Good day and thank you for standing by. Welcome to the CoStar Group First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Cyndi Eakin, Head of Investor Relations, who will read the Safe Harbor statement. Cyndi, you may begin.

Well, thank you, Josh. Good evening and thank you all for joining us to discuss the first quarter 2024 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 this discussion today may contain forward-looking statements, including the company's outlook and expectations for the second quarter and the full year of 2024, based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause the 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 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 Florance.

Good -- good evening everyone. Thank you for joining us for CoStar Group's first quarter 2024 earnings call. First quarter 2024 revenue was $656 million, a 12% increase over first quarter of '23, coming in above the high-end of our guidance range and above consensus estimates. Both apartments.com and CoStar surpassed the $1 billion revenue mark in the first quarter, a tremendous milestone for the company. Congratulations to both teams. Company wide net new bookings achieved an all-time high in the first quarter of $86 million fueled by a very strong launch of our Homes.com membership product. In the first quarter, 60% of our net new bookings were from sales of our commercial products and 40% were from net new bookings from our new Homes.com memberships and residential products. Overall, traffic to our global websites reached a record 170 million average monthly unique visitors in the first quarter according to Google Analytics, which is 93% above the first quarter of last year, an impressive 34% above our previous all-time high. CoStar Group has now reached 90% of the 194 million unique visitors still reported in the last earnings call. Our residential network reached a record 156 million monthly unique visitors in March according to Google Analytics. I believe we have clearly established Homes.com and our residential network as one of the two most trafficked residential marketplaces in the United States. Yesterday, we announced that we reached a definitive agreement to acquire Matterport, the global leader in immersive 3D Digital Twins and Artificial Intelligence for the real estate industry for $5.50 per share. Founded in 2011, Matterport pioneered the development of the first 3D capture solution to deliver dimensionally accurate photorealistic virtual tours or digital twins for any type of property. Matterport's proprietary and patented technology enables anyone to digitize a…

Adding virtual reality to the Matterport, you can take a virtual tour of the property with your virtual agent walking to the space with you. The possibilities are certainly exciting to imagine and represent a massive opportunity to propagate new technologies to our global information and marketplace businesses. I believe CoStar Group faces two major challenges in our effort to make Homes.com the leading us real estate portal. First we need to build massive site traffic and; second, we need to successfully monetize our new your listing your lead model. As we report our first quarter results, I believe we are showing for the first time clear proof that we are very successfully delivering against those two important challenges. With almost 40 million in home's net new bookings and 156 million monthly unique visitors achieved in the quarter, we're growing revenue and traffic faster than in any other product launch in the history of the company. We launched the Homes.com brand marketing in February -- I think it was the 11th during the Super Bowl, and the results were outstanding. We believe the Homes.com marketing program is the largest in the history of real estate, delivering almost 9,000 commercial placements in the first quarter across broadcast and cable TV streaming audio and video, digital and social media and high profile sponsorships as well. In less than 2 months, our brand campaign generated almost 4.5 billion consumer impressions. Our marketing and media advertising and featuring Dan Levy, Heidi Gardner, as well as supporting roles from Jeff Goldblum and Lil Wayne, is proving effective with consumers as oh, a supporting role from yours truly Andy Florance. It's proving effective that consumers as evidenced by our unaided brand awareness, which increased from 4% in January to 24% in March of this year. With…

Thank you, Andy. I'll try to remain present for the next 10 or 20 minutes. Well, that was a great start to the year. I wish we could have a quarter like that every year. That's a pretty amazing highlight reel that you shared for the company, with the 3D groundbreaking acquisition and $1 billion businesses, the best product launch ever with Homes, record sales, the Super Bowl marketing launch, you even managed to wiggle in the word Gaussian Splat into your script, which -- it's a real word people, that wasn't a joke. You can look it up. So how are we going to top that in the second quarter? I don't know, but we better get going because we got a lot to do. So our streak of double-digit revenue growth continued in the first quarter at 12% overall for the company. And you know what I think the best news is here, it's our Residential business is now making a solid positive contribution to growth. After 2 years, we've endured this sort of painful revenue decline from the legacy Residential products like this quarterly drip, drip, drip, revenue erosion like water torture, while we are finally on the upswing with the launch of Homes.com monetization. Our Residential revenue came in at $19 million in the first quarter, which was up 90% sequentially from the fourth quarter of '23 and up 42% year-over-year, thanks to our Homes.com launch and a full quarter of OnTheMarket results. First quarter residential revenue was above our $15 million guidance estimate, primarily due to the fast start for the sales of Homes.com. So we are going to raise our revenue forecast for Residential revenues by $15 million at the midpoint to reflect faster growth of Homes.com. Our new estimates have revenue improving almost…

I’m sorry, [indiscernible] Brian Radecki is on -- Brian just texted me our former CFO. Sounded a little harsh.

I love Brian. [indiscernible] I know.

He's having a little martini on his plane. Okay. So the -- before we jump over to Q&A, I apologize to the operator. But that was -- this is my 103rd earnings call. Scott is a relative rookie with only 32 earnings calls with us. Certainly, very grateful everything Scott has accomplished it was 8 years with CoStar Group. And so I thought we could all do his performance review here together. These are numbers guys, so let's review his performance with its stats. At Scott's first earnings call, we had a cash balance of $422 million. We now have $5.5 [ph] billion. In the first earnings call that Scott held, we were -- our stock price was at $18 and it's now grown to $85. That's a 21% CAGR on the stock price annually through his tenure. Now we're going to have to compare that to the last CFO that you just guessed Brian Radecki. He achieved a 23% compound annual growth rate and his predecessor CFO, Frank Carchedi turned in a 25% comp annual growth rate. However, but in fairness, the rule of small numbers with Carchedi and with Radecki because our cap rate was only $75 million when they began, you began at $5 billion. So you're the hands-down winner on market cap. So our market cap when you started was $6 billion, it's now $35 billion. So you're just the victor. So well done, Scott and you go into the CoStar CFO hall of fame. And now you've successfully summited CoStar mountain. God speed climbing all the other mountains around the world, your heart desires to climb, and I will take you up on the Manhattan. I'm not a big Manhattan guy, but I would look forward to a quality mix. So with that sort of unprofessional [indiscernible] we'll turn it over to Q&A with our operator.

Thank you. [Operator Instructions] Our first question comes from Peter Christiansen with Citi. You may proceed.

Thank you. Good evening. Really nice trends, great execution here. Congrats, Scott. You got a fun ride.

Thank you, Pete.

Andy, I was just wondering if you could just put a little bit more color on the Homes.com production this last quarter, win-loss rates, inbound versus outbound, decision cycle? Any of that color, I think, would be helpful. Thank you.

Sure. So obviously, exceeded expectations. I would say that it is mostly outbound. There was strong inbound interest. There was a lot of convention sales. So there are a number of industry events out there, and people were buying a lot at various brokerage firm specific events. The close cycle is extremely fast. It typically is demo closed simultaneously. There isn't a win loss really because no one is providing a similar service in the United States. Our offering is unique. They're anecdotally, there -- we have heard some substitution effect with some of the lead diversion model legacy providers. But by and large, it is a short sales cycle pretty straightforward. We are selling the individual agents. They're typically paying with a credit card, but at the end of the demo. And again, the fact that 90% are going for an annual agreement is pretty positive. It would appear that priority for us going forward is just scaling the Homes.com sales team because while it's great to have overall sales force doing it, you eventually want to get everyone back to their core products and build big enough sales team to manage the 500,000 to 600,000 prospects we've got for this product.

Thank you. Congrats again.

Thank you.

Thank you. One moment for questions. Our next question comes from Heather Balsky with Bank of America. You may proceed. [Operator Instructions] Our next question comes from George Tong with Goldman Sachs. You may proceed.

Hi. Thanks. Good afternoon and I also want to extend, Scott, my congrats to you on your retirement. Well deserved.

Thank you, George. Thank you.

So wanted to follow-up on the Homes.com progress with the sales. You mentioned selling 8,000 memberships in the first quarter, average price of $475 to $500 per month. I guess, do you see the average price changing as the growth trajectory matures? Or is it pretty much steady state and primarily going to be driven by volumes? And how have those volumes performed exiting the quarter? So how did the run rates look like exiting 1Q? And how do you overall think about the addressable market, like the total number of memberships that are available out there that you can tackle.

Sure. So that's correct. We are around 8,000 members and 475 to 500. I do not think that price really changes through time. There's no cherry picking bigger accounts or smaller potential accounts. It's been pretty much even movement across the board. So I'd anticipate that same price point, we are very happy with that price point. It's both priced way below what other competitors are charging for their relative services. And yet it's a pretty solid price point per person for CoStar Group overall. There was a surge of buying activity with a couple of big conferences early in -- or mid-February, and a little bit of some sales people moving back to selling Apartments.com and LoopNet and some return. But we are simultaneously accelerating the growth of the Homes team pretty aggressively. So the numbers remain solid as we leave the quarter. When you look at the overall potential, there is, I mean, I would love to get that number up to 100,000 members sooner rather than later. But you absolutely have the potential to reach hundreds of thousands of members. And by comparison, if you say, look at another real estate marketplace, we've got like LoopNet, you see, like, say, in Florida, California, you see 60%, 70%, 80% of properties marketed on that platform. So under our model, unlike some of the other models, we can achieve super high penetration rates. And so we want to balanced price and volume so that the broader market gets to participate and you create goodwill across a bigger section of residential real estate. But number has been great.

Thanks very much.

Thank you. One moment for questions. Our next question comes from Alexei Gogolev with JPMorgan. You may proceed.

Hi, everyone. I had a question about EBITDA margin of your non-Residential business. Scott, could you elaborate a bit more what was the level of EBITDA margin in the first quarter and whether or not you're still on track to reach the full year target of roughly 42%?

Yes. Alexei, we are definitely still on target with what we expected for the year, for the 42% margin. And in the first quarter, hold on a minute, let me find that for you. First quarter adjusted EBITDA margins were about 39% to start the year.

Understood. And considering that you are also looking for positive EBITDA for Homes.com business or rather for the overall business for the second quarter, does that imply that you may have already peaked resi spend in the first quarter and that it will be roughly similar, but not higher in 2Q?

When you look at the Residential forecast, we typically see in the second quarter, higher marketing expenses. In this case, it will be slightly lower in the second quarter because we had the fast launch in Q1. So quarter expenses will be roughly the same in the second quarter as the first, and then it will decline throughout the year in our Residential outlook. And our total expected spending in Residential remains unchanged to what we communicated back in February. I hope that helps.

It does, Scott. Thank you very much and I appreciate all the help over the years.

You are welcome.

Thank you. One moment for questions. Our next question comes from Ryan Tomasello with KBW. You may proceed.

Hi, everyone. Thanks for taking the questions. Andy, just to elaborate on the pricing at Homes.com, when you say you're satisfied with where pricing is, is that just based on the basic tier currently. And what are your plans for adding additional premium tiers as time passes, that could potentially increase the average rate over time? Thanks.

So I really am happy with the pricing model we went to market with. We blended -- we obviously have to have an element that is price per listing because each listing takes up valuable real estate as it sorts higher in the order. You also have to acknowledge that someone might be selling properties in a market that the average home sale is 125 and some might be selling properties where the average home sale is $3 million. So our pricing scheme is somewhat bespoke to the particular agent. And the reaction to the pricing that we are putting out there is super positive. And I mean they had not a lot of pushback on it. So there was one person that the formula priced them out at $500,000 a month, and we didn't get the reaction we were looking for with them. But everyone else is doing pretty good. We are super early stages here with just 8,000 members where I anticipate we'll have hundreds of thousands of members. We are super early stage. It's super important, in my view, for a marketplace to go for mass adoption participation of agents is our highest priority. And it's -- we won't look at doing premium tiers for a period of time until our penetration rates are in the teens and 20%. We just want to focus on what is really important, which is getting that first level of membership in there. I can tell you anecdotally from our sales force, there's demand for premium tiers. Our clients, particularly in residential real estate, would appear to be highly competitive with one another. And agents who -- listings are now up on Page 1, instead of Page 30 are now complaining that they would like to buy #1 on the page. I don't want to be #5 on the page. So there's clearly demand for premium. But in other countries or where people have -- you're listing your lead model like we do, often it's the home seller who's paying for the premium going up to the gold diamond platinum levels. But I think there is certainly demand for gold level at the agent level.

Great. Thanks for that color and congratulations, Scott, on the retirement. Enjoy those Manhattans.

Thanks, Ryan. Like I said, stop by, and I'll whip you one up.

Thank you. One moment for question. Our next question comes from Stephen Sheldon with William Blair. You may proceed.

Hey, thanks and I'll echo my congrats, Scott. Given the traction that you've seen with Homes.com, curious what you're wanting to see before you shift incentives back in your existing sales force to focus exclusively on their own core businesses, so suite with Apartments.com, et cetera. And do you have a rough time line, I guess, in mind for when that might happen?

We are really happy with the traction we've got. We want to keep that going. I would -- I want to be able to report good solid numbers for '24 on the Homes.com launch. I want to give time to Andy Stearns to build up the 300, 400 person sales force. And then the other factor, honestly, is the Apartments.com, LoopNet, CoStar sales people want to have an opportunity to sell Homes.com. So we're sort of responding to the sales force wanting to participate in an exciting event. There are some number of people who are good at selling their core product and maybe they haven't been successful the Homes, those folks have already returned to focusing on their core product, maybe 200 some people. think we will be using the broader effort through the end of the year and then in '25, we'll begin to focus more on a dedicated sales team. The good news is that the centralized team in Richmond is successfully selling at effectively the exact same pace of anyone out in the market next door to a real estate agent. So happy with that. It's a question of scaling the dedicated Homes team.

Very helpful. Thanks.

Thank you. One moment for questions. Our next question comes from Surinder Thind with Jefferies. You may proceed.

Thank you. Just switching topics here to Apartments.com, can you maybe talk about the outlook for unit deliveries this year? It looks like that might peak. And then potentially what that means on a go-forward basis as we look into towards the end of the year and into 2025 for growth rates?

So yes -- so the unit deliveries are coming down slightly. They're still very high by historical standards. And we're up, what, 9.1% [indiscernible] where that is and we're 9.1% that is very high for the apartment industry, and we are up at the point at which you're a little uncomfortable with refinancings and liquidity for some of the owners of apartment buildings. It'd actually be nice to see a little more stability in the market and have that vacancy rate come down next year. But I think we have 2 to 3 years at least of elevated vacancy, which is sort of the Goldilocks environment for selling Apartments.com. So again, each of our products is going to go through different environmental cycles. So we will have to worry about that perhaps in 2, 3 years, maybe we won't have to worry about it in 2 or 3 years.

Got it. Thank you.

Thank you. One moment for questions. Our next question comes from John Campbell with Stephens. You may proceed.

Hi, guys and Scott, I'll keep it going here. Congrats to you and best wishes on the next journey.

Thank you, John.

For sure. Staying on Homes.com, Andy, I think last quarter, you talked to only demoing the product, to 2% of all U.S. agents. I guess just with your hiring plans and the rate you've run this far, just how long do you feel it will take to kind of reach your target market?

Yes. I wish I had the precise number there for you. So when we spoke last time, it was -- we demoed 2%. I'm actually really pleased with the conversion rate. So when we get a demo to a close, that's high -- that’s a solid double-digit number, I think in the 20s to 30s from where we -- when we get a demo to the close rate. So the bigger challenge is having enough people and getting enough demos. But that's great. We'll eventually get demos with everyone eventually. So you just keep on bringing different marketing messages out there to folks. You keep trying to reconnect for people in various environments and context, and we'll get there. So we are still at the -- as we pass through the 40 million mark, we have demoed 7%.

Of the prospects, the 500,000 some prospects up to this point, we've demoed about 7%.

So there's 540,000 core prospects we've defined and we've demoed 7%. Now we have sold a lot of product to folks who have no listings. So the 540,000 is probably the wrong denominator. The denominator could be 1 million plus given the fact that so many people with no listings have subscribed.

Okay. That's helpful. And maybe one quick follow-up related to that, [indiscernible]. Those who are subscribing without listings, what do you typically see as the key draw for them?

Well, you have -- you always have a large number of folks who are trying to break in the residential real estate who have not to date been as successful as they'd like. Over 97% of agents are really do both buyer agency and seller agency. There are some instances where established agent at the moment doesn't have a listing, but they've got listings last year. But if you have done some transactions at the last 3 years, and you can get your name up on neighborhoods as being an expert, if you can sort to the top of a major directory for an area. If you can retarget people come to the site and looking for properties that are relevant to your experience level, even if you have no listing, we do give you hundreds of thousands of exposures and both on the site and off the site with retargeting. So there is value there. I do think that realistically with the changes with the lawsuits and any future changes coming down the road with an adjusted apartment activity, that residential real estate will be a little bit more of a sport of people with listings will get more listings, but happy to help people without new listings or people with lot of listings.

Thanks, Andy.

Thank you. One moment for questions. Our next question comes from Heather Balsky with Bank of America. You may proceed.

Hi. Thank you for letting me back in. I guess I got scared away by the baby crying.

Heather, if you're confused, I think many people in the listening audience today are confused. There was a -- our last CFO, who is an outstanding CFO, and he's listening right now. I got a little [indiscernible] at the emotional overload of leaving CoStar and we haven't let them live it down. In another 10 years, we'll stop talking about it.

Appreciate it. I appreciate you have to play it again. So on Matterport, I'm just curious a little bit to hear how you're thinking about that business being part of CoStar going forward? There's been some headlines around Homes.com, but curious about the broader business strategy and its existing sort of standalone business. Like how are you going to integrate it? How do you plan to use it more? And do you think you can do something to kind of jump start the existing sort of revenue growth strategy?

Yes. So in terms of -- let's start with the existing growth strategy. I am highly confident by -- through pulling levers on pricing, on switching between upfront purchase equipment, subscription models, relying more heavily on capture networks. I feel -- and then also by the virtue of the fact that we aggressively adopt the digital twins more broadly. That all those things together will allow us to significantly accelerate the sales or revenue of Matterport outside of it being used inside of anything in CoStar. In other words, outside of being used as part of Homes.com Apartments.com, LoopNet, so on and so forth. But -- and I think Matterport penetration will have some slight different numbers on that. I'm confident sub 5% in the United States. I'm confident sub 1% in Europe. And at that -- at those levels, I am a big believer in the value of a Matterport when you're trying to sell a $500,000 or $1 million property. And then I think those adoption rates will ultimately go up 50% or more for digital twins with people moving real estate. There was a time when only 5% of the real estate listings had a photo. So the digital twins is going to be -- I think. And there are a number of different players out there, and our goal will be to try to capture a leading share of the digital twin. So there are different solutions at different quality levels. When you look at how we integrate it into our product, we are going to -- first of all, we believe that just -- the overall goal of what we're doing is helping people lease and sell their real estate or to analyze real estate. These three dimensional, these 3D, three spatial twins are transformative,…

Leading to extensive write-offs and expensive drones.

No, no big crashes yet. No big crashes. But the odd looks from the neighbors. But the -- so I think the technology is going to be -- is going to go through a real exponential acceleration. I think the data is super valuable. I think it's table stakes going forward for marketing space. I think it moves the AVMs. And I think as the rest of the world figures out that it's really silly. To me, today, to mark an office building or a warehouse building or a hotel event space or a home without a digital twin is thoughtless. It's sort of inadequate. Do I sound passionate about that?

Yes. I appreciate the answer. Thank you very much.

Thank you. I would now like to turn the conference back to Andy for any closing remarks.

Well, I'd like to thank you all for joining us again for our first quarter 2024 earnings call. I'm glad we were able to report good results, initial results on the Homes.com monetization. And again, thank you, Scott, for all the outstanding work you've done. And Brian, I apologize for Scott, poking the bear on the last CFO. Bye, everyone.

Goodbye, everyone.

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