Good afternoon. My name is JP and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. Now, Cyndi Eakin, Head of Investor Relations, will lead the safe harbor statement. Cyndi, you may begin.

Thank you, JP. Good evening, and thank you all for joining us to discuss the second quarter 2023 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 2023 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 information available to CoStar at 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 any non-GAAP financial measures discussed on this call 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 Florence.

Thank you, Cyndi. It reminds me of summer camp, gather around the campfire kids. Cyndi is going to read the safe harbor statement again. All right. Let's be serious. Good evening, everyone, and thank you for joining us for CoStar Group's Second Quarter 2023 Earnings Call. Revenue for the second quarter of 2023 was $606 million or 13% growth year-over-year. Revenue growth in our Commercial Information and Marketplace business was an impressive 15% year-over-year. We continue to deliver strong double-digit revenue growth which, in this case, is particularly impressive during one of the most difficult property markets in decades. I'm pleased to see our portfolio is strong across the board with Apartments.com, CoStar, LoopNet, Real Estate Manager, STR, Lands.com and businesses for sale all delivering double-digit revenue growth. We continue to deliver outstanding sales results with $82 million of net new bookings in the second quarter, our second highest sales quarter ever. I believe we crossed a monumental milestone in June when our residential portal network continued its phenomenal growth and became the second most heavily trafficked residential marketplace in the U.S. Overall, traffic to CoStar Group's websites reached a high of 105 million monthly unique visitors in June, according to Google Analytics. Earlier this year, we moved into third place when we surpassed Redfin's first quarter self-reported home and estimated rental site traffic. Then in the second quarter, we moved up again the second place, as we had 84 million average monthly unique visitors to our residential portal network, surpassing realtor.com self-reported traffic of 72 million monthly unique visitors from their earnings release on May 11, 2023. CoStar Group's residential network combines residential rental site and homes traffic for sales site traffic, as others do. Homes.com is the fastest-growing residential portal with network traffic growing 130% year-over-year in June…

Thank you, old CEO, Andy.

Now, now.

I appreciate that introduction. I believe I'm one digit younger than you still for another month or two. Great quarter financially, a lot to cover. So let me jump right into the revenue by our service areas. So CoStar revenue grew 11%, as Andy mentioned, slightly above our guidance at 10% with the strength in our net new sales exceeding our forecast. So we saw a stronger new customer sales in the quarter, particularly to owners, investors and lenders. And even our broker sales stabilized in the second quarter, we signed almost 800 new broker agreements this quarter. Vast majority of them are in the one to two broker size category. So that's definitely an improved trend from the last couple of quarters. We expect CoStar revenue growth to be 10% in the third quarter, and now between 10% to 11% for the full year, a modest increase from our previous outlook. Apartments.com's second quarter revenue growth of 23% was in line with our expectations. We had another record sales level for Paige and the team. The new property volumes increased 12% year-over-year and volumes in the mid-market category growing much more rapidly at 40% growth year-over-year. We are seeing more and more customers now upgrading to the higher tier ads, particularly the 100 unit and above-unit properties are doing that quite a bit more now. Our net add level upgrades are now at or above the levels that we're operating at before the 2021 disruption in the apartments market. We expect that trend to continue. With continued strong sales results, we now expect third and fourth quarter revenue growth of 25% for Apartments.com which is up from the 24% assumed in our last outlook. So our full year revenue growth outlook is slightly up in the range of 23%…

At this time, I would like to welcome everyone to the question-and-answer session. [Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs. Your line is now open.

Your residential network grew significantly in the quarter and is now the second largest in the U.S. Can you discuss how the strong performance in resi traffic influences your residential spending intentions in the second half of the year and heading into 2024?

Sure. Thank you for pointing out, George, that our residential platform is now the second most heavily traffic platform in the United States. I appreciate that. So I think we have a pretty clear plan or strategy for how we plan to continue to grow that traffic and the value of that platform to consumers. I don't think that the success we're having to date is going to take us off of that plan. So we're largely on track with what we've been intending. We want to continue to grow the traffic even more dramatically in order to make sure that we have the best platform for monetizing at the point that we decided to do that.

Got it. Thank you.

Thank you, George.

Your next question comes from the line of Heather Balsky from Bank of America. Your line is now open.

Hi, thank you for taking my question. I wanted to ask about LoopNet and the execution challenges, and I hope that wording fits for the business and kind of what you're looking to do to improve the trajectory? And how quickly you think you can reaccelerate the business and see the results from the investments you've made in the sales force? Thanks.

Sure. I thought you were going to ask about our residential portal being number two and moving quickly from number four or five to number two. But I'll take the question you asked. So I'm sorry. So I was thinking that we would begin to turn around the execution performance on LoopNet on Wednesday and Thursday and Friday. And so if you look at Apartments.com, I think a little about a year or so ago, it was growing at 6% year-over-year. Now it's moving towards 24%, 25% year-over-year growth. So these things are -- when they emerge, they're pretty straightforward to troubleshoot and to put them on track. I don't believe this is an issue of demand, I believe this is a simple, relatively simple problem to solve. We actually have a decent sized sales force now, but I think we're just incentivizing the wrong activities and I think we can move it back on track. Now keep in mind, big picture, it wasn't that long ago that we acquired LoopNet, and the revenue was less than our lands business, and now I think it's about $0.25 billion or something. So it's doing quite well. 16% growth is not bad, but I just think it can do better. And it will do better. So nearly immediately.

That's helpful. Thank you.

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

Good evening. Thanks for the question. I'm not sure if I heard that right. You guys are number two in that ---

That's right. It's shocking that we have moved up that quickly to become an uncommon of a player. But yeah, that's actually right, Pete.

Okay. All right. I just wasn't sure. I want to dig a little bit more into LoopNet, like what you're seeing on both the broker ads and the signature ads and whether or not you feel the value proposition for some of the signature ads is really compelling enough. I was just wondering if you can draw that distinction, help us understand the differences between the two price levels and how you see that hopefully improving in the near future?

Yeah. So again, it's not that it is terrible. 16% year-over-year growth is pretty strong, obviously, in a bad CRE market, which actually should be helping it more. I think it's really -- I remain convinced that it's a no-brainer. When I talked to our experienced successful sales reps, the demand is clear. Their selling contracts that are reaching new high points for those premier signature ads. And if you think about it, if you think about somebody who owns a $1 billion building that has a major leasing risk and has as part of the massive loans coming due in the next couple of years, spending a couple of thousand dollars a month in order to try to raise your profile when the vast majority of tenants are looking for their commercial real estate on LoopNet and CoStar, it's a no-brainer. So I feel very comfortable with that value proposition. But it's just a question of continuing to improve the -- trying to go from 16% to 18% to 20%, still being satisfied with something in the lower teens.

And Pete, when we look at the growth in the signature ads, the biggest growing category in signature ads is the diamond listings. And those are the biggest, most expensive ones. They're up over 50% year-over-year by ad count. So that tells us that the demand is clearly there. The large owners and property managers really need those higher-performing ads. And so it's just a matter of getting our sales force back on track to cover the market more effectively.

And Pete, I toured a building the other day that was distressed, brand-new building, beautiful building, the owner stood to stand, they couldn't lease it. They stood to stand, they were going to lose perhaps $80 million. The building was completely vacant and the brokers had not marketed on LoopNet. And it just blows your mind that someone, an owner would potentially lose $80 million for a leasing problem. Vast majority of tenants look for space on LoopNet and the brokers save themselves a couple of hundred bucks. So I think it's a pretty solid value proposition. It should be coming into -- it should be doing better than ever, similar to Apartments.com.

Good commentary. Thank you.

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

Hi, everyone. Thanks for taking the questions. I guess, Andy, just reading between the lines and some of your comments around homes, I mean, obviously, the traffic growth continues to come in very strong. I mean should we now be expecting perhaps a bit longer of a time line in terms of when you intend to monetize that platform relative to, I think, the year-end commentary you've given in the past? And on the traffic levels, understanding there's some competitive sensitivity there, but any color you can provide around when we can expect these waves of growth to materialize? And then finally, on the content piece, what any one do you say you're in, in that build out there? Thanks.

Okay. So I would say from the monetization perspective, we anticipate we anticipate significant progress in our efforts in traffic in the first quarter of 2024. First quarter 2024, second quarter 2020 clear significant additional progress. We are -- the rationale for monetizing in the fourth quarter, even though we may be hitting very close to the $50 million monetization level would be to demonstrate proof of monetization ability to you -- the investor representative. But strategically, it might be much wiser to begin to monetize when you expect a second stair step function of growth in 2024 first, second Q. So always try to do the right thing for the investors in the intermediate time period, not the short time period. And maybe one day, we'll do the right thing for investors in the long time period, but the intermediate time period is pretty important. And then where -- what inning are we in on the content, I would say we are in the second inning on content. There's a lot -- I mean, and I will tell you, I'm really pleased with some of the work that's happening, there are things we could do better but the volume of what we're doing is enormous. And I think that what we'll be able to do in the next year or so with that content will be I think, really quite impressive, and I think will be a really compelling value proposition for our platform. Did I forget one of the questions?

Pretty good. I think you got a lot in there.

Yeah. So you're right, trying not to disclose strategic things. Anyone else. Are there any other questions?

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

Yeah, thank you. I want to ask about Homes.com traffic quality. You gave us a metric on return users. I'm assuming that's including on a re-advertised basis where they're clicking back through on another ad. Can you just give us any other Homes.com traffic quality metrics including things like return rates or time spent on site, et cetera, thus far in the markets where you've loaded the proprietary content up in June? Thank you.

For sure. So I won't have -- I will not have significant digit data for you in front of me, but I will tell you that one of the most important things I look for is return traffic direct, so people that typed in Homes.com, and that is up about 400% year-over-year. So we are not -- I'm not focused on who's coming back in off of SCM. I'm focused on who is coming in direct return. And that number is up dramatically, so very happy with that. Secondarily, I'm looking at the lead flow and the lead flow is, I believe, very solid. I believe and I'm not going to disclose any specific numbers, but I believe that we are delivering twice the lead flow of some of the well-known residential platforms in the United States. And I think there is -- I think that's dramatic. I think that's important. And I think the reason why we're delivering twice the lead flow of some of our competitors is really quite simple. We are putting the name, photo, likeness, contact information of the actual listing agent on the listing, so people can reach out and simply contact the person that knows the listing better than anyone else in the world. Competing sites are setting that lead into a call center and often syndicating the lead out to multiple unrelated agents that don't know that listing at all. So consumers are reasonably smart sometimes, and I think they're on to that and we're getting super high-quality traffic to the site and good lead flow. Now remember also, we have a huge engaged group of residential agents who are in our platforms, and they like our message. They like the fact that we are, your listing, your lead. So they're directing a lot of their clients, I believe, into our platform because they prefer what we're doing to alternatives. And again, that's super high quality. So I'm very happy with the quality, and I would just like to double the overall traffic at some point soon.

And what impact are you seeing in the markets where you've loaded the proprietary content thus far, in contrast with those were you having yet?

The content is being loaded on a partial level in all markets. So it's not it's not LA being loaded in Boston not being loaded. It's like x percent of Boston, x percent of LA being loaded. I would tell you that at this point, you haven't -- I don't think there's been time enough to see any traffic impact of the content that's been loaded. I think that's out in the future. And in terms of reaction, it have to go more to the anecdotal just that's like having focus groups interviewing consumers and that is very positive. That's very, very positive. I couldn't be happier with that result.

Okay. Thanks, Andy.

You next question comes from the line of Alexei Gogolev from JPMorgan. Your line is now open.

Hi, everyone. Andy, great to hear from you. Could I ask you to update us on your vision for the core CoStar products? I remember you talking a lot about penetration of brokerages with more than five brokers. How is that progressing? And could you maybe weigh out some other prospects that you see among owners, lenders and corporation.

Okay. So I was testing my hearing there a little bit. But -- so one of the most -- and one of the most encouraging and exciting things about what's happening in CoStar is the pace of delivery. So as you listen to what we're doing, where we're bringing the corporate user aggregation data, we're doing the fund data, we're doing CoStar Lender. We're doing -- we're bringing in a stream of functionalities. So Elizabeth Winkle, is doing a good job with her brand development team picking up the pace setting every time she adds in the STR integration. Every time we add another modular element to the product we appeal to a broader audience, where we have more relevance to a particular audience we're trying to penetrate more deeply. So I like this new era of CoStar where we're bringing modules out faster and faster and faster, and that will also include adding more international markets to the coverage area. And as we do that, we create more demand. I believe that our CoStar sales team has done a good job responding and shifting to selling to lenders, owners and corporate users. You see that number going way up. So I think that while Paige Forrest and her team at Apartments.com is knocking on the first milestone of $1 billion, I think Marc Swartz and the CoStar sales team won't be that far behind them. And I think the fact that we are in clearly hands down the toughest commercial real estate market ever, and we're showing the kind of growth we're showing is really a testament to the product quality, the value, the research team and the sales work. So it's not an optimal office market. So we're doing pretty darn well.

Thank you, Andy.

Your next question comes from the line of Stephanie Moore from Jefferies. Your line is now open.

Hi, good afternoon. Thank you.

Good afternoon.

Just touching on the residential side and again, congrats on the great achievements thus far, particularly related to the traffic on the sites themselves. But I kind of wanted to touch on maybe the level of investment spend expectations as we look out over the next 12 or 18 months? I'm just trying to kind of triangulate comments maybe related to your point on being in the second inning of content creation, plans to continue to spend on whether it's personnel? And then also the idea of kind of monetization more so a 1Q 2024 event. So just wanted to get your thoughts on where we are from an investment standpoint. Thanks.

Sure. Well, you're right. As you point out that we achieved rapidly ascended to the second most heavily trafficked sites in the United States. In terms of the content, adding personnel around the content and what we're doing with that, yes, when we produce the product, and we then test it and focus groups, and we test it with consumers and it's not a mockup. It's not PowerPoint, it's like real product, real data, real content and they clearly respond very positively to what we're doing. That leads us to feel very comfortable with the investment we're making in differentiating our product through a number of content strategies. So we would -- and to be clear, what we're doing is massive. One of the things you hear in focus groups is a, I love what they're doing. And then the next comment they say it is, are they really doing this for the whole United States of America? How are they doing that? But it's well worth it. And if you look at CoStar as a product or STR, sometimes our original content is all the differentiation to create a moat around a product. And in an intermediate term, that investment is a relatively modest percentage of revenue but it always looks much bigger when you're in the early phases of making the investment. But if you're concerned about us bringing additional investment into the content area, the focus groups were bad news for you because they love what we're doing. And then in terms of other investments, nothing has really changed. You can see -- you're not seeing any Jeff Goldblums out there for Homes.com at this point. There's no sort of broad consumer marketing occurring. But at some point, obviously, that is a lever you pull. It's an important lever to pull because it impacts SEO and SEM. It makes your SEO more effective, and it also makes you much more competitive in SEM. So the more likely people are to recognize the brand. The more likely they are to click on the SEM and Google serves it up more frequently at a lower cost to us, and you get a good effect there. But our unaided awareness on Apartments.com right now is 49%. The margin and profitability at Apartments.com is phenomenal. The unaided awareness, I got the first read from our unaided awareness is testing group on Homes.com and I'm not going to share it with you because it's so embarrassing. But one day and a couple of years from now, I hope to be reporting a number higher than 50% for Homes.com. So what right now we're doing is we're building a good loyal following of repeat users, but it's sort of all being earned one user experience at a time in the product.

And from a financial perspective, we're still confirming our investment levels for the year as we had announced from -- I think in February, we set them out. We haven't changed those financial levels for the year. So all on track there.

Great. Thank you.

You're welcome.

There are no further questions at this time. We will turn it back to Andy to wrap up. Thank you.

Well, we really appreciate everyone joining us on the call. I hope you noticed that my script was about three minutes less than normal, so that's an improvement. But thank you very much for joining us for the second quarter 2023 earnings call. We look forward to speaking to you again in the third quarter call on October 24, 2023, at 5 p.m. on the same channel. Thank you very much for participating.

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