CoStar Group, Inc.

Good day and thank you for standing by. Welcome to the Q4 2024 CoStar Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question. I would now like to hand the conference over to your speaker today, Rich Simonelli, Head of Investor Relations.

Hello, and thank you very much for joining us today to discuss the fourth quarter of 2024 and full year 2024 results for the CoStar Group. Before I turn the call over to Andy Florence, CoStar CEO and founder, and Chris Lown, 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 first quarter, as well as full year 2025, based on management's current beliefs and expectations. Forward-looking statements involve many risks and uncertainties, assumptions and estimates, and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ are not limited to those stated in CoSTAR Group's press release issued earlier today in our filings with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q, included under the heading Risk Factors in those filings, as well as in CoSTAR Group's other filings with the SEC, including current reports on Form 8-K that are all available on the SEC's websites. All forward statements are based on the information available to COSTAR at the time 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 is the most directly comparable gap measures of any non-gap financial measure discussed on this call, are shown in detail in our press release issued today, along with the definitions for those terms. And that press release can be found on our website, costargroup.com, under Press Room. As a reminder, today's conference call is being webcast. Please refer to today's press release on how to access the replay of this call. Remember, just one call per person. And with that, I'd like to turn the call over to our founder and CEO, Andy Florence.

Again, thank you for joining Costar Group's fourth quarter and year-end earnings call. We achieved another very strong quarter of financial results with 2024 full-year revenue and adjusted EBIT at exceeding consensus and the high end of our guidance range. Revenue for the full year of 2024 was $2.74 billion, an increase of 11% over the full year of 2023 as we delivered our 55th consecutive quarter of double-digit revenue growth. For the fourth quarter of 2024, revenue was $709 million, an 11% increase year over year. We continue to generate profit while we are investing aggressively back into the business to create powerful future growth drivers such as homes.com. For the full year, our commercial information and marketplace businesses achieved a very strong 43% profit margin. For CoStar Group, Net income EBITDA and adjusted EBITDA significantly improved each quarter in 2024. We grew net income from 7 million in the first quarter of 24 to 60 million in the fourth quarter. We increased EBITDA from negative 13 million in the first quarter to 73 million in the fourth quarter. We grew adjusted EBITDA from 12 million in the first quarter to 112 million in the fourth quarter. Our adjusted EBIT of 112 million in the fourth quarter was well ahead of our guidance range of 76 million to 86 million. Our average monthly unique visitors to our global websites increased 17% year-over-year to 134 million in the fourth quarter of 2024, according to Google Analytics. Company net new bookings were 53 million in the fourth quarter of 2024, up 21% sequentially from the third quarter of 2024. Net bookings are increasing because our sales forces are now optimized and back to selling their respective core product offerings. When we launched homes.com sales just 12 months ago, we only had 41 homes.com sales professionals to prospect over a million real estate agents. To backstop this very small team, we temporarily tasked all of our sales forces to sell homes.com. We no longer need to do that because over the past year, we've grown the homes.com sales force nearly sixfold to 277 salespeople. We anticipate having 500 home salespeople by year-end 2025. The dedicated home salespeople understand the significant value proposition Homes.com offers well, so they sell more, service more effectively, earn much higher NPS scores, and renew the business at much higher rates. From all perspectives, having Combs experts sell Homes.com, CoStar experts sell CoStar, and Apartments experts sell Apartments.com yields higher net bookings. Our CoStar product achieved $1.02 billion in revenue in 2024 with a growth rate of 10% year-over-year. CoStar continues to be the preeminent source of information analytics for the industry. During the worst commercial real estate market in our lifetime, we have grown revenue, adjusted prices for inflation, and launched innovative, valuable new products and features like lender and hospitality benchmarking. With the full CoStar sales teams focused on selling CoStar, December 2024 was the highest month of net bookings for CoStar in almost two years. Q4 2024 net new bookings were the highest since Q3 of 2023. We are pleased to report accelerating CoStar sales in the year as we cross $1 billion in CoStar revenue. The CoStar subscriber base has grown to over 240,000. Our renewal rates are very strong at 92%. We monitor our net promoter scores closely to continually improve our service offering and maintain high renewal rates. Over the past three years, our US CoStar NPS has improved 10% to 65. Our Canadian CoStar NPS has improved 25% to 60. Most notably, our UK CoStar NPS has improved 35% to 65. That's really remarkable improvement there. The UK CoStar team's significant success in achieving high NPS scores might have led to our primary UK competitors, EG's recent announcement that they were withdrawing all their products and services from the UK in 2025. EG or States Gazette was founded 166 years ago in 1858 during Queen Victoria's reign and before Abraham Lincoln became president. CoStar has competed against EG and its various companies since we acquired Focus in the UK in 2004. When we first began competing with them, they were primarily a weekly commercial property news magazine stuffed with hundreds of high-paying property ads. But they launched an online commercial property service, EG has also launched an online marketing service called EG Property Link that competed with LoopNet. As CoStar gained leading share in the UK, EG merged their information offering into a brokerage-affiliated consortium called Radius. EG was owned by the information giant RELX. In their announcement, they cited irreparable impact of headwinds that have struck the whole of commercial real estate industry hard. I'd like to believe that to some degree, the quality of research field, research service, and technology that our team provides played some competitive role. RELX may have sold or may in the future sell elements that discontinue businesses to other companies. It is with respect that we acknowledge the hard work, contribution, and achievements of one of the UK's leading commercial property and information sources over 166 years. It's our competitors that motivate us to be the best we can be. Obviously, the Syria economy has created strong headwinds for CoStar over the last four years as well, but I believe those headwinds may shift to tailwinds. I believe the Syria economy has passed its nadir and is moving into what may be a very strong recovery. Demand and absorption for office space turned meaningfully positive at the end of 2024 for the first time since 2021. Availability rates are falling. Total available space is declining. Sublet vacancy rates are falling. Sublet rents are climbing. The new construction pipeline is shut off and net supply after depreciation and obsolescence is contracting. The economy is strong and resilient. We read stories about major corporations mandating five days a week in the office and then the observation that there's not enough space for the company in their offices to allow everyone to return to work. In the first quarters of the pandemic, office owners steeply discounted prime office space and leased it to tenants who normally have a second-generation budget. I believe that we could see very strong rent growth in the years ahead with capital appreciation. We are already seeing sales transactions return to pre-pandemic levels and cap rates are rolling over their peaks. I've managed to co-star through four economic cycles or four real estate cycles, And every time, the world is certain the office sector will never again regain its value. And yet every time, the correction overshoots and the office economy roars back. CoStar and our clients may enjoy tailwinds in the next few years. The CoStar for Lenders product continued to gain momentum this past quarter. Q4 was our best quarter for the year with $1.7 million of net new annual revenue in December across 17 institutions, bringing total annual revenue to $75 million, including risk analytics. We now have signed up 370 institutions of all sizes and types who collectively manage over $1 trillion of CRE debt, reinforcing our role as a key solution in the industry. Clients have been actively uploading portfolios over the last two years, further validating our long-term adoption stickiness and the depth of our platform's integration into our clients' lending cycles. Additionally, we're seeing a growing number of clients transitioning from their initial CECL or current expected credit loss and stress test solutions to ours, a clear sign that our platform is outperforming alternatives and capturing market share in a regulatory-driven segment. Despite a challenging high interest rate environment and cautious lending landscape over the past couple years, we had continued to demonstrate consistent revenue growth in our lender solution. Corporate real estate departments are increasingly subscribing to CoStar as well to manage their costs, find the best spaces to support their operations, and efficiently renew their leases. These corporations already rely on brokers who are very often using CoStar, but increasingly corporate users want direct access to CoStar as well to support a faster velocity analysis and decision making. New corporate subscribers to CoStar this year include great brands like Amazon, Visa, Ecolab, Macy's, Church's, United Healthcare, Cracker Barrel, Cisco, Edward Jones, Salesforce, Sherwin-Williams, LG, and many others. CoStar Group leases and owns more than a million square feet of real estate across dozens and dozens of locations, and our facilities staff as well use CoStar daily and find it indispensable. Despite it being some of the most important information owners and tenants need, historically, accessing accurate and useful rent information has been very problematic and difficult in CRE. Rents are quoted a myriad of ways with numerous modifiers and inclusions and exclusions that can completely change the meaning of the numbers. Often the details of individual lease deals are closely guarded. We have begun the integration of CoStar Real Estate Manager and our newly acquired Operation Visual Lease, managing more than a million leases for thousands of major corporations and These two companies are leaders in lease accounting, lease management, and transaction management. Our intention is to build the next generation in corporate real estate digital solutions by integrating these two products with CoStar and empowering our clients with the anonymized aggregated information we and this community of corporates can bring together. Just as CoStar STR aggregates and anonymizes the confidential pricing and occupancy information, to the world's major hotels and creates invaluable, accurate, and precise hospitality revenue information that that industry relies on, we intend to do the same thing for corporate real estate. This would empower decision makers to quickly evaluate potential transactions and understand if they're reasonable in the marketplace. Corporate occupiers with hundreds or even thousands of leases renewing in a quarter a year would have very good visibility into how new rent levels would increase or reduce their costs on renewal. Within CoStar, users would be able to access very precise rent levels by geography, segment, and quality, empowering them to make better informed leasing, valuation, lending, transaction development, and investment decisions. building this next generation corporate real estate solution and the associated rent indices is one of our top priorities for CoStar in 2025. We believe that the total addressable revenue opportunity for CoStar is enormous and that this initiative will help us recognize more of that huge TAM sooner. We continue to make good progress on building CoStar in Europe and particularly in France for the top markets there and we expect to release CoStar France by year end 2025. We intend to grow the CoStar sales team by 20% this year. Turning to LoopNet, it's the most heavily trafficked marketplace for commercial real estate in the United States and one of the most effective ways to market commercial real estate. We believe that it has more than a billion dollar TAM in the US alone. In 2025, one of our primary objectives is to move to asset-based pricing where the price-to-market high-value properties is greater than the price-to-market lower-value properties. We've begun renewing contracts on this basis, and for the first cohort of contracts that received price increases, 98% have renewed at those significant price lists. We believe that we can expand the volume of properties market on LubeNet by lowering the price point for some properties for which the current one size fits all pricing is not affordable. We are shifting our Salesforce's emphasis from selling few higher price depth advertisements to selling higher volumes of asset based priced advertisements. While we will continue to sell the higher tier ads, We believe that we will generate significantly more revenue growth by selling a higher mix of the silver basic-tier ads that renew at a very high level. Along with crossing the billion-dollar revenue mark in 2024, Apartments.com turned in a very strong fourth quarter. Revenue was $276 million for the fourth quarter of 2024. Our multifamily revenue is subscription-based with outstanding customer satisfaction with MPS scores of 94, or average MPS score of 94, and very high renewal rates in the 90s with a monthly renewal rate of 99%. In 2024, we reached 90% of renters and all of our prospects and clients through almost every marketing channel. In 2025, we expect to deliver 13 billion impressions across TV, streaming video, podcasts, social media, and influencers, direct digital, paid search, and display. We'll be launching five new advertising spots for apartments.com with Jeff Goldblum. Our marketing campaign continues to deliver with top programming venues. In March, you'll see us all over March Madness. Our unmatched retargeting program creates 1 billion annual impressions and 1.4 million leads. Apartments.com continues to be the industry leader across many key metrics. We have set the standard multifamily for high-quality leads and a strong in-person sales force. Apartment owners see Apartments.com as number one in the metric that matters most to them, delivering leases. In 2024, according to Entrata, we produced 1.5 times more leases than all of our competitors combined. Most importantly, Apartments.com delivered three times the number of leads that converted to leases compared to our competitors. So with the most leads and the best conversion rate, we delivered 4.8 times more leases than other rental networks. We dominate apartment search engine results and are number one in organic search for the term apartments. We are also number one in paid search with 1.8 times more than all the competitors combined. We had 35 million average monthly unique visitors in the fourth quarter for our Apartments.com network. SimilarWeb reported that Apartments.com had the most visitors in 2024, more than Zillow and Rent.com combined. The Apartments.com network delivered by far the most visits in the industry, with 920 million in 2024. With consumers, we have dominated brand awareness with two out of three apartment seekers saying they will use Apartments.com. That is nearly double Zillow and five times more than Rent.com. We have higher brand awareness than Zillow and Rent.com combined among apartment seekers. We continue to add new customers with properties of all unit counts to our marketplace at a rapid pace with more than 75,000 paying apartment communities on our network, up 7% year over year. This includes more than 10,000 in the 5 to 49 unit range. Business to our house, condo, and townhouse pages increased 25% year over year and 32% in Q4 2024 over the prior year. We increased the number of single-family rental listings by 26% over 3 million year-over-year. In 2024, paid single-family rental listings increased 59% year-over-year to 323,600, with a number of independent rental owners using apartment.com climbing to 13% to 244,000. For the year, we processed nearly $5 billion in rental payments, or just over $5 billion in rental payments. In a little over a year, we are already number one in traffic in Canada, our newest Apartments.com market, which demonstrates the success we can have extending a brand from one country to another. There's still a lot of room to grow this business. We see $2.6 billion of opportunity in the 20-unit-plus buildings and above, and there is much more opportunity below 20 units. We believe there is more than a $9 billion TAM in multifamily. We intend to grow the Apartment.com Salesforce headcount 23% in 2025 to keep up with the potential of the site. Last week, Redfin announced an agreement to transfer basically the guts of the apartment's Redfin portal business to Zillow. Redfin acquired RentPath, the parent company of Rent.com, an apartment guide, for $608 million in February of 2021. Redfin was able to purchase RentPath after the FTC blocked our $588 million purchase of it after RentPath had gone bankrupt. On the day Redfin purchased RentPath, its stock was trading at 98 a share, and since that date, their stock has dropped precipitously down 91% to $8.87 a share at yesterday's close. I think it's safe to say that Rent.com has not performed well under Redfin, so probably good that it's moving on. While the announcement called the deal a partnership, I believe it's effectively a sale of the asset that attempts to avoid FTC regulatory review. I find it hard to believe the FTC will ultimately surrender their authority to investigate the potential loss of competition that this deal appears to achieve. We believe that if presented to the FTC as a transaction, the FTC would obviously block such a deal. Are you there, FTC? As part of the deal, Zillow pays Redfin $100 million up front. Redfin will be terminating 450 or the vast majority of the Rent.com staff, and Redfin will attempt to transfer its apartment property management clients to Zillow. Effectively going forward, Rent.com will no longer operate as a normal independent competing website. but rather will only operate as a shell syndication site sending leads to Zillow. We do not know the terms and costs of the lead syndication deal, but I would not be surprised if Zillow ultimately has to pay Redfin hundreds of millions, if not a billion dollars for what we see as relatively low converting leads. This would not sound like an attractive transaction. Certainly apartment property managers will have less choice now. We see a large opportunity to win away many of the properties formerly marketed on rent.com without paying Redfin a massive sum of money. It feels like jump ball on the former Redfin clients and our PageForestin team are quite tall. We launched the new homes.com just one year ago during Super Bowl 58. At roughly the same time, we acquired the residential portal on the market in the UK and relaunched it as well. In just one year, we've made tremendous progress towards our goal of providing the leading residential real estate portals and monetizing a new multi-billion dollar TAM opportunity for CoStar Group. In less than one year, the homes.com network became the second largest real estate portal in the United States based on traffic with an audience of 110 million average monthly unique visitors in the fourth quarter, according to Google Analytics. 110 million unique visitors is nearly double Realtor.com's 62 million average monthly unique visitors that News Corp reported for the same quarter recently. I think that's remarkable. Realtor.com launched 30 years ago in its predecessor form back in 1995, and we passed them an apples-to-apples traffic in our first year of the relaunch. We began the year with our low single-digit unaided awareness and during the year built and grew that awareness number to as high as 33%. As we complete our second successful Super Bowl campaign and launch our 2025 campaign, I believe that we can reach 50% unaided awareness this year, potentially surpassing in two years what our competitors spent 30 years building. We began last year with 41 homes.com salespeople and today we have 275. With job offers outstanding, we were forecasting an additional 50 hires in March alone. Our goal is to have 500 homes.com salespeople in place by the end of the year and productive. Achieving that goal, our whole homes.com salesforce will go from basically not existing last year to being one of our largest sales teams in just two years. Despite that, the fact is the entire team is literally rookies, but they're selling effectively. During Q4, the team in production sold on average 1,742 net new monthly revenue. As the denominator grew dramatically coming into January with more new headcount, the January number remained strong at 1,636 net new per month. In January, the dedicated home sales team sold $3.73 million in annualized net revenue based upon that group's sales and their councils. I expect that as the team both grows and becomes more experienced, that the sales numbers will increase significantly. The Dedicate Homes sales team is significantly more effective at servicing our new clients, achieving good net new promoter scores, and renewing business than was the stopgap broader sales effort we put in in the beginning of the year. on an ad hoc basis. We launched the new homes.com memberships last year. I believe we offered a better value proposition than did the legacy residential portals, but it required educating real estate agents accustomed to buying agency leads for 30 years. And we need to educate them to the fact that we were selling solutions to win more seller listings. Simply put, Homes.com provides a unique internet marketing solution that helps agents sell the home they were hired to sell faster and for more money, making them better listing agents. Because they can show prospective home buyers that they have a superior selling solution, they should be hired more often. In contrast, the legacy solutions of the past 30 years sell agents leads that really belong to competing agents. Our model is used by 95% of the real estate portals around the world and is associated with profitable real estate portals. And that stands in contrast to the legacy US portals, which are really in the minority with the lead diversion model and has struggled with profitability. When we first launched, many agents thought that we were just like the legacy portals, selling them leads that belong to competing agents So initially, we had negative NPS scores that needed improvement. As we built a dedicated homes.com sales team just focused on selling and servicing residential agents, they did a much better job communicating our superior value proposition. Our NPS scores have climbed dramatically throughout the year. When the broader sales force first began selling last year, our NPS was negative 40. But by January, our dedicated home sales team is achieving an average NPS score of 28, which is in the good category and two points away from the great category. At CoStar Group, we're accustomed to consistently achieving great and excellent NPS scores, but brand new products do not launch at excellent. When apartments first launched, the NPS scores were 10, and now a decade later, as I mentioned, they average 94. Homes.com's MPS climbed 68 points in just one year. I want to congratulate the team on that achievement. It's an incredible accomplishment. We already have many of our Homes.com sales reps earning excellent MPS scores at 80 and above. Our goal is to get everyone up in that range. We expect that higher NPS scores will drive higher renewal rates and drive additional sales through referrals. When we relaunched an all new homes.com site one year ago, I felt we offered one of the best search experiences for buying or selling a home. While I was extremely proud to work with exceptional development product teams on such a successful launch, I am even more proud by how much those teams have accomplished in the first 12 months after that great initial launch. At our sales conference a week or so ago, I walked through over 110 new important features our teams added to the product across 2024. The features are too numerous to detail, but include innovative valuation tools, lead verification, search by commuting distance, visualization layers to assess crime, schools, renters, owners, and adding residential news, and much, much more. When I look at the product roadmap in the year ahead, I believe it's the most innovative work that I've ever seen in my career by a wide margin. I feel that everyone on the homes.com product and development team is excited to be working on one of the most effective, innovative, and exceptional development teams anywhere in any industry. There are three major initiatives for Homes.com in 2025 that we believe will add new revenue streams to Homes.com. Our UK residential real estate portal on the market also achieved significant growth in our first year running it. In just one year, we've grown the number of advertisers 23% and the number of properties listed by over 40%. Our marketing investment has led to an increase in total visits by 75%. which in turn generated 42% more leads for agents. As a result, On The Market has seen eight consecutive months of net new revenue growth. Last week launched the new Homes.com second year with two, we launched the new year, year two, with two new Super Bowl ads. I was proud that Adweek rated our ads as number two in Super Bowl ad sales. ranking this year. We believe that homes.com is now the best site for home shoppers, sellers, agents, and brokers. Homes.com has a clean, spam-free design, more content than other sites have, robust and growing product functionality, and most importantly, a better business model in which all the parties can be aligned. We want to let the world know that homes.com is the best, but our attorneys say we cannot legally say that. So we build an ad campaign trying to say we are the best, but not doing it in line with our reality. This year, our two 30-second Super Bowl ads featured Morgan Freeman, Dan Levy, and Heidi Gardner. When Morgan Freeman tries to say homes.com is the best, it sounds like the voice of God. Overall, our marketing campaign for homes.com continues to deliver strong results. In 2024, we delivered nearly 19 million impressions with nearly 3 billion impressions in Q4. In 2024, we ran more than 47,000 commercials, including spots in high-profile media like the Olympics, the World Series, college football, the NFL, the Grammys, the Emmys, and across primetime TV and streaming video like Netflix, Disney, Paramount, YouTube, and ESPN. We are also advertising on streaming audio partners like iHeartRadio, Spotify, Pandora, Amazon Music, including podcasts like Freakonomics, Mad Money, and Conan O'Brien. We are all over social media with millions of impressions on Meta, Pinterest, Reddit, and TikTok, and whatnot. 90% of Americans have likely seen homes.com ads. We believe that we have built the best site for buying and selling a home. Our members are gaining dramatically more exposure for their sellers on homes.com. Their listings sell faster and for more money on average. And because our members offer superior marketing solution, they're winning 58% more listings. We had a great first year for homes.com and we're building phenomenal momentum to create the leading site for buying and selling homes. I believe that we can win major share, grow a third billion-dollar business and generate substantial long-term EBITDA value for our shareholders. A quick update on Matterport. CoStar and Matterport have each certified substantial compliance with the FTC's second request and continue to work cooperatively with the FTC in its review of CoStar's pending Matterport acquisition. We believe we're on track for the deal to close in the first quarter. One of our main investments in 2025 you've probably picked up will be growing our sales force. We plan to grow the sales force from 1,390 at December 2024 to reach 1,890 by December 2025. Adding approximately 500 salespeople will grow our sales force by 35% and we believe bring significant revenue growth potential or incremental additional revenue growth potential to a great business. At this point, I'm going to turn the call over to Chris, our CFO.