Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			COSTAR GROUP, INC.
			By:			/s/ Andrew C. Florance
February 23, 2022						Andrew C. Florance
						President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Andrew C. Florance and Scott T. Wheeler, and each of them individually, as their true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto and to all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herein by ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature						Capacity						Date
/s/ Michael R. Klein						Chairman of the Board						February 23, 2022
Michael R. Klein
/s/ Andrew C. Florance						Chief Executive Officer and						February 23, 2022
Andrew C. Florance						President and a Director
						(Principal Executive Officer)
/s/ Scott T. Wheeler						Chief Financial Officer						February 23, 2022
Scott T. Wheeler						(Principal Financial and Accounting Officer)
/s/ Michael J. Glosserman						Director						February 23, 2022
Michael J. Glosserman
/s/ John W. Hill						Director						February 23, 2022
John W. Hill
/s/ Laura Cox Kaplan						Director						February 23, 2022
Laura Cox Kaplan
/s/ Christopher J. Nassetta						Director						February 23, 2022
Christopher J. Nassetta
/s/ Louise S. Sams						Director						February 23, 2022
Louise S. Sams
/s/ Robert W. Musslewhite						Director						February 23, 2022
Robert W. Musslewhite

COSTAR GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 42)			F-2
Consolidated Statements of Operations			F-6
Consolidated Statements of Comprehensive Income			F-7
Consolidated Balance Sheets			F-8
Consolidated Statements of Changes in Stockholders’ Equity			F-9
Consolidated Statements of Cash Flows			F-10
Notes to Consolidated Financial Statements			F-11

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of CoStar Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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.

F-2

						Valuation of Acquired Intangible Assets of Homes.com
Description of the Matter						As described in Note 5 to the consolidated financial statements, during the year ended December 31, 2021, the Company completed the acquisition of Homes Group, LLC. (“Homes.com”) for $152 million in cash. The Company’s accounting for the acquisition included determining the fair value of the acquired intangible assets, with customer base ($32 million) and trade names ($21 million) comprising most of the assets acquired. Auditing the accounting for the acquired intangible assets of Homes.com 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 fair value to the underlying assumptions, including customer attrition rates and projected revenue. Prospective financial information used in determining the fair value of customer base and trade name intangible assets could be affected by changes in 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.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1994.

Tysons, Virginia

February 23, 2022

F-3

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of CoStar Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, 2021, 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, 2021, 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 Comreal Info SAS ("BureauxLocaux") and Homes Group, LLC. ("Homes.com"), which are included in the 2021 consolidated financial statements of CoStar Group, Inc., and collectively constituted less than 1% of total assets as of December 31, 2021 and less than 1% of total revenues and total operating costs for the year then ended. Our audit of internal control over financial reporting of CoStar Group, Inc. also did not include an evaluation of the internal control over financial reporting of BureauxLocaux and Homes.com.

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, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021 and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”) of CoStar Group, Inc. and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

F-4

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Tysons, Virginia

February 23, 2022

F-5

COSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

			Year Ended December 31,
			2021						2020						2019
Revenues			$	1,944,135					$	1,659,019					$	1,399,719
Cost of revenues			357,241						308,968						289,239
Gross profit			1,586,894						1,350,051						1,110,480
Operating expenses:
Selling and marketing (excluding customer base amortization)			622,007						535,778						408,596
Software development			201,022						162,916						125,602
General and administrative			256,711						299,698						178,740
Customer base amortization			74,817						62,457						33,995
			1,154,557						1,060,849						746,933
Income from operations			432,337						289,202						363,547
Interest (expense) income, net			(31,621)						(17,395)						16,742
Other income (expense), net			3,252						(827)						10,660
Income before income taxes			403,968						270,980						390,949
Income tax expense			111,404						43,852						75,986
Net income			$	292,564					$	227,128					$	314,963
Net income per share — basic(1)			$	0.75					$	0.60					$	0.87
Net income per share — diluted(1)			$	0.74					$	0.59					$	0.86
Weighted-average outstanding shares — basic(1)			392,210						380,726						363,096
Weighted-average outstanding shares — diluted(1)			394,160						383,266						366,301

(1)Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

See accompanying notes.

F-6

COSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

						Year Ended December 31,
						2021						2020						2019
Net income						$	292,564					$	227,128					$	314,963
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment						(4,869)						6,966						3,103
Unrealized gain on investments						—						189						—
Reclassification adjustment for realized loss on investments included in net income						—						541						—
Total other comprehensive (loss) income						(4,869)						7,696						3,103
Total comprehensive income						$	287,695					$	234,824					$	318,066

See accompanying notes.

F-7

COSTAR GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

			December 31,
			2021						2020
ASSETS
Current assets:
Cash, cash equivalents and restricted cash			$	3,827,126					$	3,755,912
Accounts receivable			138,191						119,059
Less: Allowance for credit losses			(13,374)						(15,110)
Accounts receivable, net			124,817						103,949
Prepaid expenses and other current assets			36,182						28,651
Total current assets			3,988,125						3,888,512
Deferred income taxes, net			5,034						4,983
Lease right-of-use assets			100,680						108,740
Property and equipment, net			271,431						126,325
Goodwill			2,321,015						2,235,999
Intangible assets, net			435,662						426,745
Deferred commission costs, net			101,879						93,274
Deposits and other assets			21,762						15,856
Income tax receivable			11,283						14,986
Total assets			$	7,256,871					$	6,915,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	22,244					$	15,732
Accrued wages and commissions			81,794						80,998
Accrued expenses			81,676						110,305
Income taxes payable			31,236						16,316
Lease liabilities			26,268						32,648
Deferred revenue			95,471						74,851
Total current liabilities			338,689						330,850
Long-term debt, net			987,944						986,715
Deferred income taxes, net			98,656						72,991
Income taxes payable			12,496						25,282
Lease and other long-term liabilities			107,414						124,223
Total liabilities			1,545,199						1,540,061
Stockholders’ equity:
Preferred stock, $0.01 par value; 2,000 shares authorized; zero outstanding			—						—
Common stock, $0.01 par value; 1.2 billion shares authorized; 394,936 and 394,285 issued and outstanding as of December 31, 2021 and 2020, respectively(1)			3,946						3,943
Additional paid-in capital			4,253,318						4,204,703
Accumulated other comprehensive loss			(5,758)						(889)
Retained earnings			1,460,166						1,167,602
Total stockholders’ equity			5,711,672						5,375,359
Total liabilities and stockholders’ equity			$	7,256,871					$	6,915,420

**(1)**Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

F-8

COSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

			Common Stock**(1)**												Additional Paid-In Capital**(1)**						Accumulated Other Comprehensive Loss						Retained Earnings						Total Stockholders’ Equity
			Shares						Amount
Balance at December 31, 2018			364,588						$	3,646					$	2,416,530					$	(11,688)					$	613,454					$	3,021,942
Cumulative effect of adoption of new accounting standard, net of tax			—						—						—						—						12,057						12,057
Balance at January 1, 2019			364,588						$	3,646					$	2,416,530					$	(11,688)					$	625,511					$	3,033,999
Net income			—						—						—						—						314,963						314,963
Other comprehensive income			—						—						—						3,103						—						3,103
Exercise of stock options			1,159						12						18,640						—						—						18,652
Restricted stock issued			1,680						17						(17)						—						—						—
Restricted stock grants surrendered			(757)						(8)						(27,569)						—						—						(27,577)
Stock-based compensation expense			—						—						51,818						—						—						51,818
Management stock purchase plan			—						—						3,491						—						—						3,491
Employee stock purchase plan			136						1						7,143						—						—						7,144
Balance at December 31, 2019			366,806						$	3,668					$	2,470,036					$	(8,585)					$	940,474					$	3,405,593
Net income			—						—						—						—						227,128						227,128
Other comprehensive income			—						—						—						7,696						—						7,696
Exercise of stock options			953						10						21,861						—						—						21,871
Restricted stock issued			1,012						10						(10)						—						—						—
Restricted stock grants surrendered			(952)						(9)						(38,857)						—						—						(38,866)
Stock-based compensation expense			—						—						52,624						—						—						52,624
Employee stock purchase plan			130						1						9,342						—						—						9,343
Stock issued for equity offerings, net of transaction costs			26,336						263						1,689,707						—						—						1,689,970
Balance at December 31, 2020			394,285						$	3,943					$	4,204,703					$	(889)					$	1,167,602					$	5,375,359
Net income			—						—						—						—						292,564						292,564
Other comprehensive loss			—						—						—						(4,869)						—						(4,869)
Exercise of stock options			206						2						6,339						—						—						6,341
Restricted stock issued			862						8						(7)						—						—						1
Restricted stock grants surrendered			(569)						(7)						(33,307)						—						—						(33,314)
Stock-based compensation expense			—						—						62,585						—						—						62,585
Employee stock purchase plan			152						—						13,005						—						—						13,005
Balance at December 31, 2021			394,936						$	3,946					$	4,253,318					$	(5,758)					$	1,460,166					$	5,711,672

**(1)**Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

See accompanying notes.

F-9

COSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			Year Ended December 31,
			2021						2020						2019
Operating activities:
Net income			$	292,564					$	227,128					$	314,963
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			139,558						116,944						81,165
Amortization of deferred commissions costs			63,391						60,516						53,421
Amortization of senior notes discount and issuance costs			2,327						1,658						876
Non-cash lease expense			28,485						26,326						22,748
Stock-based compensation expense			63,709						53,450						52,255
Deferred income taxes, net			24,165						(11,530)						8,220
Credit loss expense			10,928						25,212						10,978
Other operating activities, net			(654)						288						105
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(29,630)						(36,118)						(5,014)
Prepaid expenses and other current assets			(14,873)						1,936						(14,244)
Deferred commissions			(72,038)						(64,355)						(66,688)
Accounts payable and other liabilities			(30,051)						100,846						17,751
Lease liabilities			(30,904)						(30,497)						(25,442)
Income taxes payable			5,860						10,352						(577)
Deferred revenue			17,396						2,188						7,911
Other assets			(502)						1,762						(648)
Net cash provided by operating activities			469,731						486,106						457,780
Investing activities:
Proceeds from sale and settlement of investments			—						10,259						—
Proceeds from sale of property and equipment and other assets			612						—						—
Purchase of Richmond assets and other intangibles			(123,764)						—						—
Purchases of property and equipment and other assets			(65,220)						(48,347)						(46,197)
Cash paid for acquisitions, net of cash acquired			(192,971)						(426,075)						(437,556)
Net cash used in investing activities			(381,343)						(464,163)						(483,753)
Financing activities:
Proceeds from long-term debt			—						1,744,210						—
Payments of long-term debt			—						(745,000)						—
Payments of debt issuance costs			—						(16,647)						—
Repurchase of restricted stock to satisfy tax withholding obligations			(33,314)						(38,867)						(27,577)
Proceeds from equity offering, net of transaction costs			—						1,689,971						—
Proceeds from exercise of stock options and employee stock purchase plan			18,046						30,280						25,080
Other financing activities			(411)						(1,650)						(1,657)
Net cash (used in) provided by financing activities			(15,679)						2,662,297						(4,154)
Effect of foreign currency exchange rates on cash and cash equivalents			(1,495)						941						442
Net increase (decrease) in cash and cash equivalents			71,214						2,685,181						(29,685)
Cash, cash equivalents and restricted cash at beginning of year			3,755,912						1,070,731						1,100,416
Cash, cash equivalents and restricted cash at end of year			$	3,827,126					$	3,755,912					$	1,070,731
Supplemental cash flow disclosures:
Interest paid			$	31,510					$	5,948					$	1,998
Income taxes paid			$	82,117					$	45,783					$	68,935
Supplemental non-cash investing and financing activities:
Consideration owed for acquisitions			$	60					$	793					$	1,650
Accrued capital expenditures and non-cash landlord incentives			$	2,117					$	2,364					$	2,160

See accompanying notes.

F-10

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

**1.**ORGANIZATION

CoStar Group, Inc. (the “Company” or “CoStar”) provides information, analytics, online marketplace and auction services to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate information and related tools. The Company provides online marketplaces for commercial real estate, apartment rentals, residential real estate, land for sale and businesses for sale, and its services are typically distributed to its clients under subscription-based agreements that typically renew automatically, a majority of which have a term of at least one year. The Company operates within two operating segments, North America, which includes the United States (“U.S.”) and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America.

On June 24, 2020, the Company acquired Ten-X Holding Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate. On October 26, 2020, the Company acquired Emporis GmbH, a Germany-based provider of international commercial real estate data and images. On December 22, 2020, the Company acquired Homesnap, Inc. (“Homesnap”), which operates an online mobile software platform for residential real estate agents and brokers. On May 24, 2021, the Company acquired Homes Group, LLC ("Homes.com"), a residential real estate advertising and marketing services company primarily operating through its property listing and marketing portal, Homes.com. On October 1, 2021, the Company acquired Comreal Info, a French société par actions simplifiée ("BureauxLocaux"), the owner and operator of BureauxLocaux, a leading commercial real estate digital marketplace in France. See Note 5 for further discussion of these acquisitions.

**2.**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating segment.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for credit losses, the useful lives and recoverability of long-lived and intangible assets, goodwill, income taxes, accounting for business combinations, stock-based compensation, estimating the Company's incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ from these estimates.

Revenue Recognition

The Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate information and (ii) providing online marketplaces for professional property management companies, property owners, real estate agents and brokers and landlords, in each case, typically through a fixed monthly fee for its subscription-based services. Other subscription based-services include (i) real estate and lease management solutions to commercial customers, real estate investors and lenders, (ii) access to applications to manage workflow and advertising and marketing services for residential real estate agents through our acquisitions of Homes.com, which was acquired in May 2021, and Homesnap, which was acquired in December 2020, (iii) benchmarking and analytics for the hospitality industry and (iv) market research, portfolio and debt analysis, management and reporting capabilities. See Note 5 for further discussion of acquisitions.

F-11

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subscription contract rates are 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. The Company’s subscription-based license agreements typically renew automatically, and a majority have a term of at least one year.

The Company also derives revenues from transaction-based services including: (i) an online auction platform for commercial real estate through Ten-X, which was acquired in June 2020, (ii) providing online tenant applications, including background and credit checks, and rental payment processing and (iii) complementary services on an ad hoc basis for our (a) real estate and lease management solutions to commercial customers, real estate investors and lenders, (b) benchmarking and analytics for the hospitality industry and (c) other service offerings.

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligations.

The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. Revenues from transaction-based services are recognized when the promised product or services are delivered, which, in the case of Ten-X auctions, is at the time of a successful closing for the sale of the property.

In limited circumstances, the Company's contracts with customers include promises to transfer multiple services, such as contracts for its subscription-based services and professional services. For these contracts, the Company accounts for individual performance obligations separately if they are distinct, which involves the determination of the standalone selling price for each distinct performance obligation.

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of the Company's fulfillment of its performance obligation(s) and is recognized as those obligations are satisfied.

Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from revenue recognition timing.

Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a straight-line basis over a period of benefit that the Company has determined to be three years. The three-year amortization period was determined based on several factors, including the nature of the technology and proprietary data underlying the services being purchased, customer contract renewal rates and industry competition. Certain commission costs are not capitalized as they do not represent incremental costs of obtaining a contract.

See Note 3 for further discussion of the Company's revenue recognition.

Cost of Revenues

Cost of revenues principally consists of salaries, benefits, bonuses and stock-based compensation expenses and other indirect costs for the Company's researchers who collect and analyze the commercial real estate data that is the basis for the Company's information, analytics and online marketplaces and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources and costs related to advertising purchased on behalf of customers, credit card and other transaction fees relating to processing customer transactions, which are expensed as incurred, and the amortization of acquired trade names, technology and certain other intangible assets.

F-12

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency for the majority of its operations is the local currency, with the exception of certain international locations for which the functional currency is the British Pound. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using the exchange rates in effect as of the balance sheet date. Gains and losses resulting from translation are included in accumulated other comprehensive loss. Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included in accumulated other comprehensive loss. Gains and losses resulting from transactions denominated in a currency other than the functional currency of the entity are included in other income (expense), net in the consolidated statements of operations using the average exchange rates in effect during the period. The Company recognized a net foreign currency gain of $0.3 million and losses of $0.2 million and $0.6 million for the years ended December 31, 2021, 2020 and 2019, respectively, which are included in other income (expense), net on the consolidated statement of operations.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax were as follows (in thousands):

			As of December 31,
			2021						2020
Foreign currency translation adjustment			$	(5,758)					$	(889)
Total accumulated other comprehensive loss			$	(5,758)					$	(889)

During the year ended December 31, 2020, the Company sold its long-term variable debt instruments with an auction reset feature, referred to as auction rate securities ("ARS"), and reclassified out of accumulated other comprehensive loss a realized loss of $0.5 million to earnings which is included in other income (expense), net in the consolidated statement of operations. There were no amounts reclassified out of accumulated other comprehensive loss to the consolidated statements of operations for the years ended December 31, 2021 and December 31, 2019.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs include digital marketing, television, radio, print and other media advertising. Advertising costs were $312 million, $270 million and $168 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Income Taxes

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported in the Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted rates in effect during the year in which the Company expects differences to reverse. Valuation allowances are provided against assets, including net operating losses, if the Company determines it is more likely than not that some portion or all of an asset may not be realized. Interest and penalties related to income tax matters are recognized in income tax expense.

The Company has elected to record the global intangible low taxed income inclusion ("GILTI") under the current-period cost method.

See Note 12 for further discussion of income taxes.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period on a basic and diluted basis. The Company's potentially dilutive securities include outstanding stock options, unvested stock-based awards which include restricted stock awards that vest over a specific service period, restricted stock awards with a performance and market condition, restricted stock units and awards of matching restricted stock units ("Matching RSUs") awarded under the Company's Management Stock Purchase Plan (the “MSPP”). Shares underlying unvested restricted stock awards that vest based on a performance and market condition that have not been achieved as of the end of the period are not included in the computation of basic or diluted earnings per share. Diluted net income per share

F-13

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

considers the impact of potentially dilutive securities except when the inclusion of the potentially dilutive securities would have an anti-dilutive effect. See Note 16 for further discussion of the Company's calculation of net income per share.

Stock-Based Compensation

Equity instruments issued in exchange for services performed by officers, employees and directors of the Company are accounted for using a fair-value based method and the fair value of such equity instruments is recognized as expense in the consolidated statements of operations.

For stock-based awards that vest over a specific service period, compensation expense is measured based on the fair value of the awards at the grant date and is recognized on a straight-line basis over the service period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of both a performance and market condition, stock-based compensation expense is recognized over the service period of the awards based on the expected achievement of the related performance conditions at the end of each reporting period. If the Company's initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized and any previously recognized stock-based compensation expense will be reversed. For awards with both a performance and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards.

Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, stock purchases under the Employee Stock Purchase Plan, Deferred Stock Units ("DSUs") and Matching RSUs awarded under the MSPP included in the Company’s statement of operations were as follows (in thousands):

			Year Ended December 31,
			2021						2020						2019
Cost of revenues			$	11,165					$	10,879					$	9,273
Selling and marketing (excluding customer base amortization)			6,314						5,194						6,809
Software development			12,544						10,325						8,985
General and administrative			33,686						27,706						27,188
Total stock-based compensation expense(1)			$	63,709					$	54,104					$	52,255
__________________________

(1) Stock-based compensation expense for the year ended December 31, 2020 includes $0.7 million of expense related to the cash settlement of stock options in connection with the acquisition of Ten-X. See Note 5 for further discussion.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash, cash equivalents, and restricted cash consisted of the following as of December 31, 2021 and 2020 (in thousands):

			As of December 31,
			2021						2020
Cash and cash equivalents			$	3,827,126					$	3,693,813
Restricted cash:
RentPath break fee held in escrow under the terms of the Asset Purchase Agreement			—						58,750
Other restricted cash related to acquisitions			—						3,349
Total restricted cash			—						62,099
Cash, cash equivalents and restricted cash			$	3,827,126					$	3,755,912

F-14

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk and Financial Instruments

The Company’s customer base creates a lack of dependence on any individual customer that mitigates the risk of nonpayment of the Company’s accounts receivable. No single customer accounted for more than 5% of the Company’s revenues for each of the years ended December 31, 2021, 2020 and 2019. The carrying amount of the accounts receivable approximates the net realizable value.

The Company holds cash at major financial institutions that often exceed Federal Deposit Insurance Corporation insured limits. The Company manages its credit risk associated with cash concentrations by diversifying cash holdings across AAA rated Government and Treasury Money Market Funds and multiple high quality financial institutions, and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The carrying value of cash approximates fair value. Historically, the Company has not experienced any losses due to such cash concentrations.

Allowance for Credit Losses

The Company maintains an allowance for credit losses to cover its current expected credit losses ("CECL") on its trade receivables and contract assets arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables and contract assets based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables and historical write off trends. Based on the Company’s experience, the customer's delinquency status, which is analyzed periodically, is the strongest indicator of the credit quality of the underlying trade receivables. The Company’s policy is to write-off trade receivables when they are deemed uncollectible. A majority of the Company's trade receivables are less than 365 days outstanding.

Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on five portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of the Company’s business operations and the characteristics of the underlying trade receivables, as follows:

• CoStar Portfolio Segment - The CoStar portfolio segment consists of two classes of trade receivables based on geographical location: North America and International.

• Information Services Portfolio Segment - The Information Services portfolio segment consists of four classes of trade receivables: CoStar Real Estate Manager; Information Services, North America; STR, US; and STR, International.

• Multifamily Portfolio Segment - The Multifamily portfolio segment consists of one class of trade receivables.

• LoopNet Portfolio Segment - The LoopNet portfolio segment consists of one class of trade receivables.

• Other Marketplaces Portfolio Segment - The Other Marketplaces portfolio segment consists of two classes of trade receivables: Ten-X and other marketplaces.

The majority of Residential revenue is e-commerce based and does not result in accounts receivable. Residential accounts receivable and the related allowance for credit losses are not material.

See Note 4 for further discussion of the Company’s accounting for allowance for credit losses.

F-15

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases

The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at the commencement of the arrangement, at which time the Company also measures and recognizes a right-of-use ("ROU") asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. For the purposes of recognizing ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less. The lease term is defined as the noncancelable portion of the lease term, plus any periods covered by an option to extend the lease if it is reasonably certain that that the option will be exercised.

In determining the amount of lease payments used in measuring ROU assets and lease liabilities, the Company has elected the practical expedient not to separate non-lease components from lease components for all classes of underlying assets. Consideration deemed part of the lease payments used to measure ROU assets and lease liabilities generally includes fixed payments and variable payments based on either an index or a rate, offset by lease incentives. Upon commencement, the initial ROU asset also includes any lease prepayments. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally not determinable. Therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment and is determined at lease commencement, or as of January 1, 2019 for operating leases in existence upon adoption of the new lease standard. The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement.

Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.

See Note 7 for further discussion of the Company’s accounting for leases.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation and amortization. All repairs and maintenance costs are expensed as incurred. Costs related to acquisition of additional aircraft components or the replacement of existing aircraft components are capitalized and depreciated over the estimated useful life of the aircraft or the added or replaced component, whichever is less. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives of the assets:

Buildings						Twenty to thirty-nine years
Land						Indefinite
Aircrafts						Ten to twenty years
Furniture and office equipment						Five to ten years
Vehicles						Five years
Computer hardware and software						Three to five years
Leasehold improvements						Shorter of lease terms or useful life

Qualifying internal-use software costs incurred during the application development stage, which consist primarily of internal product development costs, outside services and purchased software license costs are capitalized and amortized over the estimated useful life of the asset. All other costs are expensed as incurred. In the fourth quarter of 2021, the Company began removing fully depreciated property and equipment from the cost and accumulated depreciation amounts disclosed.

Long-Lived Assets, Intangible Assets and Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

F-16

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired technology and data, customer base assets, trade names and other intangible assets are related to the Company’s acquisitions. Acquired technology and data is amortized on a straight-line basis over periods ranging from one year to eight years. Acquired intangible assets characterized as customer base assets consist of acquired customer contracts and the related customer relationships and are amortized over periods ranging from five years to thirteen years. Acquired customer bases are amortized on an accelerated or straight-line basis depending on the expected economic benefit of the intangible asset. Acquired trade names and other intangible assets are amortized on a straight-line basis over periods ranging from one year to fifteen years. In the fourth quarter of 2021, the Company began removing fully amortized intangible assets from the cost and accumulated amortization amounts disclosed.

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of the purchase consideration paid in a business combination over the fair value of the net identifiable assets acquired. Goodwill is not amortized, but instead is assigned to each of the Company's reporting units and tested for impairment at least annually, on October 1, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. 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, the Company then determines the fair value of each reporting unit. The estimate of the fair value of each reporting unit is based on a projected discounted cash flow model that includes significant assumptions and estimates including the discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies. Assumptions about the growth rate and future financial performance of a reporting unit are based on the Company's forecasts, business plans, economic projections and anticipated future cash flows. The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference.

See Notes 5, 9 and 10 for further discussion of acquisitions, goodwill and intangible assets, respectively.

Debt Issuance Costs

Costs incurred in connection with the issuance of long-term debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method for term debt and on a straight-line basis for revolving debt. The Company made a policy election to classify deferred issuance costs on the revolving credit facility as a long-term asset on its consolidated balance sheets. Upon a refinancing or amendment, previously capitalized debt issuance costs are expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification of the related debt. If the Company determines that there has not been a substantial modification of the related debt, any previously capitalized debt issuance costs are amortized as interest expense over the term of the new debt instrument.

See Note 11 for further discussion of the Company's 2020 Credit Agreement and Senior Notes issuance.

Business Combinations

The Company allocates the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The purchase price is determined based on the fair value of the assets transferred, liabilities assumed and equity interests issued, after considering any transactions that are separate from the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. The Company applies significant assumptions, estimates and judgments in determining the fair value of assets acquired and liabilities assumed on the acquisition date, especially with respect to intangible assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired technology and acquired trade names, useful lives, royalty rates and discount rates. Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an

F-17

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been assumed at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in the Company's estimates of such contingencies will affect earnings and could have a material effect on its results of operations and financial position.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items based upon facts and circumstances that existed as of the acquisition date, with any adjustments to its preliminary estimates being recorded to goodwill provided that the Company is within the measurement period. Subsequent to the measurement period, changes to these uncertain tax positions and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of operations and comprehensive income and could have a material impact on its results of operations and financial position.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In the fourth quarter of 2021, the Company adopted ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance requires contract assets and liabilities acquired or assumed in an acquisition be measured in accordance with the accounting framework for revenue from contracts with customers as if the Company had originated the acquired contract. This is an exception to the general requirement to measure assets acquired and liabilities assumed at their fair value on the acquisition date. The Company applied this revised guidance to all acquisitions in the year ended December 31, 2021. The application of this guidance to contract assets and contract liabilities acquired or assumed in connection with the Company's acquisitions for the year ended December 31, 2021 did not have a material impact on the Company's consolidated financial statements and related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

On March 12, 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Accounting Standards Codification (“ASC”) 848 contains optional expedients and exceptions for applying GAAP to debt, contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied to all contracts that are accounted for under a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. This guidance is effective for fiscal years beginning after January 1, 2021, including interim periods within those fiscal years. The Company's 2020 Credit Agreement provides for a $750 million revolving credit facility and a letter of credit sublimit of $20 million, with interest rates benchmarked to LIBOR. As of December 31, 2021, no amounts were issued or drawn under this facility. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

F-18

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

The Company provides information, analytics and online marketplaces to the commercial real estate industry, hospitality industry, residential industry and related professionals. The revenues by operating segment and type of service consist of the following (in thousands):

			Year Ended December 31,
			2021																		2020																		2019
			North America						International						Total						North America						International						Total						North America						International						Total
CoStar			$	686,948					$	35,873					$	722,821					$	634,205					$	30,530					$	664,735					$	590,222					$	27,576					$	617,798
Information services			113,723						27,932						141,655						104,117						25,953						130,070						76,950						11,496						88,446
Multifamily			678,680						—						678,680						598,555						—						598,555						490,631						—						490,631
LoopNet(1)			204,816						2,695						207,511						179,371						434						179,805						149,400						580						149,980
Residential(1)			74,583						—						74,583						—						—						—						—						—						—
Other Marketplaces(1)			118,885						—						118,885						85,854						—						85,854						52,864						—						52,864
Total revenues			$	1,877,635					$	66,500					$	1,944,135					$	1,602,102					$	56,917					$	1,659,019					$	1,360,067					$	39,652					$	1,399,719

(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

Deferred Revenue

Changes in deferred revenue for the period were as follows (in thousands):

Balance at December 31, 2020(1)			$	77,363
Revenue recognized in the current period from the amounts in the beginning balance			(74,578)
New deferrals, net of amounts recognized in the current period			94,143
Effects of foreign currency			(204)
Balance at December 31, 2021(2)			$	96,724
__________________________

(1) Deferred revenue was comprised of $74.9 million of current liabilities and $2.5 million of noncurrent liabilities classified within lease and other long-term liabilities on the Company’s consolidated balance sheet as of December 31, 2020.

(2) Deferred revenue was comprised of $95.5 million of current liabilities and $1.2 million of noncurrent liabilities classified within lease and other long-term liabilities on the Company’s consolidated balance sheet as of December 31, 2021. This balance includes $2.2 million of net new deferrals recognized in connection with business acquisitions made in 2021. See Note 5 for further discussion of acquisitions.

Contract Assets

The Company had contract assets of $9 million as of December 31, 2021 and December 31, 2020, which are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied. Current contract assets are included in prepaid expenses and other current assets and non-current contract assets are included in deposits and other assets on the Company's consolidated balance sheets.

F-19

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commissions

Commissions expense is included in selling and marketing expense in the Company's consolidated statements of operations. The Company determined that no deferred commissions were impaired as of December 31, 2021 and December 31, 2020. Commissions expense activity for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):

									Year Ended December 31,
									2021						2020						2019
Commissions incurred									$	117,391					$	97,183					$	87,043
Commissions capitalized in the current period									(72,038)						(64,355)						(66,688)
Amortization of deferred commissions costs									63,391						60,516						53,421
Total commissions expense									$	108,744					$	93,344					$	73,776

See Note 2 for the Company's policy on accounting for commissions.

Unsatisfied Performance Obligations

Remaining contract consideration for which revenue had not been recognized due to unsatisfied performance obligations was $315 million as of December 31, 2021.which the Company expects to recognize over the next five years. This amount does not include contract consideration for contracts with a duration of one year or less.

F-20

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

**4.**ALLOWANCE FOR CREDIT LOSSES

The following table details the activity related to the allowance for credit losses for trade receivables by portfolio segment (in thousands):

			Year Ended December 31, 2021
			CoStar						Information services						Multifamily						LoopNet**(3)**						Other Marketplaces**(3)**												Total
Beginning balance at December 31, 2020			$	5,531					$	2,739					$	4,387					$	1,667					$	786											$	15,110
Current-period provision (release) for expected credit losses(1), (2)			5,699						(392)						3,057						2,564						—												10,928
Write-offs charged against the allowance, net of recoveries and other			(5,850)						(527)						(4,051)						(2,263)						27												(12,664)
Ending balance at December 31, 2021			$	5,380					$	1,820					$	3,393					$	1,968					$	813											$	13,374
________________________

(1) Credit loss expense is included in general and administrative expenses on the consolidated statement of operations.

(2) Credit loss expense related to contract assets was not material for the year ended December 31, 2021.

(3) Amounts previously disclosed in the Commercial Property and Land portfolio segment have been further disaggregated into the LoopNet, Residential and Other Marketplaces portfolio segments. The majority of the Residential portfolio segment revenue is e-commerce based and does not result in accounts receivable.

			Year Ended December 31, 2020
			CoStar						Information services						Multifamily						LoopNet**(3)**						Other Marketplaces**(3)**												Total
Beginning balance at December 31, 2019			$	1,264					$	624					$	1,195					$	576					$	889											$	4,548
Current-period provision for expected credit losses(1), (2)			11,622						2,649						7,644						3,213						84												25,212
Write-offs charged against the allowance, net of recoveries and other			(7,355)						(534)						(4,452)						(2,122)						(187)												(14,650)
Ending balance at December 31, 2020			$	5,531					$	2,739					$	4,387					$	1,667					$	786											$	15,110
________________________

(1) Credit loss expense is included in general and administrative expenses on the consolidated statement of operations.

(2) Credit loss expense related to contract assets was not material for the year ended December 31, 2020.

(3) Amounts previously disclosed in the Commercial Property and Land portfolio segment have been further disaggregated into the LoopNet, Residential and Other Marketplaces portfolio segments. The majority of the Residential portfolio segment revenue is e-commerce based and does not result in accounts receivable.

F-21

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. ACQUISITIONS

BureauxLocaux

On October 1, 2021, CoStar UK Limited, a wholly owned subsidiary of the Company, M.A.J.E. Marketing & Strategie and an individual entered into a Share Sale and Purchase Agreement pursuant to which the Company acquired all of the share capital interests in Comreal Info, a French société par actions simplifiée, the owner and operator of BureauxLocaux, a leading commercial real estate digital marketplace in France, for a base purchase price of €35 million ($41 million) in cash, subject to customary working capital and other post-closing adjustments which were settled in the fourth quarter of 2021. As part of the acquisition, the Company recorded goodwill and intangibles assets of $27 million and $18 million, respectively, in the Company's International operating segment. The net assets of BureauxLocaux were recorded at their estimated fair value. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies.

Homes.com

On April 14, 2021, Landmark Media Enterprises, LLC (“Landmark”), Homes Group, LLC and CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company entered into a securities purchase agreement, pursuant to which the Company agreed to acquire all of the outstanding equity interests in Homes.com from Landmark for a purchase price of $150 million in cash, subject to customary working capital and other post-closing adjustments. The Company's acquisition of Homes.com closed on May 24, 2021. The securities purchase agreement required an initial payment of $148 million, net of estimated working capital adjustments, at the time of closing, with the remainder of the purchase price payable four months following the acquisition date, subject to offset for adjustments to the purchase price after final determination of closing net working capital. These amounts were settled in the third quarter of 2021 resulting in total consideration of $152 million. Homes.com is a residential real estate advertising and marketing services company primarily operating through its property listing and marketing portal, Homes.com.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):

			Preliminary: May 24, 2021						Measurement Period Adjustments						Updated Preliminary: May 24, 2021
Cash, cash equivalents and restricted cash			$	—					$	—					$	—
Accounts receivable			1,798						—						1,798
Lease right-of-use assets			371						—						371
Goodwill			88,132						342						88,474
Intangible assets			53,400						—						53,400
Deferred tax assets			11,171						93						11,264
Lease liabilities			(371)						—						(371)
Deferred revenue			(1,086)						(435)						(1,521)
Other assets and liabilities			(1,240)						—						(1,240)
Fair value of identifiable net assets acquired			$	152,175					$	—					$	152,175

The net assets of Homes.com were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.

The following table summarizes the fair values of the identifiable intangible assets acquired in the Homes.com acquisition included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods (in thousands):

F-22

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

															Estimated Fair Value						Estimated Useful Life						Amortization Method
Customer base															$	32,000					8						Accelerated
Trade name															21,000						15						Straight-line
Technology															400						2						Straight-line
Total intangible assets															$	53,400

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Homes.com acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Homes.com operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $88 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment, of which $20 million is expected to be deductible for income tax purposes.

As of December 31, 2021, transaction costs associated with the Homes.com acquisition were not material. In addition, the Company paid $5 million into a cash escrow account for stay bonuses for certain Homes.com employees and recognized compensation expense for the stay bonus over the six month post-combination period. Upon acquisition, the Company assessed the probability Homes.com would be required to pay certain state tax liabilities and recorded an accrual of $7 million determined in accordance with the provisions of ASC 450, “Contingencies,” as the fair value was not determinable. Landmark has agreed to indemnify the Company for tax liabilities related to periods prior to the acquisition and an indemnification asset was established for $7 million in the purchase price allocation.

Homesnap

On December 22, 2020, pursuant to the Agreement and Plan of Merger, dated November 20, 2020, by and among CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Snapped Halo Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), and Homesnap, Inc., a Delaware corporation, Merger Sub was merged with and into Homesnap (the “Homesnap Merger”), with Homesnap surviving the merger as a wholly-owned subsidiary of CRI. In connection with the Homesnap Merger, the Company acquired all of the issued and outstanding equity interests in Homesnap for a purchase price of $250 million in cash. Homesnap is an industry-leading online and mobile software platform that provides user-friendly applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Homesnap has relationships, data, software and tools for residential real estate professionals that are complementary to CoStar Group’s existing offerings. The acquisition of Homesnap enabled CoStar Group to enter the residential real estate market and expand the markets in which the Company competes.

F-23

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):

			Final: December 22, 2020
Cash, cash equivalents and restricted cash			$	10,225
Accounts receivable			662
Lease right-of-use assets			3,437
Goodwill			184,371
Intangible assets			67,000
Deferred tax assets, net			(2,778)
Lease liabilities			(3,375)
Deferred revenue			(4,000)
Other assets and liabilities			(5,188)
Fair value of identifiable net assets acquired			$	250,354

The net assets of Homesnap were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.

The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods:

															Estimated Fair Value						Estimated Useful Life						Amortization Method
Customer base															$	45,000					10						Accelerated
Trade name															7,000						10						Straight-line
Technology															15,000						6						Straight-line
Total intangible assets															$	67,000

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Homesnap acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Homesnap's operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $184 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recognized is not deductible for income tax purposes.

Transaction costs associated with the Homesnap acquisition were not material.

Ten-X

On June 24, 2020, pursuant to the Agreement and Plan of Merger, dated May 13, 2020, by and among CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Crescendo Sub, Inc., a Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), Ten-X Holding Company, Inc., a Delaware corporation ("Ten-X Holding"), and Thomas H. Lee Equity Fund VII L.P., a Delaware limited partnership, solely in its capacity as representative thereunder, Merger Sub was merged with and into Ten-X Holding (the “Merger”), with Ten-X Holding surviving the Merger as a wholly-owned subsidiary of CRI. In connection with the Merger, the Company acquired all of the issued and outstanding equity interests in Ten-X Holding and Ten-X Holding's subsidiaries for a purchase price of $188 million in cash. Ten-X operates an online auction platform for commercial real estate. The Ten-X acquisition is expected to enable the

F-24

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company to create an end-to-end commercial real estate platform, combining LoopNet and the Company's online audience of buyers with Ten-X’s leadership in online auctions for performing and distressed assets.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):

			Final: June 24, 2020
Cash and cash equivalents			$	3,290
Accounts receivable			131
Lease right-of-use assets			4,945
Goodwill			134,322
Intangible assets			58,000
Lease liabilities			(4,945)
Deferred tax liabilities, net			(2,981)
Other assets and liabilities			(5,047)
Fair value of identifiable net assets acquired			$	187,715

The net assets of Ten-X were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.

The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods:

															Estimated Fair Value						Estimated Useful Life						Amortization Method
Customer base															$	46,000					6						Accelerated
Technology															11,000						5						Straight-line
Other intangible assets															1,000						2						Straight-line
Total intangible assets															$	58,000

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Ten-X acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Ten-X's operations; and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $134 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recognized is not deductible for income tax purposes.

The transaction costs associated with the Ten-X acquisition were not material. The Company paid $3 million in incentive compensation to Ten-X employees negotiated as part of the acquisition, and this expense was recognized in the post-combination period.

F-25

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Financial Information (unaudited)

The unaudited pro forma financial information presented below summarizes the combined results of operations for the Company, Ten-X and Homesnap as though the companies were combined as of January 1, 2019, and the Company and Homes.com as though the companies were combined as of January 1, 2020. The impact of the October 2021 BureauxLocaux acquisition on the pro forma financial information was not material and therefore was not included. The unaudited pro forma financial information for all periods presented includes amortization charges from acquired intangible assets, retention compensation, as referenced above, and the related tax effects, along with certain other accounting effects, but excludes the impacts of any expected operational synergies. The unaudited pro forma financial information, as presented below, is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place on January 1, 2019 for Ten-X and Homesnap and January 1, 2020 for Homes.com.

The unaudited pro forma financial information for the years ended December 31, 2021, 2020 and 2019 combines the historical results of the Company, Ten-X, Homesnap and Homes.com for the periods prior to the respective acquisition dates, and the effects of the pro forma adjustments listed above.

The unaudited pro forma financial information, in aggregate, was as follows (in thousands, except per share data):

									Year Ended December 31,
															2021						2020						2019
Revenue															$	1,962,102					$	1,758,612					$	1,483,218
Net income															$	286,718					$	197,994					$	271,789
Net income per share - basic															$	0.74					$	0.52					$	0.75
Net income per share - diluted															$	0.73					$	0.51					$	0.74

The impact of the Homes.com acquisition on the Company's revenues and net income in the consolidated statements of operations from May 24, 2021 through December 31, 2021 was an increase of $14 million and a decrease of $23 million, respectively. The impact of the Ten-X acquisition on the Company's revenues and net income in the consolidated statements of operations from June 24, 2020 through December 31, 2020 was an increase of $32 million and a decrease of $10 million, respectively. The impact of the Homesnap acquisition on the Company's revenues and net income in the consolidated statements of operations from December 22, 2020 through December 31, 2020 was not material.

6. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company's financial assets comprise Level 1 cash equivalents with original maturities of three months or less in the amount of $3.0 billion and $3.4 billion as of December 31, 2021 and December 31, 2020, respectively. The Company had no Level 2 or Level 3 financial assets measured at fair value.

The Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, accrued expenses and senior notes. The carrying value for such financial instruments, other than the Senior Notes, each approximated their fair values as of December 31, 2021 and December 31, 2020. The estimated fair value of the Company's outstanding Senior Notes using quoted prices from the over-the-counter markets, considered Level 2 inputs, was $1.0 billion as of December 31, 2021 and December 31, 2020.

F-26

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. LEASES

The Company has operating leases for its office facilities, data centers and certain vehicles, as well as finance leases for office equipment. The Company's leases have remaining terms of less than one year to seven years. The leases contain various renewal and termination options. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. The period which is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised.

Lease costs related to the Company's operating leases included in the consolidated statements of operations were as follows (in thousands):

			Year Ended December 31,
			2021						2020						2019
Operating lease costs:
Cost of revenues			$	10,110					$	11,632					$	11,407
Software development			6,947						6,020						4,209
Selling and marketing (excluding customer base amortization)			11,911						10,356						8,678
General and administrative			5,911						4,827						3,299
Total operating lease costs			$	34,879					$	32,835					$	27,593

The impact of lease costs related to finance leases and short-term leases was not material for the years ended December 31, 2021, 2020 and 2019.

Supplemental balance sheet information related to operating leases was as follows (in thousands):

									Year Ended December 31,
Balance			Balance Sheet Location						2021						2020
Operating lease liabilities									$	134,150					$	148,975
Less: imputed interest									(8,512)						(10,998)
Present value of lease liabilities									125,638						137,977
Less: current portion of lease liabilities			Lease liabilities						26,268						32,648
Long-term lease liabilities			Lease and other long-term liabilities						$	99,370					$	105,329
Weighted-average remaining lease term in years									4.0						4.0
Weighted-average discount rate									3.1		%				3.6		%

Balance sheet information related to finance leases was not material as of December 31, 2021 and December 31, 2020.

Supplemental cash flow information related to leases was as follows (in thousands):

			Year Ended December 31,
			2021						2020						2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases			$	37,298					$	37,006					$	30,287
ROU assets obtained in exchange for lease obligations:
Operating leases			$	34,247					$	19,746					$	22,629

F-27

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

			December 31,
			2021						2020
Leasehold improvements			$	75,634					$	80,963
Furniture, office equipment and vehicles			47,540						68,587
Computer hardware and software			30,179						86,755
Aircrafts			68,670						28,561
Land			38,774						24,642
Buildings			96,496						2,970
Property and equipment, gross			357,293						292,478
Accumulated depreciation and amortization			(85,862)						(166,153)
Property and equipment, net			$	271,431					$	126,325

Depreciation expense for property and equipment was approximately $29 million, $29 million and $26 million, for the years ended December 31, 2021, 2020 and 2019, respectively. In 2021, the Company removed $107 million of property and equipment which was fully depreciated from property and equipment, gross and accumulated depreciation and amortization, which had no net impact on the Company's financial results.

9. GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):

			North America						International						Total
Goodwill, December 31, 2019			$	1,738,360					$	143,660					$	1,882,020
Acquisitions, including measurement period adjustments(1)			347,134						1,273						348,407
Effect of foreign currency translation			—						5,572						5,572
Goodwill, December 31, 2020			2,085,494						150,505						2,235,999
Acquisitions, including measurement period adjustments(2)			60,352						27,441						87,793
Effect of foreign currency translation			—						(2,777)						(2,777)
Goodwill, December 31, 2021			$	2,145,846					$	175,169					$	2,321,015
__________________________

(1) North America goodwill for the year ended December 31, 2020 includes goodwill recorded in connection with the acquisitions of Ten-X and Homesnap of $135.7 million and $211.1 million, respectively, as well as STR measurement period adjustments to goodwill of $0.3 million. International goodwill for the year ended December 31, 2020 includes goodwill recorded in connection with the acquisition of Emporis GmbH of $1.2 million and STR measurement period adjustments of $0.1 million.

(2) North America goodwill for the year ended December 31, 2021 includes goodwill recorded in connection with the acquisition of Homes.com of $88.5 million, offset by measurement period adjustments of $1.4 million for Ten-X and $26.7 million for Homesnap recorded during the year ended December 31, 2021 primarily related to the measurement of the fair value of Homesnap customer relationships in the first quarter of 2021. International goodwill recorded in connection with the acquisition of BureauxLocaux was $27.4 million. See Note 5 for further discussion.

Of the goodwill generated from acquisitions completed in 2021, $20 million is expected to be deductible for tax purposes. Goodwill generated from acquisitions completed in 2020 was not deductible for tax purposes.

No impairments of the Company's goodwill were recognized during the years ended December 31, 2021, 2020 and 2019.

F-28

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands, except amortization period data):

			December 31,												Weighted- Average Amortization Period (in years)
			2021						2020
Acquired technology and data			$	41,979					$	131,551					6
Accumulated amortization			(15,333)						(97,791)
Acquired technology and data, net			26,646						33,760
Acquired customer base			569,666						545,643						10
Accumulated amortization			(319,039)						(296,758)
Acquired customer base, net			250,627						248,885
Acquired trade names and other intangible assets			262,136						249,465						13
Accumulated amortization			(103,747)						(105,365)
Acquired trade names and other intangible assets, net			158,389						144,100
Intangible assets, net			$	435,662					$	426,745

Amortization expense for intangible assets was approximately $104 million, $88 million and $55 million for the years ended December 31, 2021, 2020 and 2019, respectively. In 2021, the Company removed $171 million of intangible assets that were fully amortized from the acquired intangible assets and accumulated amortization, which had no net impact on the Company's financial results.

In the aggregate, the Company expects the future amortization expense for intangible assets existing as of December 31, 2021 to be approximately $87 million, $71 million, $59 million, $47 million and $39 million for the years ending December 31, 2022, 2023, 2024, 2025 and 2026, respectively.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. No impairments of the Company's intangible assets were recognized during the years ended December 31, 2021, 2020 and 2019.

F-29

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. LONG-TERM DEBT

The table below presents the components of outstanding debt (in thousands):

																		December 31, 2021						December 31, 2020
2.800% Senior Notes due July 15, 2030																		$	1,000,000					$	1,000,000
2020 Credit Agreement, due July 1, 2025																		—						—
Total face amount of long-term debt																		1,000,000						1,000,000
Senior notes unamortized discount and issuance costs																		(12,056)						(13,285)
Long-term debt, net																		$	987,944					$	986,715

Senior Notes

On July 1, 2020, the Company issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030 (the “Senior Notes”). The Senior Notes were sold to a group of financial institutions as initial purchasers who subsequently resold the Senior Notes to non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 99.921% of their principal amount. Interest on the Senior Notes is payable semi-annually in arrears beginning on January 15, 2021. The Senior Notes may be redeemed in whole or in part by the Company (a) at any time prior to April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus the Applicable Premium (as calculated in accordance with the indenture governing the Senior Notes), and any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date, and (b) on or after April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date. The Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the Company’s domestic wholly owned subsidiaries and contain covenants, events of default and other customary provisions for which the Company was in compliance with as of December 31, 2021.

Revolving Credit Facility

On July 1, 2020, the Company also entered into a second amended and restated credit agreement (the "2020 Credit Agreement"), which amended and restated in its entirety the then-existing credit agreement originally entered into on April 1, 2014 and amended and restated on October 19, 2017 (the “2017 Credit Agreement”). The 2020 Credit Agreement provides for a $750 million revolving credit facility with a term of five years (maturing July 1, 2025) and a letter of credit sublimit of $20 million from a syndicate of financial institutions as lenders and issuing banks. A commitment fee of 0.25% to 0.30% per annum, depending on the Total Leverage Ratio (defined in 2020 Credit Agreement), is payable quarterly in arrears based on the unused revolving commitment.

Subject to certain conditions, on no more than five occasions, the Company may request increases in the amount of revolving commitments and/or the establishment of term commitments under the 2020 Credit Agreement. Borrowings under the 2020 Credit Agreement will bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a LIBOR or EURIBOR (with a floor of 0.0%) for the specified interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case depending on the Company's Total Leverage Ratio (as defined in the 2020 Credit Agreement). As LIBOR may not always be available to the Company as a base interest rate for borrowings under the credit facility, the 2020 Credit Agreement allows the Company and the administrative agent under the 2020 Credit Agreement to amend the 2020 Credit Agreement to replace LIBOR with one or more Secured Overnight Financing Rate (“SOFR”) based rates or another alternative benchmark rate. Funds drawn down on the revolving credit facility pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate purposes of the Company and its restricted subsidiaries. The obligations under the 2020 Credit Agreement are guaranteed by each of the Company’s current and future direct or indirect wholly owned restricted domestic subsidiaries, other than certain excluded subsidiaries, in each case subject to certain exceptions, pursuant to guarantee agreements.

F-30

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2020 Credit Agreement includes covenants, including ones that, subject to certain exceptions, restrict the ability of the Company and its subsidiaries to (i) merge and consolidate with other companies, (ii) incur indebtedness, (iii) grant liens or security interests on assets, (iv) make investments, acquisitions, loans or advances, (v) pay dividends and (vi) sell or otherwise transfer assets. During any period of time that the Company has obtained and maintained a corporate investment grade rating from at least two designated rating agencies and no Event of Default is continuing, the Company will not be subject to certain of these covenants such as restrictions on the ability to incur indebtedness (such period, a “Covenant Suspension Period”). As of December 31, 2021, the Company is in a Covenant Suspension Period. The 2020 Credit Agreement also requires the Company to maintain a Total Leverage Ratio (as defined in the 2020 Credit Agreement) not exceeding 4.50 to 1.00. The Company was in compliance with the covenants in the 2020 Credit Agreement as of December 31, 2021.

As of December 31, 2021, the Company had not drawn any amounts under this facility.

The Company had $3.8 million and $4.9 million of deferred debt issuance costs as of December 31, 2021 and December 31, 2020, respectively, in connection with the 2020 Credit Agreement. These amounts are included in deposits and other assets on the Company's consolidated balance sheets.

For the years ended December 31, 2021, 2020 and 2019 the Company recognized interest expense as follows (in thousands):

						Year Ended December 31,
						2021						2020						2019
Interest on outstanding borrowings						$	28,000					$	18,509					$	—
Amortization of senior notes discount and issuance costs						2,327						1,658						874
Commitment fees and other						1,989						1,627						1,741
Total interest expense						$	32,316					$	21,794					$	2,615

F-31

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. INCOME TAXES

The components of the provision for income taxes attributable to operations consist of the following (in thousands):

			Year Ended December 31,
			2021						2020						2019
Current:
Federal			$	61,290					$	43,461					$	53,039
State			24,618						11,726						13,422
Foreign			1,331						195						1,305
Total current			87,239						55,382						67,766
Deferred:
Federal			22,859						(9,599)						6,881
State			8,467						(926)						2,424
Foreign			(7,161)						(1,005)						(1,085)
Total deferred			24,165						(11,530)						8,220
Total provision for income taxes			$	111,404					$	43,852					$	75,986

The components of deferred tax assets and liabilities consist of the following (in thousands):

			December 31,
			2021						2020
Deferred tax assets:
Allowance for credit losses			$	3,601					$	3,698
Accrued compensation			3,913						4,934
Stock compensation			18,956						15,289
Net operating losses			45,835						38,498
Accrued reserve and other			4,134						5,900
Lease liabilities			28,306						34,758
Research and development credits			5,812						6,059
Accrued transaction fees			—						13,334
Total deferred tax assets, prior to valuation allowance			110,557						122,470
Valuation allowance			(5,694)						(11,170)
Total deferred tax assets, net of valuation allowance			104,863						111,300
Deferred tax liabilities:
Deferred commission costs, net			(25,700)						(23,691)
Lease right-of-use assets			(22,574)						(27,168)
Prepaid expenses			(2,569)						(2,384)
Property and equipment, net			(21,827)						(13,078)
Intangible assets, net			(125,815)						(112,987)
Total deferred tax liabilities			(198,485)						(179,308)
Net deferred tax assets (liabilities)			$	(93,622)					$	(68,008)

For the years ended December 31, 2021 and 2020, the Company has not recognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries that were deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.

F-32

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021 and 2020, a valuation allowance has been established for certain deferred tax assets due to the uncertainty of realization. The valuation allowance as of December 31, 2021 and 2020 includes an allowance for acquired net operating losses and foreign deferred tax assets.

The Company established the valuation allowance because it is more likely than not that a portion of the deferred tax asset for certain items will not be realized based on the weight of available evidence. A valuation allowance was established for the foreign deferred tax assets due to the cumulative loss in recent years in those jurisdictions. The Company has not had sufficient taxable income historically to utilize the foreign deferred tax assets, and it is uncertain whether the Company will generate sufficient taxable income in the future to utilize the deferred tax assets. The Company has established a valuation allowance for certain acquired net operating losses where Section 382 limitations will impact the ability of the Company to utilize the net operating losses before they expire.

The Company’s change in valuation allowance was a decrease of approximately $5.5 million for the year ended December 31, 2021 and a decrease of approximately $2.4 million for the year ended December 31, 2020. The decrease for the year ended December 31, 2021 is primarily due to an international restructuring. The decrease for the year ended December 31, 2020 is primarily due to the removal of the valuation allowance for the Washington, D.C. qualified high technology company tax credits which expired in 2020, partially offset by an increase in the valuation allowance for acquired net operating losses.

The Company had U.S. income before income taxes of approximately $409 million, $291 million and $403 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company had foreign losses before income taxes of approximately $5 million, $20 million and $12 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax rate as follows (in thousands):

			Year Ended December 31,
			2021						2020						2019
Expected federal income tax provision at statutory rate			$	84,833					$	56,906					$	82,099
State income taxes, net of federal benefit			21,012						11,409						14,884
(Decrease) in valuation allowance			(4,995)						(4,848)						(693)
Research credits			(13,070)						(14,322)						(12,188)
Excess tax benefit			(10,933)						(21,038)						(15,282)
Tax reserves			(12,787)						4,762						3,135
Nondeductible compensation			10,369						5,949						1,777
International restructuring			34,854						—						—
Other adjustments			2,121						5,034						2,254
Income tax expense			$	111,404					$	43,852					$	75,986

The Company has net operating loss carryforwards for international income tax purposes of approximately $41 million which do not expire. The Company has federal net operating loss carryforwards of approximately $151 million which begin to expire in 2029, state net operating loss carryforwards with a tax value of approximately $5 million which begin to expire in 2029 and state income tax credit carryforwards with a tax value of approximately $6 million primarily relating to state research and development credits which do not expire. The Company realized a cash benefit relating to the use of its tax loss carryforwards of approximately $14 million, $5 million and $6 million in December 31, 2021, 2020 and 2019, respectively.

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COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Unrecognized tax benefit as of December 31, 2018			$	22,372
Increase for current year tax positions			3,487
Increase for prior year tax positions			440
Expiration of the statute of limitation for assessment of taxes			(832)
Unrecognized tax benefit as of December 31, 2019			25,467
Increase for current year tax positions			4,213
Increase for prior year tax positions			452
Expiration of the statute of limitation for assessment of taxes			(1,259)
Unrecognized tax benefit as of December 31, 2020			28,873
Increase for current year tax positions			3,024
Decrease for prior year tax positions			(5,353)
Decrease for settlements with taxing authorities			(9,924)
Expiration of the statute of limitation for assessment of taxes			(1,866)
Unrecognized tax benefit as of December 31, 2021			$	14,754

Approximately $15 million and $29 million of the unrecognized tax benefits as of December 31, 2021 and 2020, respectively, would favorably affect the annual effective tax rate if recognized in future periods. The increase for current year tax positions of $3 million, decrease for prior year tax positions of $5 million and decrease for settlements with taxing authorities of $10 million for the year ended December 31, 2021 are primarily attributable to research credits. The decrease for expiration of the statute of limitation of $2 million for the year ended December 31, 2021 is attributable to research credits and state apportionment reserves. The Company reversed $0.4 million and recognized $0.4 million and $0.2 million for interest and penalties in its consolidated statement of operations for the years ended December 31, 2021, 2020 and 2019 respectively. The Company had liabilities of $0.6 million, $1.0 million $0.6 million for interest and penalties in its consolidated balance sheets as of December 31, 2021, 2020 and 2019, respectively. The Company does not anticipate the amount of the unrecognized tax benefits will change significantly over the next twelve months.

The Company is subject to taxation in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company’s federal income tax returns for tax years 2013 through 2016 and 2018 through 2020 remain open to examination. The Company is under Internal Revenue Service examination for tax years 2013, 2014 and 2016 related to the research and development credit. Most of the Company’s state income tax returns for tax years 2018 through 2020 remain open to examination. For states that have a four-year statute of limitations, the state income tax returns for tax years 2017 through 2020 remain open to examination. The Company’s U.K. income tax return for tax year 2020 remains open to examination. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

F-34

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. COMMITMENTS AND CONTINGENCIES

The following summarizes our significant contractual obligations, including related payments due by period, as of December 31, 2021 (in thousands):

Year Ending December 31,						Operating lease obligations						Long-term debt principal payments						Long-term debt principal interest payments
2022						$	29,678					$	—					$	28,000
2023						36,477						—						28,000
2024						32,808						—						28,000
2025						16,051						—						28,000
2026						7,235						—						28,000
Thereafter						11,901						1,000,000						112,000
Total						$	134,150					$	1,000,000					$	252,000

The Company leases office facilities under various non-cancelable operating leases. The leases contain various renewal options. See Note 7 for further discussion of the Company's operating lease commitments.

Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is reasonably possible that an unfavorable outcome may occur as a result of one or more of the Company’s current litigation matters, at this time management has concluded that the resolutions of these matters are not expected to have a material effect on the Company's consolidated financial position, future results of operations or liquidity. Legal defense costs are expensed as incurred.

14. SEGMENT REPORTING

Segment Information

The Company manages its business geographically in two operating segments, with the primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment net income before interest (expense) income, net, other income (expense), net, loss on debt extinguishment, income taxes, depreciation and amortization (“EBITDA”). Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of the Company’s operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of the business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

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COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summarized EBITDA information by operating segment consists of the following (in thousands):

			Year Ended December 31,
			2021						2020						2019
North America			$	557,125					$	410,852					$	451,699
International			7,856						(4,706)						(6,987)
Total EBITDA			$	564,981					$	406,146					$	444,712

The reconciliation of net income to EBITDA consists of the following (in thousands):

			Year Ended December 31,
			2021						2020						2019
Net income			$	292,564					$	227,128					$	314,963
Amortization of acquired intangible assets in cost of revenues			28,809						25,675						21,357
Amortization of acquired intangible assets in operating expenses			74,817						62,457						33,995
Depreciation and other amortization			29,018						28,812						25,813
Interest expense (income), net			31,621						17,395						(16,742)
Other (income) expense, net			(3,252)						827						(10,660)
Income tax expense			111,404						43,852						75,986
EBITDA			$	564,981					$	406,146					$	444,712

Summarized information by operating segment consists of the following (in thousands):

			December 31,
			2021						2020
Property and equipment, net
North America			$	269,792					$	123,634
International			1,639						2,691
Total property and equipment, net			$	271,431					$	126,325
Goodwill
North America			$	2,145,846					$	2,085,494
International			175,169						150,505
Total goodwill			$	2,321,015					$	2,235,999
Assets
North America			$	6,976,752					$	6,674,974
International			280,119						240,446
Total assets			$	7,256,871					$	6,915,420
Liabilities
North America			$	1,502,497					$	1,496,894
International			42,702						43,167
Total liabilities			$	1,545,199					$	1,540,061

15. STOCKHOLDER'S EQUITY

Preferred Stock

The Company has 2 million shares of preferred stock, $0.01 par value, authorized for issuance as of December 31, 2021. The Board of Directors may issue the preferred stock from time to time as shares of one or more classes or series.

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COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Common Stock

The Company has 1.2 billion shares of common stock, $0.01 par value, authorized for issuance. Dividends may be declared and paid on the common stock, subject in all cases to the rights and preferences of the holders of preferred stock and authorization by the Board of Directors. In the event of liquidation or winding up of the Company and after the payment of all preferential amounts required to be paid to the holders of any series of preferred stock, any remaining funds shall be distributed among the holders of the issued and outstanding common stock.

Common Stock Split

At the Company's 2021 Annual Meeting of Stockholders in June 2021, upon the recommendation of the Company's Board of Directors, the Company's stockholders approved the adoption of the Company's Fourth Amended and Restated Certificate of Incorporation, which increased the total number of shares of common stock that the Company is authorized to issue from 60 million to 1.2 billion. The Fourth Amended and Restated Certificate of Incorporation became effective on June 7, 2021. On June 7, 2021, the Board of Directors approved a ten-for-one stock split of the Company's outstanding shares of common stock to be effected in the form of a stock dividend. Each stockholder of record on June 17, 2021 received a dividend of nine additional shares of common stock for each then-held share, distributed after close of trading on June 25, 2021. The par value of the Company's common stock remained $0.01 per share. All applicable share and per-share amounts in the consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the impact of the stock split.

Equity Offering

On May 28, 2020, the Company completed a public equity offering of 26.3 million shares of common stock for $65.50 per share. Net proceeds from the public equity offering were approximately $1.7 billion, after deducting approximately $35 million of underwriting fees, commissions and other stock issuance costs. The Company intends to use the net proceeds from the sale of the securities to fund all or a portion of the costs of any strategic acquisitions it pursues in the future, to finance the growth of its business and for working capital and other general corporate purposes. General corporate purposes may include additions to working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries and the repurchase, redemption or retirement of securities, including the Company’s common stock.

16. NET INCOME PER SHARE

The following table sets forth the calculation of basic and diluted net income per share (in thousands except per share data):

			Year Ended December 31,
			2021						2020						2019
Numerator:
Net income			$	292,564					$	227,128					$	314,963
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares			392,210						380,726						363,096
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units			1,950						2,540						3,205
Denominator for diluted net income per share — weighted-average outstanding shares			394,160						383,266						366,301
Net income per share — basic(1)			$	0.75					$	0.60					$	0.87
Net income per share — diluted(1)			$	0.74					$	0.59					$	0.86

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

The following table summarizes the shares underlying the unvested performance-based restricted stock and anti-dilutive securities excluded from the basic and diluted earnings per share calculations (in thousands):

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COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Year Ended December 31,
			2021						2020						2019
Performance-based restricted stock awards(1)			415						526						600
Anti-dilutive securities(1)			373						540						425

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

17. EMPLOYEE BENEFIT PLANS

Stock Incentive Plans

In April 2007, the Company’s Board of Directors adopted the CoStar Group, Inc. 2007 Stock Incentive Plan (as amended, the “2007 Plan”), subject to stockholder approval, which was obtained on June 7, 2007. In April 2016, the Company’s Board of Directors adopted the CoStar Group, Inc. 2016 Stock Incentive Plan (as amended, the “2016 Plan”), subject to stockholder approval, which was obtained on June 9, 2016. All shares of common stock that were authorized for issuance under the 2007 Plan that, as of June 9, 2016, remained available for issuance under the 2007 Plan (excluding shares subject to outstanding awards) were rolled into the 2016 Plan and, as of that date, no shares of common stock were available for new awards under the 2007 Plan. The 2007 Plan continues to govern vested unexercised stock options issued prior to June 9, 2016. Upon the occurrence of a Change of Control, as defined in the 2007 Plan, all outstanding unexercisable options under the 2007 Plan immediately become exercisable.

The 2016 Plan provides for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights to officers, directors and employees of the Company and its subsidiaries. Stock options granted under the 2016 Plan may be non-qualified or may qualify as incentive stock options. Except in limited circumstances related to a merger or other acquisition, the exercise price for an option may not be less than the fair market value of the Company’s common stock on the date of grant. The vesting period for each grant of options, restricted stock, restricted stock units and stock appreciation rights under the 2016 Plan is determined by the Board of Directors or a committee thereof and is generally three to four years, subject to minimum vesting periods for restricted stock and restricted stock units of at least one year. In some cases, vesting of awards under the 2016 Plan may be based on performance conditions. The Company initially reserved approximately 22.7 million shares of common stock for issuance under the 2016 Plan, which included shares of common stock that were authorized and remained available for issuance under the 2007 Plan as of June 9, 2016. Any shares of common stock subject to (a) outstanding awards under the 2007 Plan as of June 9, 2016 or (b) outstanding awards under the 2016 Plan after June 9, 2016, that cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised or settled in vested and nonforfeitable shares) will become authorized and unissued under the 2016 Plan. Pursuant to the terms of the 2016 Plan, all amounts reserved or issued under the plan were adjusted to reflect the Company’s ten-for-one common stock split. Unless terminated sooner, the 2016 Plan will terminate in June 2026, but will continue to govern unexercised and unexpired awards issued under the 2016 Plan prior to that date. Approximately 15.3 million shares were available for future grant under the 2016 Plan as of December 31, 2021.

At December 31, 2021, there was approximately $91 million of unrecognized compensation cost related to stock incentive plans, net of estimated forfeitures, which the Company expects to recognize over a weighted-average-period of 2.3 years. The income tax benefit realized from stock-based compensation was $2 million, $20 million and $17 million for the years ended December 31, 2021, 2020 and 2019, respectively. See Notes 2 and 12 for further discussion of stock-based compensation expense and income taxes, respectively.

F-38

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

Option activity was as follows:

			Number of Shares**(1)**						Range of Exercise Price**(1)**						Weighted- Average Exercise Price**(1)**						Weighted- Average Remaining Contract Life (in years)						Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2018			3,442,760						$3.67 - $34.21						$	21.23					7.03						$	43,418
Granted			483,000						$39.82						$	39.82
Exercised			(1,169,180)						$5.45 - $34.21						$	15.95
Outstanding at December 31, 2019			2,756,580						$5.45 - $39.82						$	26.72					6.98						$	91,262
Granted			341,000						$66.65						$	66.65
Exercised			(953,130)						$19.37 - $39.82						$	22.95
Canceled or expired			(121,350)						$34.21 - $66.65						$	44.31
Outstanding at December 31, 2020			2,023,100						$10.22 - $66.65						$	34.18					6.99						$	117,846
Granted			159,000						$91.98						$	91.98
Exercised			(206,000)						$20.49 - $39.82						$	30.78
Outstanding at December 31, 2021			1,976,100						$10.22 - $91.98						$	39.18					6.24						$	80,800
Exercisable at December 31, 2019			1,476,200						$10.22 - $34.21						$	21.10					5.84						$	57,180
Exercisable at December 31, 2020			1,228,060						$10.22 - $39.82						$	24.68					6.18						$	83,204
Exercisable at December 31, 2021			1,473,420						$10.22 - $66.65						$	29.55					5.59						$	72,905

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

The aggregate intrinsic value of outstanding options is calculated as the difference between (i) the closing price of the common stock at the end of the period and (ii) the exercise price of the underlying awards, multiplied by the number of outstanding options as of the end of the period that had an exercise price less than the closing price on that date. The aggregate intrinsic value of options exercised, determined as of the exercise date, was approximately $11 million, $49 million and $40 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model, using the assumptions in the following table:

			Year Ended December 31,
			2021						2020						2019
Dividend yield			0		%				0		%				0		%
Expected volatility			30		%				26		%				27		%
Risk-free interest rate			0.56		%				1.45		%				2.46		%
Expected life (in years)			5						5						5
Weighted-average grant date fair value(1)			$	25.09					$	17.21					$	11.52

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash dividend payments. The Company has never declared nor paid any dividends on its common stock and does not anticipate paying any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its business. Expected volatility is calculated based on historical volatility of the daily closing price of the Company's common stock over a period consistent with the expected life of the options granted. The risk-free interest rate is based on the U.S. Treasury rate with terms similar to the expected life of the options granted. The expected life for the options is determined based on multiple factors, including historical employee behavior patterns of exercising options and post-employment termination behavior as well as expected future employee option exercise patterns.

F-39

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information regarding options outstanding at December 31, 2021:

						Options Outstanding																		Options Exercisable
Range of Exercise Price (1)						Number of Shares (1)						Weighted-Average Remaining Contractual Life (in years)						Weighted- Average Exercise Price (1)						Number of Shares (1)						Weighted- Average Exercise Price (1)
$10.22 - $24.24						762,420						4.49						$	18.94					762,420						$	18.94
$24.25 - $48.82						742,680						6.65						$	37.12					607,000						$	36.52
$48.83 - $69.93						312,000						8.10						$	66.65					104,000						$	66.65
$69.94 - $91.98						159,000						9.13						$	91.98					—						$	—
						1,976,100						6.24						$	39.18					1,473,420						$	29.55

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

Restricted Stock Awards

The Compensation Committee of the Board of Directors of the Company historically approved grants of restricted common stock to employees and directors of the Company that vest over a specific service period and to executive officers that vest based on the achievement of certain performance conditions, primarily, the achievement of a three-year cumulative revenue goal established at the grant date. The grant of awards with performance conditions supports the Company’s goal of aligning executive incentives with long-term stockholder value and ensuring that executive officers have a continuing stake in the long-term success of the Company.

The vesting of restricted common stock is subject to continuing employment requirements. Certain performance-based restricted common stock awards are also subject to a market condition such that the actual number of shares that vest at the end of the respective three-year period is determined based on the Company’s achievement of performance goals and an established Company specific TSR factor relative to the Russell 1000 Index over the same three-year performance period. At the end of the three-year performance period, if the performance condition is achieved at or above the pre-established threshold, the number of shares earned is further adjusted by a TSR payout percentage, which ranges between 80% and 120%, based on the Company’s TSR performance relative to that of the Russell 1000 Index over the respective three-year period.

The Company estimates the fair value of its equity awards with both a performance and market condition on the date of grant using a Monte-Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards. Expense is only recorded for awards that are expected to vest, net of estimated forfeitures. The assumptions used to estimate the fair value of awards with both a performance and a market condition were as follows:

			Year Ended December 31,
			2021						2020						2019
Dividend yield			0		%				0		%				0		%
Expected volatility			42		%				27		%				27		%
Risk-free interest rate			0.20		%				1.43		%				2.45		%
Expected life (in years)			3						3						3
Weighted-average grant date fair value(1)			$	99.73					$	72.69					$	42.96

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash dividend payments. The Company has never declared nor paid any dividends on its common stock and does not anticipate paying any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its business. Expected volatility is calculated based on historical volatility of the daily closing price of the common stock of the companies within the Russell 1000 Index over a period consistent with the expected life of the awards. The risk-free interest

F-40

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

rate is based on the U.S. Treasury rate with terms similar to the expected life of the awards. The expected life is consistent with the performance measurement period of the awards.

As of December 31, 2021, the Company determined that it was probable that at least the minimum performance goals associated with restricted stock awards with performance and market conditions granted during 2021, 2020 and 2019 would be met by their forfeiture dates. The Company recorded a total of approximately $8 million, $4 million and $8 million of stock-based compensation expense related to restricted stock awards with performance and market conditions for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, the Company expects to record an aggregate stock-based compensation expense of approximately $11 million for restricted stock awards with performance and market conditions over the periods 2022, 2023 and 2024.

The following table presents unvested restricted stock awards activity for the year ended December 31, 2021:

			Restricted Stock Awards — without Market Condition												Restricted Stock Awards — with Market Condition
			Number of Shares**(1)**						Weighted-Average Grant Date Fair Value per Share**(1)**						Number of Shares**(1)**						Weighted-Average Grant Date Fair Value per Share**(1)**
Unvested restricted stock awards at December 31, 2020			2,028,640						$	52.17					724,800						$	43.83
Granted			813,397						$	80.64					192,000						$	99.73
Vested			(894,291)						$	43.77					(182,619)						$	38.02
Canceled			(165,440)						$	64.07					(16,581)						$	38.02
Unvested restricted stock awards at December 31, 2021			1,782,306						$	66.74					717,600						$	67.40

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

Restricted Stock Units

The following table presents unvested restricted stock units activity for the year ended December 31, 2021:

			Number of Units**(1)**						Weighted-Average Grant Date Fair Value per Share**(1)**
Unvested restricted stock units at December 31, 2020			8,640						$	61.90
Granted			6,855						$	78.00
Vested			(2,650)						$	56.99
Canceled			(360)						$	73.79
Unvested restricted stock units at December 31, 2021			12,485						$	71.44

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

Management Stock Purchase Plan

The Board of Directors adopted the Company’s Management Stock Purchase Plan in December 2017 with the intent of providing selected key employees of the Company and its subsidiaries, including the Company's executive officers, the opportunity to defer a portion of their cash incentive compensation and to align management and stockholder interests through awards of DSUs under the MSPP and awards of Matching RSUs issued under the Company 2016 Plan. Under this plan participants are permitted to elect to defer up to 100% of their annual incentive bonus or commissions earned during the year by submitting an irrevocable election in accordance with Section 409A of the Internal Revenue Code, as amended. On the date the incentive bonus or commission would otherwise be paid in cash (typically during the following calendar year), the Company awards the participant DSUs representing the number of shares of common stock with an aggregate fair market value on that date equal to the amount of compensation elected to be deferred under the MSPP. On the same date the DSUs are awarded, the participant receives a grant of Matching RSUs covering the number of shares of common stock equal up to 100% of the DSUs granted. The expense related to the DSUs is recognized on a straight-line basis during the period that the related incentive bonus

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COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or commission is earned. The Company granted 40,960 and 33,840 DSUs during the years 2021 and 2020, respectively. The expense related to the Matching RSUs is recognized over the four-year vesting period following the grant date.

The following tables presents the Matching RSU activity for the year ended December 31, 2021:

			Number of Matching RSU Shares**(1)**						Weighted-Average Grant Date Fair Value per Share**(1)**
Unvested MSPP restricted stock units at December 31, 2020			93,170						$	53.12
Granted			40,960						$	83.79
Canceled			(18,040)						$	61.36
Unvested MSPP restricted stock units at December 31, 2021			116,090						$	62.66

(1) Prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

Employee 401(k) Plan

The Company maintains a 401(k) Plan (the “401(k)”) as a defined contribution retirement plan for all eligible employees. The 401(k) provides for tax-deferred contributions of employees’ salaries, limited to a maximum annual amount as established by the IRS. In addition to the traditional 401(k), effective January 1, 2015, eligible employees have the option of making an after-tax contribution to a Roth 401(k) plan or a combination of both. In 2021, 2020 and 2019, the Company matched 100% of employee contributions up to a maximum of 4% of total compensation. Amounts contributed to the 401(k) by the Company to match employee contributions for the years ended December 31, 2021, 2020 and 2019 were approximately $18 million, $15 million and $12 million, respectively. The Company had no administrative expenses in connection with the 401(k) plan for the years ended December 31, 2021, 2020 and 2019.

Employee Pension Plan

The Company maintains a Group Personal Pension Plan (the “Plan”) for all eligible employees in the Company’s U.K. offices. The Plan is a defined contribution plan. Employees are eligible to contribute a portion of their salaries, subject to a maximum annual amount as established by Her Majesty's Revenue and Customs. In 2021, 2020 and 2019, the Company's matching contribution was based on the percentage contributed by the employee, up to a maximum of 6% of total compensation. Amounts contributed to the Plan by the Company to match employee contributions for the years ended December 31, 2021, 2020 and 2019, were approximately $0.9 million, $0.9 million and $0.6 million, respectively.

Registered Retirement Savings Plan

As of January 1, 2015, the Company introduced a registered retirement savings plan (“RRSP”) for all eligible employees in the Company’s Canadian offices. In 2021, 2020 and 2019, the Company matched 100% of employee contributions up to a maximum of 4% of total compensation. Amounts contributed to the RRSP by the Company to match employee contributions were approximately $0.1 million for the years ended December 31, 2021, 2020 and 2019.

Employee Stock Purchase Plan

As of August 1, 2006, the Company introduced an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible employees participating in the plan authorize the Company to withhold specified amounts from the employees’ compensation and use the withheld amounts to purchase shares of the Company's common stock at 90% of the market price. Participating employees are able to purchase common stock under this plan during each offering period. An offering period begins the second Saturday before each of the Company’s regular pay dates and ends on each of the Company’s regular pay dates. On June 2, 2021, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares available for purchase under the ESPP by 1 million shares. The Company registered the issuance of these additional shares under the ESPP pursuant to the registration statement filed on July 28, 2021. There were 1,233,863 and 385,910 shares available for purchase under the ESPP as of December 31, 2021 and 2020, respectively, and approximately 152,047 and 129,930 shares of the Company’s common stock were purchased under the ESPP during 2021 and 2020, respectively.

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