CoStar Group, Inc.

Continue to elevate the LoopNet brand and increase brand awareness. While the campaign targets tenants, we're really actually targeting owners and brokers as a pass-through audience. We believe the striking high-end architectural imagery will resonate with owners of ultra-high-value properties and position LoopNet as a brand-appropriate channel for high-end, high-dollar property advertising. all this so i can tell scott that our asp per ad is going up we have we have put in place many foundational elements for lube net to succeed this year and in the years to come we can clearly see the enormous scale of this opportunity though we're crossing a 200 million revenue run rate milestone our penetration rate is still only a low single digit number There are tens of thousands of very high-value opportunities out there for us and hundreds of thousands of valuable opportunities overall, and we're focused on winning those opportunities and growing this business. 10X delivered another solid quarter and continues to benefit from the CoStar and LoopNet driving potential buyers to 10X. 10X unique monthly visitors rose 45% quarter over quarter. On a year-over-year basis, overall account creations increased 61%, with CoStar LoopNet source creations up over 1,000% from 330 to 3,700. Average registered bidders per property rose from 5 to 13, a 160% increase, and average live bidders per property increased from 2.5 to 4, a 68% increase. The growth in the number of bidders is key because when there are three or more bidders at an auction, there's an 85% probability of transacting. That's an excellent number that draws properties to our network. As a result, in March, the trade rate, the percentage of properties that came to auction and sold hit an all-time high of 81%. These strong metrics are excellent proof points of the network effect from combining 10X with the CoStar platforms. During the first quarter this year, we grew our 10X sales teams by 39%, launched a best-in-class six-week sales training program and lead generating training program, and capitalizing on this growing momentum by launching a new national marketing campaign called starring comedian Keegan-Michael Key. Great, great actor. We believe this campaign will further establish 10X as a leading brand for online commercial real estate transactions, drive market awareness that there's no faster or more certain way to exchange commercial real estate, and that 10X as a part of the CoStar network will become an exponentially better way for buyers and sellers and brokers to exchange commercial real estate. As the campaign says, why just buy it or sell it when you can 10X it? The successful vaccine rollout across the U.S., combined with fiscal stimulus, high household savings rates, relaxed COVID restrictions, and warmer weather, have boosted consumer sentiment and spending, helping the labor markets, retail sales, restaurants, service industries, and travel. The office sector struggled in Q1. setting a record for the largest single quarter of negative net absorption. Overall leasing activity remains depressed. Many companies are still evaluating their workplace strategies, but in-person tours are restarting. I'm doing one first thing in the morning. And vaccinated workers are gradually returning to in-person environments. For multifamily, the defining trend of 2020 was weak demand in the densely populated urban centers and strength out in the suburbs. While the first quarter couldn't be described as a reversal of that trend, demand has recovered to normal levels in urban centers while staying strong in the suburbs. Record search activity at apartments.com reflects continued strong multifamily demand. Fiscal stimulus and improving health conditions are helping the retail sector, especially the service sector tenants that have struggled with lower foot traffic over the past year. Hotel occupancies continue to improve by leisure travel and are hurt by continued weak business travel. The industrial sector continues to outperform and set new quarterly leasing volume records driven by the double-digit acceleration of e-commerce. Despite the wave of new construction in the industrial sector, vacancies there ticked down in Q1 and remain near all-time lows. The capital markets have rebounded on the back of strong portfolio trading activity and a return of large national buyers. With record levels of dry powder, investors are on the lookout for distressed opportunities. So far, concentrated on hotels with expectation for distressed retail assets to follow. We just need to make sure they 10x those opportunities instead of just buying them. Last March, as you know, we quickly evacuated all of our offices and our staff moved to safely work from home. Our team did an outstanding job, and though it was difficult, they all made it work for our clients, our shareholders, and one another. With safe and effective vaccines now widely available, and with the help of a number of CoStar Group-organized vaccine clinics on site, more and more of our staff are now vaccinated. I believe it's the majority. Employees are now safely returning to our offices by the hundreds. While it's early days, it feels like we're moving towards a more normal and productive, 3D, real, face-to-face, collaborative workplace we used to enjoy. I believe that companies with teams that are able to work together face-to-face will always out-compete remote, dispersed teams. Our offices feel like a return to a college campus after a long, long summer break. I see thrilled colleagues smiling behind their masks when they run into close colleagues they've not seen in ages. It's really quite nice to see. At this point, I'm going to hand the call over to my face-to-face real 3D presence sitting right here next to me, at-work colleague, our CFO, Scott Wheeler.

Thank you, Andy. I'll be using my 3D voice today, so hopefully you'll notice the difference, all of you who are listening. It's 2D from the last year I used my 3D. 2D voice. But, yeah, I think that last part is the best news of all, of everything you talked about, going back to our offices, rolling out vaccines to protect our teams and their families, and getting to welcome our friends and our team members back to our offices every day. It really is super fun. And we had a great first quarter financially. I'll call it hitting for the cycle with double-digit growth in sales bookings, revenue, adjusted EBITDA, and non-GAAP EPS. We included HomeSnap, currently in their rookie season with CoStar, in our financial results for the first time this quarter, and they were great. And we also signed up a strategically important prospect in the online residential spaces, homes.com. So, on to the results. Revenue in the first quarter, 2021, increased 17% over the first quarter of 2020, which was above the high end of our guidance range. The organic revenue growth in the first quarter, which excludes HomeSnap and 10X, was a strong 11% year-over-year as we come around to one year after the start of the pandemic. Going forward, we expect organic revenue growth to improve to approximately 12% to 13% for the second quarter and for the remainder of the year. CoStar Suite revenue grew 4% in the first quarter of 2021 versus first quarter 2020 at the high end of our expectations. As we begin to lap the low sales months that began in March 2020 as a result of the pandemic, we expect to see CoStar Suite revenue growth improve sequentially. CoStar Suite sales in the first quarter of 2021, along with contract renewal rates, returned to pre-pandemic levels. So this is certainly very encouraging and is a much faster recovery than what occurred in the last recession for CoStar Suite. We expect CoStar Suite revenue growth in the 5% to 6% range for the second quarter of 2021. Our outlook for the full year has improved to approximately 6%, with 7% to 8% growth rates expected in the second half of the year for CoStar Suite. Revenue and information services grew 7% year-over-year in the first quarter of 2021 to $35 million. Both the real estate manager and STR turned in strong double-digit subscription revenue growth in the first quarter, with real estate manager subscription revenue up 19%, and STR subscription revenue up 15% compared to the first quarter of 2020. The strong subscription revenue growth was moderated somewhat by that drop in transaction revenue, which is a one-time revenue in STR, that drop which occurred at the first part of the pandemic in the first quarter of last year. Overall, we expect revenue growth from information services to improve sequentially to a rate of 12% to 14% in the second quarter of 2021, and we continue to expect growth of 10% to 12% for the full year. Multifamily revenue growth for the first quarter remains strong at 21% compared to the first quarter of 2020, which is at the high end of our expectations. The number of properties advertising with us was up 10% in the first quarter, with growth in the average rate per property also up around 10%, as properties continue to upgrade their advertising packages and increase their exposure. The mid-market revenue growth rate was up over 35% in the first quarter, as Andy mentioned, with growth balanced pretty evenly between the growth in number of paying properties and growth in the revenue per property. We expect revenue from multifamily to grow at the rate of approximately 18% to 19% in the second quarter of 2021 compared to the second quarter of 2020. Commercial property and land revenue grew 48% year-over-year in the first quarter, in line with our expectations. This includes the impact of the 10X and HomeSnap acquisitions. Organic growth was 11% year-over-year in the first quarter. We expect the reported commercial property and land revenue growth rate to be approximately 55% to 60% for the second quarter of 2021. Organically, we expect growth of approximately 18% to 20% for the second quarter, with improved growth across all of the marketplaces in this sector as we lap the initial pandemic impact from last year. Within commercial property and land, LoopNet revenue showed solid growth in the first quarter, increasing 14% compared to the first quarter of 2020, just a touch below our expected range of 15-16%, as it's been difficult to effectively onboard and trade additional sales resources to sell LoopNet during the pandemic, as Andy referenced. We expect LoopNet revenue growth to improve sequentially and grow approximately 19-20% in the second quarter. Our gross margin came in at 81% in the first quarter of 2021, in line with our expectations. We expect gross margins to continue at that level in the second quarter, with gradual improvement throughout the end of the year. Our profitability was strong in the first quarter, with net income, adjusted EBITDA, and non-GAAP EPS results all ahead of the guidance we issued in February. Net income was 74 million in the first quarter, with an effective tax rate of 20% for this quarter. Now, the first quarter effective tax rate was higher this year compared to the first quarter of last year, and that's due to fluctuations in the amount and the timing of share-based payment deductions. Those wacky share-based payment deductions, you just never know what they're going to do. First quarter adjusted EBITDA was $160 million, up 29% from the first quarter of last year, and came in approximately $15 million above the high end of our guidance range. The improved adjusted EBITDA was primarily the result of higher revenue, lower personnel expenses, and timing variances in the number of operating expense categories across the P&O. The operating expense favorability is primarily timing, and we expect to incur some of those expenses later in the year. The resulting adjusted EBITDA margin of 35% in the first quarter was 320 basis points above the first quarter of last year. Now we'll talk about some of the performance metrics for the quarter. At the end of first quarter, our sales force totaled approximately 835 people, which is lower than the sales force number reported at the end of 2020 by approximately 65. Part of this reduction is actually a modification of how we count direct sales, so a little bit of a restatement, if you would. We moved approximately 25 positions out of the sales count in the first quarter, positions that are focused on account management or managerial responsibilities that don't really directly impact sales. So the remaining decline in sales headcount sequentially of around 40 people is from first quarter attrition in the CoStar and LoopNet sales teams primarily, which from a timing perspective was not replaced in the first quarter given the difficulty of hiring and training new sales resources while we work remotely. We expect to not only replace but to increase the size of both the CoStar and LoopNet sales teams this year. The renewal rate on annual contracts for the first quarter of 2021 was 90%, unchanged from the fourth quarter of 2020. and the renewal rate for the quarter for customers who've been subscribers for five years or longer was 96%, a slight improvement from the renewal rate of 95% in the fourth quarter of 2020. Subscription revenue on annual contracts accounts for 78% of our revenue in the first quarter, which was in line with the last quarter. Before I talk about the second quarter and our revised outlook, let me say a few comments about the pending Homes.com acquisition, which we have not included in our outlook for 2021. Today, Homes.com generates approximately $10 million in revenue per quarter, and it's not profitable. Subject to the deal closing, which we expect to happen by the end of the second quarter this year, we intend to evaluate existing product revenues and discontinue certain services that are inconsistent with our strategy. As we wind down these services and record typical acquisition accounting adjustments, we expect to record approximately $5 to $10 million in revenue for Homes.com in the second half of this year. We're too early in the process to providing specific guidance on the profit impact to our business, but at a high level, I would expect the transaction to be just modestly dilutive to earnings in the second half of the year as we work through integration. I'll now talk through our outlook for the full year and the second quarter of 2021. We expect full year revenue in a range of $1,930,000,000 to $1,945,000,000 for 2021, which implies an annual growth rate of 17% at the midpoint for the year. On an organic basis, excluding the impact of the HomeSnap and 10X acquisitions, we expect growth of approximately 12% to 13% for the full year 2021. For the second quarter, we expect revenue range of $465 million to $470 million, representing revenue growth of 18% year-over-year at the midpoint of the range. For the full year 2021, we are raising our outlook for adjusted EBITDA to a range of $645 to $655 million, which implies an adjusted EBITDA margin of 33.5% at the midpoint of the range. We expect adjusted EBITDA of approximately $130 to $135 million in the second quarter of 2021 for an adjusted EBITDA margin of between 28% and 29%. Our marketing campaigns for Apartments.com, LoopNet, and 10X all accelerate in the second quarter, which results in the lower sequential margins, which isn't the case in most years. Our marketing spend in the third quarter is expected to remain at or near second quarter levels before dropping back down into the fourth quarter. So overall, it was a great start to the year and even better. I'm fully vaccinated. Andy's fully vaccinated. We're very excited to see 3D people here in our office. But Bill here, he's still in 2D. Flat Stanley? He still looks like Flat Stanley. We're going to call him Flat Billy. All right. Flat Billy, back to you. We're going to let you open it up for questions from the flat analysts on the call.

Well, thank you very much, Scott. Thanks. So for everyone out there, One question per participant, please, so make it an exceptionally insightful one but not a multi-part one. Gabriel, would you please assemble the questioners for the queue?