filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | $ | 692.6 | $ | 624.7 | $ | 2,026.8 | $ | 1,814.9 | |||||||||||||||
| Cost of revenues | 140.6 | 123.7 | 417.6 | 355.2 | |||||||||||||||||||
| Gross profit | 552.0 | 501.0 | 1,609.2 | 1,459.7 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling and marketing (excluding customer base amortization) | 331.2 | 266.9 | 1,055.7 | 743.2 | |||||||||||||||||||
| Software development | 81.0 | 67.9 | 243.0 | 197.8 | |||||||||||||||||||
| General and administrative | 105.8 | 94.4 | 314.3 | 274.4 | |||||||||||||||||||
| Customer base amortization | 10.3 | 10.2 | 31.5 | 31.3 | |||||||||||||||||||
| 528.3 | 439.4 | 1,644.5 | 1,246.7 | ||||||||||||||||||||
| Income (loss) from operations | 23.7 | 61.6 | (35.3) | 213.0 | |||||||||||||||||||
| Interest income, net | 55.6 | 58.4 | 165.3 | 153.9 | |||||||||||||||||||
| Other (expense) income, net | (1.6) | 0.5 | (4.9) | 1.6 | |||||||||||||||||||
| Income before income taxes | 77.7 | 120.5 | 125.1 | 368.5 | |||||||||||||||||||
| Income tax expense | 24.7 | 29.9 | 46.2 | 90.3 | |||||||||||||||||||
| Net income | $ | 53.0 | $ | 90.6 | $ | 78.9 | $ | 278.2 | |||||||||||||||
| Net income per share - basic | $ | 0.13 | $ | 0.22 | $ | 0.19 | $ | 0.69 | |||||||||||||||
| Net income per share - diluted | $ | 0.13 | $ | 0.22 | $ | 0.19 | $ | 0.68 | |||||||||||||||
| Weighted-average outstanding shares - basic | 406.8 | 405.6 | 406.2 | 405.2 | |||||||||||||||||||
| Weighted-average outstanding shares - diluted | 408.0 | 407.2 | 407.6 | 406.7 | |||||||||||||||||||
See accompanying notes.
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | 53.0 | $ | 90.6 | $ | 78.9 | $ | 278.2 | |||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign currency translation adjustment | 18.0 | (6.7) | 13.5 | 0.8 | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 18.0 | (6.7) | 13.5 | 0.8 | |||||||||||||||||||
| Total comprehensive income | $ | 71.0 | $ | 83.9 | $ | 92.4 | $ | 279.0 | |||||||||||||||
See accompanying notes.
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 4,937.6 | $ | 5,215.9 | |||||||
| Accounts receivable | 202.4 | 213.2 | |||||||||
| Less: Allowance for credit losses | (23.6) | (23.2) | |||||||||
| Accounts receivable, net | 178.8 | 190.0 | |||||||||
| Prepaid expenses and other current assets | 78.7 | 70.2 | |||||||||
| Total current assets | 5,195.1 | 5,476.1 | |||||||||
| Deferred income taxes, net | 4.3 | 4.3 | |||||||||
| Property and equipment, net | 937.8 | 472.2 | |||||||||
| Lease right-of-use assets | 79.2 | 79.8 | |||||||||
| Goodwill | 2,396.6 | 2,386.2 | |||||||||
| Intangible assets, net | 324.7 | 313.7 | |||||||||
| Deferred commission costs, net | 173.0 | 167.7 | |||||||||
| Deposits and other assets | 26.0 | 17.7 | |||||||||
| Income tax receivable | 2.0 | 2.0 | |||||||||
| Total assets | $ | 9,138.7 | $ | 8,919.7 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 84.4 | $ | 23.1 | |||||||
| Accrued wages and commissions | 105.5 | 117.8 | |||||||||
| Accrued expenses and other current liabilities | 188.1 | 163.0 | |||||||||
| Income taxes payable | 8.9 | 7.7 | |||||||||
| Lease liabilities | 38.9 | 40.0 | |||||||||
| Deferred revenue | 113.6 | 104.2 | |||||||||
| Total current liabilities | 539.4 | 455.8 | |||||||||
| Long-term debt, net | 991.5 | 990.5 | |||||||||
| Deferred income taxes, net | 12.8 | 36.7 | |||||||||
| Income taxes payable | 23.9 | 18.2 | |||||||||
| Lease and other long-term liabilities | 80.0 | 79.9 | |||||||||
| Total liabilities | 1,647.6 | 1,581.1 | |||||||||
| Total stockholders' equity | 7,491.1 | 7,338.6 | |||||||||
| Total liabilities and stockholders' equity | $ | 9,138.7 | $ | 8,919.7 |
See accompanying notes.
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 408.1 | $ | 4.1 | $ | 5,147.8 | $ | (17.6) | $ | 2,204.3 | $ | 7,338.6 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 6.7 | 6.7 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (4.3) | — | (4.3) | |||||||||||||||||||||||||||||
| Restricted stock grants | 1.4 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | (0.4) | — | (24.5) | — | — | (24.5) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 5.2 | — | — | 5.2 | |||||||||||||||||||||||||||||
| Management stock purchase plan | — | — | (1.5) | — | — | (1.5) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 22.4 | — | — | 22.4 | |||||||||||||||||||||||||||||
| Balance at March 31, 2024 | 409.2 | $ | 4.1 | $ | 5,149.4 | $ | (21.9) | $ | 2,211.0 | $ | 7,342.6 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 19.2 | 19.2 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (0.2) | — | (0.2) | |||||||||||||||||||||||||||||
| Exercise of stock options | 0.1 | — | 7.1 | — | — | 7.1 | |||||||||||||||||||||||||||||
| Restricted stock grants | 0.1 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | (0.2) | — | (0.7) | — | — | (0.7) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 6.0 | — | — | 6.0 | |||||||||||||||||||||||||||||
| Management stock purchase plan | — | — | (0.2) | — | — | (0.2) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 21.9 | — | — | 21.9 | |||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 409.3 | $ | 4.1 | $ | 5,183.5 | $ | (22.1) | $ | 2,230.2 | $ | 7,395.7 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 53.0 | 53.0 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 18.0 | — | 18.0 | |||||||||||||||||||||||||||||
| Restricted stock grants | 0.2 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | (0.1) | — | (1.9) | — | — | (1.9) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 5.0 | — | — | 5.0 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 21.3 | — | — | 21.3 | |||||||||||||||||||||||||||||
| Balance at September 30, 2024 | 409.5 | $ | 4.1 | $ | 5,207.9 | $ | (4.1) | $ | 2,283.2 | $ | 7,491.1 |
See accompanying notes.
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 406.7 | $ | 4.1 | $ | 5,065.5 | $ | (29.1) | $ | 1,829.6 | $ | 6,870.1 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 87.1 | 87.1 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 4.1 | — | 4.1 | |||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 0.5 | — | — | 0.5 | |||||||||||||||||||||||||||||
| Restricted stock grants | 1.3 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | (0.5) | — | (18.6) | — | — | (18.6) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 5.8 | — | — | 5.8 | |||||||||||||||||||||||||||||
| Management stock purchase plan | — | — | (3.0) | — | — | (3.0) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 19.6 | — | — | 19.6 | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 407.6 | $ | 4.1 | $ | 5,069.8 | $ | (25.0) | $ | 1,916.7 | $ | 6,965.6 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 100.5 | 100.5 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 3.4 | — | 3.4 | |||||||||||||||||||||||||||||
| Exercise of stock options | 0.4 | — | 7.0 | — | — | 7.0 | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | (0.1) | — | (0.8) | — | — | (0.8) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 3.9 | — | — | 3.9 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 21.5 | — | — | 21.5 | |||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 408.0 | $ | 4.1 | $ | 5,101.4 | $ | (21.6) | $ | 2,017.2 | $ | 7,101.1 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 90.6 | 90.6 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (6.7) | — | (6.7) | |||||||||||||||||||||||||||||
| Restricted stock grants surrendered | — | — | (1.0) | — | — | (1.0) | |||||||||||||||||||||||||||||
| Employee stock purchase plan | 0.1 | — | 4.7 | — | — | 4.7 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 21.5 | — | — | 21.5 | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 408.1 | $ | 4.1 | $ | 5,126.6 | $ | (28.3) | $ | 2,107.8 | $ | 7,210.2 |
See accompanying notes.
COSTAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 78.9 | $ | 278.2 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 107.6 | 78.8 | |||||||||
| Amortization of deferred commissions costs | 86.1 | 69.8 | |||||||||
| Amortization of Senior Notes discount and issuance costs | 2.3 | 1.8 | |||||||||
| Non-cash lease expense | 25.1 | 22.1 | |||||||||
| Stock-based compensation expense | 67.3 | 63.8 | |||||||||
| Deferred income taxes, net | (15.4) | (13.0) | |||||||||
| Credit loss expense | 25.8 | 25.7 | |||||||||
| Other operating activities, net | (0.6) | 0.3 | |||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | (13.7) | (64.6) | |||||||||
| Prepaid expenses and other current assets | (8.3) | (20.7) | |||||||||
| Deferred commissions | (91.7) | (93.1) | |||||||||
| Accounts payable and other liabilities | 57.9 | 21.1 | |||||||||
| Lease liabilities | (29.9) | (26.8) | |||||||||
| Income taxes payable, net | (1.7) | 4.4 | |||||||||
| Deferred revenue | 8.2 | (6.1) | |||||||||
| Other assets | 0.1 | (0.7) | |||||||||
| Net cash provided by operating activities | 298.0 | 341.0 | |||||||||
| Investing activities: | |||||||||||
| Proceeds from sale of property and equipment and other assets | 1.4 | — | |||||||||
| Purchases of property, equipment, and other assets for new campuses | (509.6) | (61.8) | |||||||||
| Purchases of property, equipment, and other assets | (49.5) | (14.2) | |||||||||
| Cash paid for acquisitions, net of cash acquired | (5.1) | — | |||||||||
| Net cash used in investing activities | (562.8) | (76.0) | |||||||||
| Financing activities: | |||||||||||
| Repurchase of restricted stock to satisfy tax withholding obligations | (28.7) | (23.4) | |||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | 21.7 | 20.4 | |||||||||
| Payments of debt issuance costs | (3.4) | — | |||||||||
| Principal repayments of finance lease obligations | (3.4) | — | |||||||||
| Net cash used in financing activities | (13.8) | (3.0) | |||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | 0.3 | (0.1) | |||||||||
| Net (decrease) increase in cash and cash equivalents | (278.3) | 261.9 | |||||||||
| Cash and cash equivalents at the beginning of period | 5,215.9 | 4,968.0 | |||||||||
| Cash and cash equivalents at the end of period | $ | 4,937.6 | $ | 5,229.9 | |||||||
| Supplemental cash flow disclosures: | |||||||||||
| Interest paid | $ | 29.8 | $ | 30.0 | |||||||
| Income taxes paid | $ | 63.4 | $ | 108.1 | |||||||
| Supplemental non-cash investing and financing activities: | |||||||||||
| Accrued capital expenditures and non-cash landlord incentives | $ | 47.8 | $ | 36.9 | |||||||
See accompanying notes.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
**1.**ORGANIZATION
CoStar Group (the “Company”) provides information and analytics to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate information and related tools. The Company also provides online marketplaces for commercial real estate, apartment rentals, residential real estate, land for sale, and businesses for sale. The Company's services are typically distributed to its customers 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 U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific, and Latin America.
The Company acquired OnTheMarket in December 2023. Through the previous Homes.com Acquisition and the OnTheMarket Acquisition, the Company also offers online platforms that provide advertising and marketing services for residential real estate agents and brokers and their listings and provide homebuyers access to residential property listings. See Note 5 for further discussion of the OnTheMarket Acquisition.
**2.**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed 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.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information. In the opinion of the Company’s management, the financial statements reflect all adjustments, consisting only of a normal recurring nature, necessary to present fairly the Company’s financial position at September 30, 2024 and December 31, 2023, the results of its operations for the three and nine months ended September 30, 2024 and 2023, its comprehensive income for the three and nine months ended September 30, 2024 and 2023, its changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023.
Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Report. Therefore, these financial statements should be read in conjunction with the Company’s 2023 Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with 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, including benchmarking and analytics for the hospitality industry and analytics for lenders (ii) providing online marketplaces for professional property management companies, property owners, and real estate agents and brokers, and landlords, in each case, typically through a fixed monthly fee for its subscription-based advertising services. Other subscription-based services include (i) real estate and lease management solutions to commercial customers and real estate investors, (ii)
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
access to applications to manage workflow for residential real estate agents, and (iii) market research and portfolio and debt analysis, management, and reporting capabilities.
Subscription contract rates are generally based on the number of sites, number of users, organization size, the customer’s business focus, geography, the number of properties reported on or analyzed, the number and types of services to which a customer subscribes, the number of properties a customer advertises, the number of transactions and average transaction size a broker or agent has closed, and the prominence and placement of a customer's advertised properties in the search results. The Company’s subscription-based license or membership agreements typically renew automatically and a majority have a term of at least one year. Revenues from subscription-based contracts were approximately 96% and 95% of total revenues for the three months ended September 30, 2024 and 2023, respectively, and 96% and 95% of total revenues for the nine months ended September 30, 2024 and 2023, respectively.
The Company also derives revenues from transaction-based services, including: (i) an online auction platform for commercial real estate through Ten-X, (ii) providing online tenant applications, including background and credit checks and rental payment processing, and (iii) ancillary products and services that are sold on an ad hoc basis.
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 a 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 two years for our residential products and three years for all other products. The amortization periods were 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. Sales commissions that do not represent incremental costs of obtaining a contract, or that would otherwise be amortized over a period of one year or less, are not subject to capitalization.
See Note 3 for further discussion of the Company's revenue.
Cost of Revenues
Cost of revenues principally consists of salaries, benefits, bonuses, stock-based compensation expenses, and other indirect costs for the Company's researchers who collect and analyze the real estate data that is the basis for the Company's information, analytic, and marketplace services and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources, product hosting costs, 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.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Foreign Currency
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 (expense) income, net in the condensed consolidated statements of operations using the average exchange rates in effect during the period. The Company recognized a net foreign currency loss of $0.2 million for the three months ended September 30, 2024 and a net foreign currency gain of $0.2 million for the three months ended September 30, 2023. The Company recognized a net foreign currency loss of $0.3 million and $0.6 million for the nine months ended September 30, 2024 and 2023, respectively.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, were as follows (in millions):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Foreign currency translation loss | $ | (4.1) | $ | (17.6) | |||||||
| Total accumulated other comprehensive loss | $ | (4.1) | $ | (17.6) |
There were no amounts reclassified out of accumulated other comprehensive loss to the condensed consolidated statements of operations for the nine months ended September 30, 2024 and 2023.
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 condensed 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 GILTI under the current-period cost method.
See Note 11 for further discussion of the Company's accounting for 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.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table sets forth the calculation of basic and diluted net income per share (in millions, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Numerator: | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | 53.0 | $ | 90.6 | $ | 78.9 | $ | 278.2 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic net income per share — weighted-average outstanding shares | 406.8 | 405.6 | 406.2 | 405.2 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options, restricted stock awards and restricted stock units | 1.2 | 1.6 | 1.4 | 1.5 | |||||||||||||||||||
| Denominator for diluted net income per share — weighted-average outstanding shares | 408.0 | 407.2 | 407.6 | 406.7 | |||||||||||||||||||
| Net income per share — basic | $ | 0.13 | $ | 0.22 | $ | 0.19 | $ | 0.69 | |||||||||||||||
| Net income per share — diluted | $ | 0.13 | $ | 0.22 | $ | 0.19 | $ | 0.68 |
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 Matching RSUs awarded under the MSPP. Shares underlying unvested restricted stock awards that vest based on a performance and a 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 considers the impact of potentially dilutive securities except when the inclusion of the potentially dilutive securities would have an anti-dilutive effect.
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 millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Performance-based restricted stock awards | 0.7 | 0.7 | 0.7 | 0.7 | |||||||||||||||||||
| Anti-dilutive securities | 0.7 | 0.4 | 0.9 | 0.8 | |||||||||||||||||||
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 condensed 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 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 grant date 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, which includes the recent market price and volatility of the Company's shares. When determining the grant date fair value of all stock-based awards, the Company considers whether it is in possession of any
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
material, non-public information that upon its release would have a material effect on its share price, and if so, whether the observable share price or expected volatility assumptions used in determining the fair value of the awards should be adjusted.
Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, stock purchases under the ESPP, DSUs, and Matching RSUs awarded under the MSPP included in the Company’s condensed consolidated statements of operations were as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Cost of revenues | $ | 3.6 | $ | 3.7 | $ | 10.9 | $ | 10.6 | |||||||||||||||
| Selling and marketing (excluding customer base amortization) | 2.9 | 2.4 | 8.4 | 7.0 | |||||||||||||||||||
| Software development | 5.3 | 4.5 | 16.3 | 12.9 | |||||||||||||||||||
| General and administrative | 10.0 | 11.3 | 31.7 | 33.3 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 21.8 | $ | 21.9 | $ | 67.3 | $ | 63.8 |
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company had no restricted cash as of September 30, 2024 and December 31, 2023.
Allowance for Credit Losses
The Company maintains an allowance for credit losses to cover its current expected credit losses 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, 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; Hospitality, North America; Hospitality, International; and other Information Services.
-
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 one class of trade receivables.
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.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 an 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 an ROU asset or lease liability for short-term leases, which are leases with a term of 12 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 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 and 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.
Finance lease costs primarily relate to vehicles used by the Company's research teams and the amortization of the ROU assets are recorded to cost of revenues in the consolidated statements of operations. The impact of lease costs related to short-term leases was not material for the three and nine months ended September 30, 2024 and 2023.
See Note 7 for further discussion of the Company’s accounting for leases.
Long-Lived Assets, Intangible Assets and Goodwill
Long-lived assets, such as property and equipment and purchased intangibles that are 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. The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying asset and amortized over the estimated useful life of the asset. 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. The Company removes the cost and accumulated amortization of intangible assets as they become fully amortized.
Goodwill is 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. The Company may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or elect to bypass the qualitative assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company elects to bypass the qualitative assessment, the Company then performs a quantitative assessment by determining 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.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Leasing Operations and Other Income, Expense
In February 2024, the Company closed on the purchase of an office tower and the land on which it rests in Arlington, Virginia and intends to build out space to house the employees currently in our Washington, DC headquarters and support anticipated growth and expansion of its operations in the coming years. Maintenance, physical facilities, leasing, property management, and other key responsibilities related to property ownership are outsourced to professional real-estate managers. The office tower measures approximately 550,000 rentable square feet.
The Company records the activity from this building's operations and leases, including building depreciation and operating expenses for space occupied by third parties, as other (expense) income, net in the condensed consolidated statements of operations, as leasing is not core to the Company's operations. Building depreciation and operating expenses for space occupied by the Company are allocated between cost of revenues, selling and marketing (excluding customer base amortization), software development, and general and administrative expenses in the condensed consolidated statement of operations based on headcount. As of September 30, 2024, the Company occupied a negligible percentage of the property with the remainder leased or available to be leased to third parties.
Lease income includes base rent each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line basis over the non-cancellable term of the lease, which includes the effects of periodic step-ups in rent and rent abatements under the lease. When a renewal option is included within the lease, the Company assesses whether the option is reasonably certain of being exercised against relevant economic factors to determine whether the option period should be included as part of the lease term. Further, lease income includes tenant reimbursement amounts for the recovery of the operating expenses and real estate taxes. Tenant reimbursements, which vary each period, are non-lease components that are not the predominant activity within the contract. The Company has elected the practical expedient that allows it to combine certain lease and non-lease components of operating leases. Non-lease components are recognized together with fixed base rent in "lease income," as variable lease income in the same period as the related expenses are incurred. Variable lease income was not material for the three and nine months ended September 30, 2024. Components of other (expense) income, net related to leasing operations for the three and nine months ended September 30, 2024 were as follows (in millions):
| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | ||||||||||
| Lease income | $ | 6.6 | $ | 16.4 | |||||||
| Property operating expenses | 2.5 | 6.7 | |||||||||
| Depreciation and amortization expense | 5.4 | 14.3 | |||||||||
| Other expense, net from leasing operations | $ | (1.3) | $ | (4.6) |
The Company accounted for the purchase of this building as an asset acquisition at the cost to acquire, including transaction costs. The Company estimated the fair values of acquired tangible assets (consisting of land, buildings, improvements, and other assets), identified intangible assets and liabilities (consisting of in-place leases and above- and below-market leases), and other liabilities based on its evaluation of information and estimates available at the date of acquisition. Based on these estimates, the Company allocated the total cost to the identified assets acquired and liabilities assumed based on their relative fair value.
The fair value of the building and building improvements consists of the physical structure containing rentable area, as well as amenities such as parking structures, and was valued as if vacant, using the cost approach, which uses replacement cost data obtained from industry recognized guides less depreciation as an input to estimate the fair value, with consideration given to its age, functionality, use classification, construction quality, replacement cost new, and accumulated depreciation (effective age vs. economic life). The Company also considered the value of the building using an income approach. The income approach uses market leasing assumptions to estimate the fair value of the property as if vacant assuming lease-up at prevailing market rental rates over a market-based lease-up period, including deductions for lost-rent during lease-up and leasing costs. The cost and income approaches are reconciled to arrive at an estimated building fair value. The Company assessed the fair value of land based on market comparisons.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The fair values of identified intangible assets and liabilities were determined based on the following:
-
The value allocable to the above- or below-market component of an acquired in-place lease is determined based upon the present value (using a discount rate that reflects the risks associated with the acquired lease) of the difference between: (i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) management's estimate of the amounts that would be received using market rates current at the time of the acquisition for the remaining term of the lease. Amounts allocated to above-market leases are recorded as above-market leases in intangible assets, net in the condensed consolidated balance sheets. These intangible assets are amortized on a straight-line basis as a reduction to lease income which is recorded within other (expense) income, net in the condensed consolidated statements of operations over the remaining terms of the respective leases.
-
Factors considered in determining the value allocable to in-place leases during hypothetical lease-up periods related to space that is leased at the time of acquisition include: (i) lost rent and operating cost recoveries during the hypothetical lease-up period and (ii) theoretical leasing commissions required to execute similar leases. These intangible assets are recorded as in-place leases in intangible assets, net in the condensed consolidated balance sheets and are amortized to other (expense) income, net in the condensed consolidated statements of operations over the remaining term of the existing lease.
The total cost of the land and building was $343.0 million and was allocated to the following components (in millions):
| Component | Balance Sheet Caption | Amount | |||||||||
| Land | Property and equipment, net | $ | 17.2 | ||||||||
| Building | Property and equipment, net | 224.5 | |||||||||
| Land and building improvements | Property and equipment, net | 27.5 | |||||||||
| Above-market leases | Intangible assets, net | 41.7 | |||||||||
| In-place leases | Intangible assets, net | 32.1 | |||||||||
| $ | 343.0 |
The cash paid for this asset acquisition was included in the caption purchases of property, equipment, and other assets for new campuses in the condensed consolidated statement of cash flows.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 condensed 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 10 for further discussion of the Company's accounting for its outstanding debt, revolving credit facility, and related issuance costs.
Business Combinations
The Company includes the results of operations of the businesses that it acquires from the date of acquisition. The Company generally allocates the purchase consideration to the tangible assets acquired and liabilities assumed and intangible assets acquired based on their estimated fair values on the date of the acquisition. The purchase price is generally 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, acquired trade names, useful lives, royalty rates, and discount rates. Estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any adjustments to provisional amounts that are identified during the measurement period, not to exceed one year from the date of acquisition, 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 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 condensed consolidated statements of operations and comprehensive income and could have a material impact on its results of operations and financial position.
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the condensed consolidated statements of operations.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. 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. Originally, the guidance was effective for fiscal years beginning after January 1, 2021, including interim periods within those fiscal years. However, in response to the deferral of the cessation date for certain overnight LIBOR measures, the FASB issued ASU 2022-06 on December 21, 2022, which extended the sunset date of Topic 848 to December 31, 2024. The Company's 2020 Credit Agreement provided for a $750 million revolving credit facility and a letter of credit sublimit of $20 million, with interest rates previously benchmarked to LIBOR. The Company adopted this accounting pronouncement with the execution of the First Amendment to the 2020 Credit Agreement in May 2023. This guidance provides an optional practical expedient that allows a qualifying modification to be accounted for as a debt modification rather than be analyzed under existing guidance to determine if the modification should be accounted for as a debt extinguishment. In adopting this accounting standard, the Company elected to apply this optional expedient. Adopting this accounting standard did not have a material impact on the Company's consolidated financial statements and related disclosures.
See Note 10 for further discussion of the Company's accounting for its outstanding debt, revolving credit facility, and related issuance costs.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07 (Topic 280), Improvements to Reportable Segment Disclosures. The ASU primarily requires enhanced disclosures about significant segment expenses. Additionally, it requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09 (Topic 740), Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as an expansion of other income tax disclosures. The ASU is effective on a prospective basis for annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
**3.**REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenue
Revenues by operating segment and type of service consist of the following (in millions):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| North America | International | Total | North America | International | Total | ||||||||||||||||||||||||||||||
| CoStar | $ | 240.8 | $ | 16.1 | $ | 256.9 | $ | 223.4 | $ | 10.0 | $ | 233.4 | |||||||||||||||||||||||
| Information Services | 28.2 | 4.8 | 33.0 | 35.2 | 9.4 | 44.6 | |||||||||||||||||||||||||||||
| Multifamily | 271.8 | — | 271.8 | 235.3 | — | 235.3 | |||||||||||||||||||||||||||||
| LoopNet | 68.1 | 2.8 | 70.9 | 65.0 | 2.5 | 67.5 | |||||||||||||||||||||||||||||
| Residential | 17.0 | 10.7 | 27.7 | 10.3 | — | 10.3 | |||||||||||||||||||||||||||||
| Other Marketplaces | 32.3 | — | 32.3 | 33.6 | — | 33.6 | |||||||||||||||||||||||||||||
| Total revenues | $ | 658.2 | $ | 34.4 | $ | 692.6 | $ | 602.8 | $ | 21.9 | $ | 624.7 |
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| North America | International | Total | North America | International | Total | ||||||||||||||||||||||||||||||
| CoStar | $ | 713.6 | $ | 46.6 | $ | 760.2 | $ | 658.7 | $ | 28.8 | $ | 687.5 | |||||||||||||||||||||||
| Information Services | 83.5 | 15.9 | 99.4 | 99.5 | 28.7 | 128.2 | |||||||||||||||||||||||||||||
| Multifamily | 790.8 | — | 790.8 | 670.3 | — | 670.3 | |||||||||||||||||||||||||||||
| LoopNet | 201.7 | 8.1 | 209.8 | 189.5 | 6.8 | 196.3 | |||||||||||||||||||||||||||||
| Residential | 41.6 | 30.9 | 72.5 | 36.2 | — | 36.2 | |||||||||||||||||||||||||||||
| Other Marketplaces | 94.1 | — | 94.1 | 96.4 | — | 96.4 | |||||||||||||||||||||||||||||
| Total revenues | $ | 1,925.3 | $ | 101.5 | $ | 2,026.8 | $ | 1,750.6 | $ | 64.3 | $ | 1,814.9 |
Deferred Revenue
Deferred revenue as of September 30, 2024 and December 31, 2023 was as follows (in millions):
| Balance | Balance Sheet Caption | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Current portion | Deferred revenue | $ | 113.6 | $ | 104.2 | |||||||||||||||||||||||||||||||||
| Non-current portion | Lease and other long-term liabilities | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||||
| Total deferred revenue | $ | 113.7 | $ | 104.3 | ||||||||||||||||||||||||||||||||||
Changes in deferred revenue for the period were as follows (in millions):
| Balance at December 31, 2023 | $ | 104.3 | |||
| Revenues recognized in the current period from the amounts in the beginning balance | (100.9) | ||||
| New deferrals, net of amounts recognized in the current period | 109.1 | ||||
| Effects of foreign currency | 1.2 | ||||
| Balance at September 30, 2024 | $ | 113.7 | |||
Contract Assets
Contract assets are generated when contractual billing schedules differ from revenue recognition timing and represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets as of September 30, 2024 and December 31, 2023 were as follows (in millions):
| Balance | Balance Sheet Caption | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Current portion | Prepaid expenses and other current assets | $ | 5.7 | $ | 5.8 | |||||||||||||||||||||||||||||||||
| Non-current portion | Deposits and other assets | 7.0 | 8.0 | |||||||||||||||||||||||||||||||||||
| Total contract assets | $ | 12.7 | $ | 13.8 | ||||||||||||||||||||||||||||||||||
Revenues reduced from contract assets for the three and nine months ended September 30, 2024 were $0.6 million and $1.1 million, respectively. Revenues recognized from contract assets for the three and nine months ended September 30, 2023 were $0.2 million and $1.1 million, respectively.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Unsatisfied Performance Obligations
Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations was approximately $404.0 million at September 30, 2024, 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.
Commissions
Commissions expense is included in selling and marketing expense in the Company's condensed consolidated statements of operations. Commissions expense activity for the three and nine months ended September 30, 2024 and 2023 was as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Commissions incurred | $ | 40.0 | $ | 42.1 | $ | 136.5 | $ | 134.4 | |||||||||||||||
| Commissions capitalized in the current period | (24.5) | (28.1) | (92.1) | (93.1) | |||||||||||||||||||
| Amortization of deferred commissions costs | 29.8 | 24.5 | 86.1 | 69.8 | |||||||||||||||||||
| Total commissions expense | $ | 45.3 | $ | 38.5 | $ | 130.5 | $ | 111.1 |
The Company determined that no deferred commissions were impaired during the nine months ended September 30, 2024 and 2023.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
**4.**ALLOWANCE FOR CREDIT LOSSES
The following tables detail the activity related to the allowance for credit losses for trade receivables by portfolio segment (in millions):
| Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| CoStar | Information Services | Multifamily | LoopNet | Other Marketplaces | Total | ||||||||||||||||||||||||||||||||||||||||||
| Beginning balance at December 31, 2023 | $ | 9.7 | $ | 2.5 | $ | 7.3 | $ | 2.7 | $ | 1.0 | $ | 23.2 | |||||||||||||||||||||||||||||||||||
| Current-period provision for expected credit losses | 10.9 | 1.4 | 8.9 | 4.4 | 0.2 | 25.8 | |||||||||||||||||||||||||||||||||||||||||
| Write-offs charged against the allowance, net of recoveries and other | (12.6) | (0.8) | (7.1) | (4.3) | (0.6) | (25.4) | |||||||||||||||||||||||||||||||||||||||||
| Ending balance at September 30, 2024 | $ | 8.0 | $ | 3.1 | $ | 9.1 | $ | 2.8 | $ | 0.6 | $ | 23.6 |
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CoStar | Information Services | Multifamily | LoopNet | Other Marketplaces | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance at December 31, 2022 | $ | 4.5 | $ | 1.1 | $ | 4.3 | $ | 1.4 | $ | 0.9 | $ | 12.2 | ||||||||||||||||||||||||||||||||||||||
| Current-period provision for expected credit losses | 15.3 | 0.8 | 4.2 | 4.8 | 0.6 | 25.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Write-offs charged against the allowance, net of recoveries and other | (12.2) | (0.1) | (0.8) | (3.8) | (0.1) | (17.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Ending balance at September 30, 2023 | $ | 7.6 | $ | 1.8 | $ | 7.7 | $ | 2.4 | $ | 1.4 | $ | 20.9 |
Credit loss expense is included in general and administrative expenses on the condensed consolidated statements of operations. Credit loss expense related to contract assets was not material for the nine months ended September 30, 2024 and 2023. Residential accounts receivable and the related allowance for credit losses were not material for the nine months ended September 30, 2024 and 2023.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
**5.**ACQUISITIONS
OnTheMarket
On December 12, 2023, CoStar UK acquired OnTheMarket, the operator of onthemarket.com, a U.K. residential property portal. At the time of closing, CoStar UK acquired all of the then-issued ordinary share capital of OnTheMarket for cash consideration of 110 pence per share, or £94.0 million ($117.9 million). OnTheMarket had certain share option contracts that had not been exercised at the time of closing for which CoStar UK established a liability for £2.0 million ($2.6 million). This resulted in total consideration of £96.0 million ($120.4 million). Certain shares outstanding at the time of the closing resulted from contracts held by employees of OnTheMarket or its subsidiaries that required OnTheMarket to withhold income and employment taxes of £4.0 million ($5.1 million), which represented consideration payable at December 31, 2023 and were remitted to the appropriate taxing authority in January 2024.
The following table summarized the amounts recorded for acquired assets and assumed liabilities recorded at their fair value as of the closing date of the acquisition (in millions):
| Preliminary: December 12, 2023 | |||||||||||||||||
| Cash and cash equivalents | $ | 18.2 | |||||||||||||||
| Accounts receivable | 2.3 | ||||||||||||||||
| Goodwill | 62.8 | ||||||||||||||||
| Intangible assets | 55.2 | ||||||||||||||||
| Accrued expenses | (12.7) | ||||||||||||||||
| Accrued wages and commissions | (2.0) | ||||||||||||||||
| Deferred income taxes, net | (3.0) | ||||||||||||||||
| Other assets and liabilities | (0.4) | ||||||||||||||||
| Fair value of identifiable net assets acquired | $ | 120.4 |
The net assets of OnTheMarket 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 (in millions) of the identifiable intangible assets acquired in the OnTheMarket Acquisition, included in the Company's International operating segment, their related estimated useful lives (in years), and their respective amortization methods:
| Estimated Fair Value | Estimated Useful Life | Amortization Method | |||||||||||||||||||||||||||
| Customer base | $ | 42.0 | 8 | Accelerated | |||||||||||||||||||||||||
| Trade name | 10.2 | 15 | Straight-line | ||||||||||||||||||||||||||
| Technology | 3.0 | 2 | Straight-line | ||||||||||||||||||||||||||
| Total intangible assets | $ | 55.2 |
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 OnTheMarket 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 international operations and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $62.8 million of goodwill recorded as part of the acquisition is associated with the Company's International operating segment, of which none is expected to be deductible for income tax purposes. Transaction costs associated with the OnTheMarket Acquisition were $11.0 million.
Matterport
On April 21, 2024, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Matterport Merger Agreement”) with Matterport, Merger Sub I, and Merger Sub II, pursuant to which, among other things, and subject to its terms, (i) Merger Sub I will merge with and into Matterport (the “First Merger”), with Matterport surviving the First Merger as a wholly owned subsidiary of the Company (the “Surviving Corporation”) and (ii) in the event that the Threshold Percentage (as defined in the Matterport Merger Agreement) is at least 40%, immediately following the First Merger and as part of a single integrated transaction, the Surviving Corporation will merge with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Mergers”), with Merger Sub II surviving the Second Merger as a wholly owned subsidiary of the Company.
Subject to the terms and conditions of the Matterport Merger Agreement, each share of Matterport Common Stock issued and outstanding immediately prior to the effective time of the First Merger (the “First Effective Time”) (other than any cancelled shares or Dissenting Shares (as defined in the Matterport Merger Agreement)) will be converted into (i) a number of CoStar Group Shares equal to the Merger Exchange Ratio (such consideration, the “Per Share Stock Consideration”) and (ii) $2.75 in cash per share, without interest (the “Per Share Cash Consideration”). Holders of Matterport Common Stock will receive cash in lieu of fractional CoStar Group Shares (the “Fractional Share Consideration” and, together with the Per Share Stock Consideration and the Per Share Cash Consideration, collectively, the “Matterport Merger Consideration”).
Consummation of the Mergers is subject to certain customary conditions, including, among others: the expiration or termination of the applicable waiting periods under the HSR Act and the Antitrust Laws (each as defined in the Matterport Merger Agreement) of certain other jurisdictions; the absence of any law, injunction, order, or award restraining, enjoining, or otherwise prohibiting or making illegal the consummation of the Mergers; and the CoStar Group Shares to be issued in the Mergers being approved for listing on Nasdaq Global Select Market. Each party’s obligation to consummate the Mergers is subject to certain other conditions, including the accuracy of the representations and warranties of the other party, compliance in all material respects by the other party with its obligations under the Matterport Merger Agreement, and the absence of a material adverse effect related to the other party. Consummation of the Mergers is not subject to approval by the stockholders of the Company or to any financing condition.
The Matterport Merger Agreement requires the Company to pay an $85 million fee to Matterport in the event the Matterport Merger Agreement is terminated under specified circumstances, including, among others: if certain antitrust approvals are not obtained or a governmental order related to antitrust or competition matters prohibits the consummation of the transaction. The Company intends to fund the cash consideration with cash on hand and expects the transaction to close in the fourth quarter of 2024 or the first quarter of 2025. The cash consideration is estimated to be $940 million and the stock consideration would require the issuance of approximately 11.2 million CoStar Group Shares using the share price of the Company at April 19, 2024, not considering Fractional Share Consideration. In addition, awards of restricted stock units relating to Matterport grants that are outstanding at the time of the First Merger will be converted into a corresponding award of CoStar Group Shares based on the Matterport Merger Consideration.
**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.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
As of September 30, 2024 and December 31, 2023, the Company's financial assets comprise Level 1 cash equivalents with original maturities of three months or less in the amount of $4.7 billion and $5.1 billion, respectively. The Company had no Level 2 or Level 3 financial assets measured at fair value.
The Company holds or has issued 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 both September 30, 2024 and December 31, 2023. 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 $0.9 billion and $0.9 billion as of September 30, 2024 and December 31, 2023, respectively.
**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 up to eight years. The leases contain various renewal and termination options. The period that 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 that 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 and finance leases included in the condensed consolidated statements of operations were as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Operating lease costs: | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Cost of revenues | $ | 2.1 | $ | 2.7 | $ | 7.1 | $ | 7.1 | |||||||||||||||
| Software development | 2.1 | 1.6 | 5.7 | 4.6 | |||||||||||||||||||
| Selling and marketing (excluding customer base amortization) | 3.5 | 3.9 | 10.9 | 11.4 | |||||||||||||||||||
| General and administrative | 1.7 | 1.0 | 5.0 | 3.1 | |||||||||||||||||||
| Total operating lease costs | $ | 9.4 | $ | 9.2 | $ | 28.7 | $ | 26.2 | |||||||||||||||
| Finance lease costs: | |||||||||||||||||||||||
| Amortization of ROU assets | $ | 0.5 | $ | — | $ | 3.5 | $ | — | |||||||||||||||
| Interest on lease liabilities | 0.5 | — | 1.1 | — | |||||||||||||||||||
| Total finance lease costs | 1.0 | — | 4.6 | — | |||||||||||||||||||
| Total lease costs | $ | 10.4 | $ | 9.2 | $ | 33.3 | $ | 26.2 | |||||||||||||||
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Supplemental balance sheet information related to operating leases was as follows (in millions):
| Balance | Balance Sheet Location | September 30, 2024 | December 31, 2023 | |||||||||||
| Operating lease liabilities | $ | 106.3 | $ | 109.9 | ||||||||||
| Less: imputed interest | (8.6) | (7.0) | ||||||||||||
| Present value of lease liabilities | 97.7 | 102.9 | ||||||||||||
| Less: current portion of lease liabilities | Lease liabilities | 34.0 | 36.9 | |||||||||||
| Long-term lease liabilities | Lease and other long-term liabilities | $ | 63.7 | $ | 66.0 | |||||||||
| Weighted-average remaining lease term in years | 3.8 | 3.9 | ||||||||||||
| Weighted-average discount rate | 3.7 | % | 3.6 | % | ||||||||||
| ROU Assets | Lease right-of-use assets | $ | 79.2 | $ | 79.8 | |||||||||
| Finance lease liabilities | $ | 18.6 | $ | 14.6 | ||||||||||
| Less: imputed interest | (1.9) | (1.6) | ||||||||||||
| Present value of lease liabilities | 16.7 | 13.0 | ||||||||||||
| Less: current portion of lease liabilities | Lease liabilities | 4.9 | 3.1 | |||||||||||
| Long-term lease liabilities | Lease and other long-term liabilities | $ | 11.8 | $ | 9.9 | |||||||||
| Weighted-average remaining lease term in years | 2.8 | 3.8 | ||||||||||||
| Weighted-average discount rate | 6.4 | % | 7.8 | % | ||||||||||
| ROU Assets | Property and equipment, net | $ | 16.6 | $ | 10.8 | |||||||||
Supplemental cash flow information related to leases was as follows (in millions):
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows used in operating leases | $ | 24.1 | $ | 30.9 | |||||||
| Operating cash flows used in finance leases | $ | 0.9 | $ | — | |||||||
| Financing cash flows used in finance leases | $ | 3.4 | $ | — | |||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | 24.1 | $ | 28.0 | |||||||
| Finance leases | $ | 7.2 | $ | — | |||||||
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
**8.**GOODWILL
The changes in the carrying amount of goodwill by operating segment consist of the following (in millions):
| North America | International | Total | |||||||||||||||
| Goodwill, December 31, 2022 | $ | 2,149.2 | $ | 165.6 | $ | 2,314.8 | |||||||||||
| Acquisitions, including measurement period adjustments(1) | — | 62.8 | 62.8 | ||||||||||||||
| Effect of foreign currency translation | — | 8.6 | 8.6 | ||||||||||||||
| Goodwill, December 31, 2023 | 2,149.2 | 237.0 | 2,386.2 | ||||||||||||||
| Effect of foreign currency translation | — | 10.4 | 10.4 | ||||||||||||||
| Goodwill, September 30, 2024 | $ | 2,149.2 | $ | 247.4 | $ | 2,396.6 | |||||||||||
| __________________________ |
(1) International goodwill generated during the year ended December 31, 2023 from the OnTheMarket Acquisition was $62.8 million.
No impairments of the Company's goodwill were recognized during the three and nine months ended September 30, 2024 and 2023.
9. INTANGIBLE ASSETS
Intangible assets consist of the following (in millions, except amortization period data):
| September 30, 2024 | December 31, 2023 | Weighted- Average Amortization Period (in years) | |||||||||||||||
| Acquired technology and data | $ | 35.8 | $ | 36.3 | 5 | ||||||||||||
| Accumulated amortization | (26.2) | (21.0) | |||||||||||||||
| Acquired technology and data, net | 9.6 | 15.3 | |||||||||||||||
| Acquired customer base | 444.3 | 509.5 | 11 | ||||||||||||||
| Accumulated amortization | (294.4) | (330.7) | |||||||||||||||
| Acquired customer base, net | 149.9 | 178.8 | |||||||||||||||
| Acquired trade names and other intangible assets | 253.4 | 258.9 | 14 | ||||||||||||||
| Accumulated amortization | (149.4) | (139.3) | |||||||||||||||
| Acquired trade names and other intangible assets, net | 104.0 | 119.6 | |||||||||||||||
| Acquired above-market leases | 41.5 | — | 4 | ||||||||||||||
| Accumulated amortization | (7.6) | — | |||||||||||||||
| Acquired above-market leases, net | 33.9 | — | |||||||||||||||
| Acquired in-place leases | 32.0 | — | 6 | ||||||||||||||
| Accumulated amortization | (4.7) | — | |||||||||||||||
| Acquired in-place leases, net | 27.3 | — | |||||||||||||||
| Intangible assets, net | $ | 324.7 | $ | 313.7 |
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 nine months ended September 30, 2024 and 2023. During the nine months ended September 30, 2024, the Company removed $77.4 of intangible assets that were fully amortized from the acquired intangible assets and accumulated amortization, which had no impact on the Company's financial results.
**10.**LONG-TERM DEBT
The table below presents the components of outstanding debt (in millions):
| September 30, 2024 | December 31, 2023 | ||||||||||
| 2.800% Senior Notes due July 15, 2030 | $ | 1,000.0 | $ | 1,000.0 | |||||||
| 2020 Credit Agreement, due July 1, 2025 | — | — | |||||||||
| 2024 Credit Agreement, due May 24, 2029 | — | — | |||||||||
| Total face amount of long-term debt | 1,000.0 | 1,000.0 | |||||||||
| Senior Notes unamortized discount and issuance costs | (8.5) | (9.5) | |||||||||
| Long-term debt, net | $ | 991.5 | $ | 990.5 | |||||||
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 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, 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 on January 15 and July 15. 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 the indenture governing the Senior Notes contains covenants, events of default, and other customary provisions with which the Company was in compliance as of September 30, 2024.
Revolving Credit Facility
On May 24, 2024, the Company entered into the 2024 Credit Agreement, which provides for a $1.1 billion revolving credit facility with a term of five years (maturing May 24, 2029), and a letter of credit sublimit of $20 million from a syndicate of financial institutions and issuing banks. The 2024 Credit Agreement replaces the Company's 2020 Credit Agreement.
Borrowings 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 0.125% to 0.750% or (b) a Term SOFR, SONIA rate, or EURIBOR for the specified interest period plus an applicable rate ranging from 1.125% to 1.750%, in each case depending on the Company’s Debt Rating (as defined in the 2024 Credit Agreement).
The 2024 Credit Agreement contains customary affirmative covenants for transactions of this type, including, among others, the provision of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, maintenance of properties, and compliance with laws, including environmental laws, subject to certain exceptions. The 2024 Credit Agreement contains customary negative covenants, including, among others, restrictions on the ability of the Company and its subsidiaries to merge and consolidate with other companies, restrictions on the ability of certain subsidiaries to incur indebtedness, and restrictions on the ability of the Company and certain subsidiaries to grant liens or security interests on assets, subject to certain exceptions. The 2024 Credit Agreement contains a financial maintenance covenant that requires the Company to maintain a Total Leverage Ratio (as defined in the 2024 Credit Agreement) of less than or equal to 4.50 to 1.00, tested at the end of each fiscal quarter. The 2024 Credit
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Agreement also provides for a number of customary events of default, including, among others: payment defaults to the Lenders, voluntary and involuntary bankruptcy proceedings, covenant defaults, material inaccuracies of representations and warranties, cross-acceleration to other material indebtedness, certain change of control events, material money judgments and, other customary events of default. The occurrence of an event of default could result in the acceleration of obligations and the termination of lending commitments under the 2024 Credit Agreement. The Company was in compliance with the covenants in the 2024 Credit Agreement as of September 30, 2024. As of September 30, 2024, the Company had no amounts drawn under this facility.
The Company had $4.0 million and $1.6 million of deferred debt issuance costs related to the revolving credit facility as of September 30, 2024 and December 31, 2023, respectively. These amounts are included in deposits and other assets on the Company's condensed consolidated balance sheets.
The Company recognized interest expense as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Interest on outstanding borrowings | $ | 7.0 | $ | 7.0 | $ | 21.0 | $ | 21.0 | |||||||||||||||
| Amortization of Senior Notes discount and issuance costs | 0.6 | 0.6 | 2.3 | 1.8 | |||||||||||||||||||
| Interest capitalized for construction in process | (1.8) | (0.9) | (4.4) | (0.9) | |||||||||||||||||||
| Commitment fees and other | 0.5 | 0.5 | 2.1 | 2.0 | |||||||||||||||||||
| Total interest expense | $ | 6.3 | $ | 7.2 | $ | 21.0 | $ | 23.9 | |||||||||||||||
**11.**INCOME TAXES
The income tax provision reflects an effective tax rate of approximately 32% and 25% for the three months ended September 30, 2024 and 2023, respectively, and 37% and 24% for the nine months ended September 30, 2024 and 2023, respectively. The increase in the effective tax rate for the three and nine months ended September 30, 2024 was primarily due to lower U.S. income and larger U.K. losses with no tax benefit for the three and nine months ended September 30, 2024.
**12.**COMMITMENTS AND CONTINGENCIES
The following summarizes the Company's significant contractual obligations, including related payments due by period, as of September 30, 2024 (in millions):
| Year Ending December 31, | Operating lease obligations | Finance lease obligations | Long-term debt principal payments | Long-term interest payments | |||||||||||||||||||
| Remainder of 2024 | $ | 11.0 | $ | 1.5 | $ | — | $ | — | |||||||||||||||
| 2025 | 31.7 | 5.9 | — | 28.0 | |||||||||||||||||||
| 2026 | 19.5 | 5.9 | — | 28.0 | |||||||||||||||||||
| 2027 | 17.1 | 4.9 | — | 28.0 | |||||||||||||||||||
| 2028 | 14.7 | 0.4 | — | 28.0 | |||||||||||||||||||
| Thereafter | 12.3 | — | 1,000.0 | 56.0 | |||||||||||||||||||
| Total | $ | 106.3 | $ | 18.6 | $ | 1,000.0 | $ | 168.0 |
The Company leases office facilities under various non-cancelable operating leases, as well as data centers, and vehicles under finance lease arrangements. The leases contain various renewal options.
See Note 7 for further discussion of the Company's lease commitments.
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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.
**13.**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 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 internally to 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, (loss) income from operations or other measures of financial performance prepared in accordance with GAAP.
Summarized EBITDA information by operating segment consists of the following (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| North America | $ | 63.5 | $ | 88.9 | $ | 97.4 | $ | 290.2 | |||||||||||||||
| International | (12.7) | (0.2) | (47.3) | 1.6 | |||||||||||||||||||
| Total EBITDA | $ | 50.8 | $ | 88.7 | $ | 50.1 | $ | 291.8 |
The reconciliation of net income to EBITDA consists of the following (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | 53.0 | $ | 90.6 | $ | 78.9 | $ | 278.2 | |||||||||||||||
| Amortization of acquired intangible assets in cost of revenues | 6.2 | 8.4 | 22.9 | 23.0 | |||||||||||||||||||
| Amortization of acquired intangible assets in operating expenses | 10.3 | 10.3 | 31.5 | 31.3 | |||||||||||||||||||
| Depreciation and other amortization | 10.6 | 8.4 | 31.0 | 24.5 | |||||||||||||||||||
| Interest income, net | (55.6) | (58.4) | (165.3) | (153.9) | |||||||||||||||||||
| Other expense (income), net(1) | 1.6 | (0.5) | 4.9 | (1.6) | |||||||||||||||||||
| Income tax expense | 24.7 | 29.9 | 46.2 | 90.3 | |||||||||||||||||||
| EBITDA | $ | 50.8 | $ | 88.7 | $ | 50.1 | $ | 291.8 | |||||||||||||||
| __________________________ | |||||||||||||||||||||||
| (1) Includes $5.4 million and $14.3 million of amortization and depreciation expense associated with lessor income for the three and nine months ended September 30, 2024, respectively. |
COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Summarized information by operating segment consists of the following (in millions):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Property and equipment, net: | |||||||||||
| North America | $ | 929.6 | $ | 465.7 | |||||||
| International | 8.2 | 6.5 | |||||||||
| Total property and equipment, net | $ | 937.8 | $ | 472.2 | |||||||
| Goodwill: | |||||||||||
| North America | $ | 2,149.2 | $ | 2,149.2 | |||||||
| International | 247.4 | 237.0 | |||||||||
| Total goodwill | $ | 2,396.6 | $ | 2,386.2 | |||||||
| Assets: | |||||||||||
| North America | $ | 8,730.9 | $ | 8,505.5 | |||||||
| International | 407.8 | 414.2 | |||||||||
| Total assets | $ | 9,138.7 | $ | 8,919.7 | |||||||
| Liabilities: | |||||||||||
| North America | $ | 1,570.3 | $ | 1,499.7 | |||||||
| International | 77.3 | 81.4 | |||||||||
| Total liabilities | $ | 1,647.6 | $ | 1,581.1 |
14. SUBSEQUENT EVENTS
Project Neptune
On October 18, 2024, CRI, Neptune Merger Sub, Visual Lease, LLC, and Shareholder Representative Services LLC as the Holder Representative entered into the Visual Lease Merger Agreement pursuant to which, among other things, and subject to its terms, Neptune Merger Sub will merge with and into Visual Lease, LLC with Visual Lease, LLC surviving the merger as a wholly-owned subsidiary of the CRI.
The purchase price is $272.5 million to be paid in cash, subject to customary working capital and other post-closing adjustments. Consummation of the Merger is subject to certain customary conditions and regulatory reviews, including, among others, expiration or termination of the applicable waiting periods under the HSR Act and the Antitrust Laws (as defined in the Visual Lease Merger Agreement).
The Visual Lease Merger Agreement requires the Company to pay a $17.5 million fee to Visual Lease in the event the Merger Agreement is terminated under specified circumstances, including, among others: if certain antitrust approvals are not obtained or a governmental order related to antitrust or competition matters prohibits the consummation of the transaction. The Company intends to fund the transaction with cash on hand and expects the transaction to close in the fourth quarter of 2024.
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