: 1,527] holders of record of our common stock.

[added: *Dividend Policy.*] We have never declared or paid any dividends on our common stock.

[added: *Recent Issues of Unregistered Securities.*] We did not issue any unregistered securities during the years ended December 31, [removed: 2017 and] 2018 [added: and 2019] other than as disclosed in our Current Report on Form 8-K filed with the SEC on February 21, 2018.

[added: *Issuer Purchases of Equity Securities.*] 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: 2018:][added: 2019:]

| Month, [removed: 2018] [added: 2019] | | 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 |

| November 1 through 30 | | [removed: —] [added: 1,221] | | | [removed: —] [added: 568.88] | | — | | — |

[removed: Stock] [added: Stock] Price Performance [removed: Graph][added: Graph]

| • | An equal investment in the S&P 500 Internet [removed: Software &] Services [added: & Infrastructure] Index. |

The comparison covers the period beginning December 31, [removed: 2013,] [added: 2014,] and ending on December 31, [removed: 2018,] [added: 2019,] and assumes the reinvestment of any dividends.

[removed: ][added: ]

| Company / Index | | [removed: 12/31/13 | | | |] 12/31/14 | | | | 12/31/15 | | | | 12/31/16 | | | | 12/31/17 | | | | 12/31/18 | | | [added: | 12/31/19 | | |]

| October 1 through 31 | | 1,609 | | | $594.50 | | — | | — |

| December 1 through 31 | | 1,481 | | | 596.27 | | — | | — |

| Total | | 4,311 | (1) | | $587.85 | | — | | — |

| CoStar Group, Inc. | | $ | 100.00 | | | $ | 112.56 | | | $ | 102.65 | | | $ | 161.71 | | | $ | 183.71 | | | $ | 325.82 | |

| S&P 500 Index | | 100.00 | | | | 101.38 | | | | 113.51 | | | | 138.29 | | | | 132.23 | | | | 173.86 | | |

| S&P 500 Internet Services & Infrastructure Index (1) | | 100.00 | | | | 133.32 | | | | 140.22 | | | | 197.36 | | | | 180.67 | | | | 242.93 | | |

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

(1) As a result of revisions to the Global Industry Classification Standards, we now prepare the comparison above using the S&P 500 Internet Services & Infrastructure index.

This index replaced the discontinued Internet Software & Services index that we used previously; however, the S&P 500 Internet Services & Infrastructure index uses the historical information from the discontinued index.

Therefore, there is no change in the historical data presented under the index.

Dividend Policy.

Recent Issues of Unregistered Securities.

Issuer Purchases of Equity Securities.

| 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 | | |

[removed: Selected Consolidated] [added: Selected] Financial [removed: and Operating Data][added: Data]

[removed: (in] [added: (in] thousands, except per share [removed: data)][added: data)]

The following table provides selected consolidated financial [removed: and other operating] data for the five years ended December 31, [removed: 2018.][added: 2019.]

The consolidated statements of operations data shown below for each of the three years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] and the consolidated balance sheet data as of December 31, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] 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: 2015] [added: 2016] and [removed: 2014] [added: 2015] and the consolidated balance sheet data as of December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] shown below are derived from audited consolidated financial statements for those years that are not included in this report.

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

| [removed: Consolidated] [added: Consolidated] Statements of Operations [removed: Data:] [added: Data:] | [removed: 2014] [added: 2015] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2018] [added: 2019] | | |

| Revenues | $ | [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] | | | $ | [removed: 1,191,832] [added: 1,399,719] | |

| Cost of revenues | [removed: 156,979 | | | |] 188,885 | | | | 173,814 | | | | 220,403 | | | | 269,933 | | | [added: | 289,239 | | |]

| Gross profit | [removed: 418,957 | | | |] 522,879 | | | | 663,816 | | | | 744,827 | | | | 921,899 | | | [added: | 1,110,480 | | |]

| Operating expenses | [removed: 338,079 | | | |] 511,424 | | | | 518,911 | | | | 571,011 | | | | 648,335 | | | [added: | 746,933 | | |]

| Income from operations | [removed: 80,878 | | | |] 11,455 | | | | 144,905 | | | | 173,816 | | | | 273,564 | | | [added: | 363,547 | | |]

| Interest and other income | [removed: 516 | | | |] 537 | | | | 1,773 | | | | 4,044 | | | | 13,281 | | | [added: | 30,017 | | |]

| Interest and other expense | [removed: (10,481] [added: (9,411] | | ) | | [removed: (9,411] [added: (10,016] | | ) | | [removed: (10,016] [added: (9,014] | | ) | | [removed: (9,014] [added: (2,830] | | ) | | [removed: (2,830] [added: (2,615] | | ) |

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

| Income before income taxes | [removed: 70,913 | | | |] 2,581 | | | | 136,662 | | | | 165,058 | | | | 284,015 | | | [added: | 390,949 | | |]

| Income tax expense | [removed: 26,044 | | | |] 6,046 | | | | 51,591 | | | | 42,363 | | | | 45,681 | | | [added: | 75,986 | | |]

| Net income (loss) | $ | [removed: 44,869 | | | $ |] (3,465 | ) | | $ | 85,071 | | | $ | 122,695 | | | $ | 238,334 | | [added: | $ | 314,963 | |]

| Net income (loss) per share — basic | $ | [removed: 1.48 | | | $ |] (0.11 | ) | | $ | 2.64 | | | $ | 3.70 | | | $ | 6.61 | | [added: | $ | 8.67 | |]

| Net income (loss) per share — diluted | $ | [removed: 1.46 | | | $ |] (0.11 | ) | | $ | 2.62 | | | $ | 3.66 | | | $ | 6.54 | | [added: | $ | 8.60 | |]

| Weighted average shares outstanding — basic | [removed: 30,215 | | | |] 31,950 | | | | 32,167 | | | | 33,200 | | | | 36,058 | | | [added: | 36,310 | | |]

| Weighted average shares outstanding — diluted | [removed: 30,641 | | | |] 31,950 | | | | 32,436 | | | | 33,559 | | | | 36,448 | | | [added: | 36,630 | | |]

| | [removed: As] [added: As] of December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] Balance Sheet [removed: Data:] [added: Data:] | [removed: 2014] [added: 2015] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2018] [added: 2019] | | |

| Cash, cash equivalents and long-term investments | $ | [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] | | | $ | [removed: 1,110,486] [added: 1,080,801] | |

| Working capital | [removed: 480,521 | | | |] 337,452 | | | | 472,545 | | | | 1,141,269 | | | | 1,059,139 | | | [added: | 992,109 | | |]

| Total assets | [removed: 2,070,483 | | | |] 2,079,571 | | | | 2,185,063 | | | | 2,873,441 | | | | 3,312,957 | | | [added: | 3,853,986 | | |]

| Total long-term liabilities | [removed: 440,982 | | | |] 400,510 | | | | 375,904 | | | | 75,525 | | | | 136,856 | | | [added: | 241,337 | | |]

| Stockholders’ equity | [removed: 1,513,546 | | | |] 1,543,780 | | | | 1,654,213 | | | | 2,651,250 | | | | 3,021,942 | | | [added: | 3,405,593 | | |]

[removed: As of December 31, 2018, we] [added: 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 [removed: procedures.][added: procedures as of the end of the fiscal year.]

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance [removed: level.][added: level as of December 31, 2019.]

During [removed: 2018,] [added: 2019,] we continued to implement a [removed: new] financial system that is designed to improve the efficiency and effectiveness of our operational and financial accounting processes.

This implementation is expected to continue [removed: through 2019.][added: beyond 2020.]

[removed: Management’s] [added: Management’s] Report on Internal Control over Financial [removed: Reporting][added: Reporting]

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: 2018] [added: 2019] based on criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring [removed: Organizations of the Treadway Commission (“the COSO Framework”).]

[added: 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: 2018.][added: 2019.]

[removed: 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, [removed: 2018.][added: 2019.]

The excluded aggregate financial position of [removed: ForRent, Realla Ltd.] [added: OCP] and [removed: Cozy Ltd.] [added: STR] represented less than 1% of our total assets as of December 31, [removed: 2018,] [added: 2019,] and less than [removed: 4%] [added: 1% and 2%] of our revenues [added: and net income, respectively,] for the year then ended.

We will include the internal controls of [removed: ForRent, Realla Ltd.] [added: OCP] and [removed: Cozy Services, Ltd.] [added: STR] in our assessment of the effectiveness of our internal control over financial reporting as of December 31, [removed: 2019.][added: 2020.]

Organizations of the Treadway Commission (“the COSO Framework”).

On June 12, 2019, we completed the acquisition of OCP and on October 22, 2019, we completed the acquisition of STR.

Management's assessment included an evaluation of the

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

[removed: PART III][added: PART III]

Copies of each of these codes may be found in the “Investors” section of the Company’s website at [removed: http://www.costargroup.com/investors/governance.][added: www.investors.costargroup.com/leadership.]

We intend to disclose future amendments to certain provisions of our Codes, or waivers of such provisions granted to executive officers and directors, as required by [removed: SEC] [added: the Security of Exchange ("SEC')] rules on the website within four business days following the date of such amendment or waiver.

The remaining information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2019] [added: 2020] annual meeting of [removed: stockholders.][added: stockholders under the captions “Nominees for the Board of Directors,” “Nominees’ Business Experience, Qualifications and Directorships,” “Information about our Executive Officers and Key Employees,” and “Board Meetings and Committees.”]

The information required by this Item is incorporated by reference to our Proxy Statement for our 2020 annual meeting of stockholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation Tables and Discussion,” “Narratives to Summary Compensation Table and Grants of Plan-Based Awards Table,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”

The information required by this Item is incorporated by reference to our Proxy Statement for our 2019 annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2019] [added: 2020] annual meeting of [removed: stockholders.][added: stockholders under the captions “Equity Compensation Plan Information” and “Stock Ownership Information.”]

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2019] [added: 2020] annual meeting of [removed: stockholders.][added: stockholders under the captions “Certain Relationships and Related Transactions” and “Corporate Governance Matters.”]

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2019] [added: 2020] annual meeting of [removed: stockholders.][added: stockholders under the caption “Ratification of the Appointment of Independent Registered Public Accounting Firm.”]

[removed: PART IV][added: PART IV]

[removed: Schedule] [added: Schedule] II – Valuation and Qualifying [removed: Accounts][added: Accounts]

The table below details the activity of the allowance for doubtful accounts and sales [removed: credits(1)] [added: credits (1)] for the years ended December 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016] [added: 2017] (in thousands):

| | | [removed: Balance at Beginning of Year] [added: Balance at Beginning of Year] | | | | [removed: Charged to Expense] [added: Charged to Expense] | | | | [removed: Reductions] [added: Reductions] | | | | [removed: Balance at End] [added: Balance at End] of [removed: Year] [added: Year] | | |

[removed: Exhibits][added: Exhibits]

| [removed: Exhibit No.] [added: Exhibit No.] | | [removed: Description] [added: Description] |

| [removed: [10.28](http://www.sec.gov/Archives/edgar/data/1057352/000105735217000053/form8-k9x11x17tidewaterxspa.htm)] [added: [10.30](http://www.sec.gov/Archives/edgar/data/1057352/000105735219000089/wordcompiledspa.htm)] | | Securities Purchase Agreement, dated as of September [removed: 11, 2017,] [added: 30, 2019,] among CoStar [added: Group, Inc., CoStar] Realty Information, Inc., CoStar [removed: Group, Inc., LTM Company Dominion,] [added: Portfolio Strategy,] LLC, [removed: Dominion Enterprises,] [added: STR, Inc., STR Global, Ltd., the seller parties thereto,] and [removed: Landmark Media Enterprises, LLC] [added: Randell Smith, in his capacity as Sellers’ Representative] (Incorporated by reference to Exhibit 10.1 to the [removed: Registrant’s] [added: Registrant's] Current Report on Form 8-K filed with the Commission on [removed: September 13, 2017).] [added: October 2, 2019).] |

| [removed: [21.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex211_20181231.htm)] [added: [21.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex21120191231.htm)] | | Subsidiaries of the Registrant (filed herewith). |

| [removed: [23.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex231_20181231.htm)] [added: [23.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex23120191231.htm)] | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith). |

| [removed: [31.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735219000017/csgp-ex311_20181231.htm)] [added: [31.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex31120191231.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/1057352/000105735219000017/csgp-ex312_20181231.htm)] [added: [31.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex31220191231.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/1057352/000105735219000017/csgp-ex321_20181231.htm)] [added: [32.1](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex32120191231.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/1057352/000105735219000017/csgp-ex322_20181231.htm)] [added: [32.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex32220191231.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). |

| [removed: 101] [added: 101.INS] | | The following [removed: materials] [added: financial statements] from [removed: CoStar Group, Inc.’s] [added: the Company’s] Annual Report on Form 10-K for the year ended December 31, [removed: 2018,] [added: 2019,] formatted in [removed: XBRL (eXtensible Business Reporting Language):] [added: Inline XBRL:] (i) Consolidated Statements of [removed: Operations for the years ended December 31, 2018, 2017 and 2016, respectively;] [added: Operations;] (ii) Consolidated Statements of Comprehensive [removed: Income for the years ended December 31, 2018, 2017 and 2016, respectively;] [added: Income;] (iii) Consolidated Balance [removed: Sheets at December 31, 2018 and December 31, 2017, respectively;] [added: Sheets;] (iv) Consolidated Statements of [removed: Changes in Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016, respectively; (v) Consolidated Statements of] Cash [removed: Flows for the years ended December 31, 2018, 2017] [added: Flows;] and [removed: 2016, respectively; (vi)] [added: (v)] Notes to [removed: the] Consolidated Financial [removed: Statements that have been detail tagged; and (vii) Schedule II – Valuation] [added: Statements, tagged as blocks of text] and [removed: Qualifying Accounts (submitted electronically with this report).] [added: including detailed tags.] |

| Year ended December 31, 2019 | | $ | 5,709 | | | $ | 10,978 | | | $ | 11,590 | | | $ | 5,097 | |

| [4.2](https://www.sec.gov/Archives/edgar/data/1057352/000105735220000036/csgp-ex4220191231.htm) | | Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith). |

| Exhibit No. | | Description |

| Exhibit No. | | Description |

| [10.31](http://www.sec.gov/Archives/edgar/data/1057352/000105735220000021/a151075452616rushmore-.htm) | | Asset Purchase Agreement, dated as of the Petition Date (on or about February 12, 2020), among CSGP Holdings, LLC, CoStar Group, Inc. (solely for the specified purposes), RentPath Holdings, Inc. and the other Sellers named therein (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2020). |

| 101.SCH | | XBRL Taxonomy Extension Schema Document. |

| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |

| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |

| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |

| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |

| 104 | | The cover page from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (included as Exhibit 101). |

| Year ended December 31, 2016 | | $ | 7,478 | | | $ | 7,358 | | | $ | 8,492 | | | $ | 6,344 | |

| [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: SIGNATURES][added: SIGNATURES]

Pursuant to the requirements of Section 13 [added: or 15(d)] of the Securities [added: Exchange] Act of 1934, [removed: as amended,] the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly [removed: authorized, in the City of Washington, District of Columbia, on the 28th day of February 2019.][added: authorized.]

| [added: February 26, 2020] | | Andrew C. Florance |

| [removed: Signature] [added: Signature] | | [removed: Capacity] [added: Capacity] | | [removed: Date] [added: Date] |

| /s/ Michael R. Klein | | Chairman of the Board | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ Andrew C. Florance | | Chief Executive Officer and | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ Scott T. Wheeler | | Chief Financial Officer | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ Michael J. Glosserman | | Director | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ John W. Hill | | Director | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ Laura Cox Kaplan | | Director | | February [removed: 28, 2019] [added: 26, 2020] |

| /s/ Christopher J. Nassetta | | Director | | February [removed: 25, 2019] [added: 26, 2020] |

| /s/ David J. Steinberg | | Director | | February [removed: 25, 2019] [added: 26, 2020] |

[removed: COSTAR] [added: COSTAR] GROUP, [removed: INC.][added: INC.]

[removed: INDEX] [added: INDEX] TO CONSOLIDATED FINANCIAL [removed: STATEMENTS][added: STATEMENTS]

| Reports of Independent Registered Public Accounting Firm | [removed: [F-2](#s3833ED985A615DA8BC27B8ED25359659)] [added: [F-2](#sA68DCD8460A7548C9866186A8CDC7DF8)] |

[removed: | Consolidated Statements of Operations | [F-5](#s687B5362E9FA518CAABD98E20CC00680) |][added: CONSOLIDATED STATEMENTS OF OPERATIONS]

[removed: | Consolidated Statements of Comprehensive Income | [F-6](#sDBDAC95F08F55BE987AA7845B75C4539) |][added: CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME]

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

[removed: | Consolidated Statements of Changes in Stockholders’ Equity | [F-8](#sD94CCA5220355360A3EC1E8FD044B77B) |][added: CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY]

[removed: | Consolidated Statements of Cash Flows | [F-9](#sFCFC1A64132E50E588861258F0C82345) |][added: CONSOLIDATED STATEMENTS OF CASH FLOWS]

[removed: | Notes to Consolidated Financial Statements | [F-11](#sFA5538EF5A5A5B759C898B0C95E935BF) |][added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]

[removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm][added: Firm]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. (the Company) as of December 31, [removed: 2018 and 2017,] [added: 2019] and [added: 2018,] 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: 2018,] [added: 2019,] 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: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] 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: 2018,] [added: 2019,] 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: 28, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.

[removed: Adoption] [added: Adoption] of ASU No. [removed: 2014-09][added: 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, [removed: Revenue] [added: *Revenue] from Contracts with [removed: Customers] [added: Customers*] (Topic 606), and the related amendments.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] 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: 2018,] [added: 2019,] 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: ForRent, Realla Ltd. and Cozy Services, Ltd. related to accounts receivable] [added: Off Campus Partners, LLC, STR, Inc.] and [removed: revenues,] [added: STR Global, Ltd.,] which are included in the [removed: 2018] [added: 2019] consolidated financial statements of CoStar Group, [removed: Inc.] [added: Inc.,] and [added: collectively] constituted less than 1% of total assets as of December 31, [removed: 2018] [added: 2019] and less than [removed: 4%] [added: 1% and 2%] of [added: total] revenues [added: and net income, respectively,] for the year then ended.

Our audit of internal control over financial reporting of CoStar Group, Inc. [added: also] did not include an evaluation of the internal control over financial reporting of [removed: ForRent, Realla Ltd.] [added: Off Campus Partners, LLC, STR, Inc.] and [removed: Cozy Services,] [added: STR Global,] 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: 2018 and 2017,] [added: 2019] and [added: 2018,] the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2018] [added: 2019] and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) [removed: (Collectively] [added: (collectively] referred to as the “financial statements”) of CoStar Group, Inc. and our report dated February [removed: 28, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

[removed: CONSOLIDATED STATEMENTS OF OPERATIONS][added: | Consolidated Statements of Operations | [F-6](#sDE2405A3DE1859FC96F70CD57FB18634) |]

[removed: (in] [added: (in] thousands, except per share [removed: data)][added: data)]

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

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| /s/ Louise S. Sams | | Director | | February 26, 2020 |

| Louise S. Sams | | | | |

| /s/ Robert W. Musslewhite | | Director | | February 21, 2020 |

| Robert W. Musslewhite | | | | |

| Consolidated Statements of Cash Flows | [F-10](#sC0981C528FC0513DA959F0F76A3D536D) |

| Notes to Consolidated Financial Statements | [F-12](#s96D5A67E23FB51268122FE087E473083) |

Adoption of ASU No. 2016-02

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, *Leases* (Topic 842), and the related amendments.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

| | | Valuation of Acquired Intangible Assets |

| *Description of the Matter* | | As described in Note 4 to the consolidated financial statements, during the year ended December 31, 2019, the Company completed the acquisition of STR, Inc. and STR Global, Ltd. (together with STR, Inc. referred to as “STR”) for $435 million in cash. The Company’s accounting for the acquisition included determining the fair value of the acquired intangible assets including customer relationships of $139 million. Auditing the accounting for the acquired intangible assets of STR involved complex auditor judgment due to the estimation required in management’s determination of the fair value. The estimation was significant primarily due to the sensitivity of the respective fair values to the underlying assumptions, including discount rates, projected revenue growth rates, customer attrition rates and projected profit margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |

| *How We Addressed the Matter in Our Audit* | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for accounting for acquired intangible assets. For example, we tested controls over management’s review of the valuation model and significant assumptions used in the valuation as well as controls over the completeness and accuracy of the data used in the model and assumptions. To test the fair value of these acquired intangible assets, our audit procedures included, among others, evaluating the Company's use of valuation methodologies, evaluating the significant assumptions, evaluating the prospective financial information and testing the completeness and accuracy of underlying data. We involved our valuation specialists to assist in testing certain significant assumptions used to value the acquired intangible assets. For example, we compared the significant assumptions to current industry and market trends, historical results of the acquired business and to other relevant factors. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions. |

February 26, 2020

Report of Independent Registered Public Accounting Firm

Basis for Opinion

February 26, 2020

COSTAR GROUP, INC.

COSTAR GROUP, INC.

*See accompanying notes.*

COSTAR GROUP, INC.

(in thousands, except per share data)

| Cash and cash equivalents | $ | 1,070,731 | | | $ | 1,100,416 | |

| Lease right-of-use assets | 115,084 | | | | — | | |

| Lease liabilities | 29,670 | | | | — | | |

*See accompanying notes.*

COSTAR GROUP, INC.

(in thousands)

| Cumulative effect of adoption of new accounting standard, net of tax | — | | | — | | | | — | | | | — | | | | 12,057 | | | | 12,057 | | |

| Balance at January 1, 2019 | 36,446 | | | 364 | | | | 2,419,812 | | | | (11,688 | | ) | | 625,511 | | | | 3,033,999 | | |

| Other comprehensive income | — | | | — | | | | — | | | | 3,103 | | | | — | | | | 3,103 | | |

| Exercise of stock options | 116 | | | 1 | | | | 18,651 | | | | — | | | | — | | | | 18,652 | | |

| Management stock purchase plan | — | | | — | | | | 3,491 | | | | — | | | | — | | | | 3,491 | | |

| Balance at December 31, 2019 | 36,668 | | | $ | 366 | | | 2,473,338 | | | | (8,585 | | ) | | 940,474 | | | | 3,405,593 | | |

*See accompanying notes.*

COSTAR GROUP, INC.

(in thousands)

| Net income | $ | 314,963 | | | $ | 238,334 | | | $ | 122,695 | |

| Non-cash lease expense | 22,748 | | | | — | | | | — | | |

| /s/ Warren H. Haber | | Director | | February 26, 2019 |

| Warren H. Haber | | | | |

February 28, 2019

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

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

| Reclassification adjustment for realized gains on investments included in net income | | — | | | | — | | | | (808 | | ) |

| Balance at December 31, 2015 | 32,509 | | | $ | 325 | | | $ | 1,440,321 | | | $ | (7,594 | ) | | $ | 110,728 | | | $ | 1,543,780 | |

| Excess tax benefit from stock-based compensation | — | | | — | | | | 4,698 | | | | — | | | | — | | | | 4,698 | | |

| Impairment loss | — | | | | — | | | | 23 | | |

| Realized gain on investments | — | | | | — | | | | (808 | | ) |

| Proceeds from sale and settlement of investments | — | | | | — | | | | 5,950 | | |

| Cash and cash equivalents at beginning of year | 1,211,463 | | | | 567,223 | | | | 421,818 | | |

A majority of the subscription-based license agreements have a term of one year and renew automatically.

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.

The Company’s functional currency in its foreign locations is the local currency.

Revenues, expenses, gains and losses are translated at the average exchange rates in effect during each period.

The amount of realized gain from the redemption of available-for-sale securities reclassified out of accumulated other comprehensive loss to the consolidated statement of operations for the year ended December 31, 2016 was approximately $0.8 million.

For equity instruments that vest based on performance, the Company assesses the probability of the achievement of the performance conditions at the end of each reporting period, or more frequently based upon the occurrence of events that may change the probability of whether the performance conditions will be met.

The Company performs ongoing assessments of its customers’ financial conditions and generally does not require that its customers’ obligations to the Company be secured.

The Company maintains reserves for doubtful accounts, which have historically been immaterial to the Company's consolidated financial statements.

If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company elects to bypass such assessment, the Company performs a quantitative test that requires the determination of the fair value of each reporting unit.

Long-Lived Assets

Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

discount rates.

In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, Accounting Standards Update (“ASU") 2014-09, Revenue from Contracts with Customers, later codified as Accounting Standards Codification ("ASC") 606 ("ASC 606"), that is designed to improve financial reporting by creating common recognition guidance for GAAP and International Financial Reporting Standards (“IFRS”).

This guidance provides a robust framework for addressing revenue issues, improves the comparability of revenue recognition practices across industries, provides useful information to users of financial statements through improved disclosure requirements and simplifies the presentation of financial statements.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services.

In adopting the guidance, the Company applied the guidance to all customer contracts and used several available practical expedients including assessing contracts with similar terms and conditions on a “portfolio” basis and not including contracts with a duration of one year or less in the unsatisfied performance obligations disclosure.

The Company recorded a net cumulative increase to beginning retained earnings of $54 million.

The Company adjusted the condensed consolidated financial statements from amounts previously reported due to the adoption of ASC 606.

Select condensed consolidated balance sheet line items which were adjusted upon adoption were as follows (in thousands):

| | As of December 31, 2017 | | | | ASC 606 Adjustments | | | | As of January 1, 2018 | | |

| Accounts receivable, less allowance for doubtful accounts | $ | 60,900 | | | $ | (1,867 | ) | | $ | 59,033 | |

| Prepaid expenses and other current assets | 15,572 | | | | 1,867 | | | | 17,439 | | |

| Deferred commissions costs, net | — | | | | 71,118 | | | | 71,118 | | |

| Liabilities | | | | | | | | | | | |