Good day, and thank you for standing by. Welcome to the Q4 and year-end 2025 CoStar Group Earnings Conference Call. [Operator Instructions] Please be that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Rich Simonelli, Head of Investor Relations.

Hello, and thank you for joining us to discuss the full year and fourth quarter 2025 results of CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Chris Lown, our CFO, I'd 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 first quarter, full year 2026 and beyond. These statements are based on current beliefs and assumptions, and forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that could 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 annual report on Form 10-K and quarterly reports on Form 10-Q included under the heading Risk Factors in these filings as well as other filings with the SEC available on the SEC's website. 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, except as required by applicable law. Reconciliation to the most directly comparable GAAP measure or of any non-GAAP financial measure discussed on this call as shown in detail in our press release issued today, along with the definitions of those terms. Press release is available on our website located at costargroup.com under Press Room. Please refer to the press release on how to access the replay of this call. So remember, it's one question during the Q&A session, so make it a good one. Be good. And with that, I'd like to turn the call over to our Founder and CEO, Andy Florance.

I think today, we're going to do 2 questions. Nice. Good afternoon, everybody. Revenue for the fourth quarter rose 27% year-over-year to $900 million. That's an increase of $191 million from $709 million of revenue in the fourth quarter of '24. Revenue for '25 was $3.2 billion, up 19% from $2.7 billion in 2024. This is our 59th consecutive quarter of double-digit revenue growth. Adjusted EBITDA of 2025 was $442 million, up 83% from $241 million in 2024. This result positions us well to achieve our guidance range of $740 million to $800 million full year adjusted EBITDA in 2026. With the heavy lifting of Homes.com national brand launch behind us, we are entering a phase of significant EBITDA expansion. We delivered our strongest year ever for annualized net new sales bookings in 2025, reaching $308 million, up 23% from 2024. Fourth quarter net new bookings were up 42% year-over-year. We consider CoStar, LoopNet, Real Estate Manager, Ten-X, BizBuySell and elements of Matterport as commercial real estate-related businesses and their operations are connected and related. These commercial businesses as a group grew 20% year-over-year and generated $471 million of revenue in the fourth quarter of '25. For the full year, the commercial business grew 18% to reach $1.79 billion for the full year of 2025. The U.S. commercial real estate market is showing good recovery from the extraordinary headwinds that experienced in the COVID years. After years of massive negative absorption of office space, it has now turned positive in the past 2 quarters, and -- it's been positive for the past 2 quarters and vacancies are clearly dropping. After the ultra-low COVID vacancy rates, industrial vacancy rates are normalizing. With the leasing fundamentals stabilizing, commercial sales volumes have climbed 30% year-over-year and in fact, now are above long-term averages.…

Thank you, Andy. For the full year of 2025, revenue was $3.2 billion, a 19% year-over-year increase over 2024. This was ahead of consensus and above the high end of our full year revenue guidance range. Our revenue outperformance primarily came from higher-than-expected contributions from CoStar, Matterport and Domain. Full year adjusted EBITDA in 2025 also came in above expectations at $442 million, posting a 14% adjusted EBITDA margin. This also exceeded consensus in the high end of our guidance range. The combination of our revenue beat and lower-than-anticipated personnel costs drove the adjusted EBITDA beat for the year. As Andy mentioned in his remarks, we have revised our reporting segments into a Commercial segment and a Residential segment. The new presentation aligns with how we view and manage the business, and we believe it provides shareholders with the best understanding and representation of our financial performance. On this call, I will address our results under both our historical and new disclosure methodologies. Going forward, I will discuss business performance and expectations using our new segment and disaggregated revenue disclosures. Revenue from our Commercial segment totaled $1.79 billion, an 18% year-over-year increase from $1.52 billion in 2024. Our Commercial segment is comprised of what we previously disclosed to CoStar -- previously disclosed as CoStar and LoopNet, which also includes Domain's Commercial Marketplace, Information Services, Ten-X, BizBuySell and Matterport. Ten-X, BizBuySell and Matterport were previously included in other revenue. The 2025 acquisitions of Matterport and Domain contributed around 10 percentage points of this 18% revenue growth. Revenue from our Residential segment totaled $1.46 billion, a 20% increase year-over-year with an organic growth rate of 12%. The Residential segment includes Apartments.com, Homes.com, OnTheMarket, Land.com, and the residential revenue from Domain. Here's a breakdown of our revenue by product that is consistent with…

[Operator Instructions] And our first question comes from Stephen Sheldon with William Blair.

I think the 4Q bookings were a touch lighter than some had been expecting. So can you maybe talk some about the puts and takes in the quarter by business? And then secondarily, it sounds like you're planning to continue growing sales head count. So I just wanted to ask what you're seeing in the productivity ramp for those added in 2025 and whether that ramp has looked any different than what you've seen historically for added sales head count?

So I'll answer the second part of the question first, and I'll let Chris answer the first part. So in terms of sales ramp, we obviously are growing the sales force dramatically. And when you first bring people on, as we've done, as we brought a lot of people on in 2025, they're not at maximum productivity. So they're in line with what we've historically seen. But I think I commented during the call that they become 2 to 3x more productive in the fifth year than they were in the first year. So we manage them closely on a 9 box and make sure they're on trajectory, but we're seeing good initial results, but it is a large addition of salespeople.

Yes. And with regard to your first question, I'd point you into the investor deck, which we put on our website. Our Q4 net new was the second highest Q4 in our company's history. I repeat, it was the second highest Q4 in history, and I go back and look at it. So we feel great about our outcome. And as far as puts and takes, I think that the number speaks for itself.

Our next question comes from Ryan Tomasello with KBW.

Just following up on Apartments.com. If you can just help us understand how you're thinking about the growth for that business this year. And then with respect to the other half of residential with Homes.com, obviously, there's been a lot of upheaval lately in the industry regarding the role of the MLS and listing ownership. So just curious, Andy, how you're thinking about managing the home strategy around that fluid evolution of the industry and what opportunities that might unlock.

So the -- I guess there's 2 parts to that question. I'll handle the second part as usual. The -- yes, there is upheaval and there is some instabilities. I believe that the CEO of the largest brokerage firm made some statements to his staff in an all-hands call talking about the fact that if his agents did not want to belong to the major association, they wouldn't have to within 2 years. I think that reflects dissatisfaction with the industry with having their listings go into a system that then syndicates them out to real estate portals that divert the leads from their own listings to their competitors, and that's not in the interest of the homeowner. It's not in the interest of the listing agent. It's not even in the interest of the buyer. So I believe that, that instability does create opportunities for a platform that is resonant with the brokerages, the agents and the home seller. So it's difficult to see exactly how that will break, but I believe that would break in our favor.

Yes. And on your first question, I would just point you to the guidance we gave on the residential side. We feel -- you heard the stats that Andy talked about. We feel great about our position in Apartments.com and just point to the guidance we gave on the Residential segment.

Our next question comes from Brett Huff with Stephens.

Two quick questions for me. Can you talk again about the commercial EBITDA guidance? You all kind of articulated some of the things you're investing in. There was a long list, but I wonder if you could sort of give us the top few maybe that seem the biggest priority. And then the other question I had was, Andy, you mentioned some reductions in Matterport, and I didn't get the number, but it sounded like a large number. And can you just talk a little bit about that for us?

Sure. So again, answering the second part of the question first, and then throw the first question to Scott. I'm sorry, not Scott. We have a new CFO. He's only been here for 2 or 3 years, Chris. I'm sorry, Chris, if you ever forgive me. So yes, so in -- after we merged with Matterport, we eliminated a number of duplicative public company costs generally in the C-suite, and it was about $120 million of executive comp, both in cash and equity, some HR finance-related duplicative areas and made great progress towards improving the profitability of Matterport. And then we're focused on growing revenue at Matterport through adding salespeople and reaching more of our potential market. So yes, it's about $120 million duplicative public company costs.

Yes. And on the commercial adjusted EBITDA margin, I want to make sure also people remember the Commercial segment does not have Apartments.com, and that's obviously in the Residential segment. But then if we look at the primary investments that we're making in 2026, we have a de novo build to CoStar Australia. Obviously, we have the software and the technology. So we just have to fill in the data and information, and that team is well on its way and they're very excited. So that's a great result. But again, there's 200-ish-plus people that we sent -- that we hired down there to help us drive that information. In addition, we're expanding further in Europe. So that's an ongoing effort. Obviously, the business has been very successful, as Andy mentioned, in Canada and the U.K. We look forward to getting to those same success levels in Spain and France and Germany, et cetera, and Australia. As I mentioned, we're building out an origination workflow module for CoStar Debt Solutions. This has actually been driven by our clients who said, if you could give us workflows for originations, we'd love to tie it all together, and that creates a huge amount of proprietary data and information, which we're excited about. So we're moving aggressively on that. We also talked about integrating Real Estate Manager and Visual Lease into CoStar. So just so people fully understand, we are -- just like we did with STR, we're actually taking Real Estate Manager and Visual Lease, rewriting all the code into CoStar as we do with everything, creating a brand-new better platform embedded within CoStar, which also will have all the data and information around it. So that will be a fantastic and revolutionary capability. Alongside that will be the lease benchmarking product.…

Clearly, paying attention to and investing in the core.

Our next question comes from Pete Christiansen with Citi.

Andy, sorry, another AI disruption question. This time, a little bit more second order, the CRE broker space has kind of been under fire lately for concerns on disruption there. And I guess, if we were to think if the CRE broker space were to see a reduction, do you think CoStar would have the ability to change its pricing around? Do you see this as a potential disruption to the CoStar Suite business?

Sure. I have, gosh, spent 40 years working with commercial real estate brokers. And I think that it is missing some of the personal relationship sales nature of a commercial real estate broker. And so these are really relationship people. And so I'm somewhat puzzled at the level of AI fear in that sector. For sure, there are high volumes of people in some of those commercial real estate service companies, which will -- who will be disintermediated by AI, but they're not the revenue driver relationship people. I don't think they're going to go anywhere. And those are the core audience for our CoStar product. The 500 people building models in the background, they may disappear, but they're typically not our -- the property managers doing accounting and all the stuff, they're typically not the people buying seats. If I think that there is the ability to retain comparable prices with seat reduction, we've done that in the past successfully during downturns. So certainly, over the last 5 years, you saw a significant reduction in the number of people doing commercial real estate, yet we continue to grow revenues. So I do think that there's resilience there. And then remember that brokers only represent at this point, about 30%, 33% of our revenue. The majority of our revenue is banks and owners and institutions and CMBSs and government agencies, many of whom are not on a seat license basis.

Well, I'd also add to that, all the investment we're making is actually more geared towards those exact customers. And so we should expect to continue to see that percentage decrease as those investments bear fruit.

But who will tomorrow's AI fear be?

Our next question comes from Curtis Nagle with Bank of America.

Chris, maybe just one for you. I wanted to follow up just, I guess, trying to get the EBITDA guide for commercial, I think a slight decline on a dollar basis at the midpoint. Talk about some of the investments. I think the other thing, though, we'd love to get some help with this, I guess, could you disaggregate how much of that is due to the replatforming of shared costs right from Homes.com over the past few years? I think some of that's going back to commercial. Any commentary there to kind of help bridge that would be helpful or anything else I might have missed?

Yes. No, it's a great question. So obviously, again, first thing, and again, we're sort of apples to oranges a little bit about the old commercial. There was -- taking out apartments. Apartments was a very attractive margin business, that's A. B, we brought into this business inorganic companies in Matterport and Domain, and those have an impact on that margin, which we expect will grow back after we get through '26, but then is first -- in their first full year will have an impact. From an organic perspective -- margin perspective, when we look at this, the margin is roughly similar as with '25. Even with all this investment, it's roughly flat. And so what you really see is a little bit more of the inorganic side having the biggest impact on that margin in that period of time.

Our next question comes from Andrew Boone with Citizens.

Andy, I'd love to hear about early results from Homes AI. Can you help connect this, though, in terms of the model? Like, what are you expecting in terms of retention or driving more traffic? How do you do that within the context of marketing spend in a newer product where you have to drive awareness?

Okay. So in terms of marketing spend, we're shifting from top-of-funnel brand awareness to much more specific product feature marketing. Over the next week or 2, you'll see all that shifting to product functionality. The product functionality is so remarkable and so compelling that we want to basically simplify the marketing and highlight what it actually does because when people see it and use it, it's compelling. We are shifting some of our marketing budget closer to lower funnel, things like SEM, just because at this point, with the number of clients we've got, we want to deliver lead results. And you're seeing that with 187% year-over-year lead growth with members subscribe -- Homes members. The biggest impact here is engagement. As I mentioned, the engagement with the product goes up 4 to 7x when you're using the Homes AI interface. I believe that it's going to be something that a year from now, people are not going to be able to imagine the old way of interfacing with the website. It shifts a lot more time and attention in the search process from offline to online. And it has dramatic appeal even when you're out physically in the market. So when you're driving around and you can ask questions about the neighborhood and, like, are there any houses that are sold right around here and where are they? And the phone actually guides you to and you can drive over or I was talking to a commercial -- a residential broker the other day. And he said, yes, I was on the way to a listing presentation, which I had not prepared for. And as I was driving over to the listing presentation, I got my whole briefing and my CMA and everything from Homes.com talking as I was on my way. So it's a tool that's going to be adopted or is being adopted by both the agents and by the consumers, it's a much deeper experience than a filter and a result. One of the things I thought was kind of interesting, we have -- I think we've had -- we've reached out to 18,000 of our clients over the last week or so with Homes AI. And we use artificial intelligence to sort of map what the conversations are and what we're hearing. I think an odd element of this is that it is extracting agents from relying on the MLS as their primary information tool. We're getting a lot of folks saying, "Gosh, this is a lot easier to use than the MLS." but I hope that answers the question.

If I may add 2 additional points. Remember that AI agent will remember who you are, what school zone you want to be in, how many kids you have, if you like a house that's in the sunshine more than -- or has a view. So the learning of it and the results that you will get as a user are just going to exponentially get better, and it will know you as well as you know yourself or your spouse knows you. So I think that's a really important point. It's not like you go every time and it's a clean slate. It's building its knowledge and understanding to help you on your journey and provide you even better results, which, by the way, ends up being a much better lead for our subscribers, right? And that handoff, they have -- will have a lot more information. So I think that's really important. Now we also take that into Apartments.com. Say you own a building, you have people working in your building who are leasing agents or people who help. You are now going to have hundreds of AI leasing agents who are going to be following these customers, understanding they may spend more time on a 2-bedroom versus a 1-bedroom. So they're really more interest in 2-bedroom. They really want a view of the pool. They really want to be on the corner, on the outside, et cetera. So again, this -- the learning and the capability is going to be hugely beneficial and important to our customers, which is going to be almost irreplaceable. So I think it's just this multitude of growth. And once people realize that -- once our subscribers and our customers get that and understand that, it's just going to make such a better relationship with our customers and a better experience for them.

And the plan is to integrate all the platforms on this. So when Chris talks about the fact that we remember what the -- who the consumer is, what the shopper is or what their interests are, and where they work and where they play and what their needs are for education. That is persistent across Apartments.com, across CoStar, and will even be persistent across Illumina and eventually Homes and BizBuySell. So it's really quite powerful. And then our goal and our plan is to have the interface back to the lister, whether they be a property manager, real estate owner, real estate agent that's consistent. You'll have one sort of lead dashboard listing management tool in AI that has much higher quality leads across all these platforms. And as someone who manages billions of these visits across many, many sites, many, many hundreds of thousands, millions of leads, agents really struggle with managing the leads they get off these sites. I mean, the best of them respond to 50%, 60% of the leads in a timely fashion. The tools we're going to build here or are building here will dramatically change that equation and make it much more efficient for them to be able to handle these. But I think we're far, far away from your original question, so I'll shut up.

Our next question comes from Scott Wurtzel with Wolfe Research.

Just wanted to follow up from the bookings question at the beginning. I'm wondering if you can give any kind of commentary around Apartments and Homes.com bookings from the quarter, if it's -- not numbers, any sort of directional qualitative commentary relative to last quarter would be great.

Yes. We get a lot of requests for a lot of different information, et cetera. And I think what we feel is we provided new disclosure with new segments, and we've given you, again, the second highest net new bookings number in the company since 2015. And so the guidance is, like I said, I think Homes.com and Apartments.com, we still feel very -- we feel great about the businesses and the trajectory we're on. I'm going to leave it at that.

Our next question comes from Craig Huber with Huber Research Partners.

I wanted to ask about Apartments.com. It sounds like you think given the metrics you talked about that Apartments.com revenue this new year will accelerate. Maybe talk a little bit more about that, if that's the case. And what are you expecting for margins for Apartments.com for this year, flat or down slightly, maybe some extra marketing expenses? How should we think about how margins will play out there?

Yes. So we're not giving specific margins for any business, et cetera. I think what you could hold stock in is Andy's comments around how our business is performing versus what we can see publicly versus our #2 competitor, which is significantly behind ours. We're excited about what we're seeing in the opportunity. We're excited about bringing AI. Like I said, it was one of our -- was and continues to be one of our most attractive businesses. Andy has talked historically, there's been a little more investment in marketing, but that's just because we had sweated that equity down over a period of time. And so there was a little bit more marketing, but this isn't a meaningful amount. So we feel as good today about Apartments.com as we have been in the recent past.

I do not see any increase in marketing in Apartments.com that I'm aware of. It's basically predictable as it has been in the past. And what I was trying to communicate is I do believe there's a little bit of smoke and mirrors occurring in the industry with the apartment space and that we actually are in a much stronger position than the market realizes. So there's been some acquisition activity, and competitors are going to create some tough comparables year-over-year, and it's going to be tough to retain some of the acquired revenue, I believe. And you can already see that in our ability to take significant share from some of the folks that have been picked up or synthetically acquired. And in a way, to me, this is Groundhog Day. We've competed against -- so many times against some of the same players who fail repeatedly and recapitalize and then we compete again very successfully. So I just wanted to communicate in my remarks that I believe that Apartments.com is an incredibly strong franchise with continued strength that will become clearer and clearer over the quarters to come.

Our next question comes from Jeff Silber with BMO Capital Markets.

You talk a lot about the investments that you're doing in the different businesses, and I think we get that. Beyond that, can you just remind us what your capital allocation priorities are? And I'm specifically interested if you're going to continue to do M&A, what you think you're missing in the portfolio, either from a product or geographic segment?

Well, so listen, I think from a capital allocation, we obviously went through a capital allocation process. I think we all -- it was a great experience. Obviously, what came out of that was a buyback program. We looked at buybacks as a percentage of free cash flow and how to think about that going forward. I'll let Andy opine on sort of what he may see as opportunities for us within an M&A perspective. But I would say our ability to acquire companies and generate not only significant synergies from expense savings and also accelerating growth is really incredible in this company. And -- but I'll give it to Andy if he sees what opportunities he thinks about.

Yes. So from a capital allocation perspective, I love the concept that we are pursuing having fewer shares today than we did 2 years ago and retiring shares and having good capital discipline there. And I like the fact that we did the Matterport acquisition with a little bit of share dilution, but we actually retired those shares at a more favorable cost point in hopefully going forward. And -- but I hope you get the sense that we have an incredible amount of innovation going on here. We have a lot of intellectual firepower building really transformative products across the board, both in the commercial and the residential side. So we have a lot on our plate right now, and we want to focus on the things we've got on our plate. Now having said that, there are a lot of interesting acquisition opportunities, but we have so much going on organically right now that, that is a priority. And the business generates a lot of cash, we believe will generate a lot of cash and give us the ability to approach what we want to approach the time we want to approach it. We're not going to comment on any specific things, but there are dozens, if not 100 opportunities out there.

Yes. And just to add a finer point to that cash generation. With the completion of the Richmond campus and also our building in Arlington, you're actually going to see real acceleration of cash flow in '27 and really into '28. I'd also highlight one thing that we've talked about historically, don't forget, we built the Richmond campus and we acquired the Arlington building, and they're on our balance sheet. And when -- and we expect this to happen when rates come down and cap rates come down, there is a release of capital that we would expect to see. So an additional increase as a result of those sale-leaseback processes for those 2 buildings. So we're excited about the cash generation we're going to accelerate over the next 3 years.

Our next question comes from Jason Haas with Wells Fargo.

This is [indiscernible] on for Jason Haas. You guys are guiding to negative $45 million of EBITDA in 1Q for the resi segment and positive $105 million for the full year at the midpoint. I just want to better understand the timing of the profitability improvement through the year for resi as well as the key drivers behind it.

Well, we talked about the marketing aspect, which is really front-loaded in the first quarter and to a less extent, the second quarter. So that is a meaningful part of that acceleration and the underlying growth in revenue, both -- across both businesses, apartments and homes, both on a relatively fixed cost basis. And so that drives that acceleration over the 2026 period.

Our next question comes from George Tong with Goldman Sachs.

You mentioned Domain revenue came well ahead of expectations in 4Q and Matterport is also contributing inorganically. Can you outline what M&A contributions you expect for 2026? And what organic growth rates for commercial and residential are being embedded in the full year guide?

George, I don't have those numbers in front of me, but let me come back to you. I know what you're saying, let me come back to you. As far as additional M&A, we have -- all you really affect is the full year impact of the acquisitions we made in '25 into '26, right, that impact. But we obviously aren't in the midst of any M&A activity or closing anything that we're aware of.

Our next question comes from Nick Jones with BNP Paribas.

I guess, maybe going back to CoStar Suite and the moats you have there. I guess, can you speak to maybe how you're using AI to maybe enhance the moats or build out stronger data sets? And I guess, how confident are you that some of these maybe AI-driven solutions that are maybe coming in from the legal side can't maybe start to rapidly replicate a similar data set. Any clarity, I guess, on the threat and maybe what you guys are doing to basically take new technology and enhance the moat further?

Sure. So we are definitely creating new data sets from proprietary content at an accelerated pace, facilitated by AI. So what -- if you take a look at the corporate leases, which are not available to the general public, they're proprietary, and they require careful treatment, protecting confidentiality on the behalf of clients. That -- abstracting those leases pre our AI abstraction tools would have taken hundreds and hundreds of people, years and years and years to do. Now we can do it in a matter of weeks at a cost of less than a couple of hundred thousand dollars. So that is just one proof point of how we're actually growing our proprietary data sets much more rapidly than we could have in a non-AI world. I'm going to stress again that AI cannot create data from nothing. If it doesn't know something, it can't create something it does not know. That's a fact, right? And so it's not mythical magical. It's just a reality. So much of the data in our data moat is proprietary. And so like you're seeing with Homes AI, we are quite capable of building very powerful innovative products that -- where we have more data to put into our models than another player. And just a simple stand-alone AI can abstract some data sets off the Internet, but we can't -- we have more. We have significantly more, and we'll leverage that more. And we believe that the information begets information. That's been the nature of our business since the beginning of time. Because we have data, we can draw clients who give us more data and more data and more data. So it's a race, and it's a data begets data race, if I -- and you can see that's what STR is. That's what Real Estate Manager is doing. That's what Debt Solutions is doing. And that's 3 of them in just a matter of a couple of years that are these proprietary data generators that you can't get at the data unless you have the keys, and we have the keys.

And our last question comes from Ashish Sabadra with RBC Capital Markets.

I was just -- just wanted to follow up on the earlier question on Commercial segment margins. I understand the investment in '26, but how should we think about the commercial margins over your midterm targets?

Yes. I mean, you should see the segment grow from '26 to -- actually '27 to '30, right? You get through this investment phase in '26 and then you should expect them to grow '27 to '30. The full impact of the investments is happening as we speak, right? All those -- amazingly, all those investments are basically happening at the same time. And so we should -- a lot of them should be finalized by -- in 2026.

I think with that, we're going to wrap up the call. Thank you, everyone, for joining us on the call. We appreciate your time and attention and the opportunity to be working for you guys. And I guess, you guys are going to catch the city. We actually have a great view of the capital here from where we sit and are doing this call. So I guess, that's the next thing tonight.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.