Good day. Thank you for standing by, and welcome to the CoStar Group to report financial results for first quarter 2022. [Operator Instructions] I would now like to hand the conference over to Gene Boxer, General Counsel of CoStar Group. Thank you. Please go ahead.

Thank you, Blue. Good evening, and thank you all for joining us to discuss the first quarter 2022 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I would like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements, including the company's outlook and expectations for the second quarter and the full year 2022, based on current beliefs and assumptions. Forward-looking statements may involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's press release issued earlier today and in our filings with the SEC, including our most recent annual report on Form 10-Q -- 10-K under the heading Risk Factors. All forward-looking statements are based on information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements, whether as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of the non-GAAP financial measures discussed on this call, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per diluted share and forward-looking non-GAAP guidance, are shown in detail in our press release issued today, along with definitions for those terms. The press release is available on our website located at costargroup.com under Press Room. As a reminder, today's conference call is being webcast, and the link is also available on our website under Investors. Please refer to today's press release on how to access the replay of this call. And with that, I would like to turn the call over to our Founder and CEO, Andy Florance.

Thank you, Gene. You did that brilliantly. I think everyone on the call is left inspired. So good evening, everyone. And thank you for joining us for CoStar Group's First Quarter 2022 Earnings Call. We had a really strong start to 2022 with our highest ever quarterly sales booking at $68 million, which increased 31% year-over-year in the first quarter. Both revenue and profit are ahead of forecast. Our CoStar product turned in its best sales quarter ever, driving our overall outperformance and is expected to grow at or above 15% year-over-year for the rest of 2022. Apartments.com delivered great sales results with net new sales bookings up 36% compared to the fourth quarter of 2021. Total revenue for the first quarter of '22 was $516 million, representing a 13% year-over-year growth rate. Our profit performance was equally strong with adjusted EBITDA of $178 million in the first quarter, an increase of 12% year-over-year and $18 million above the high end of our February guidance. As a result, we are raising our full year '22 revenue, adjusted EBITDA and EPS guidance. Mr. Wheeler will give you more details on that. CoStar flagship product produced $199 million in revenue in the first quarter. The CoStar sales team grew annualized net sales 96% over the prior year. This latest sales performance makes the last 3 quarters of CoStar sales the top 3 sales quarters for CoStar on record. Our CoStar sales team has never been more productive. In the first quarter, we achieved the highest CoStar net sales output per person in our history. We added 20 new sellers to the team so far this year and intend to continue expanding our sales teams in the U.S., Canada and the United Kingdom. I look forward to the day when we'll be able…

Thank you, Andy.

You're welcome, Scott.

Excellent rendition to the script this evening. So another really strong financial quarter. Key metrics, net new bookings, revenue, adjusted EBITDA, all growing double digits, great start, and our outlook is improving. Now that's not bad considering that we're in a volatile economic environment. So it's great to have a high renewing subscription model to rely on when the global economy becomes a little less predictable. So revenue grew 13% in the first quarter versus the first quarter of 2021 with 4 of our 6 service categories growing in the strong double digits. CoStar revenue grew 15% in the first quarter, continuing its growth acceleration and consistent with our guidance. For context, CoStar revenue grew 10% in the third quarter of last year, 13% in the fourth quarter of 2021, 15% in the first quarter of 2022, and we expect CoStar revenue growth of 17% in the second quarter of 2022. This is a trend I really like. We now expect full year 2022 revenue growth of 16% for CoStar, up from our prior expectation of 15%. Multifamily revenue for the first quarter increased 6%, consistent with the fourth quarter last year and in line with our guidance. Revenue growth year-over-year is pretty much all price-driven as advertised property counts have moderated since the middle of last year, and ad level mix is a bit lower from the downgrades over the past few quarters, although in the recent quarter, the net upgrades have passed the net downgrades. So that's a positive sign for our outlook. We expect second quarter revenue growth to remain at 6%, and our full year revenue estimates remain unchanged at 8% to 9% range with double-digit growth expected in the second half of the year for multifamily. LoopNet revenue grew 11% in the first quarter, which…

[Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs.

Diving into multifamily, it looks like you're starting to see stabilization in top line growth in the mid-single-digit range. Could you talk a little bit about your latest expectations for growth in the back half of the year and then for 2023 as you approach run rate? And then what apartment market conditions are necessary to achieve these targets?

Sure, George. Thanks for the question. So yes, we were encouraged with where we're going with multifamily. We expect in the second half that will be in double-digit growth rates. That's going to range between 10% to 14% as we move through the second half of the year. 2023, we haven't set any rates off into 2023. But as you can see, the quarterly trend is moving upward. That should set expectations that 2023 will be ahead of 2022. Some of the things that we're seeing are more properties now advertising on the platform in March. So there's more properties being added than properties being taken away from the platform, and that's probably for the first time in the last 6 or 7 months. So that trend is encouraging. And the productivity of the sales force and the growth of the sales force are also encouraging advanced indicators on what we see in the second half. The price execution has been very good, building every month as the sales force gets more and more comfortable with that program. So we think that we're on a good track. We've confirmed that in the first quarter and looking forward to the seasonally high -- typically seasonally high second quarter, really give us a more firm indicator on the second half of the year.

I would also add that I was in Atlanta last week, and there were 25 people in the sales training class. So we are successfully adding a lot of additional incremental salespeople, and there's plenty for them to do because there are millions of prospects that we have yet to reach out to. I think that there are clear indications in the outlook for the apartment market, and you're going to see the sort of ultra-low vacancy rates moderating, and I would be surprised if that's not what happened. So high deliveries of inventory and moderating vacancy rates or normalizing vacancy rates or slightly more than -- like within the standard deviation ranges are really what we expect and what we would want to have as an environment.

Your next question comes from the line of Pete Christiansen from Citi.

Andy, can you -- or Scott, can you quantify at least on the multifamily side the mix between the different ad level packages, I guess platinum versus gold, all that kind of stuff? Just generally, where we are right now in that mix versus perhaps where normalized levels are. Just trying to get a sense of where we need to go to get back towards that normalized mix level.

Okay. Sure, Pete. Glad to help you with that. Our mix of ad platform levels have -- historically, the gold level platform is our largest mix. And it's been at about 40% since really the beginning of 2020. It remains roughly about there. You'll see diamonds have drifted down a couple of percentage points. They're just below 20%, so it hasn't moved a whole lot. The platinum is around 20%. That hasn't moved a whole lot. And you got a little bit more on the silvers, which has moved up a couple of points. So really, the platforms have stayed relatively stable since the beginning of 2020 with just a slight shift between diamond and silvers, which as you know, we've addressed with the adjustment in our rate card so that if you do plan to move down the level, especially if you're a large platform player, then you're going to pay a lot higher price at lower levels now for moving off of those diamond platforms. So that's about where we're seeing the mix right now.

I would also point out that another part of the story is the size of the ad sales force we've had is really working with our existing customer base as we add 50 or more incremental salespeople that are going to begin to be putting more focus on reaching out to folks that are not buying anything from us today, so as we grow share. And I do think firms like -- there's a lot of folks who are advertising on smaller platforms like software that we can offer a lot of advantage. I think we take a lot of share away from them.

Your next question comes from the line of Jeff Meuler from Baird.

I think we're continuing off that last line of thinking. But can you just give us a fuller update on kind of the down market Apartment's initiative? I guess you're kicking it off into the pandemic, and then you had a tough environment for a while, but it seems like we're maybe coming out of that. So just any update on how the down market initiative is performing? Any sort of strategic update since obviously Rent.com is not going to be utilized and you've since lost the Home strategy?

Yes. So we -- I would just go back to going into the pandemic. We -- going into the pandemic, we were just building that mid-market team to go after that down market opportunity, i.e. 25 or less units down to single unit rentals. The price points we were getting were fantastic and -- on a per unit basis, and we were successfully selling. But with the pandemic, building an inside -- large inside sales team got much more difficult. Again, last week, dropping in on the sales training in Atlanta, 25 people sitting in there in the sales training. We now have 7 recruiters going to 10. I believe we're going to see a lot of growth there. There is an unlimited -- effectively unlimited opportunity, so I'd expect for us to be able to start reporting some good progress there, and it's a very motivated group of salespeople that I got a chance to spend a fair amount of time with. So pretty optimistic there.

Yes. And when you look at the growth in advertised properties that took a pause, Jeff, in the middle of last year, they started growing pretty significantly in the first quarter of this year. And our mid-market sales team had their highest productivity level ever in the first quarter of 2022. So we stabilized a bit in the mid-2021 as the market adjusted, and now we're seeing growth pick up again in the under 100-unit section.

Your next question comes from the line of Andrew Jeffrey from Truist Securities.

It's Gus stepping on for Andrew. Looking at resi -- so looking at resi, you guys are able to ramp it faster than like internally planned. Are you willing to spend more behind it this year?

I think that it's going to be pretty predictable along the plan, the existing plan. We are engaged in a very ambitious scale software development effort, and that is not likely to go dramatically faster or slower than we anticipate as well as we're engaged in a scale collection of content. So there's well over 1,000 people working on the project right now. So it's going to be pretty predictable in 2022, I think. Where you begin to get optional variability where you would respond to successes in the market and potentially accelerate would be later 2023, and that's where you're just playing with acceleration around number of salespeople or SEM or marketing in response to success. So I think it's going to be very predictable in 2022 and through Q1 of 2023 and possibly Q2 of 2023. But if there's a change in later 2023, it will be done with a lot of communication with our investors as to why we think it's a high IRR.

Your next question comes from the line of Stephen Sheldon from William Blair.

On the -- maybe just a follow-up on the residential content investments and kind of 2 questions there. One, how is the cost efficiency for developing that content then relative to your expectations? And then two, I guess how far along are you now relative to what you planned for 2022 in terms of content breadth if there's a way to frame that?

Yes, it's a good question. I think that we are -- in our plans for '22, because we were trying to go from 0 to 100 miles an hour, we preplanned a very aggressive compensation program for the folks we're bringing in to do it. So we already planned -- we didn't expect to be able to accelerate super rapidly at super high efficiency. We could achieve efficiency in out years, so we're sort of right in the line of as expected. And the initial efforts -- a lot of the initial efforts are around building the systems to manage collecting the content efficiently, and we're on track with that. So there's no unpleasant surprises that we're aware of. We're just tracking along expectations. And was there a second part of that question? No? Okay.

Your next question comes from the line of Ryan Tomasello from KBW.

Following up on the residential strategy, can you give us your thoughts around the various lawsuits that are going on in the residential market focused on industry practices around commissions and the role of realtors, agents and the MLS? How do you think that plays out? Does any of that work in your favor? And what's the bigger picture relevance for those lawsuits with respect to CoStar's long-term strategy in residential?

So I think it's an interesting question. And for the first time in 5 years, we brought our General Counsel, and I don't think he's going to even comment. But the thing I would say is that we have not designed this like we are not in the business. We specifically have not designed Homes.com with a dependency on either the sell side or the buy side. There are a number of other U.S. residential real estate portals who work to monetize the buy side aggressively, and they rely on that dictated buyer split that is being attacked with some of these lawsuits. We're taking a completely different tech. We are focusing on selling the house and trying to market the house as effectively as possible. And there are no lawsuits out there saying that people can't sell their homes. So it doesn't really impact us. I -- also, where we are looking at generating revenue from agents, we are completely agnostic to whether or not it's buy side or sell side. So I think we can sit back and watch these lawsuits develop. It's just an academic interest. It doesn't really impact us.

Your next question comes from the line of Mayank Tandon from Needham.

Andy or Scott, I think one of you mentioned that the pricing impact was pretty much all of the multifamily this quarter, but just maybe more broadly your expectations on how much leverage now you have to increase pricing across the different product lines and how we should think about that impact versus growth from volumes or transactions or users. So pricing versus volume growth as we look out over the course of 2022.

Well, we operate in highly competitive markets, and we have really no pricing leverage anywhere. But if we did, we are focusing on making sure that all of our product managers and leads -- sales leads understand that in a highly inflationary environment, not to maintain price appreciation is to decrease your pricing. So we are keeping that out there, and we seem to be able to able to achieve pricing increases along those objectives of being mindful of inflation and perhaps a little bit more. Scott, you watch this pretty closely. Do you want to...

Yes. I think that's been our primary focus this year, is to make sure all of our platforms are keeping a close eye on our -- on the inflation numbers and then as our products annualize their contracts that we move our price up on the inflation curve, which is always part of the contracts that we enter into with customers. In addition to that, as we go into each of our platforms every year, like CoStar, for example, where we're adding lender, we've added hospitality, we've added CMBS data, we build out great value feature sets. We try and keep our annual renewals outside of inflation to a low modest few percentage points. So our customers always feel value ahead of where prices move for us. But certainly, you'll see overall that the percent from pricing will move up to more of about probably half of the revenue growth in general as in the past. It's typically about 1/3 in general, and the rest coming from volume and then people selecting to buy more and more products or increasing the mix of what they buy. So that's just a rough estimate, but I can give you some sense that it will play a little more important role, especially while we're in an inflationary environment.

Your next question comes from the line of Ashish Sabadra from RBC.

So pretty good momentum on the Pro+ and Concierge Pro+ products. Again, I understand it's a smaller base, but good traction there. I was wondering if you could comment on the feedback like. Where is the penetration for both the Pro+ and the Concierge Pro+ product? And also just the slowing home market and the tightening home market -- residential market, how does that affect your ability to sell in that market?

Sure. Thank you for the question. One of the wonderful things about being at the very early stages of entering the market with sub 1% penetration is contraction of the market, you can't feel it, like you're just -- you're moving into the market. So we're not feeling anything there. In the -- in terms of Pro+ and Concierge, the big factor there is it's -- we believe it's a really solid product that the agents like and regard highly. And when we acquired Homesnap, the biggest limitation or challenge they faced is they effectively had no salespeople. So by introducing salespeople and reaching out to realtors and telling them about what we had to offer, we were able to successfully sell the product. So the primary limiter is just the number of salespeople we bring in. The market is massive. And it's -- it could be a decade, and you wouldn't be able to penetrate the market fully. So -- and there's a balance between Pro+ and Concierge we're watching. I personally like -- both have advantages for us. Concierge has bigger dollars, but I think Pro+ has more strategic value. When a customer goes and when a realtor buys Pro+, they tend to use our platform dramatically more. We want them engaged as we release enhanced version of Homes.com. They're already in our environment regularly, and thereby, they're more likely to use our environment to collaborate with their buyers and their sellers. So it has -- Pro+ has a smaller revenue impact per unit. It's got a huge opportunity because the units are massive, but it has high strategic value. Concierge is fascinating. Concierge is fascinating because it's higher dollars, and it is a product where very often we are selling for hundreds of price point ASP of hundreds of dollars a month marketing opportunities to the agents for marketing the properties, which is the products we want to be focusing on down the road. So ultimately, you're asking me which of my children I like more. I like them both the same.

Now let me add some from a revenue projection. You may recall in the last call, we talked about the new sellers we're bringing on in the residential world are focused on Pro+, and so we are consciously not trying to grow the Concierge revenue on a dollar basis as we shift more and more sellers into Pro+ because Andy said the stickiness of the Pro+, the agent engagement is higher in the Pro+ product, and we are better off longer term doing that. So that's why you don't see as dramatic a revenue growth in our annual outlook as you'll see a mixing down in Concierge, the higher-priced product as we build the sales force that's bringing in more subscriptions on the Pro+. So more about that as we go forward, but that's what will play out in the financial dynamics.

But John Mazur keeps selling the Concierge.

I know. It's hard not to. The agents really like it.

Your next question comes from the line of Joe Goodwin from JMP.

I just wanted to ask about the new modern integrated technology platform for Homes.com. And then I guess just kind of what's going on there, what advantages that will launch you. And then any plans to actually connect the Homes.com data and port that into the CoStar back end so that will be available to your CoStar customers?

Yes. So it's a multistage process. The first stage is when you look at the Homes.com we acquired, it wasn't the high-performance environment you needed to be scalable up to 100 million uniques. Speed, performance, responsive mobile, all those things are essential to being able to build your traffic objectives and to get the SEO rankings you want. So what we're doing in Phase 1 is we are using the Homesnap back end, which is pretty robust. We are scaling that from single-serve to multiple -- with the cloud base that you can scale it infinitely in AWS. And then we're using the Apartments.com front-end tools against the Homesnap back-end tools, and that is our fastest path to market with high-performance scalability. After we release that version, we're going to come back and we're going to migrate the Homesnap back-ends into the -- what we call our enterprise back-ends, which is the core CoStar Group back-ends, which Apartments.com and LoopNet and the other systems work off of. Once we do that, the data will all then reside in the platform that is connected into CoStar. And subject to the license agreements with the MLSs and the use provisions, we would then be able to make that robust residential data or some of the Homesnap functionality available in the CoStar product to the people that were properly licensed. So there's a 3 -- I think that's a 3-step process there, but it will keep our development teams stably employed forever.

Your next question comes from the line of John Campbell from Stephens Inc.

Congrats on a great quarter. So on the incremental $100 million to $120 million of resi investment spend you guys have kind of planned for this year, how much of that hit in the quarter? And then also if you're able to share just the breakdown of that spend across content, software and marketing and maybe how that's going to look for the balance of the year.

It's all yours to comment.

Sure. So the incremental spend this year was $200 million to $220 million. So we had called about $210 million. $110 million of that was the content generation. About $65 million or so was for the marketing, and the rest was from technology spend as well as product and some other infrastructure that went into that. There wasn't a major amount of that timed in the first quarter, somewhere in the $10 million to $15 million range, probably incremental. Maybe it's a little higher than that. But the ramp-up really starts to come in the second quarter as we're adding the resources to the content collection. There's marketing that will pick up in the last quarter of the year, third and fourth quarter of the year as we get closer to launching. So it's heavily phased into the back half of the year. So really in the first quarter, it was really shifting resources. They're both product and product development resources over from our other businesses and some research folks. So not a whole lot in the first part of the year. Most will be coming in the last 3 quarters.

There are no further questions at this time. I would now like to turn the conference back to Andrew Florance.

Well, thank you for joining us today, Gene, as a special guest host. And I'd like to thank everyone for joining us for our first quarter '22 earnings call. We've come out of the gates this year with a real strong momentum across our commercial property platforms along our exciting, new investment opportunities in residential market and our European potential. We look forward to speaking to you all again in the second quarter call in July 26 at the same time and the same medium. Until then, stay safe, and thank you very much for participating. And thank you very much for any analyst who said great quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.