Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those discussed in “Cautionary Statement Concerning Forward-Looking Statements” at the end of this Item 2 and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020, as well as those described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements in this filing are based on information available to us on the date of this filing, and we assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and other filings with the Securities and Exchange Commission and the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Overview

CoStar Group, Inc. (the “Company” or “CoStar Group”) is the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact that we offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own and operate leading online marketplaces for commercial real estate and apartment listings in the U.S., based on the numbers of unique visitors and site visits per month; and provide more information, analytics and marketing services than any of our competitors. We have created and compiled a standardized platform of information, analytics and online marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information. Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality. With our recent acquisitions of Homesnap, Inc. (“Homesnap”) and Homes Group, LLC ("Homes.com") we also offer online platforms for marketing and workflow management for residential real estate agents and brokers and residential property listings for homebuyers.

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America. Our most recent strategic acquisitions include Ten-X Holding Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate; Emporis GmbH, a Germany-based provider of international commercial real estate data and images; Homesnap; Homes.com and ComReal Info, the owner and operator of BureauxLocaux in France. See Notes 5, 8 and 15 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for further discussion of these acquisitions.

Our services are typically distributed to our clients under subscription-based license agreements that renew automatically, a majority of which have a term of at least one year. Upon renewal, many of the subscription contract rates may change in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based services rather than charging fees based on actual system usage or number of paid clicks. Depending on the type of service, contract rates are generally based on one or more of the following factors: the number of sites, number of users, organization size, the client's business focus, the client's geographic location, 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. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis. Our transaction-based services primarily consist of auction fees from our Ten-X online auction platform, which are generally calculated as a percentage of the final sales price for the commercial real estate property sold and recognized as revenue upon the successful closure of an auction. Other transaction-based services are described by service offering below.

Our primary brands include CoStar®, LoopNet®, Apartments.comTM, STR®, Ten-X®, BizBuySell®, LandsofAmericaTM, HomeSnap®, and Homes.com®, which are accessible via the Internet and through our mobile applications. Our principal service offerings are discussed in more detail below.

Impact of the COVID-19 Pandemic

While the impact of the COVID-19 pandemic continues to evolve, it did not materially affect our consolidated financial statements during 2020 or our condensed consolidated financial statements for March 31, 2021, June 30, 2021 and September 30, 2021. We are closely and continually monitoring the impact of the COVID-19 pandemic on our business, employees, customers, and communities. We continue to monitor the guidelines and mandates provided by governmental and health authorities and plan to continue adapting our business operations when and as deemed appropriate to comply with these guidelines and mandates and to respond to changing circumstances. Most of our workforce has been fully vaccinated against COVID-19 and, where permitted, has returned to the office. We have resumed in-person marketing events and some business travel. The global workforce has been operating in an extraordinary and mostly digital and remote manner as the world adapted during the COVID-19 pandemic. During this time, many working adults moved to different locations and adjusted to a different way of living. As we transitioned our employees back to the office, we experienced, and we expect to continue to experience attrition among our workforce resulting in increased costs. Continued attrition or the inability to replenish and grow our work force may result in work disruptions in the future. Overall, the increased direct spend related to the COVID-19 pandemic, including office reconfiguration to enable social distancing and employee hiring and retention programs, has not been material to date and has had minimal impact on our financial position and operating results.

It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements – allowing work from the office or home, or switch to all work from home. If the demand for office space decreases significantly, there could be a downturn in the commercial real estate market which may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

During 2021, excluding our multifamily service offering, which is discussed under Service Offerings below, our company-wide net new bookings and renewal rates for subscription-based services have returned to pre-pandemic levels. In addition, we saw improvements in collection trends along with improvements in the economy which led us to reduce our allowance for credit losses previously taken. Due to the uncertainty associated with the COVID-19 pandemic and any resulting economic impacts, we will continue to monitor these trends and the effect on our results of operations. Any anticipated changes in financial performance discussed in this report are based on our current observations and experience and involve estimates and assumptions. As the future extent and duration of the effects of the COVID-19 pandemic remain unclear, our estimates and assumptions may evolve as conditions change and actual results may vary. See Note 4 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q and the "Comparison of Nine Months Ended September 30, 2021 and Nine Months Ended September 30, 2020" below for further discussion.

We strengthened our liquidity position through an equity offering of common stock in May 2020 and an offering of Senior Notes and amendment and restatement of our credit facility in early July 2020. See Note 10 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q for further discussion of our equity and Senior Notes offerings in 2020 and the 2020 Credit Agreement. The effects of the pandemic have not affected our ability to date to access funding on reasonably similar terms as were available to us prior to March 2020. We discuss the current and potential impact of select provisions of the CARES Act (defined below) on our company in our liquidity discussion.

Service Offerings

Our portfolio of information, analytics and online marketplace services are branded and marketed to our customers and marketplace end users. Our services are primarily derived from a database of building-specific information and offer customers specialized tools for accessing, analyzing and using our information. Over time, we enhanced and expanded, and we expect to continue to enhance and expand, our existing information, analytics and online marketplace services and we have developed and we expect to continue to develop additional services that use our comprehensive database to meet the needs of our existing customers as well as potential new categories of customers.

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

CoStar

CoStar® is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news, and market and lease analytical capabilities. CoStar revenue growth rates for the third quarter of 2021 increased compared to the third quarter of 2020. We expect CoStar revenue growth rates to increase through the remainder of 2021 as a result of signing new customer agreements, existing customers upgrading their subscriptions and our resumption of annual price increases for contract renewals that began in September 2021 after a temporary suspension.

Information Services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our Real Estate Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics® service offerings. STR, Inc. and STR Global, Ltd. (together with STR, Inc., "STR") provides benchmarking and analytics for the hospitality industry. STR sells the majority of its services on a subscription basis, but also receives one-time or ad hoc transaction-based revenue. We provide information services internationally, through our Grecam, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively. Information Services revenue growth rates for the third quarter of 2021 decreased compared to the third quarter of 2020 due to a decline in the level of ad hoc STR report sales. We expect Information Services revenue for the fourth quarter of 2021 to remain consistent with the third quarter of 2021 due to a seasonal decline in ad hoc STR report sales, which we expect will offset growth in CoStar Real Estate Manager sales.

Multifamily

Apartments.com™ is part of our network of apartment marketing sites, which primarily includes ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.com™, Apartamentos.com™, Westside Rentals, and Off Campus Partners, LLC. Our network of subscription-based advertising services provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. Apartments.com also receives transaction-based revenue for tenant processing fees. Apartments.com has continued to successfully increase traffic to its network of sites, year-over-year, resulting in increased leads to customers. As leads per ad have increased, Apartments.com’s lower priced ad packages are generating more leads than top-level packages were generating approximately one year ago. In addition, rental vacancy rates have declined relevant to historical averages reducing demand for top-level packages. As a result, customers are selecting lower-priced ad packages. Consequently, while Multifamly subscription renewal rates remain consistent year-over-year, net new bookings declined year-over-year in the third quarter of 2021 resulting in a decrease in the Multifamily revenue growth rates in the third quarter of 2021 compared to the third quarter of 2020. We expect Multifamily revenue growth rates to decrease through the remainder of 2021 as vacancy rates remain low and Apartments.com customers continue to select lower priced ad packages.

LoopNet

Our LoopNet.com network of commercial real estate websites offer subscription-based online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants use the LoopNet.com network of online marketplace services to search for available property listings that meet their criteria. LoopNet revenue growth rates during the third quarter of 2021 were consistent with the third quarter of 2020. We expect LoopNet revenue growth rates to decrease through the remainder of 2021 due to our sales force spending more time selling CoStar subscriptions, resulting in slower sales growth for LoopNet while we work to recruit and train a dedicated LoopNet sales force.

Residential

On December 22, 2020, we acquired Homesnap, an online and mobile software platform that provides subscription-based access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms. On May 24, 2021, we acquired Homes.com, a residential advertising and marketing services company primarily operating through its portal, Homes.com. Residential third quarter 2021 revenue increased compared to the second quarter of 2021 as a result of including a full quarter of revenue for Homes.com. We expect Residential revenue for the fourth quarter of 2021 to decrease compared to the third quarter of 2021 due to seasonal reductions in Homesnap advertising sales and the discontinuance of certain services previously offered on Homes.com that are inconsistent with our long-term strategy.

Other Marketplaces

On June 24, 2020, we acquired Ten-X, an online auction platform for commercial real estate. Our BizBuySell network, which includes BizQuest® and FindaFranchise, and our Land.com network of sites, which includes LandsofAmerica, LandAndFarm and LandWatch®, are also included in Other Marketplaces revenue. The BizBuySell network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online marketplaces for rural lands for-sale. Other Marketplaces' revenue for the third quarter of 2021 increased compared to the third quarter of 2020 due to an increase in fees earned on Ten-X auctions. We expect Other Marketplaces revenue for the fourth quarter of 2021 to remain consistent with the third quarter of 2021.

Subscription-based Services

The majority of our revenue is generated from service offerings which are distributed to our clients under subscription-based license agreements that renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the three months ended September 30, 2021 and September 30, 2020, our annualized net new bookings of subscription-based services on all contracts were approximately $47 million and $53 million, respectively, calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upgrades on all existing subscription-based contracts, less write-downs and cancellations, for the period reported. Net new bookings is considered a key indicator of future subscription revenue growth and is also used as a metric of salesforce productivity by management and investors.

For the trailing twelve months ended September 30, 2021 and 2020, our contract renewal rates for existing CoStar Group subscription-based services for contracts with a term of at least one year were approximately 92% and 89%, respectively, and therefore our cancellation rates for those services for the same periods were approximately 8% and 11% respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, management believes that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing twelve-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending, or decreases in our customer base.

Development, Investments and Expansion

We plan to continue to invest in our business and our services, evaluate strategic growth opportunities, and pursue our key priorities as described below, while we closely monitor the economic impacts of the COVID-19 pandemic and manage our response. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants, brokers, agents and residential renters. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. We reevaluate our priorities on a regular basis and may reevaluate our priorities as the COVID-19 pandemic continues to evolve.

Our key priorities for the remainder of 2021 currently include:

  • Continuing to invest in CoStar, including:

◦developing capabilities that allow us to broaden the reach of CoStar internationally by offering a global platform to all CoStar users. As we begin to offer a global platform, we plan to expand our international presence.

◦developing commercial mortgage-backed securities ("CMBS") Analytics, which will aggregate loan and property data across covered markets. The initial CMBS Analytics release is expected to include loan origination metrics, distressed loan levels and maturity volumes, as well as detailed revenue and expense information. In later releases of this solution, we plan to include detailed prepayment information on disposed loans.

◦developing a solution for lenders that leverages the information we have developed with CoStar Risk Analytics to support lenders with risk management, underwriting, surveillance and compliance reporting. The first CoStar Lender release is expected to focus on portfolio risk analytics and surveillance to help lenders meet regulatory and accounting requirements. Subsequent releases are expected to focus on loan origination and underwriting.

◦enhancing benchmarking capabilities. We integrated STR's data into CoStar earlier in 2021 and continue to develop dynamic analytics for and additional coverage of hospitality properties. We plan to apply STR's benchmarking expertise to other commercial real estate segments we serve.

  • Continuing to improve and market our Apartments.com service offerings to create the best and most comprehensive consumer rental search experience as well as continuing to advance the digital rental experience that allows renters to apply for leases and make rent payments, and for landlords to receive and assess tenant applications online through a single platform. We seek user feedback as we work to improve our services and continue to aggressively market our multifamily listing services in an effort to attract consumers and, in turn, provide more value to advertisers. Our Apartments.com marketing investment is focused on enhanced brand awareness and search engine marketing. As we continue to assess the success and effectiveness of our marketing campaign, we will continue to work to determine the optimal level and focus of our marketing investment for our multifamily listing services for future periods and may adjust our marketing spend and focus as we deem appropriate. Apartments.com has been successful in generating increased traffic to the network and as a result is delivering increased leads per ad to customers. We are assessing and have begun adjusting pricing to reflect the increased lead generation we are delivering to our customers.

  • Continuing to develop leading residential businesses. The acquisitions of Homes.com and Homesnap enable us to expand the markets in which we compete. Our residential team is creating new and improved tools to help agents promote their residential listings, connect with buyers and sellers and streamline their daily workflow. We expect to continue making investments in residential marketplace technology development and content generation resources and marketing expenditures. In October 2021, Homesnap reached an agreement to create, maintain and market a consumer-facing search website and mobile app for the Real Estate Board of New York's Residential Listing Service. Homesnap will provide a custom version of its search portal, branded as Citysnap™, specifically for the five boroughs of New York City. We plan to grow Homes.com's site traffic by offering homebuyers information directly from local multiple listing services and developing a website that allows homebuyers to collaborate with agents. We are also evaluating additional investments in residential marketplace services and assessing and formulating our residential business plan and go-forward strategies.

  • Continuing to invest in the LoopNet marketplace. To support the LoopNet marketplace, we implemented training and incentive programs for our existing sales team to increase sales of LoopNet advertisements, with a focus on brokers and property owners. We are enhancing the content on LoopNet.com (including high-quality imagery), seeking targeted advertisements, providing premium marketing services (such as LoopNet Diamond, Platinum, and Gold Ads) that increase a property listing’s exposure, and adding more content for premium listings to better meet the needs of a broader cross section of the commercial real estate industry. We are resuming our plans to recruit and develop a dedicated LoopNet sales team to help support and grow the business. To generate brand awareness and site traffic for the LoopNet.com network, we increased our investment in marketing in 2021, as compared to 2020, and are utilizing a multi-media marketing campaign, reinforced with search engine optimization efforts. We expect to continue to work to determine the optimal level of marketing investment in future periods.

  • Continuing to invest in the Ten-X auction platform. We continue to integrate the Ten-X platform with both CoStar and LoopNet to expand the audience for Ten-X auctions to include our commercial real estate users. We also plan to enhance access to Ten-X's data room information from CoStar and LoopNet. To increase exposure of properties to be auctioned on Ten-X, we are allocating banner space on both our CoStar and LoopNet sites for advertising for Ten-X properties. We continue to execute our plan to expand the Ten-X sales force and focus on increasing the number of qualified bidders and the number of owners bringing properties to the site. To generate brand awareness and site traffic for the Ten-X platform, we increased our investment in marketing in 2021, as compared to 2020, and are utilizing a multi-media marketing campaign, reinforced with search engine optimization efforts. We expect to continue to work to determine the optimal level of marketing investment future periods.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles (“GAAP”). We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we may disclose include net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our ordinary course of business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs, and then subtracting an assumed provision for income taxes. Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs, and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest (expense) income and other (expense) income, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

  • Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

  • Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

  • Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

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

  • Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

  • The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

  • Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

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

  • The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters or impairments on acquired intangible assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

  • The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. We do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration-related costs, restructuring and related costs and settlement and impairment costs incurred outside our ordinary course of business. These items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated with using this non-GAAP financial measure as compared to net income. In addition to these exclusions from net income, we subtract an assumed provision for income taxes to calculate non-GAAP net income. In 2021 and 2020, we assumed a 25% tax rate, which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.

The following table shows our net income reconciled to our EBITDA and our net cash flows from operating, investing and financing activities for the indicated periods (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income$64,304$58,186$199,664$191,339
Amortization of acquired intangible assets in cost of revenues7,2096,61221,56518,671
Amortization of acquired intangible assets in operating expenses19,12118,25855,88544,677
Depreciation and other amortization6,6106,80622,13820,563
Interest expense, net7,9437,53723,6989,482
Other (income) expense(1,546)338(2,343)(29)
Income tax expense19,03110,74870,93333,200
EBITDA$122,672$108,485$391,540$317,903
Net cash flows provided by (used in)
Operating activities$98,929$106,692$319,218$355,338
Investing activities$(12,715)$(36,855)$(297,505)$(223,880)
Financing activities$1,800$249,544$(14,338)$2,665,902

Comparison of Three Months Ended September 30, 2021 and Three Months Ended September 30, 2020

The following table provides a comparison of our selected consolidated results of operations for the three months ended September 30, 2021 and September 30, 2020 (in thousands):

Three Months Ended September 30,
20212020Increase (Decrease) ($)Increase (Decrease) (%)
Revenues:
CoStar$183,265$165,988$17,27710%
Information Services35,92633,1742,7528
Multifamily171,125155,18415,94110
LoopNet(1)52,52745,0847,44317
Residential(1)24,747—24,747NM
Other Marketplaces(1)31,72926,1905,53921
Total revenues499,319425,62073,69917
Cost of revenues92,59777,86514,73219
Gross profit406,722347,75558,96717
Operating expenses:
Selling and marketing (excluding customer base amortization)180,055146,63433,42123
Software development53,14340,73212,41130
General and administrative64,67165,322(651)(1)
Customer base amortization19,12118,2588635
Total operating expenses316,990270,94646,04417
Income from operations89,73276,80912,92317
Interest expense, net(7,943)(7,537)4065
Other income (expense)1,546(338)1,884NM
Income before income taxes83,33568,93414,40121
Income tax expense19,03110,7488,28377
Net income$64,304$58,186$6,11811
__________________________
NM - Not meaningful
(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.

Revenues. Revenues increased to $499 million for the three months ended September 30, 2021, from $426 million for the three months ended September 30, 2020. The $74 million increase was attributable to increases in revenues for several of our service offerings. Residential revenue increased $25 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $17 million and $8 million, respectively for the three months ended September 30, 2021. CoStar revenues increased $17 million, or 10%, due to higher sales volume driven by an increase in customers, as well as, customers upgrading their subscriptions, and our resumption of annual price increases for contract renewals that began in September 2021. Multifamily revenues increased $16 million, or 10%, driven by higher sales volume, and to a lesser extent, increases in pricing. LoopNet revenue increased $7 million or 17% as a result of stronger traffic, which drove sales of higher value advertisements as compared to the prior year. Other Marketplaces revenue increased $6 million, or 21%, driven by an increase in Ten-X revenue of $3 million, as a result of higher value assets sold, and increased Land for Sale revenue of $1 million. Information Services revenue increased $3 million, or 8%, due to increased revenue of $2 million and $1 million from our STR and Real Estate Manager service offerings, respectively.

Gross Profit. Gross profit increased to $407 million for the three months ended September 30, 2021, from $348 million for the three months ended September 30, 2020, and the gross profit percentage was 81% for the three months ended September 30, 2021, which was consistent with the three months ended September 30, 2020, due to higher revenues that were partially offset by an increase in cost of revenues of $15 million, or 19%. The increase in cost of revenue was primarily due to an increase of $14 million due to the acquisitions of Homesnap and Homes.com, driven by increases in both personnel and data costs directly attributable to those services.

Selling and Marketing Expenses. Selling and marketing expenses increased to $180 million for the three months ended September 30, 2021, from $147 million for the three months ended September 30, 2020. The $33 million increase was attributable to a $19 million increase in marketing expenses, primarily due to a $16 million increase in marketing agency spending, led by LoopNet and Ten-X, and a $3 million increase in events spending. There were also increases in personnel costs of $8 million, primarily due to the Homesnap and Homes.com acquisitions, as well as, travel and entertainment and conference costs of $2 million and $1 million, respectively.

Software Development Expenses. Software development expenses increased to $53 million for the three months ended September 30, 2021, from $41 million for the three months ended September 30, 2020, and increased as a percentage of revenues to 11% for the three months ended September 30, 2021 from 10% and for the three months ended September 30, 2020. The $12 million increase was primarily due to a $11 million increase in personnel costs driven by the Homesnap and Homes.com acquisitions, as well as, increased headcount to support the development of our products.

General and Administrative Expenses. General and administrative expenses remained consistent at $65 million for the three months ended September 30, 2021 and 2020, and decreased as a percentage of revenues to 13% for the three months ended September 30, 2021 from 15% for the three months ended September 30, 2020. Increases of $3 million in general and administrative expenses from the Homesnap and Homes.com acquisitions. In addition, there was an increase of of $1 million in software and $1 million in occupancy costs. These increases were offset by a $4 million decrease in credit loss expense due to better than expected collections, as well as, a $2 million decrease in professional services.

Customer Base Amortization Expense. Customer base amortization expense increased to $19 million for the three months ended September 30, 2021 from $18 million for the three months ended September 30, 2020, and remained consistent as a percentage of revenues at 4% for the three months ended September 30, 2021 and 2020. The increase in customer base amortization expense was primarily due to the Homesnap and Homes.com acquisitions.

Interest Expense, net. Interest expense, net remained consistent for the three months ended September 30, 2021 and 2020.

Other Income (Expense). Other income (expense), increased to $2 million in income for the three months ended September 30, 2021 from $0.3 million of expense for the three months ended September 30, 2020. The increase in other income was due to rental income on the Richmond building, as well as, increases in foreign exchange gains.

Income Tax Expense. Income tax expense increased to $19 million for the three months ended September 30, 2021, from $11 million for the three months ended September 30, 2020. The increase was primarily due to a decrease in excess tax benefits as well as, higher income before taxes.

Comparison of Business Segment Results for Three Months Ended September 30, 2021 and Three Months Ended September 30, 2020

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment EBITDA, which is our net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of our 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.

Segment Revenues. North America revenues increased to $483 million for the three months ended September 30, 2021, from $411 million for the three months ended September 30, 2020. The $72 million increase in North America revenues was attributable to increases in revenues for several of our service offerings, including an increase in Residential revenue of $25 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $17 million and $8 million, respectively for the three months ended September 30, 2021. Multifamily revenues increased $16 million, due to higher sales volume, and to a lesser extent, increases in pricing. CoStar revenues increased $16 million due to higher sales volume driven by an increase in customers, as well as, customers upgrading their subscriptions, and the resumption of annual price increases for contract renewals that began in September 2021. LoopNet revenue increased $7 million as a result of stronger traffic, which drove sales of higher value advertisements as compared to the prior year. Other Marketplaces revenue increased $6 million, driven by an increase in Ten-X and Land for Sale revenue. Information Services revenue increased $3 million, due to increased revenue from our STR and Real Estate Manager service offerings. International revenues increased to $16 million for the three months ended September 30, 2021, from $15 million for the three months ended September 30, 2020. The increase in International revenues was primarily due to growth in our CoStar product revenue.

Segment EBITDA. North America EBITDA increased to $120 million for the three months ended September 30, 2021, from $108 million for the three months ended September 30, 2020. The increase in North America EBITDA was primarily due to an increase in revenue, partially offset by increases in personnel, marketing and general and administrative costs. International EBITDA for the three months ended September 30, 2021 was $3 million, as compared to $1 million for the three months ended September 30, 2020, the increase was due to increased revenue and decreased general administrative costs, partially offset by increases in personnel and marketing costs.

Comparison of Nine Months Ended September 30, 2021 and Nine Months Ended September 30, 2020

The following table provides a comparison of our selected consolidated results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended September 30,
20212020Increase (Decrease) ($)Increase (Decrease) (%)
Revenues:
CoStar$532,428$495,997$36,4317%
Information Services105,77996,0929,68710
Multifamily508,629438,18570,44416
LoopNet(1)152,852131,60421,24816
Residential(1)53,939—53,939NM
Other Marketplaces(1)83,72252,74830,97459
Total revenues1,437,3491,214,626222,72318
Cost of revenues270,911230,81440,09717
Gross profit1,166,438983,812182,62619
Operating expenses:
Selling and marketing (excluding customer base amortization)483,354402,20281,15220
Software development148,500121,34327,15722
General and administrative186,747181,5985,1493
Customer base amortization55,88544,67711,20825
Total operating expenses874,486749,820124,66617
Income from operations291,952233,99257,96025
Interest expense, net(23,698)(9,482)14,216NM
Other income2,343292,314NM
Income before income taxes270,597224,53946,05821
Income tax expense70,93333,20037,733NM
Net income$199,664$191,339$8,3254
__________________________
NM - Not meaningful
(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces.

Revenues. Revenues increased to $1,437 million for the nine months ended September 30, 2021, from $1,215 million for the nine months ended September 30, 2020. The $222 million increase was attributable to increases in revenues for several of our service offerings. Multifamily revenues increased $70 million, or 16%, primarily due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues increased $54 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $42 million and $12 million, respectively. CoStar revenues increased $36 million, or 7%, due to higher sales volume driven by an increase in customers, as well as, customers upgrading their subscriptions, and the resumption of annual price increases for contract renewals that began in September 2021. Other Marketplaces revenue increased $31 million, or 59%, primarily driven by the Ten-X acquisition, which had an increase in revenue of $27 million due to two additional quarters of revenue compared to the prior year. LoopNet revenues increased $21 million, or 16%, as a result of stronger traffic, which drove sales of higher value advertisements as compared to the prior year. Information Services revenue increased $10 million, or 10%, primarily due to increased revenue of $4 million each from our Real Estate Manager and STR service offerings.

Gross Profit. Gross profit increased to $1,166 million for the nine months ended September 30, 2021, from $984 million for the nine months ended September 30, 2020, and the gross profit percentage remained consistent at 81% for the nine months ended September 30, 2021 and 2020. The increase in gross profit was due to higher revenues partially impacted by an increase in cost of revenues of $40 million, or 17%, primarily due to an increase of $37 million due to the acquisitions of Ten-X, Homesnap and Homes.com, driven by increases in personnel and data costs, and to a lesser extent, increases in software and equipment costs and bank and merchant fees.

Selling and Marketing Expenses. Selling and marketing expenses increased to $483 million for the nine months ended September 30, 2021, from $402 million for the nine months ended September 30, 2020. The $81 million increase was driven by a $51 million increase in marketing expenses, driven by a $35 million increase in marketing agency spending, primarily for LoopNet and Ten-X, and to a lesser extent, increases in digital and other forms of marketing including events. There was also a $27 million increase in personnel costs, primarily attributable to the Ten-X, Homesnap, and Homes.com acquisitions, and to a lesser extent, an increase in commissions expense for other products of $8 million.

Software Development Expenses. Software development expenses increased to $149 million for the nine months ended September 30, 2021, from $121 million for the nine months ended September 30, 2020, and remained consistent as a percentage of revenues at 10% for the nine months ended September 30, 2021, and the nine months ended September 30, 2020. The $27 million increase was primarily due to a $25 million increase in personnel costs driven by the Ten-X, Homesnap, and Homes.com acquisitions, as well as, increased headcount to support the development of our products, and to a lesser extent, a $2 million increase in software equipment expense.

General and Administrative Expenses. General and administrative expenses increased to $187 million for the nine months ended September 30, 2021, from $182 million for the nine months ended September 30, 2020, and decreased as a percentage of revenues to 13% for the nine months ended September 30, 2021 from 15% for the nine months ended September 30, 2020. The $5 million increase in the amount of general and administrative expense was driven by an increase of $8 million in general and administrative expenses from Ten-X, Homesnap and Homes.com, as well as, increases excluding acquisitions of $4 million in software equipment expense, $3 million in depreciation, $2 million in professional services, and $2 million in personnel costs. These increases were partially offset by a $14 million decrease in credit loss expense due to better than expected collections, resulting in updated assumptions regarding credit losses and a decrease in reserves previously increased due to uncertainty about the economic effects of COVID-19 pandemic.

Customer Base Amortization Expense. Customer base amortization expense increased to $56 million for the nine months ended September 30, 2021 from $45 million for the nine months ended September 30, 2020, and remained consistent as a percentage of revenues at 4% for the nine months ended September 30, 2021 and 2020. The increase in customer base amortization expense was primarily due to the Ten-X, Homesnap, and Homes.com acquisitions.

Interest Expense, net. Interest expense, net was $23 million for the nine months ended September 30, 2021, as compared to $9 million for the nine months ended September 30, 2020. The increase of $14 million for the nine months ended September 30, 2021 was primarily due to interest expense of $21 million recognized during the nine months ended September 30, 2021 on our Senior Notes issued on July 1, 2020 as compared to $7 million for the nine months ended September 30, 2020. In addition, there was a decrease of $4 million in interest income caused by lower rates of return on our cash and cash equivalent balances compared to the prior year. These changes were partially offset by prior year interest expense of $5 million incurred on the $745 million draw on our revolving credit facility in the first quarter of 2020.

Other Income. Other income, increased to $2 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in other income was due to rental income on the Richmond building, partially offset by decreases in foreign exchange gains due to rate fluctuations.

Income Tax Expense. Income tax expense increased to $71 million for the nine months ended September 30, 2021, from $33 million for the nine months ended September 30, 2020. The increase was primarily due to a decrease in excess tax benefits, higher income before taxes, and a tax restructuring gain.

Comparison of Business Segment Results for Nine Months Ended September 30, 2021 and Nine Months Ended September 30, 2020

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment EBITDA, which is our net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of our 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.

Segment Revenues. North America revenues increased to $1,388 million for the nine months ended September 30, 2021, from $1,173 million for the nine months ended September 30, 2020. The $216 million increase in North America revenues was attributable to increases in revenues for several of our services. Multifamily revenues increased $70 million, primarily due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues increased $54 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $42 million and $12 million, respectively. CoStar revenues increased $32 million, due to higher sales volume driven by an increase in customers, as well as, customers upgrading their subscriptions, and the resumption of annual price increases for contract renewals that began in September 2021. Other Marketplaces revenue increased $31 million, primarily driven by the Ten-X acquisition. LoopNet revenues increased $20 million as a result of stronger traffic, which drove sales of higher value advertisements as compared to the prior year. Information Services revenue increased $8 million, primarily due to increased revenue from our Real Estate Manager and STR service offerings. International revenues increased to $49 million for the nine months ended September 30, 2021, from $42 million for the nine months ended September 30, 2020. The increase in International revenues was due to favorable changes in foreign exchange rates, as well as, growth in our CoStar and STR product revenue.

Segment EBITDA. North America EBITDA increased to $386 million for the nine months ended September 30, 2021, from $323 million for the nine months ended September 30, 2020. The increase in North America EBITDA was primarily due to an increase in revenue, partially offset by increases in personnel, marketing and general and administrative costs. International EBITDA for the nine months ended September 30, 2021 was income of $6 million, as compared to a loss of $5 million for the nine months ended September 30, 2020, the increase was due to increased revenue and lower general and administrative costs, partially offset by increases in personnel and marketing costs.

Liquidity and Capital Resources

Our principal sources of ongoing liquidity are cash from operations and proceeds from our debt and equity offerings. Total cash, cash equivalents and restricted cash increased to approximately $3,762 million as of September 30, 2021, compared to cash and cash equivalents of approximately $3,756 million as of December 31, 2020. The increase in cash, cash equivalents and restricted cash for the nine months ended September 30, 2021 was primarily due to cash generated from operations of $319 million and proceeds from exercise of stock options and employee stock purchase plan of $15 million, partially offset by cash paid for acquisitions of $153 million, purchases of property and equipment and other intangibles of $145 million, which includes $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia, as well as, repurchases of restricted stock to satisfy tax withholding obligations of $29 million.

Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $319 million compared to approximately $355 million for the nine months ended September 30, 2020. The $36 million decrease was primarily due to a decrease in net working capital of $70 million, driven by payment of the $52 million termination fee pursuant to the Asset Purchase Agreement with RentPath in the first quarter of 2021. These decreases were partially offset by an increase in net income excluding certain non-cash expenses such as depreciation and amortization.

Net cash used in investing activities for the nine months ended September 30, 2021 was approximately $298 million compared to approximately $224 million of cash used in investing activities for the nine months ended September 30, 2020. The $74 million increase in cash used in investing activities during the nine months ended September 30, 2021 was primarily due to an increase in purchases of property, equipment and other assets which included $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia, partially offset by a decrease in cash paid for acquisitions of $39 million, and proceeds from the sale of our ARS investments of $10 million received during the nine months ended September 30, 2020 .

Net cash used in financing activities for the nine months ended September 30, 2021 was approximately $14 million compared to approximately $2.7 billion provided by financing activities for the nine months ended September 30, 2020. The decrease in cash provided by financing activities is primarily due to proceeds from our May 2020 equity offering, net of transaction costs, of $1.7 billion, as well as, proceeds from the issuance of our Senior Notes, net of transaction costs, of $983 million during the nine months ended September 30, 2020.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts, and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

On March 27, 2020, the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act, among other things, includes provisions relating to the deferral of taxes, valuation allowances, and balance sheet classifications, as well as provisions relating to refundable payroll tax credits, deferral of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. As permitted under the CARES Act, we deferred payroll taxes of $10 million as of September 30, 2021. We intend to remit all amounts previously deferred in the fourth quarter of 2021.

On October 1, 2021, CoStar UK Limited ("CoStar UK"), a wholly-owned subsidiary of the Company, purchased from M.A.J.E Marketing & Stratégie and an individual all of the outstanding equity interests in ComReal Info, a French société par actions simplifiéee, for €35 million, $41 million equivalent, in cash subject to customary working capital and other post-closing adjustments. Based in Paris, ComReal Info owns and operates BureauxLocaux, a leading commercial real estate digital marketplace in France. We used cash on hand to finance the acquisition.

As of the filing date of this Quarterly Report on Form 10-Q, we believe that our available cash combined with positive cash flow provided by operating activities should be sufficient for us to maintain and fund our operations for at least the next twelve months. Our ability to maintain adequate capital for our operations in the future depends upon numerous rapidly evolving factors, many of which we cannot accurately predict or assess, including, among others, the disruption of the international and national economy and credit markets associated with the COVID-19 pandemic; actions taken by governments, businesses and individuals in response to the pandemic such as office and other workplace closures, worker turn over, worker absenteeism, remote work policies, quarantines, mass-transit disruptions or other travel or health-related restrictions; how quickly economies, including the commercial real estate industry in particular, recover after the pandemic subsides; sales of our services; and collection of accounts receivables. We plan to continue to monitor and evaluate the financial impact of the COVID-19 pandemic as it evolves.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider policies relating to the following matters to be critical accounting policies:

  • Long-lived assets, intangible assets and goodwill

  • Revenue recognition

  • Income taxes

  • Business combinations

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 2 to the accompanying Notes to the condensed consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

None.

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Quarterly Report on Form 10-Q and make forward-looking statements in our press releases, investor conference calls, Annual Reports on Form 10-K, other Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission that are subject to risks and uncertainties. Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for the fourth quarter of 2021 and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions or expectations about our revenues, revenue growth rates, gross margin percentage, net income, net income per share, fully diluted net income per share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per share, weighted-average outstanding shares, cash flow from operating activities, operating costs, capital and other expenditures, the current and future impacts of COVID-19 on our operations, our actions in response to the COVID-19 pandemic, key priorities for 2021, trends in customer behavior, legal proceedings and claims, legal costs, effective tax rate, the anticipated benefits of completed or proposed acquisitions, the anticipated timing for integration of completed acquisitions, the anticipated benefits of cross-selling efforts, product development and release, geographic and product expansion, planned service enhancements, expansion and development of our sales forces, planned sales and marketing activities and investments, the impact or results of sales and marketing initiatives, product integrations, elimination and de-emphasizing of services, plans related to the Ten-X business, investments in residential marketplace services and our residential marketplace strategy, net new sales, contract renewal rates, use of proceeds from equity and debt offerings, the use of proceeds of any draws under our $750 million credit facility (the “2020 Credit Agreement”), employee relations, attrition and retention, management’s plans, goals and objectives for future operations, deferral of tax payments, sources and adequacy of liquidity, and growth and markets for our stock. Sections of this Report which contain forward-looking statements include the Financial Statements and related Notes, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures,” “Legal Proceedings” and “Risk Factors.”

Our forward-looking statements are also identified by words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. You should understand that these forward-looking statements are estimates reflecting our judgment, beliefs and expectations, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. The following important factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: the effects of and uncertainty surrounding the COVID-19 pandemic, including the length and severity of the economic downturn associated with the COVID-19 pandemic, including disruption of the international and national economy and credit markets; actions taken by governments, businesses and individuals in response to the COVID-19 pandemic such as office and other workplace closures, worker absenteeism or decreased productivity, quarantines, mass-transit disruptions or other travel or health-related restrictions; how quickly economies, including the real estate industry in particular, recover after the COVID-19 pandemic subsides; real estate market conditions, including commercial real estate office vacancies; general economic conditions, both domestic and international, including the impacts of “Brexit” and uncertainty from the discontinuance of LIBOR and the transition to any other interest rate benchmarks; our ability to identify, acquire and integrate additional acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including Ten-X, Homesnap, Homes.com and ComReal Info, on a timely basis or at all; our ability to combine acquired businesses successfully or in a timely and cost-efficient manner; business disruption relating to integration of acquired businesses or other business initiatives; the risk that expected investments in acquired businesses, or the timing of any such investments, may change or may not produce the expected results; our ability to transition acquired service platforms to our model in a timely manner or at all; changes and developments in business plans or operations; theft of any personally identifiable information we, or the businesses that we acquire, maintain, store or process; any actual or perceived failure to comply with privacy or data protection laws, regulations or standards; any disruption of our systems, including due to any cyberattack or other similar event; the amount of investment for sales and marketing and our ability to realize a return on investments in sales and marketing; our ability to effectively and strategically combine, eliminate or de-emphasize service offerings; reductions in revenues as a result of service changes; the time and resources required to develop upgraded or new services and to expand service offerings; changes or consolidations within the real estate industry; customer retention; our ability to attract new clients and to sell additional or higher value services to existing clients; our ability to develop, successfully introduce and cross-sell new products or upgraded services in U.S. and foreign markets; our ability to attract consumers to our online marketplaces; our ability to increase traffic on our network of sites; the success of our marketing campaigns in generating brand awareness and site traffic; our ability to protect and defend our intellectual property, including against unauthorized or unlicensed use of our services; competition; foreign currency fluctuations; global credit market conditions affecting investments; our ability to continue to expand successfully, timely and in a cost-efficient manner, including internationally; our ability to effectively penetrate and gain acceptance in new sectors and international geographies; our ability to control costs; litigation or government investigations in which we become involved; changes in accounting policies or practices; release of new and upgraded services or entry into new markets by us or our competitors; data quality; our ability to expand, develop or reorganize or reorient of our sales forces; employee retention, including retention of key employees and employees of acquired businesses; our ability to hire additional employees to fill vacant or new roles; technical problems with our services; managerial execution; changes in relationships with real estate agents, brokers, owners, property managers and other strategic partners; legal and regulatory issues, including any actual or perceived failure to comply with U.S. or international laws, rules or regulations; successful adoption of and training on our services; and the availability of capital.

Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of this Quarterly Report on Form 10-Q (unless otherwise indicated). All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

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