COSTAR GROUP, INC. (CSGP) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. 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 stated above in under the heading “Cautionary Statement Concerning Forward-Looking Statements” and in Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the SEC.
All forward-looking statements 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 applicable law. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other filings with the SEC, and the consolidated financial statements and related notes included in Part IV of this Report.
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Overview
Our principal online marketplace services, information, and analytics 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 commercial real estate properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news and market status and provides benchmarking for the hospitality industry, lease analytical capabilities, and risk management capabilities for lenders. We expect CoStar's revenue growth rate for the year ending December 31, 2025 to decelerate compared to the revenue growth rate for the year ended December 31, 2024 primarily due to a lack of benefit from converting legacy STR customers to our new CoStar-based benchmarking product realized in 2024.
Information Services
We provide real estate and lease management technology solutions, including lease administration, lease accounting, transaction management, and professional services through our CoStar Real Estate Manager and Visual Lease service offerings. We also provide data and reports on an ad hoc basis to customers in the hospitality industry. We expect Information Services' revenue growth rate for the year ending December 31, 2025 to accelerate compared to the revenue growth rate for the year ended December 31, 2024 as a result of the Visual Lease Acquisition.
Multifamily
Apartments.com is the flagship brand of our apartment marketing network of subscription-based advertising services and provides property management companies and landlords with a comprehensive advertising destination for their available rental units. In addition, it offers renters a platform for searching for available rentals and earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. We expect Multifamily's revenue growth rate for the year ending December 31, 2025 to moderate compared to the revenue growth rate for the year ended December 31, 2024, due to the impact in 2025 of pivoting the Apartments.com sales force to support the Homes.com product launch in 2024.
LoopNet
Our LoopNet 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. Commercial real estate agents, buyers, and tenants use the LoopNet Network of online marketplace services to search for available property listings that meet their criteria. We expect LoopNet's revenue growth rate for the year ending December 31, 2025 to be consistent with the revenue growth rate for the year ended December 31, 2024.
Residential
Homes.com offers real estate agents subscription memberships promoting the agent's home listings and profile on our websites. Homebuyers and real estate agents use Homes.com to find dream homes using our proprietary research and neighborhood content combined with listing information. OnTheMarket is a property portal in the U.K., which primarily hosts agents' listings on a subscription basis. We expect Residential's revenues for the year ending December 31, 2025 to increase, but at a slower rate, compared to the year ended December 31, 2024 due to additional sales of our Homes.com memberships.
Other Marketplaces
Our other marketplaces include Ten-X, an online auction platform for commercial real estate, our Land.com Network, and our BizBuySell Network. The Land.com Network provides online marketplaces for rural lands for sale and BizBuySell Network provides online marketplaces for businesses and franchises for sale. We expect Other Marketplaces' revenues for the year ending December 31, 2025 to increase compared to the revenues for the year ended December 31, 2024 due to increased revenues from our Land.com and BizBuySell Networks.
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Subscription-based Services
The majority of our revenue is generated from service offerings that are distributed to our customers under subscription-based agreements that typically 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 years ended December 31, 2024, 2023, and 2022, our annualized net new bookings of subscription-based services on all contracts were approximately $250 million, $286 million, and $305 million, respectively. Net new bookings is calculated based on the annualized amount of change in the Company's sales bookings resulting from new subscription-based contracts, changes to existing subscription-based contracts, and cancellations of subscription-based contracts for the period reported. Net new bookings is calculated on all subscription-based contracts without regard to contract term. Net new bookings is considered an operating metric that is an indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. We generally see higher net new bookings of Apartments.com listing services during the peak summer rental season and higher CoStar net new bookings towards the end of the year; however, sales fluctuate from year-to-year and revenue is not generally seasonal because our services are typically sold on a subscription basis. Revenues from our subscription-based contracts were approximately 96%, 95%, and 93% of total revenues for the years ended December 31, 2024, 2023, and 2022, respectively. The increase in the percentage of our revenues from subscription-based contracts from 2023 to 2024 was due to increased sales in our Multifamily products.
For the trailing 12 months ended December 31, 2024, 2023, and 2022, our contract renewal rates for subscription-based services for contracts with a term of at least one year were approximately 89%, 90%, and 90%, respectively; and, therefore, our cancellation rates for those services for the same periods were approximately 11%, 10%, and 10%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing 12-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. Revenues from our subscription-based contracts with a term of at least one year were approximately 81%, 82%, and 80% of total revenues for the trailing 12 months ended December 31, 2024, 2023, and 2022, respectively. The decrease in the percentage of our revenue from subscription-based contracts with a term of at least one year from 2023 to 2024 was primarily due to increases in sales of shorter-term Multifamily products.
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. We are committed to supporting, improving, and enhancing our online marketplace solutions, information, and analytics, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants, and residential renters and buyers. 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 may reevaluate our priorities as economic conditions continue to evolve.
Our key priorities for 2025 currently include:
•Continuing to invest in and develop Homes.com. In 2024, we launched Homes.com memberships giving real estate agents the ability to advertise and promote their listings on our website featuring original, media rich content. In 2025, we plan to continue hiring our dedicated Homes.com sales force. We plan to continue to raise unaided brand awareness of the site through targeted marketing campaigns and to continue to focus on attracting recurring visitors to the site. In addition, we plan to develop and market additional products.
•Continuing to expand our CoStar and LoopNet products internationally. We continue to increase our international research team to collect data in European markets. We plan to launch our LoopNet brand in France and Spain and continue to expand our footprint of commercial listings.
•Using the aggregate and anonymized data from leases within CoStar Real Estate Manager and Visual Lease to create a trusted source of pricing and occupancy information for Commercial Real Estate. We also plan to begin the integration of the CoStar Real Estate Manager and Visual Lease products.
We expect our investment in the sales force will increase our selling and marketing expenses for the year ending December 31, 2025 compared to the year ended December 31, 2024. We intend to continue to assess the need for additional investments in
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our business in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services, or elimination of services or corporate expansion, development, or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings, or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.
For further discussion of our Company, strategy, and products, see our business overview set forth in "Item 1. Business" in this Report.
Non-GAAP Financial Measures
We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls, and filings with the SEC. The non-GAAP financial measures that we may disclose include EBITDA, adjusted EBITDA, and adjusted EBITDA margin. EBITDA is our net income before interest income or expense, net, other expense or income, net, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls, and filings with the SEC. 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.
We may disclose adjusted EBITDA and adjusted EBITDA margin on a consolidated basis in our earnings releases, investor conference calls, and filings with the SEC. 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, and adjusted EBITDA margin as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA and adjusted EBITDA is net income. We believe the most directly comparable GAAP financial measure to adjusted EBITDA margin is net income divided by revenue. In calculating EBITDA, adjusted EBITDA, and adjusted EBITDA margin 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, and adjusted EBITDA margin 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, and adjusted EBITDA margin as a substitute for any GAAP financial measure. 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 SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, and adjusted EBITDA margin.
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EBITDA, adjusted EBITDA, and adjusted EBITDA margin 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 and adjusted EBITDA margin 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 income or expense, net, other expense or income, net, 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 and adjusted EBITDA margin 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 income or expense, net and other expense or income, net 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 income or expense, net and other expense or income, net 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.
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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, charges related to terminations of contracts or impairments of acquired intangible assets or other long lived 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. Because we do not carry out restructuring activities on a predictable cycle, 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.
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.
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Consolidated Results of Operations
The following table provides our selected consolidated results of operations for the indicated periods (in millions and as a percentage of total revenue):
| Year Ended December 31, | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Revenues | $ | 2,736.2 | 100 | % | $ | 2,455.0 | 100 | % | $ | 2,182.4 | 100 | % | ||||||||
| Cost of revenues | 558.5 | 20 | 491.5 | 20 | 414.0 | 19 | ||||||||||||||
| Gross profit | 2,177.7 | 80 | 1,963.5 | 80 | 1,768.4 | 81 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling and marketing (excluding customer base amortization) | 1,364.3 | 50 | 989.9 | 40 | 684.2 | 31 | ||||||||||||||
| Software development | 325.3 | 12 | 267.6 | 11 | 220.9 | 10 | ||||||||||||||
| General and administrative | 439.1 | 16 | 381.5 | 16 | 338.7 | 16 | ||||||||||||||
| Customer base amortization | 44.3 | 2 | 42.2 | 2 | 73.6 | 3 | ||||||||||||||
| Total operating expenses(1) | 2,173.0 | 79 | 1,681.2 | 68 | 1,317.4 | 60 | ||||||||||||||
| Income from operations(1) | 4.7 | — | 282.3 | 11 | 451.0 | 21 | ||||||||||||||
| Interest income, net | 212.5 | 8 | 213.6 | 9 | 32.1 | 1 | ||||||||||||||
| Other (expense) income, net | (7.1) | — | 5.4 | — | 3.4 | — | ||||||||||||||
| Income before income taxes(1) | 210.1 | 8 | 501.3 | 20 | 486.5 | 22 | ||||||||||||||
| Income tax expense | 71.4 | 3 | 126.6 | 5 | 117.0 | 5 | ||||||||||||||
| Net income(1) | $ | 138.7 | 5 | % | $ | 374.7 | 15 | % | $ | 369.5 | 17 | % | ||||||||
| __________________________ |
(1) Amounts may not foot due to rounding.
The following table provides our revenues by type of service (in millions and as a percentage of total revenue):
| Year Ended December 31, | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||||||||||
| CoStar | $ | 1,020.5 | 37 | % | $ | 925.2 | 38 | % | $ | 837.0 | 38 | % | ||||||||
| Information services | 135.9 | 5 | 170.9 | 7 | 157.4 | 7 | ||||||||||||||
| Multifamily | 1,067.3 | 39 | 914.2 | 37 | 745.4 | 34 | ||||||||||||||
| LoopNet | 281.7 | 10 | 264.8 | 11 | 230.9 | 11 | ||||||||||||||
| Residential | 100.6 | 4 | 46.1 | 2 | 73.7 | 3 | ||||||||||||||
| Other marketplaces | 130.2 | 5 | 133.8 | 5 | 138.0 | 6 | ||||||||||||||
| Total revenues(1)(2) | $ | 2,736.2 | 100 | % | $ | 2,455.0 | 100 | % | $ | 2,182.4 | 100 | % | ||||||||
| __________________________ |
(1) For further discussion of our Company, strategy, and products, see our business overview set forth in "Item 1. Business" in this Report.
(2) Totals may not foot due to rounding.
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Comparison of Year Ended December 31, 2024 and Year Ended December 31, 2023
The following table provides a comparison of our selected consolidated results of operations for the years ended December 31, 2024 and 2023 (in millions):
| 2024 | 2023 | Increase (Decrease) | Increase (Decrease) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | ||||||||||||||
| CoStar | $ | 1,020.5 | $ | 925.2 | $ | 95.3 | 10 | % | ||||||
| Information services | 135.9 | 170.9 | (35.0) | (20) | ||||||||||
| Multifamily | 1,067.3 | 914.2 | 153.1 | 17 | ||||||||||
| LoopNet | 281.7 | 264.8 | 16.9 | 6 | ||||||||||
| Residential | 100.6 | 46.1 | 54.5 | 118 | ||||||||||
| Other marketplaces | 130.2 | 133.8 | (3.6) | (3) | ||||||||||
| Total revenues | 2,736.2 | 2,455.0 | 281.2 | 11 | ||||||||||
| Cost of revenues | 558.5 | 491.5 | 67.0 | 14 | ||||||||||
| Gross profit | 2,177.7 | 1,963.5 | 214.2 | 11 | ||||||||||
| Operating expenses: | ||||||||||||||
| Selling and marketing (excluding customer base amortization) | 1,364.3 | 989.9 | 374.4 | 38 | ||||||||||
| Software development | 325.3 | 267.6 | 57.7 | 22 | ||||||||||
| General and administrative | 439.1 | 381.5 | 57.6 | 15 | ||||||||||
| Customer base amortization | 44.3 | 42.2 | 2.1 | 5 | ||||||||||
| Total operating expenses | 2,173.0 | 1,681.2 | 491.8 | 29 | ||||||||||
| Income from operations | 4.7 | 282.3 | (277.6) | (98) | ||||||||||
| Interest income, net | 212.5 | 213.6 | (1.1) | (1) | ||||||||||
| Other (expense) income, net | (7.1) | 5.4 | (12.5) | NM(1) | ||||||||||
| Income before income taxes | 210.1 | 501.3 | (291.2) | (58) | ||||||||||
| Income tax expense | 71.4 | 126.6 | (55.2) | (44) | ||||||||||
| Net income | $ | 138.7 | $ | 374.7 | $ | (236.0) | (63) | % | ||||||
| __________________________ |
(1) Not meaningful
Revenues. Revenues increased $281 million, or 11%, to $2.7 billion. The increase in our revenues included:
•an increase in Multifamily revenues of $153 million, or 17%, due to an increase in the number of properties listed on our network and increases in pricing for existing customers,
•an increase in CoStar revenues of $95 million, or 10%, due to an increase in subscribers and price increases, as well as converting legacy STR customers to our new CoStar-based benchmarking product,
•an increase in Residential revenues of $55 million, or 118%, due to the launch of the new Homes.com membership subscriptions and the OnTheMarket Acquisition, partially offset by the discontinuation and reduced sales of certain products and services that were inconsistent with our long-term business strategy,
•an increase in LoopNet revenues of $17 million, or 6%, due to an increase in the average price per listing and an increase in the number of paid listings,
•a decrease in Information services revenues of $35 million, or 20%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product, partially offset by an increase in revenue from CoStar Real Estate Manager and the Visual Lease Acquisition, and
•a decrease in Other marketplaces revenues of $4 million, or 3%, due to lower property volumes auctioned on Ten-X partially offset by increases in revenues of the Land.com Network.
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Gross Profit and Cost of Revenues. Gross profit increased $214 million, or 11%, to $2.2 billion in 2024, and the gross profit percentage was consistent at 80%. The increase in gross profit was due to higher revenues partially offset by an increase in the cost of revenues. Cost of revenues increased $67 million, or 14% to $559 million and, as a percentage of revenues, was consistent at 20%. The increase in cost of revenues primarily included:
•an increase in personnel costs of $43 million related to increases in salaries and benefits costs for our existing employees and rising headcount to support our residential research efforts,
•an increase of $17 million for web hosting costs, and
•an increase of $6 million of payment processing fees.
Selling and Marketing Expenses. Selling and marketing expenses increased $374 million, or 38%, to $1,364 million and, as a percentage of revenues, increased from 40% to 50%. The increase primarily included:
•an increase in marketing expenses of $304 million for advertising our brands and
•an increase in personnel costs of $67 million related to rising headcount in our sales force, recruiting costs, and commissions expense.
Software Development Expenses. Software development expenses increased $58 million, or 22% to $325 million and, as a percentage of revenues, increased from 11% to 12%. The increase primarily included:
•an increase in personnel costs of $43 million related to rising headcount and increases in salaries, stock-based compensation, and benefits costs for our existing employees,
•an increase of $9 million in software and equipment costs, and
•an increase of $3 million in occupancy costs.
General and Administrative Expenses. General and administrative expenses increased $58 million, or 15%, to $439 million and, as a percentage of revenues, was consistent at 16%. The increase primarily included:
•an increase in professional services of $29 million, primarily related to acquisition activities and costs to defend our intellectual property,
•an increase in personnel costs of $14 million related to the OnTheMarket Acquisition and rising headcount,
•an increase in depreciation expense of $7 million related to new communications and networking equipment across our offices and increased depreciation expense associated with the change in useful life of our previous headquarters building, and
•an increase of $4 million in occupancy costs from the OnTheMarket Acquisition.
Customer Base Amortization Expense. Customer base amortization expense was consistent.
Interest Income, Net. Interest income, net was consistent.
Other (Expense) Income, Net. Other (expense) income, net was an expense of $7 million for the year ended December 31, 2024 and related to leasing operations acquired in February 2024.
Income Tax Expense. Income tax expense decreased $55 million, or 44%, to $71 million and the effective tax rate was 34% of income before income taxes compared to 25% of income before income taxes for the year ended December 31, 2023. The decrease in income tax expense was primarily attributable to lower U.S. income. The increase in the effective tax rate is primarily attributable to an increase in foreign losses with no tax benefit.
For a comparison of our results of operations for the fiscal year ended December 31, 2023 to the year ended December 31, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on the Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 21, 2024.
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Comparison of Business Segment Results for Year Ended December 31, 2024 and Year Ended December 31, 2023
We manage our 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, which is our net income before interest income or expense, net, other expense or income, net, 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 operating and management performance and to evaluate the performance of our business.
Segment Revenues. North America revenues increased $234 million, or 11%, to $2.6 billion and included:
•an increase in Multifamily revenues of $153 million, or 17%, due to an increase in the number of properties listed on our network and increases in pricing for existing customers,
•an increase in CoStar revenues of $71 million, or 8%, due to an increase in subscribers and price increases, as well as converting legacy STR customers to our new CoStar-based benchmarking product,
•an increase in LoopNet revenues of $16 million, or 6%, due to an increase in the average price per listing and an increase in the number of paid listings,
•an increase in Residential revenues of $15 million, or 34%, due to the launch of the new Homes.com membership subscriptions, partially offset by the discontinuation and reduced sales of certain products and services that were inconsistent with our long-term business strategy,
•a decrease in Information services revenues of $17 million, or 13%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product, partially offset by an increase in revenue from CoStar Real Estate Manager and the Visual Lease Acquisition, and
•a decrease in Other marketplaces revenues of $4 million, or 3%, due to the lower property volumes auctioned on Ten-X, partially offset by an increase in revenue from the Land.com Network.
International revenues increased $47 million, or 53%, to $136 million and primarily included:
•an increase in Residential revenues of $39 million due to the OnTheMarket Acquisition,
•an increase in CoStar revenues of $24 million, or 61%, due to converting legacy STR customers to our new CoStar-based benchmarking product, as well as an increase in subscribers and price increases, and
•a decrease in Information services revenues of $18 million, or 46%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product.
Segment EBITDA. North America EBITDA decreased to $181.5 million for the year ended December 31, 2024, from $403 million for the year ended December 31, 2023. The decrease in North America EBITDA was primarily due to increases in marketing costs, personnel costs, professional services fees, and web hosting costs, partially offset by increases in revenues described above. International EBITDA decreased to a loss of $58.5 million for the year ended December 31, 2024 from a loss of $13 million for the year ended December 31, 2023. The decrease was primarily due to the OnTheMarket Acquisition for which we have increased marketing expenses since acquisition and an increase in personnel costs associated with the expansion of our international research team.
For a comparison of our business segment results of operations for the fiscal year ended December 31, 2023 to the year ended December 31, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 21, 2024.
Liquidity and Capital Resources
We believe the balance of cash and cash equivalents, which was $4.7 billion as of December 31, 2024, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our material cash requirements include the following contractual and other obligations.
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Debt. As of December 31, 2024, we had outstanding an aggregate principal amount of $1.0 billion of Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $168.0 million, with $28.0 million payable within 12 months.
Leases. We have lease arrangements for office facilities, data centers, and certain vehicles. As of December 31, 2024, we had fixed lease payment obligations of $139 million, with $32 million payable within 12 months.
Purchase Obligations. Our purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily relate to web hosting, sponsorship agreements, third-party data or listings, and software subscriptions. As of December 31, 2024, we had purchase obligations of $244 million, with $94 million payable within 12 months.
Construction Commitments. We are expanding our Richmond, Virginia campus, which is expected to result in a material cash requirement in 2025 and 2026. We broke ground on the expansion in November 2022 and expect construction to be substantially completed in the first half of 2026. We have engaged a project manager, architects, and a general contractor on terms that generally require payments as services are provided or construction is performed. As of December 31, 2024, we are obligated to spend an additional $395 million as further work is performed under these contracts. We expect $361 million of these costs to be paid 2025 and intend to fund these expenditures with cash on hand.
In conjunction with this expansion, we negotiated various tax incentives with the Commonwealth of Virginia and the City of Richmond, including the allowance to use market-based income apportionment for income taxes and partial reimbursements of property tax assessments related to the value of the campus expansion. These incentives are conditional upon achieving job creation and capital expenditure targets from 2022 to 2029. Failure to meet these targets could result in a reduction of the value of the tax incentives and repayment of previous tax reductions. The value of the allowance to use a market-based income apportionment for income taxes is dependent on our taxable income. We estimate the value of the allowance to use market-based income apportionment for income taxes for tax years 2023 to 2032 and partial reimbursements of property tax assessments related to the value of the campus expansion to be in the range of $275 million - $285 million.
Pending Acquisitions. On April 21, 2024, the Company entered into Matterport Merger Agreement, subject to the terms and conditions of which, 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.
Consummation of the Mergers is subject to certain customary conditions, including, among others, 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. 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 our stockholders or to any financing condition.
On July 3, 2024, Matterport and CoStar Group each received a request for additional information and documentary materials (the “Second Request”) from the FTC in connection with the FTC’s review of the Transaction. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after Matterport and CoStar Group have each substantially complied with their respective Second Requests, unless that period is extended or terminated sooner by the FTC. Matterport and CoStar Group certified they were in substantial compliance with the Second Request in November 2024 and January 2025, respectively. Each of Matterport and CoStar Group continue to work cooperatively with the FTC in its review of the Transaction and expect that the Transaction will be completed in the first quarter of 2025, subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the Matterport Merger Agreement.
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. The cash consideration is estimated to be
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$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.
Stock Repurchase Program
In February 2025, the Board of Directors approved the Stock Repurchase Program which authorizes, but does not obligate, the repurchase of up to $500 million of the Company’s common stock. Repurchases may be made from time to time at management's discretion, and the timing and amount of any such repurchases will be determined based on share price, market conditions, legal requirements, and other relevant factors. The program has no time limit and can be discontinued at any time at the Company’s discretion. There can be no assurance as to the timing or number of shares of any repurchases in the future.
Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts, the Stock Repurchase Program 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.
Cash and cash equivalents decreased to $4.7 billion as of December 31, 2024, compared to cash and cash equivalents of $5.2 billion as of December 31, 2023. The decrease in cash and cash equivalents for the year ended December 31, 2024 was primarily due to $912.9 million of cash used in investing activities and cash used in financing activities of $13.7 million, partially offset by cash provided by operating activities of $392.6 million.
Net cash provided by operating activities for the year ended December 31, 2024 was $392.6 million compared to $489.5 million for the year ended December 31, 2023. The $96.9 million decrease in cash provided by operating activities was primarily driven by a decrease in net income, partially offset by an increase in non-cash expenses and working capital changes.
Net cash used in investing activities for the year ended December 31, 2024 was $912.9 million compared to $238.6 million for the year ended December 31, 2023. The change was primarily driven by an increase in the purchase of property, equipment, and other assets for our new campuses of $461.5 million, including $343 million related to the purchase of an office building in Arlington, Virginia to relocate our Washington, D.C.-based employees, and an increase in cash paid for acquisitions, net of cash acquired of $177.1 million primarily related to the Visual Lease acquisition.
Net cash used in financing activities for the year ended December 31, 2024 was $13.7 million compared to net cash used in financing activities of $3.7 million for the year ended December 31, 2023. The increase was primarily driven by repurchases of restricted stock to satisfy tax withholding obligations and payment of debt issuance costs related to the 2024 Credit Agreement.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. 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 the accounting for the following matters to contain critical accounting estimates:
•Intangible assets and goodwill;
•Income taxes; and
•Business combinations.
With respect to our accounting policy for intangible assets and goodwill, we further supplement in Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report with the following:
We assess the impairment of identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of intangible assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:
•Significant underperformance relative to historical or projected future operating results;
•Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
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•Significant negative industry or economic trends; or
•Significant decline in our market capitalization relative to net book value for a sustained period.
When we determine that the carrying value of intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.
Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.
Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of purchase consideration paid in a business combination over the fair value of assets of the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We 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 we elect to bypass the qualitative assessment, we then perform a quantitative assessment by determining the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our 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 and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections, and anticipated future cash flows. These assumptions are subject to change from period-to-period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions, and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations. 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.
As of October 1, 2024, we assessed the relevant qualitative factors for our North America and International reporting units and concluded that it was not more likely than not that the fair value of reporting units were less than the respective carrying amounts. We elected to bypass performing the qualitative screen and performed the first step quantitative analysis of the goodwill impairment test for our International reporting unit in 2023, which indicated that the fair value of this unit exceeded its carrying value. There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1, 2024, that would indicate that the carrying value of each reporting unit may not be recoverable.
For an in-depth discussion of each of our significant accounting policies, including further information regarding estimates and assumptions involved in their application, see Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report.
Recent Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report for further discussion of recent accounting pronouncements, including the expected dates of adoption.