Good afternoon and thank you for attending today's CoStar Group Second Quarter Earnings Call. My name is Austin and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Cyndi Eakin with CoStar. Cyndi, please proceed.

Thank you, Austin. Good evening and thank you all for joining us to discuss the second 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 third quarter and full year 2022 based on current beliefs and assumptions. Forward-looking statements 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-K and subsequent quarterly reports on Form 10-Q, under the heading Risk Factors. All forward-looking statements are based on the 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 non-GAAP financial measures discussed on this call, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per dilute share and forward-looking non-GAAP guidance are also shown in detail in our press release issued today, along with the 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, Cyndi. Good evening everyone and thank you for joining us for CoStar Group's second quarter 2022 earnings call. Cyndi and Scott are in our Washington, D.C. office tonight, and I'm joining you from our London office, a little bit later in the evening. We delivered outstanding results in the second quarter, setting our third quarterly sales record in a row. Annualized net new sales bookings were $84 million in the second quarter, a 66% increase over the same quarter in 2021. Our three main products, CoStar, Apartments.com and LoopNet, all have exceptional sales quarters, growing a combined 81% on a year-over-year basis. Total revenue for the second quarter of 2022 was $536 million, growing 12% year-over-year, and coming in above the high end of our guidance range of consensus estimates. Our subscription revenue in the quarter grew to $428 million and clients subscribing for five years or more renewed at 97.8%. As we ramp up our investment in our residential product strategies, we continue to deliver strong profit results with adjusted EBITDA of $159 million in the second quarter, well above the high end of our guidance range and consensus. As a result, we will raise our full year 2022 revenue, adjusted EBITDA and adjusted EPS guidance. Revenue for our CoStar product was $207 million in the second quarter, representing a 17% increase over the same quarter a year ago. CoStar net new sales bookings increased by 60% in the second quarter, making the last four quarters the highest sales quarters on record. The trailing 12-month sales level as of June 30th is 145% greater than the same period 12 months prior. Our consistent strong revenue and sales performance for CoStar is the result of a steady stream of product innovations that deliver expanded capabilities and increased customer…

Thank you, Andy. I love those brief remarks. I’m happy to report given on the call that I’m still retained with CoStar even after that script and I’m awake and listening. Part of the statistics interesting that five year retention on customers is 98%. And we have a retention rate of our employees 98% with an average tenure of five years. Is that art imitating life in CoStar? Is that what you would say? I know that’s fascinating anyway.

Hotel California, you can check in that people never leave.

That’s why I stay around here. Facts are amazing. All right. Let’s talk about our revenue by our services and Andy reported CoStar is growing 17% in the second quarter, price and new sales volumes each are contributing roughly half of that revenue growth. So we expect revenue growth in the 16% to 17% range in the third and fourth quarters. And the lower end of the range is really a result of some negative [Audio Dip] movements as the dollar strengthened around 10% to 15% over the past year against the pound. So on an organic currency adjusted basis, we’re going to keep that 17% going in the second half. Our second quarter multi-family revenue grew 6% in lack of the guidance and that most definitely represents the turning point for Apartments.com revenue growth will increase going forward. The sales levels have continued to improve in each quarter since the third quarter of 2021 and the total number of properties advertising on our network increased sequentially in the second quarter compared to the first quarter this year. We expect third quarter revenue growth of 11%, fourth quarter growth of 14% in [Audio Dip] family. This [Audio Dip] increased to our prior full year revenue estimate, we now expect full year revenue growth of 9% in multi-family. LoopNet revenue grew 10% in the second quarter, also in line with our expectations. The net new bookings increased 43% year-over-year as we’ve increased both our LoopNet and our CoStar sales, both of which sell LoopNet very effectively. We expect this trend to continue through the remainder of the year, increasing our third quarter revenue growth to 13%. This results in an increase in our full year revenue growth estimate to a range of 11% to 12%. Information services revenue grew 10% in…

Thank you, Scott. I would like to ask participants to keep one question and one part, please. I’ll turn it over to Austin, if you could please open up the line for questions.

Thank you. [Operator Instructions] Our first question is with George Tong from Goldman Sachs. George, your line is open.

Hi, thanks. Good afternoon. You indicated that multifamily vacancy rates are improving. To what extent do vacancy rates need to reach historical levels before Apartments.com revenue growth can return to 20% organic? And what’s the timing for this recovery?

Well, I think we’re on the way to that, and you’re already seeing our second best sales quarter ever. So, I think it’s just a question of continuing to do that for a year or so. And the trends appear to be clear and obvious, and expected. So, I think we’re on our road to that result. Would you want to add anything there, Scott?

No, I’ve been encouraged that even as the industry recovers and the vacancies start to move up slightly, our sales performance is recovering faster than the industry, which speaks to the strength of the platform. So, we definitely expect Apartments.com back up to that 20% that you alluded to, George. We haven’t given any guidance or outlook into 2023 yet, but when we do, we’ll be sure to let you know when that’s expected. Thanks for the question.

Thank you.

Our next question is with Pete Christiansen from Citi. Pete, your line is open.

Thank you. Good evening. Thanks for the question. Scott, I was wondering, I just wonder to dig a little bit into the multifamily a little bit, break it apart. In terms, you had a great sales quarter. How should we think about at least the glide path in terms of revenue per property versus new volumes coming on? Just generally, how do you see the next two or three quarters forming out after a big sales score?

Yeah. Hi Pete, thanks for the question. The revenue growth up to this point as the industry is still rebalancing a bit of where it place ads on the different levels that we offer is primarily the price movements that we've put in place this year. So price is running ahead of the percent that we're talking about. We're starting to see sequential volumes move up. So I'd expect those to start moving as we annual to the low to mid single digits. And I would expect our pricing to stay in that in high single digit range that we're seeing. When the vacancy rates move up a little higher, we then to start to see people moving up the ad stacks again as they need to create more leads for their vacancies. So I think it's when you add that positive mix shift on top of low-to-mid single digit volumes and mid single digits pricing and then you start to add sales people all those will add up then to get back to that 20% that George referenced a bit earlier. So we expect those trends to continue through the rest of year and then strong 2023.

Great, thank you.

I apologize, unfortunately, it looks like our DC line is cracking out a little bit there. So Scott is not trying to avoid the answer. We will have a brand new telephone line for the next earnings call. But the and I had to come all the way to London to find a good line. But yeah, so I think one of the things that will really drive, like there is tons of penetration opportunity apartment still. We are definitely in the early days of that opportunity and we're adding sales people at a great clip and that will drive a new account business and new units for sure. And I think we'll be able to continue to get a price as people are advertising new construction and a like.

Thank you.

Our next question is with Jeff Meuler from Baird. Jeff, your line is open.

Yeah. Thank you. Curious of your views of how you're assessing your recent ad spend efficiency, spending a big budget, I guess, into a market where some other advertisers are pulling back for or macro reasons just are you seeing lift? Are you reinvesting the lift? Just any comment on ad spend efficiency?

I think that the sales results in the quarter sort of speak for themselves, we're having tremendous growth across LoopNet traffic growth, revenue growth apartments is having tremendous sales growth. So I think that we're getting good results. I mean, we're hearing all the concerns of doom and gloom that everyone else is talking about. But I have to say in our business, we simply are not seeing any of that. And we're watching for it, but it's not there. So we're continuing invest in the opportunity and getting great, good results.

And I guess what I'm wondering is are you actually benefiting from advertisers pulling back in other channels that would otherwise compete with you for ad spend, as you try to drive traffic to your sites?

I think we probably are. I mean, obviously one of the biggest single budgets is our SCM budgets and it's a little difficult to, like, I think we've had a continuous progression of better and better efficiency, lower cost on our target keywords on SCM. It's tough to separate that continued gain efficiency from just the way we bid and the way we get brand recognition and our click-through rates. It's tough to separate that from less congestion competition. So we are continuing to get efficiency, but it's tough to suss out what component is less competition. I imagine going into 2023, we probably will see it like obviously and clearly.

Terrific, thank you.

Our next question is with Stephen Sheldon from William Blair. Stephen, your line is open.

Hey, thanks. So it sounds like you're making progress on the residential content build out. So can you remind us when you plan to plug all that proprietary content back into homes.com, how quickly that could potentially support stronger organic search traffic. And then I might get slapped on the wrist here for asking, but asking another part, but what did overall traffic to the residential assets look like in the second quarter? Apologies, if I missed that.

Yes. So where we would expect to see that content really start to make a difference is as you go into 2023. I have been sitting down with the content teams periodically, and I’ve been looking at the content we’re building, and I have to say, I feel really good about the fact the potential of that content. I mean, individually the different things we’re building look pretty powerful when I think about it with my SEO hat on, I think in some across massive scale, it should be awesome. But that we’re not going to see any of that really impacting till the earliest, the very end of this year and really the beginning of 2023. So right now the traffic growth, I don’t have the year-over-year traffic growth with me, Cyndi has it. You’re not going to see major traffic growth until we relaunch the homes platform and start to bring that content in. Do you have a number there Cyndi for year-over-year homes growth?

Yes, I think it’s up slightly, but as you mentioned, it’s we’re really going to look to get that growth through the marketing and advertising campaign launch.

Yes, we were pretty much in line with where we were in the first quarter without spending any additional money on marketing.

Great. Thank you.

Our next question is with Ryan Tomasello from KBW. Ryan, your line is open.

Thanks. In terms of M&A and specifically regarding residential, was wondering if you see an opportunity to execute a similar playbook, as you did with Apartments.com in terms of consolidating the peer, any peer residential portals to accelerate that timeline around those consumer traffic goals that you set out. I realized some of those peers operate with alternative revenue and business models, including in the brokerage space. How feasible you think those types of deals could be if they were attractive?

Well. As usual, we don’t comment anything specific. But I will say that I have been flying more in the last month than I’ve ever flown in my life. There’s – it’s an interesting time. I mean, we have a great balance sheet with a lot of cash. I think we’ve just turned in a really strong quarter. We’ve got strength in all of our businesses and I believe that we’re seeing valuations across half dozen, dozen interesting companies fall to become more and more attractive. So we think that your question is not terribly far off of a range of opportunities we have out in the world. But it’s just – it’s sort of obvious in the time we’re in a company like ours with a great balance sheet, super performance, a track record of M&A and following values both in the United States and Europe are interesting.

Our next question is with John Campbell from Stephens, Inc. John, your line is open.

Hey guys, great work on the quarter. Scott, you briefly touched on this, but I think the original 2022 guidance called for, I think it was $200 million, $220 million of a step up. In resi investment, it sounds like you’re now expecting maybe $20 million less moving forward. So I guess first did I hear that right? And then secondly if you could maybe unpack how much of that hit in the first half versus what’s expected in the second half, and then also just to refresh from the expected kind of breakdown and spend across content and marketing?

Yes. Hi, John. [Audio Dip] for the question. Yes, we had initially estimated the $200 million to $220 million level of spend as you appreciate that was early in the year. We had a strong ramp up in the second quarter in content, more aggressive, like I mentioned, than we actually were able to achieve in the [Audio Dip] which very positive sign. So my current estimate puts us in the – about $20 million below where we were originally about half of that is [Audio Dip]. A little bit of it’s from just sure I have enough cost in there for my longer-term estimates, given the uncertainty you start off the year with. And then the [Audio Dip] timing the ramp that some of that’ll push out of the year, given the amount of time left in the second half. So we still [Audio Dip] with half or a little less than half of that spend is going to be in content and probably about 45% of it’s in marketing, which might be a little higher than we thought at first given success of Citysnap and other doing and then the rest is technology and other costs. So we’ve probably got a [Audio Dip] of it in the second half and probably around 35 or a little more than that in the first half. That helps with the pacing.

Yes. Very helpful. Thank you.

You bet.

Our next question is with Ashish Sabadra from RBC. Ashish, your line is open.

Hi. I just wanted to focus on the CoStar Suite product, particularly the Lender product. You talked about some pretty good traction there signing up 66 new clients. I was just wondering as you, with this initial success how do you think about the addressable market now and in terms of like how many clients are out there and total addressable market? Thanks.

Yes. So I think, I mean, again the wonderful thing it's 66 new customers, most of them in the last quarter – 40 some in the last quarter. Great pace we've got, I think, 12 to 14 dedicated sales reps on that right now. The addressable market is I'm going to do this from memory but it is approximately 6,000 to 7,000 lenders who have portfolios. Again we're selling to folks with very small portfolios and very large portfolios then watching the gross margin, these implementations, they look reasonably good. So we believe that the opportunity is well north of $300 million on this product. And it's a wonderful addition to our growth drivers because it's all – it's all new opportunity.

That's very helpful too. Thank you.

Our next question is with Gustavo Laguarda from Truist. Gustavo, your line is open.

Hi there. Just wanted to ask on how the roadmap on, so resi, just comparing it to the multifamily ramp, how traffic is doing this far along versus how it was doing for multifamily back in the day? That would be super helpful. Thanks.

Yes. So I think it's very similar because back in the day we've picked up an Apartments.com from Classified Ventures, a consortium of newspapers and we completely re-imagined and rebuilt the site over the course of 270 days or so. This one's a little bit bigger scale project but you set a strategy, you have a talented team from both software and field research and content building us up and you'll really see growth in traffic once you release the product. And then once you begin to invest in SCM and in brand marketing. So that's going to be the end of this year, beginning of next year. And so it's very similar, but I think you and I, and everybody are impatient to see that story unfold over the next couple years.

Our next question is with Mayank Tandon from Needham. Mayank, your line is open.

Thank you. Good evening, Andy looking at CoStar Suite as a whole, do you remind us sort of where the penetration is with brokers and outside the broker world where you obviously have very strong presence? Where are you seeing the best opportunities for growth? Looking out over the Canadian term?

I think the most exciting – well, obviously lender is very exciting, several hundred million of opportunity there. The owner sector remains very exciting to us because it's a huge market. It is a later stage penetration market and its penetration rates there probably a third quarter where the broker market penetration rates are. So that one is just the Goliath that just is we can keep on working for years. One of the ones that I alluded to briefly in my comments about real estate manager is the Top 2,000 tenants in the United States. Major corporation’s folks who often are buying real estate manager from us. They're an obvious potential market opportunity for us corporation with hundreds of facilities. It is a no brainer to have access to CoStar Group and a good broker. And then it depresses me a little bit when I look at the penetration rate for brokers, because having been very successful at selling this product for many, many years we still haven't penetrated all the broker opportunities out there. There's still hundreds of millions of potential penetration in brokers. So when you look at mid-size smaller brokers and even some not so midsize like upper midsize brokers, all the major guys do subscribe and rely on it, but there's penetration opportunity across the board and Scott and I were joking before the call someone's going to ask about, can we sustain the growth rates on CoStar? And it really is something where I've answered that question for decades from the point at which we had $7 million of revenue now. And one of the things I really look forward to is crossing through a billion in CoStar revenue and then talking to you guys about the story for $2 billion in CoStar revenue, and, oh, by the way, I'm talking to you from London and we are working hard on beginning and continue to carry CoStar out throughout Europe and other markets and I there's a super exciting opportunity. CoStar changes its whole meaning to a lot of compliance when it allows people to see investment opportunities and asset classes across borders. So that's a whole another driver. So my answer is yes, I'm very excited about growing CoStar. Huge numbers for a long, long time, and we're just beginning. Yes. Okay.

Our next question is with Joe Goodwin from JMP. Joe, your line is open.

Great. Thank you so much for taking my question. Just curious, Andy, how are you thinking about price increases across the CoStar Suite today as well as if you could comment on price increases on Apartments.com, the ad tiers? And if your approach to price increases is changing in the current environment at all?

Yes, it is. A company like ours must be disciplined and set our prices in real dollars, not nominal dollars. And so we are watching that closely with the sales force at renewals. And we're reminding people not just with the nominal dollar increases are what the real dollar realities are. So that's very important with Apartments, especially with Apartments where our clients are overwhelmingly doing incredibly well right now. So we have discipline on that, and you can see that in our results. On CoStar Suite, I think we're in a slightly different position. Yes, we are pushing our pricing to at least remain constant on a real dollar basis and a little bit more than that. And – but the real story there is this upselling activity we're in the middle of, where we're reaching out to these tens of thousands of customers who subscribe to a small piece of our product either in the modules they get or the geography they get, and we're upgrading them to our full all modules global suite because we want to see network effects grow across borders. And as I mentioned, we're seeing that happening. We're seeing tens of millions of searches across borders. So in CoStar Suite, it is tens of millions of properties being viewed across borders. In CoStar Suite, the more powerful driver is this upgrading, not price increasing. On LoopNet – on Ten-X, you don't have to move the pricing because in theory, it's a commission against the asset price and inflation in theory would move the asset price up. And Ten-X is more in a place of early days of penetration, it's like still 1% penetrating the opportunity. On LoopNet, we are focused on variable silver ad or base ad pricing, which will be a more powerful revenue driver than just price increases. So that's the initiative where we'll begin baiting it out in a couple of markets, pricing based on the market and on the asset value. So that will be a combination of lowering our prices for low-value assets in smaller markets to drive volume and revenue – overall revenue and increasing prices to recognize the value of the higher-end assets and bigger markets, that will dwarf surges inflation, pricing increases. So we're all over it. This is not our first rodeo. And the one thing I learned in my economics degree was the difference between real and nominal. I can't remember anything else, though.

Awesome. Thank you so much Andy.

At this time, there are no further questions. [Operator Instructions]

I think with that, we can wind it up. I want to congratulate Austin, our moderator, on her big news today. And thank you all for – which I'm not going to disclose. And I want to thank you all for joining us for the second quarter 2022 earnings call. And congratulations to all the sales leaders and product folks and developers who – and the research teams that basically put in tremendous effort, which delivered such a great quarter this year, and we look forward to this quarter. And we look forward to speaking with you again in the third quarter and giving you updates on all the various initiatives we've got going on. And we will get a new speaker phone in our Washington boardroom. I apologize for that. But thanks again for joining us.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.