CoStar Group, Inc.

Good day, everyone, and thank you for standing by. Welcome to this Q2 2024 CoStar Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand it over to the Head of Investor Relations, Cindy Akin. 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 Florence, CoStar's CEO and founder, and Chris Sloan, our CFO, I would 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 third quarter and full year 2024 based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates, and other factors that can 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 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 measure discussed on this call are shown in detail in our press release release issued today, along with the 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 Florence.

Thank you, Cindy. Cindy, I would note that That was the most upbeat reading of the preamble I've heard ever, which suggests 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 $2 billion businesses purchased continued 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 to 10 million and consensus estimates of 10 million. Our commercial margins remain 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 reach 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%. So we'll make sure to get that 197%. over the same quarter a year ago, according to Google Analytics. We believe that a 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 like Google Analytics are like an election result, whereas a tool like SEMrush or Comscore is more like an election poll. If I have the election results, I choose to report those rather than the sample poll result. Our leading competitors in the US residential portal space combine and report traffic associated with home sales, home rentals, rural homes, land sales, and apartment rentals and their traffic numbers. For that reason, I believe the most accurate and best apples to apples comparison is comparing the traffic from our homes network of sites to the reported traffic of these three leading competitors. Our homes.com network includes our sites with home sales, home rentals, rural homes, land sales, and apartment rentals. The most recent reported traffic numbers we have from the leading residential portal competitors is from their first quarter results, so the comparison's not perfect. Our report homes.com network traffic of 148 million average monthly unique visitors for the second quarter is fast approaching Zillow's first quarter report traffic up 217 million average monthly unique visitors. The Homes Network now has solidly lapped Realtors' reported first quarter 72 million average monthly unique visitors and has thrice lapped Redfin's reported first quarter 49 million monthly unique visitors. These solid traffic numbers far exceed our traffic performance expectation for this early in the development of the new homes.com. The second quarter was our first full quarter of SellingHomes.com memberships, and since mid-February, we've sold over $55 million in net new bookings. The first four full months SellingHomes.com far exceeds the launch sales pace of any of our prior product launches. By comparison, it took two years after the launch of Apartments.com to accumulate the level of net new bookings that Home has achieved in its first full four months of sales. The solid bookings numbers are exceptional for this early development of the new Homes.com. We now have 10,200 member agents on the platform and 86% are on 12-month contracts. Marketing efforts continue to be successful, delivering almost 10 billion consumer impressions and 21,000 commercial placements since we launched the product. This is across broadcast, cable TV, streaming audio and video, digital and social media, and high-profile sponsorships. Unaided brand awareness continues to increase and is now at 27%, up from our pre-launch baseline of 4%. Over the past month or so, I attended focus groups with agents and consumers in Atlanta, Chicago, Irvine, and Nashville. Our growth and unaided awareness was clear. Agents reiterated that they prefer our business model of you're listing our lead. You're listing your lead. Definitely you're listing your lead. We have more work to do to make them aware of that preferred business model, and we'll do that work. In each session, the moderator asked agents and consumers to spend a few minutes using the homes.com site. The response was fantastic. The overwhelming majority of participants said that homes.com is the better home search site than competing sites. Common themes were that the site is clean, it's beautiful, ad-free, has more information than other sites have, has all the information you need in one spot, And participants liked that the listing agent is clearly visible, is not obscured, and a listing agent who knows the most about the property can be readily reached to ask quick and simple questions of. Agents responded very well to our value proposition, and two agents really stood out to me as they raved about how much value they were getting from their homes.com membership. They stated that they were using the advantages Homes.com membership offered to win more exclusive listings. So I'd like to quote one Chicago participant named Laura. She said, a couple of months ago, I became a premier agent on Homes.com. My listings that it used to get six, seven, eight, nine, 10, 10, a thousand, 10,000 views. I now get like 2 million views on my listings. And it's a listing tool, she went on to say, so that she can then say to the seller, well, go up and look up Orland Park and I'll show up first if I've got a listing there. And so then she goes on to say, I say to the seller, my listing has 2 million views. Look at every other one after that and they've got like 3,000, 4,000 views and I've got 2 million views. I'm like hashtag winning. She goes on to say, it's a listing tool. So when a seller asks, what are you going to do differently than everyone else, most people will be saying the same things. And then I can say, oh, homes.com, pull up a neighborhood, and I show up first. Becca, an agent from California, said something similar. She said, homes.com has been great for me as a listing agent. I'm having calls directly on my listings. I have a paid subscription where it puts my information in front of buyers who are calling me directly. In my actual listing presentation, she goes on to say, I do have marketing information about getting 60X more views on my listings since I'm a pro member on homes.com, and I think that it's helped me secure listings. This was the first platform, she says, that I had enough confidence in that I actually paid for a pro membership. Another agent from Columbia, South Carolina said, within two days of signing up for my homes.com membership, I secured a new listing that went under contract in less than a week. Another agent from Spokane, Washington said, since I've joined homes.com, I've watched the amount of traffic on my listings increase 30 to 40 times compared to what I was getting anywhere else. We built an analysis actually recently, Jerry Rogers and team built analysis to understand the advantage member agents were having in winning new listings as compared to non-member agents. We create cohorts of members based upon the city, tier size they're in, the number of listings they had at the beginning of the study period, and the average list price of their listings. We compared members' new listing win count to non-members' wins for each month from March through June. This created a total of 192 cohorts 192 cohorts, on average, members won 51% more new listings than did non-members. More importantly to me, in 95% of the 192 cohorts, members outperformed non-member agents. This is very important and the core point. Winning new listings is a primary objective for real estate agents. We believe that the evidence is overwhelming that our product is enabling agents to achieve that core goal. We believe that the potential ROI for member agents is phenomenal. The average agent is getting 17 million annualized impressions for their listing and profile on homes.com. Member listings get 46 times more exposure on average than non-member listings. Another analysis we ran indicated that on average, member agents are 20% more likely to sell the home in the first 10 days than non-members, and members are getting on average $11,000 more for a home. That second analysis will vary from time to time, but multiple analyses have each shown a benefit for members over non-members in selling homes. So in summary, I believe the product is a winner. As of today, we've only demoed approximately 3.5% of residential agents. Building a dedicated homes.com sales team is the key driver to future homes.com revenue growth. We have 63 dedicated homes.com salespeople in production that I can see. We have an additional 53 in training and another 30 hired. We have been borrowing resources from our Apartments.com, CoStar, LoopNet, and other sales teams to supplement the Homes.com sales team. But those borrowed sales resources will inevitably return to selling their core products as they should. Growing the Homes.com sales force must be our top priority. On the market, our UK residential real estate portal is making great progress. Listings on the platform are now up to 716,000, an increase of 41% from June of 2023. Average monthly visits for the month of June were 35 million, up 78% compared to June 2023, and average monthly unique visitors were up to 18 million in June, or an increase of 118% over June 2023, according to Google Analytics. Lead counts are up 50% over the second quarter of last year, and the sales results are looking good. A recent article from a site and publication called The Negotiator stated that a leading lead management platform has found that on the market has now overtaken Zoopla for engaged inquiries. Apartments.com continues its positive momentum with another strong quarter. Revenue was $264 million for the second quarter of 2024, representing 18% growth over the same period a year ago. We continue to add new customers with rentals of all sizes to our marketplace at a rapid pace and now have almost 76,000 paying communities on our network. In June, we had a record number of single-family rental listings representing an increase of 108% over the prior year. Single-family rental listings have boosted lead count by more than four times our Homes.com membership agents. Our mid-market efforts are contributing thousands of new properties, growing paid subscribers by almost 22% in the second quarter compared to the same quarter a year ago. New construction is also contributing to subscriber growth with 75% of all new 100-plus unit communities advertising with Apartments.com. That's a great stat. Our sales team continues to deliver exceptional results and extremely high engagement with our clients and prospects. During the quarter, Page's team conducted over 187,000 quality meetings, which is an increase of 23% compared to the second quarter of last year. Our second quarter net promoter score of 94 continues to lead the industry or just about any industry, which is a testament to the quality of the sales team and their service. We continue to outperform our competitors and lead quality and conversion. In the second quarter, Market Connections, a third-party market research firm, conducted a survey of industry decision makers responsible for 18,000 communities with over 1.5 million units under management. Apartments.com continues to lead all the metrics that matter most to multifamily owners and property managers. We're number one in advertiser usage and deliver the highest quality leads. We continue to have the highest lead to least conversion rate, significantly outperforming our next closest competitor in every one of these three metrics. Our 2024 Apartments.com marketing campaign featuring Jeff Goldblum as Brad Bellflower, the inventor of the apartment internet, is in full swing again. We are reaching renters across all media channels during peak rental season and generating over 2.1 billion media impressions. This year, we launched a dedicated landlord campaign to generate awareness with landlords owning one to four rental properties and have generated almost 500 million brand media impressions to date. As a result of our continued investment and success, our unaided brand awareness, specifically attributed to apartment seekers, is now 74% compared to Zillow, which is only at 42%. 74% compared to 42%. Our average monthly unique visitors for the quarter grew 3% year-over-year to 48 million, significantly outperforming the overall market, which was down 3%. year over year, according to Google. Economic conditions in the apartment industry continue to create a favorable advertising environment. Apartment vacancy rates on three-, four-, five-star properties continue at elevated levels with a 9.3% vacancy rate at the end of the quarter and are forecast to remain at or above 9% for the remainder of this year. Unit-level deliveries continue at all-time highs and are expected to be 561,000 units in 2024. Supply will continue to outweigh demand in the foreseeable future. Apartments.com continues to deliver strong growth, and we expect to see Apartments.com revenue growth of 17% for the year, in line with our guidance. In the second quarter, CoStar continued to deliver double-digit revenue growth, with $253 million of revenue, a 10% increase over the prior year, and in line with our guidance. Our lender product had the highest net new sales quarter ever with a 47% increase in revenue over the same period last year. We now have 298 banks and lending institutions on the platform, up 50% year over year with sales to several large institutions in the quarter. We believe that our product is superior to the competition, which is something we continue to hear from our customers. Lender is a $300 million market opportunity with 3,000 more significant lending institutions to pursue. The SDR sales team had another strong quarter with a 54% increase in net new sales year-over-year. Revenue from our benchmarking product and CoStar subscriptions to hospitality clients increased 28% in the second quarter. We are well positioned to penetrate this $300 million market opportunity with a best-in-class product. Our consistent strong revenue and sales performance for CoStar is the result of a steady stream of product innovation that delivers expanded capabilities and increased customer value. Over the past few years, we've integrated the STR benchmarking product, enhanced our fund data, added hospitality and CMBS data, launched a new lender product, and opened international reach for our CoStar customers. At the event of Q2, we just released our newest feature called Owner, The new owner module of CoStar provides unparalleled insight into the underlying portfolios of the world's largest real estate developers and owners, their key tenants, acquisition and disposition trends, aggregated vacancies and availabilities in key contexts. Our usage data continues to show that these customers are engaging with the platform more despite the economic cycle. Our customers logged in 5 million times in the quarter and conducted 68 million property searches. up 8% over the same period a year ago. Renewal rates are up to 92%, and our NPS scores are at 65%, which is the highest levels in our history for NPS for CoStar. We've grown our subscriber base to 230,000 CoStar professional users, which is up 19% year over year. We have a proven track record of growth throughout economic cycles, and even in the face of historically low CRE transaction levels, CoStar is delivering solid growth and continues to be the mission-critical data and information product for brokers, owners, lenders, tenants, fund managers, and other participants in commercial property information markets. LoopNet revenue was $70 million, up 7% year over year, exceeding the high end of our $5 six percent guidance international revenue grew seventeen percent seventeen percent in the second quarter year over year the loop net network remains the number one platform in the market with six times the traffic of our nearest competitor average monthly unique visitors for the second quarter were 13 million with direct and organic traffic at 75 percent of total traffic even considering the difficult commercial real estate market conditions Total detailed listing views are up 14% compared to the second quarter of last year. As the market normalizes over the coming years, LoopNet is poised to benefit significantly from that recovery. We continue to enhance all aspects of sale and client service, and as a result, our NPS scores have improved to 58 or up 87% since last year. We're growing our dedicated sales team, which will help us further penetrate this large and global market opportunity. Real estate manager revenue is up 9% year-over-year with renewal rates at 99%. Real estate manager continues to take market share from legacy competitors. Two-thirds of our customers are sharing their lease data for anonymized analysis, which will greatly enhance our analytics in the CoStar platform. Land.com revenue grew 5% year over year, signature ads increased 9% in the second quarter, and diamond ad sales were up tenfold in the last quarter. Land.com is the exclusive sponsor of a new show in production, Ranchland, which will stream on Paramount Plus and CBS, featuring aspirational ranches that are listed for sale on land.com. Each episode will feature an aspirational ranch currently on the market and listed on land.com and will feature a day in the life of the ranch owner. I know none of you are going to want to miss that exciting show. Biz by sell revenue increased 6% year over year. The platform had a record $2 billion in enterprise value that transacted in the second quarter. Our franchise directory leads are up 25% and listing leads are up 16%. over the same period last year. Providing these quality leads to our customers and having customer response rates in the mid-19s correlates directly to our NPS score rising 15% to 55% this quarter. Our 10X platform continues to outperform the market with a trade rate of 50%, more than double the offline trade rate of 23%. We brought 57% more assets to the platform in the second quarter compared to the first quarter of 2024. CRE transaction volumes may be bottoming out, with sales activity increasing slightly 6% year-over-year for the first time since the second quarter of 2022. To stress, sales are beginning to surface, particularly for office and multifamily, but remain historically low, with lenders still preferring to extend loans. CMBS delinquency rates remain elevated and office delinquencies have increased notably to 7.4%. This is a significant opportunity as these properties will eventually need to change hands and 10X is the most efficient way to execute commercial real estate transactions. I believe that the results this quarter demonstrate the strength of our commercial real estate business with continued double-digit growth and strong EBITDA margins in the face of economic headwinds. I believe that this quarter, Homes.com is coming into focus as a better product with a better business model than our competitors have. I think the Homes.com value proposition is emerging clearly, it's compelling, and offers our future clients a huge potential ROI. Going forward, we need to focus on the blocking and tackling of building out our sales and marketing organization to realize the full revenue potential of homes.com. At this point, I'm pleased to welcome our new CFO, Chris Lone, and we'll turn the call over to him. And here we go.