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CoStar Fourth Quarter Revenue Climbs 51% Year-Over-Year Reaching $100 Million And Drives 86% Year-Over-Year EBITDA Increase

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before (i) stock-based compensation expense, (ii) acquisition and integration related costs, (iii) restructuring charges and related costs, (iv) costs related to the acquisition and transition of the Company's corporate headquarters, and (v) settlements and impairments incurred outside the Company's normal business operations.

Non-GAAP net income is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) purchase amortization and other related costs, (ii) stock-based compensation expense, (iii) acquisition and integration related costs, (iv) purchase accounting adjustments, (v) restructuring charges and related costs, (vi) costs related to the acquisition and transition of the Company's corporate headquarters, and (vii) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. In 2011, we assumed a 40% tax rate, and in 2012 and beyond we assume a 38% tax rate in order to approximate our long-term effective corporate tax rate.   

Non-GAAP net income per diluted share (also referred to as non-GAAP EPS) is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

Earnings Conference Call

Management will conduct a conference call to discuss earnings results for the fourth quarter of 2012 and the Company's outlook for 2013 at 11:00 a.m. EST on Thursday, February 28, 2013. The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/investors.aspx. To join the conference call by telephone, please dial (800) 230-1096 (from the United States and Canada) or (612) 332-0107 (from all other countries) and refer to conference code 279285. An audio recording of the conference call will be available approximately one hour after the live call concludes and remain available for a period of time following the call. To access the recorded call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 279285. The webcast replay will also be available in the Investors section of CoStar's web site for a period of time following the call.

CoStar Group, Inc.
Condensed Consolidated Statements of Operations-Unaudited 
(in thousands, except per share data)
         
  For the Three Months For the Twelve Months
  Ended December 31, Ended December 31,
  2012 2011 2012 2011
         
         
Revenues  $ 100,083  $ 66,164  $ 349,936  $ 251,738
Cost of revenues 31,478 22,014 114,866 88,167
Gross margin 68,605 44,150 235,070 163,571
         
Operating expenses:        
Selling and marketing 26,537 16,171 84,113 61,164
Software development 10,042 4,617 32,756 20,037
General and administrative 17,552 14,987 77,154 58,362
Purchase amortization 4,569 613 13,607 2,237
  58,700 36,388 207,630 141,800
         
Income from operations 9,905 7,762 27,440 21,771
Interest and other income 86 224 526 798
Interest and other expense (1,810) 0 (4,832) 0
Income before income taxes 8,181 7,986 23,134 22,569
Income tax expense, net 3,467 2,810 13,219 7,913
Net income  $ 4,714  $ 5,176  $ 9,915  $ 14,656
         
Net income per share - basic  $ 0.17  $ 0.21  $ 0.37  $ 0.63
Net income per share - diluted  $ 0.17  $ 0.20  $ 0.37  $ 0.62
         
Weighted average outstanding shares - basic 27,295 25,010 26,533 23,131
Weighted average outstanding shares - diluted 27,724 25,402 26,949 23,527
 
 
 
CoStar Group, Inc.
Reconciliation of Non-GAAP Financial Measures-Unaudited
(in thousands, except per share data)
         
         
Reconciliation of Net Income to Non-GAAP Net Income        
         
  For the Three Months For the Twelve Months
  Ended December 31, Ended December 31,
  2012 2011 2012 2011
         
Net income  $ 4,714  $ 5,176  $ 9,915  $ 14,656
Income tax expense, net 3,467 2,810 13,219 7,913
Income before income taxes  8,181  7,986  23,134  22,569
Purchase amortization and other related costs  7,596  1,012  22,241  3,590
Stock-based compensation expense  3,615  1,993  12,282  8,103
Acquisition and integration related costs  1,007  3,063  13,924  14,191
Restructuring and related costs  --  --  --  1,509
Settlements and impairments  --  --  --  (1,479)
Non-GAAP income before income taxes  20,399  14,054  71,581  48,483
Assumed rate for income tax expense, net * 38% 40% 38% 40%
Assumed provision for income tax expense, net  (7,752)  (5,621)  (27,201)  (19,393)
Non-GAAP net income  $ 12,647  $ 8,433  $ 44,380  $ 29,090
         
Net income per share - diluted  $ 0.17  $ 0.20  $ 0.37  $ 0.62
Non-GAAP net income per share - diluted  $ 0.46  $ 0.33  $ 1.65  $ 1.24
         
Weighted average outstanding shares - diluted  27,724  25,402  26,949  23,527
         
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
         
         
Reconciliation of Net Income to EBITDA and Adjusted EBITDA        
         
  For the Three Months For the Twelve Months
  Ended December 31, Ended December 31,
  2012 2011 2012 2011
         
Net income  $ 4,714  $ 5,176  $ 9,915  $ 14,656
Purchase amortization in cost of revenues 3,027 399 8,634 1,353
Purchase amortization in operating expenses 4,569 613 13,607 2,237
Depreciation and other amortization 2,957 2,197 10,511 9,262
Interest income (86) (224) (526) (798)
Interest expense 1,810 0 4,832 0
Income tax expense, net 3,467 2,810 13,219 7,913
EBITDA  $ 20,458  $ 10,971  $ 60,192  $ 34,623
Stock-based compensation expense 3,615 1,993 12,282  8,103
Acquisition and integration related costs  1,007  3,063  13,924  14,191
Restructuring and related costs  --  --  --  1,509
Settlements and impairments  --  --  --  (1,479)
Adjusted EBITDA  $ 25,080  $ 16,027  $ 86,398  $ 56,947
 
 
 
CoStar Group, Inc.
Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
     
  December 31, December 31,
  2012 2011
  (Unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents  $ 156,027  $ 545,280
Short-term investments 37 3,515
Accounts receivable, net 16,392 16,589
Deferred income taxes, net 9,256 11,227
Income tax receivable 5,357 850
Prepaid and other current assets 9,560 5,722
Debt issuance costs, net 2,934  -- 
Total current assets 199,563 583,183
     
Long-term investments 21,662 24,584
Deferred income taxes, net  --   10,224
Property and equipment, net 46,308 37,571
Goodwill 718,078 91,784
Intangible and other assets, net 170,632 20,530
Deposits and other assets 2,274 2,241
Debt issuance costs, net 6,622  918
Total assets  $ 1,165,139  $ 771,035
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable and accrued expenses  $ 51,590  $ 38,533
Current portion of long-term debt  17,500  -- 
Income taxes payable  --   978
Deferred revenue 32,548 22,271
Total current liabilities 101,638 61,782
     
Long-term debt, less current portion 153,125  -- 
Deferred gain on sale of building  28,809  31,333
Deferred rent  17,305  16,592
Deferred income taxes, net  34,071  -- 
Income taxes payable 2,818 2,151
Other long-term liabilities  1,030  -- 
     
Stockholders' equity 826,343 659,177
Total liabilities and stockholders' equity  $ 1,165,139  $ 771,035
 
 
 
CoStar Group, Inc.
Results of Segments-Unaudited
(in thousands)
         
  For the Three Months For the Twelve Months
  Ended December 31, Ended December 31,
  2012 2011 2012 2011
Revenues        
United States  $ 95,199  $ 61,613  $ 330,805  $ 233,381
International        
External customers  4,884  4,551  19,131  18,357
Intersegment revenue *  360  335  1,514  1,140
Total international revenue  5,244  4,886  20,645  19,497
Intersegment eliminations  (360)  (335)  (1,514)  (1,140)
Total revenues  $ 100,083  $ 66,164  $ 349,936  $ 251,738
         
EBITDA        
United States  $ 23,897  $ 11,648  $ 70,199  $ 38,099
International **  (3,439)  (677)  (10,007)  (3,476)
Total EBITDA  $ 20,458  $ 10,971  $ 60,192  $ 34,623
         
* Intersegment revenue is attributable to services performed by Property and Portfolio Research Ltd., a wholly owned subsidiary of Property and Portfolio Research, Inc. (PPR), for PPR. Intersegment revenue is recorded at what the Company believes approximates fair value. U.S. EBITDA includes a corresponding cost for the services performed by Property and Portfolio Research Ltd. for PPR.
         
** International EBITDA includes a corporate allocation of approximately $800,000 and $600,000 for the three months ended December 31, 2012 and 2011, and approximately $5,300,000 and $800,000 for the twelve months ended December 31, 2012 and 2011, respectively.
 
 
 
Reconciliation of Non-GAAP Financial Measures with 2011-2012 Quarterly Results - Unaudited
(in millions, except per share data)
                 
Reconciliation of Net Income (Loss) to Non-GAAP Net Income                
                 
  2011 2012  
  Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
                 
Net income (loss)  $ 4.5  $ 2.6  $ 2.3  $ 5.2  $ 5.1  $ (6.7)  $ 6.8  $ 4.7
Income tax expense, net  2.8  1.5  0.9  2.8  3.7  5.6  0.4  3.5
Income (loss) before income taxes  7.3  4.1  3.2  8.0  8.8  (1.1)  7.2  8.2
Purchase amortization and other related costs  0.8  0.8  0.9  1.1  1.0  5.8  7.9  7.6
Stock-based compensation expense  2.1  2.2  1.9  1.9  2.2  2.7  3.7  3.6
Acquisition and integration related costs  0.3  5.0  5.8  3.1  1.2  9.5  2.3  1.0
Restructuring and related costs  --   --   1.5  --   --   --   --   -- 
Settlements and impairments  (0.3)  --   (1.2)  --   --   --   --   -- 
Non-GAAP income before income taxes  10.2  12.1  12.1  14.1  13.2  16.9  21.1  20.4
Assumed rate for income tax expense, net * 40% 40% 40% 40% 38% 38% 38% 38%
Assumed provision for income tax expense, net  (4.0)  (4.8)  (4.9)  (5.7)  (5.0)  (6.4)  (8.0)  (7.8)
Non-GAAP net income  $ 6.2  $ 7.3  $ 7.2  $ 8.4  $ 8.2  $ 10.5  $ 13.1  $ 12.6
                 
Non-GAAP net income per share - diluted  $ 0.29  $ 0.33  $ 0.28  $ 0.33  $0.32  $ 0.39  $ 0.47  $ 0.46
                 
Weighted average outstanding shares - diluted  21.0  22.4  25.3  25.4  25.5  26.9  27.7  27.7
                 
* A 38% tax rate is assumed in 2012 in order to approximate the Company's long-term effective corporate tax rate. A 40% tax rate was assumed in 2011.
                 
                 
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA                
                 
  2011 2012  
  Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
                 
Net income (loss)  $ 4.5  $ 2.6  $ 2.3  $ 5.2  $ 5.1  $ (6.7)  $ 6.8  $ 4.7
Purchase amortization  0.8  0.8  0.9  1.0  1.0  5.8  7.9  7.6
Depreciation and other amortization  2.6  2.4  2.1  2.2  2.3  2.4  2.8  3.0
Interest income  (0.2)  (0.2)  (0.2)  (0.2)  (0.2)  (0.1)  (0.1)  (0.1)
Interest expense  --   --   --   --   --   1.2  1.8  1.8
Income tax expense, net  2.8  1.5  0.9  2.8  3.7  5.6  0.4  3.5
EBITDA  $ 10.5  $ 7.1  $ 6.0  $ 11.0  $11.9  $ 8.2  $ 19.6  $ 20.5
Stock-based compensation expense  2.1  2.2  1.9  1.9  2.2  2.7  3.7  3.6
Acquisition and integration related costs  0.3  5.0  5.8  3.1  1.2  9.5  2.3  1.0
Restructuring and related costs  --   --   1.5  --   --   --   --   -- 
Settlements and impairments  (0.3)  --   (1.2)  --   --   --   --   -- 
Adjusted EBITDA  $ 12.6  $ 14.3  $ 14.0  $ 16.0  $15.3  $ 20.4  $ 25.6  $ 25.1
         
         
         
Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income        
(in thousands, except per share data)          
    Guidance Range Guidance Range
    For the Three Months For the Twelve Months
    Ended March 31, 2013 Ended December 31, 2013
    Low High Low High
           
Net income    $ 3,100  $ 4,900  $ 23,000  $ 27,900
Income tax expense, net   2,300 3,500 16,700 20,300
Income before income taxes    5,400  8,400  39,700  48,200
Purchase amortization and other related costs    7,200  7,200  27,000  27,000
Stock-based compensation expense *    5,000  4,000  21,000  19,000
Acquisition and integration related costs    400  300  500  400
Restructuring and related costs    400  300  5,000  4,000
Non-GAAP Income before income taxes    18,400  20,200  93,200  98,600
Assumed rate for income tax expense, net **   38% 38% 38% 38%
Assumed provision for income tax expense, net    (6,992)  (7,676)  (35,416)  (37,468)
Non-GAAP Net Income    $ 11,408  $ 12,524  $ 57,784  $ 61,132
           
Net Income per share - diluted    $ 0.11  $ 0.18  $ 0.83  $ 1.00
Non-GAAP Net Income per share - diluted    $ 0.41  $ 0.45  $ 2.08  $ 2.20
           
Weighted average outstanding shares - diluted    27,800  27,800  27,800  27,800
           
* The forward looking guidance above does not include stock-based compensation expense related to performance-based stock granted in 2012.  The company expects to begin recording the related stock-based compensation expense when management believes it is probable that the profitability goals associated with the stock will be achieved. In the initial quarter of the determination, the cumulative catch-up of stock-based compensation expense is expected to be in a range of $10 million to $15 million and additional expense of approximately $2 million to $3 million per quarter thereafter for a total incremental expense of approximately $24 million.
** A 38% tax rate is assumed for 2013 in order to approximate the Company's long-term effective corporate tax rate.

About CoStar Group, Inc.

CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytics and marketing services. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 6.7 million registered members. CoStar operates websites that have over 10 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe including the industry's largest professional research organization. For more information, visit www.costar.com .

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar's financial expectations, the company's plans, objectives, expectations and intentions and other statements including words such as "hope," "anticipate," "may," "believe," "expect," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of management of CoStar and are subject to significant risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the risk that the trends stated or implied by this release cannot be sustained at the current pace, including trends related to sales, earnings, and revenue growth and renewal rates; the risk that the combination of CoStar and LoopNet does not result in or create the anticipated benefits for CoStar; the risk that the LoopNet cross-selling opportunity does not continue to result in highly profitable double digit revenue growth; the risk that CoStar is unable to achieve its goal of exiting the fourth quarter of 2014 at an annual revenue run rate of $500 million with 30-35% margins; the possibility that the company is unable to achieve strong revenue and earnings growth in 2013; the risk that revenues for the first quarter of 2013 and full year 2013 will not be as stated in this press release; the risk that the company is unable to replace or exceed revenues from eliminated or de-emphasized services; the risk that non-GAAP net income per diluted share for the first quarter of 2013 and full year 2013 will not be as stated in this press release; the risk that the timing of any additional stock-based compensation expense to be recorded in connection with the performance-based restricted stock grants issued in 2012 will not be as stated in this release; the risk that the amount of the stock-based compensation expense actually incurred and recorded will not be as stated in this press release; the risk that the integration of LoopNet will not continue to result in anticipated cost savings or synergies; and the risk that the businesses of LoopNet and CoStar may not be combined successfully or in a timely and cost-efficient manner. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar's Annual Report on Form 10-K for the year ended December 31, 2011, and CoStar's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, each filed with the SEC, including in the "Risk Factors" section of each of these filings, and the company's other filings with the SEC available at the SEC's website ( www.sec.gov ). CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CONTACT: Brian J. Radecki
         Chief Financial Officer
         (202) 336-6920
         bradecki@costar.com
         
         Richard Simonelli
         Director Investor Relations
         (202) 346-6394
         rsimonelli@costar.com

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