Good day everyone and thank you for standing by. Welcome to this Q2 2024 CoStar Group Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand it over to the Head of Investor Relations, Cyndi Eakin. Please proceed.

Thank you, Carmen. Good evening and thank you all for joining us to discuss the second quarter 2024 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Chris Lown, 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 third quarter and 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.

Thank you, Cindy. Cindy I would note that that was the most upbeat reading of the preamble I've heard ever would suggest to me that you are looking forward to turning over your duties. So, good evening and thank you for joining us for CoStar Group's second quarter earnings call. Second quarter 2024 revenue was $678 million, a 12% increase year-over-year, coming in above the midpoint of our guidance range and in line with consensus estimates. Our two billion dollar businesses continue to deliver double-digit year-over-year revenue growth with Apartments.com growing 18% and CoStar growing 10%. Company net new bookings were $67 million in the second quarter with 79% of our net new bookings coming from sales of our commercial real estate products and 21% from net new bookings of Homes.com memberships. Adjusted EBITDA was $41 million, which was well ahead of our guidance of $5 million to $10 million and consensus estimates of $10 million. Our commercial margins remained strong, delivering over 40% in the quarter and are expected to expand throughout the remainder of the year. Our average monthly unique visitors to our global websites reached a record of 183 million in the second quarter, according to Google Analytics, which is up 81% over the prior year. The Homes.com network delivered 148 million average monthly unique visitors for the second quarter, according to Google Analytics, which was an increase of 73% over the same quarter last year. Our Homes.com site alone delivered 99 million average monthly unique visitors for the quarter, an increase of 197% -- 197% over the same quarter a year ago according to Google Analytics. We believe that complete site-centric census style tool, like Google Analytics is more accurate than user-centric panel estimate counts generated by firms such as comScore or SEMRush. I believe tools…

Great. Thank you, Andy. Good evening. I'm excited to be here for my first of many CoStar earnings calls. I'm happy to report that CoStar has now reached its 53rd consecutive quarter of double-digit revenue growth, coming in at 12%, and we achieved a commercial business margin of 41% in the second quarter. Looking first at our Residential businesses. Residential revenue came in at $26 million, up 40% sequentially. In just four and a half months, we have delivered cumulative net new bookings of $55 million, which is a great accomplishment. We are focused on hiring dedicated Homes.com sales reps over the next year, who are more productive at selling homes memberships and will also allow many of our commercial sales teams to return to selling their core products full time. As Andy mentioned, focus groups have bolstered our confidence in our Homes.com offering and we are confident in our differentiated business model and our ability to capture this exciting long-term revenue and data opportunity. We now expect third quarter Residential revenue to come in around $30 million and we are revising our full year 2024 Residential revenue guidance to $105 million to $110 million. For the full year, we continue to expect to execute on our Homes.com investment plans. Apartments.com's second quarter revenue growth came in at 11%. The Apartments.com team continued to perform well with the highest number of sales reps and the highest sales productivity of any brand in the company. We are on track to achieve the guidance we provided last quarter, resulting in 17% year-over-year revenue growth. CoStar revenue grew 10% in the second quarter, in line with our guidance and we are maintaining our previous full year guidance of 10% growth. We expect growth in the third quarter to be broadly in line with…

Thank you. [Operator Instructions] One moment for our first question, please and it comes from the line of Pete Christiansen with Citi. Please proceed.

Thank you. Good evening. Welcome Chris, great to have you. Congratulations for the shout out to Rich. Good evening Andy. Lots of salutations there, anyway. Andy, it sounds like -- however, the momentum in the new sales for the resi side, it seems to have hit a bit of a speed bump. It sounds a bit more like blocking and tackling on the sales force. Can you talk about adjusting the sales force to sell, who normally sell to institutional clients, how they're selling to residential agents? And I just need to follow-up. There's a notion that there's been either refunds or cancels throughout the quarter, is it a function of the agent out there just becoming more educated on what Homes.com provides and how it differs versus other portals? Thank you.

Sure. So, I think that the broad sales force of 1,000-some people can comfortably sell the Homes.com product. However, they -- if you're an Apartment salesperson or CoStar salesperson, you've been selling those products for many years and after the initial rush of selling a new product, you begin to migrate back to your existing product. And it's the type of thing that you can try to push them into the two products, but realistically, longer term as you move into the second -- as we move forward towards the second full quarter, the third or fourth full quarter, we want to be relying more and more on a dedicated Homes.com selling team because there's just a natural instinct for the broad sales force to go back into their core products. The other thing is that the Homes.com team -- dedicated sales team does a better job with following up with the sales post sales and has higher Net Promoter Scores, dramatically higher Net Promoter Scores than do the salespeople that we're borrowing from the other products and who were basically renting. Have you ever treat a rental car, not as well as you treat your own car. Well, that's a little bit the way these other -- non -- the core sales forces treat some of the Homes folks -- Homes clients. And not in a bad way, it's just that the Homes.com dedicated team has a significantly higher NPS. So, -- and you don't want to -- we have some great products there with Apartments and Homes and you don't really want to push too hard to move them into a sales area there, that is not their long-term focus. So, in terms of -- I'm unaware of any refunds that we put out there. We did have…

It was good color. I'm going to -- we're going to take that in. Very good. Thank you.

Yes.

Thank you. One moment for our next question, please and it's from the line of Alexei Gogolev with JPMorgan. Please proceed.

Hi Andy and hi Chris. Welcome to the new role. I wanted to ask a quick question about the new guidance for the resi business. So, as I see it, you're now assuming roughly $4 million sequential increase of resi revenue in 3Q and then another $3 million or $5 million in the 4Q quarter, which is slightly different to the $10 million sequential increase that you were initially targeting. Just wondering what drove that decision to lower the guidance? And what is your feel around the membership additions that you're seeing at the moment?

Sure. Thank you for the question. I think a couple of things. Obviously, this was the launch of a new product and there is a lot of brainpower going into -- trying to model out that analysis and what will happen and the initial results were very strong, and therefore, there was a reaction to that. I think what you're seeing now is more of a growing momentum that you'll see evolve over time and while we don't provide quarterly guidance, your numbers make broad sense to me. And so I think what you're seeing is, probably a more appropriate build of the business, hopefully a conservative build of the business. And therefore, I think it's a just a better understanding. I would also highlight as a new launch. As Andy had mentioned, compared to Apartments.com launch, this is phenomenally more successful. And I think we feel good about that and the model outlay and so as Andy said, we are hyper focused on getting Homes.com salespeople in their seats and that momentum will drive further growth as well.

And again, I would just add that the main issue is rotation of the core sales force back into their core products by their own choice largely and then now you move into the more long-term, as Chris says, into the long-term growth of the core sales group. And definitely a significant number the other product sales groups will keep selling homes because they want to, but you'll be relying on the growth of that dedicated sales force now.

Understood. Thank you. Andy. And Chris, just a quick follow-up on the exit rate EBITDA margin target. Would you mind confirming if it's still 15% to 16%?

Within that range, yes.

Thank you.

Thank you. One moment for our next question and it comes from the line of George Tong with Goldman Sachs. Please proceed.

Hi, thanks. Good afternoon. I'd also like to extend the welcome to Chris, and thanks to Cyndi. So, I want to stick with the Residential business because it sounds like you're seeing good traction with respect to online traffic and bookings and yet you're reducing your full year residential revenue guide by about $20 million to $25 million. It sounds like some of that better appreciation of the trajectory and perhaps some sales force productivity insights. But just want to elaborate, if you can on what's changed? Is it a function of hiring capacity with respect to the sales force? Is it a function of the productivity of the borrowed salespeople? Or is it a function of end market demand for your product?

Yes. So, I think the number one factor is human behavior and it is the borrowed sales force, a significant number of the borrowed sales force returning to their comfort zone of selling their core products. So, if I've been selling Apartments.com for seven years and doing really quite well, at some point, I feel anxious about selling a new product that I'm not going to be selling long-term. So, it really -- the beginning, middle and end of it is really about building a dedicated sales team just like CoStar has, just like STR has, just like Real Estate Manager has, just like LoopNet has, we got to build that core sales team for Homes.com, so they can sell and service that product as their first priority. And those folks are doing well. I'm happy with the results of this relatively new sales force, we just need to keep growing it. And that will be our priority. But it is -- as I look at where we are, having the traffic that is phenomenal and having the -- both the end users prefer the product over others in our studies and having the agents signifying -- find significant value in what we're doing if they're actually in real estate, is really good, and it gives -- and now it's just a question of building out that dedicated home sales team. But I'm reluctant, and I'm reluctant to pressure high-performing apartments or CoStar or Real Estate Manager salespeople to move into homes when they're really quite good at their core products.

Got it, that’s helpful. Thank you.

Thank you. One moment for our next question please and is from the line of Heather Balsky with Bank of America. Please proceed.

Hi, thank you for taking my question. You touched on Apartments earlier in the call, it'd be great to hear your thoughts about how you see trends into next year, especially given the supply dynamics? And also, I know there's been a lot of questions on competition, [Indiscernible] have gotten more into the apartment space and you touched on some of that earlier in the call as well. Just how you're thinking about keeping your leadership position as competition increases and the differentiating factors between your business?

Yes. So, as you look at the economic environment we're operating in for Apartments.com, I do believe we are in the Goldilocks zone. So, we don't want to see vacancy rates too high. People then aren't -- don't have liquidity to pay for the ads and we don't want to see them too low because the demand for the ads go down. So, in terms of how we maintain our competitive advantage, we have a robust and broad product development line Apartments.com, you can see the traffic continue to grow. And you can see us consistently outpacing and lead to -- in lead-to-lease conversion, into unaided awareness, and the traffic growth, just all the different metrics, we're doing quite well. And really, it's sort of a broader playbook here where there's a lot of room in this space because most of the apartment units are in the smaller category and in the mom-and-pop individual units and houses. And so frankly, nobody has any real penetration there. I mean it is while we're growing down there, we're in the single-digit penetration. So, there's tons of room for us to grow in there. And you will see likely some other players grow in there, but that's because it's a big market, and we're both developing a big market.

Thank you for that. And I could have missed it, but I was just curious, can you share just updated thoughts on commercial EBITDA margin for the year? And are your expectations still the same as they've been for the prior two quarters?

We did provide guidance to what we did in the second quarter of around 41% and we do expect those to slightly be roughly in the same area.

Okay, thank you. So, 41%?

Correct.

Thank you. One moment for our next question please and it's from the line of Soham Bhonsle with BTIG. Please go ahead.

Hey good evening everyone. Thanks for taking my questions and Chris welcome. Andy, I was hoping you could touch on some of the organic levers for CoStar Suite going forward. I think last quarter, you talked about 220,000-odd subscribers, STR and the lender product being an opportunity. But I was wondering if you could maybe break that down further as we sort of think about the growth drivers of the business over the next two to three years? Thanks.

Sure. So, continuing to develop products that are geared towards the corporate user, the owner, the lender institutions, that's a wide open area with relatively low penetration rates. And as we add more and more people in those other sectors or segments, it creates more energy in the customer base, brokers are more likely to engage in the product more if corporate users are engaging in the product owners are more likely to engage in the product when corporate users are in the product. So, we're building out a lot of vibrancy in the platform by going into those building features and functions to reach into the segments in which we have historically had -- had not been our first and second priorities but are huge growth areas. Also, we are continuing progress towards moving Germany, France, Spain, some other markets into CoStar, as well as our global hospitality functions. So, I believe, later this year, we'll be releasing the more full STR global functionality. So, global will be another driver. So, I think that those are the main segments. We still have a lot of way to -- I mean, as crazy as it is. All these years later, we still have a lot of brokers to sell to. And increasingly, residential firms over the last 10, 15 years have been doing more commercial. So, as we get into more and more into residential, we'll be providing more CoStar services to folks that you would have viewed as more historically residential. I had a call today with a Head of Sales of CoStar with a major residential player trying to figure out how they could get access to CoStar and LoopNet. And I don't think that call would have happened except for the fact that we're now on that CEO's radar because of Homes.com. So, CoStar Group -- I mean, sorry, CoStar remains the product with, as far as I can tell, after 38 years perpetual growth opportunity.

Great. And if I could just follow-up on commercial bookings in the quarter. It looks like you did improve quarter-over-quarter, but it's still down year-over-year. So, any color that you could sort of provide there when do you think that could start getting moving again? Thank you.

Well, you see that in -- when you've given a fixed number of hours in the day, when those CoStar apartments, LoopNet salespeople shift over and start spending some amount of time selling Homes.com, which they did a lot in the period from February 12 into the second quarter, that comes at some substitution effect where they're selling in the core. So, I think predominantly, any reduction year-over-year is coming from that effort selling into Homes.com.

Got it. Thanks a lot.

Thank you. One moment for our next question and it's from Jeff Meuler with Baird. Please proceed.

Yes. Just -- Andy, maybe if you could just talk through kind of the key factors that are going to determine the budget for the Homes.com initiative over the next few years just with this -- the stutter in the net bookings? And then what's the exit rate assumed for ARR for Homes.com in the revenue guidance, please? Thank you.

So, I'll let Chris -- after I answer the first part, I'll let Chris answer the revenue guidance on exit ARR. So, I think that big picture, we are coming out with this Homes.com product offering in our first full quarter with a good result, which is more than, when I look at the early stages of Apartments.com, I believe we're running more than double the sales we ran Apartments.com, and it's a question of building it out. So, it's a little early in the first full quarter of launch to call it a stutter because you don't really have a reference point. So, we're -- we -- as we've said earlier, we do not anticipate growing the net investment in the product, but we do have high confidence that we are on the road to building the best site and creating substantial value, and we haven't changed our minds about this. So, we're going to continue investing at that same level. But you can see in our solid EBITDA beat this quarter, you sort of hit the NEDAR [ph] of that reinvestment period. And then, Chris, on the -- he's got the ARR question on exit.

Thanks. The ARR question, we had provided previous guidance in the range of $475 million to $500 million and at the lower end of that range is where we still feel comfortable.

Thank you. One moment for our next question and it comes from the line of John Campbell with Stephens. Please proceed.

Thanks and Chris, welcome to the CFO seat and congrats and looking forward to working with Rich again. But for Homes.com I know the unaided brand awareness metric, that's an important North Star for you guys. I think we're all trying to get a better grip on the rate of net resi investment spend in the years ahead. And so maybe just a two-part question here. So, first, should we be thinking about Homes.com reaching that 50% level is a trigger point for spend relief? And then secondly, you guys have obviously moved that unaided awareness up quickly. I mean, basically next to nothing when you acquired it. I think 27% now, took Homes.com -- excuse me, Apartments.com almost a decade to get to 50%. Obviously, you're spending multiple times more Homes.com. So, Andy, rather than ask you an exact date for Homes.com, which I wouldn't expect maybe just directionally, if you -- should we be thinking about that 50% level coming in the quarters ahead, the years ahead? Or should we be looking at that path -- Apartments.com path as a guide?

Well, I do not believe it is on the same. I believe it was going much faster and will continue to grow much faster than Apartments.com. So, we're constantly evolving the messaging just as we did with Apartments.com and fine-tuning it and shifting various value propositions out in the marketing. I would say that we anticipate similar to Apartments.com relatively constant investment as you build this out and only really increasing investment as we did with Apartments.com in the event that you can see a revenue and EBITDA financial result that's clearly attractive and can be communicated to the investors. But in building out something as valuable as the number one residential portal platform, it doesn't happen in one quarter. It is likely -- it is a multiyear effort, just like Apartments.com and CoStar. So, it is the steady, persistent, consistent, making progress down the road and don't anticipate radical changes anytime soon and don't anticipate increases that would slow EBITDA growth.

Okay, that’s helpful. Thank you, Andy.

Thank you. One moment for our next question and it's from the line of Nick Jones with Citizens JMP. Please proceed.

Great. Thanks for taking my questions. Two more on Homes.com. You've done a great job driving traffic up meaningfully. Can you speak to as you aim to get more leverage, the balance between maybe shifting focus to driving more app downloads or time on app in terms of getting maybe cheaper forms of traffic behind upper funnel advertising or social or things like that? And then I have a follow-up.

Sure. So, on the app download side, we are focused first and foremost on web mobile because that is the fastest way to collect traffic. That's the most predominant platform, it reduces friction, people aren't downloading your app to adopt a new product. So, as we're in here in the first couple of months of the new product, our design and development teams prioritize that. I'm sure you've had the experience. If you optimize everything around that web mobile platform, it's a great experience. And that's what we're hearing in the focus group from consumers is that hands down, they prefer it over app or web mobile of any of our competitors. They describe it as clean, they describe it as fast, they describe it as offering a lot more information than any other platform and they describe it as having the benefit of being able to ask the listing agent a quick question, without being hard sold by someone to something you weren't looking to buy. So, I'm sure you've been annoyed before when you're trying to look at something in a web mobile app and up pops the thing saying, okay, stop doing and go into download an app, not very popular. And when we look at numbers that our friends at Google have shared with us, they're pretty compelling and they show that competing sites are pulling de minimis traffic from their app downloads and that still everyone is predominantly competing in the web mobile environment. So, we're doing the app side, and I get it. If you can get everyone hooked on an app, you are less dependent on buying SEM traffic or less dependent organic traffic. But for everyone in the industry, it is overwhelmingly web mobile and so we're keeping up slightly behind the web mobile, we're keeping up app parallel functionality. But right now, we are basically about traffic attainment. And I am thrilled with the work our Homes product team has done and the development team has done building a fantastic web mobile. And so while we're snagging traffic from other folks, we're going on the fastest, most fluid platform, which is web mobile. In social, we're marketing anywhere and everywhere we can pull people at the most cost-effective price. So, yes, we're on -- if you can talk about digital marketing or streaming or anything social, we're on virtually everything. I'm sure you see us everywhere.

I sure do. And then I guess, maybe a bigger picture question. I think earlier you alluded to maybe buyer leads are not as valuable, as getting listing leads it makes sense. But then how do you balance -- I guess, philosophically, how are you going to balance the value of the platform to essentially home buyers, which, I guess, sounds like our view is less valuable, then providing kind of upper funnel advertising for agents to go win more listings? Because over time, if the marketplace isn't balanced and you can't continue to draw home buyers, how do you continue to drive the ROIs? If the focus is really on driving listing, you follow the question, it's a little --, but I kind of heard two different comments on the call today.

So, I wouldn't hold you at fault for misinterpreting my bad formulation of the words apparently. But our first and foremost priority is to produce the best site possible for home buyers, which I believe we're doing. And so the home buyer comes first, first, and first and second, third and fourth, right? And so that's what we're doing. What we're trying -- and then -- and for sure, I firmly believe that the your listing, your lead model is preferred by sellers because when they make that important decision to hire a real estate agent to help them get the best result for selling their most important asset, their home, they want that real estate agent they hired to answer that first question for a potential lead, they don't want to go to someone who has never seen their home, knows nothing about their neighborhood. They want the seller -- they want the seller selling agent to get and that's what your listing, your lead model we have has. The agents like the your listing, your lead model because they want to get the leads off their listings. The biggest source of buyer agency leads actually comes from having listings. So, when someone calls on your sale listing, you're generating buyer leads because they are -- nine out of 10 times, they're not buying the house, they first call on. But as an agent, you can get them as a buyer agent show them other homes because you're an expert in the category in the neighborhood they're familiar with. You also get referral commissions and the leads you refer off your listings come back to you as referrals from other people's listings. What we're not doing is stealing everybody's leads and reselling them to a handful of lower-end agents. So, that does not mean that we're not creating buyer agency and we're not focusing on buyers, it means we're doing it more intelligently and we're doing it in a way that resonates with the industry long-term. And frankly, I'm really excited about the fact that I am becoming more and more confident that we have the vastly superior model. And I'm seeing one of our competitors starting to figure that out and attempting to pivot their business, which requires cannibalization of their business. And I see the other competitor not having figured out where they are and what's happening, and that's wonderful. So, we're not saying we're stepping away from buyers or buyer agency, far from it, we're just generating buyer agent more -- buyer agency more harmoniously with the way the industry has historically done it in a more sustainable advantaged way over the long-term. But thank you for giving me a chance to clarify.

Great. Thank you.

Thank you. And that's all the time we have for Q&A today. I will pass the call back to Andy Florance for final comments.

Well, thank you, everybody, for joining us today for the call. And Chris, welcome aboard.

Thank you.

No offense to Scott Wheeler, who I hope is listening today with a scotch in his hand, but Scott was good. Chris is clearly better, but so be it. And then Cyndi, thank you for all the calls you've done. Cyndi will be rotating to focusing in her new role as Chief Accounting Officer. And then we've gone to the bull pen and we're bringing the ever famous Rich Simonelli back to sit in the Investor Relations' seat. So, next quarter, I hope you'll be joining us, so we can update you, and we'll have Mr. Simonelli back and we'll ask him to play a brief ballot, we're going to ask them to set the preamble to music. Do you think you can do that, Rich? Thank you all for joining us. Look forward to talking to you guys next quarter.

And thank you all for participating. You may now disconnect.