Operator:

Good day everyone and thank you for standing by. Welcome to this Q2 2024 CoStar Group Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand it over to the Head of Investor Relations, Cyndi Eakin. Please proceed.

Andrew Florance:

Thank you, Cindy. Cindy I would note that that was the most upbeat reading of the preamble I've heard ever would suggest 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 two billion dollar businesses continue 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 million to $10 million and consensus estimates of $10 million. Our commercial margins remained 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 reached 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% -- 197% over the same quarter a year ago according to Google Analytics. We believe that 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 U.S. residential portal space combined and report traffic associated with home sales, home rentals, rural homes, land sales, and apartment rentals in 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 for the leading residential portal competitors is from their first quarter results, so the comparison is not perfect. Our reported Homes.com network traffic of 148 million average monthly unique visitors for the second quarter is fast approaching Zillow's first quarter report traffic of 217 million average monthly unique visitors. The Homes network now has solidly lapped Realtors' reported first quarter 70 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 quarter early in the development of the new Homes.com. The second quarter was our first full quarter of selling Homes.com memberships and since mid-February, we have sold over $55 million in net new bookings. The first four full months selling Homes.com far exceeds the launch sales pace of any of our prior product launches. By comparison, it took two years after 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 in 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 prelaunch 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 in unaided awareness was clear. Agents reiterate that they prefer our business model of your listing, our lead, your listing, your lead, definitely, your 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 like 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 advantage as 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 listing that I used to get 6,000, 7,000, 8,000, 9,000, 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 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 as 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 #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's else, most people will be saying the same things. And then I can say, 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've had -- 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 has 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 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 listening increased 30 times to 40 times compared to us getting anywhere else." We built an analysis, actually Terry Rogers and team built an 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. OnTheMarket, our U.K. 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 a publication called the Negotiator, said that a leading lead management platform has found that OnTheMarket has now overtaken Zoopla for engaged inquiries. Apartments.com continued 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 represent an increase of 108% over the prior year. Single-family rental listings have boosted lead count by more than 4 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, Paige'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 to most -- 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-lease 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 Apartminternet 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 outperformed 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 of 3, 4, 5-star properties, continued elevated levels with a 9.3% vacancy rate at the end of the quarter and are forecasted to remain at or above 9% for the remainder of this year. Unit level deliveries continued 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 in 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 STR 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 increase 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 unparalled insight into the underlying portfolios of the world's largest real estate developers and owners, their key tenants acquisition and disposition trends, aggregate vacancies and availabilities in key context. 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% to 6% guidance. International revenue grew 17% in the second quarter year-over-year. The LoopNet network remains the number one platform in the market with 6 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% 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 sales and client service. 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 was 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 10-fold in the last quarter. Land.com is 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. BizBuySell 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 Ten-X 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 service, 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 Ten-X 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 that 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 Lown, and will turn the call over to him, and here we go.

Operator:

Thank you. [Operator Instructions] One moment for our first question, please and it comes from the line of Pete Christiansen with Citi. Please proceed.

Andrew Florance:

Sure. So, I think that the broad sales force of 1,000-some people can comfortably sell the Homes.com product. However, they -- if you're an Apartment salesperson or CoStar salesperson, you've been selling those products for many years and after the initial rush of selling a new product, you begin to migrate back to your existing product. And it's the type of thing that you can try to push them into the two products, but realistically, longer term as you move into the second -- as we move forward towards the second full quarter, the third or fourth full quarter, we want to be relying more and more on a dedicated Homes.com selling team because there's just a natural instinct for the broad sales force to go back into their core products. The other thing is that the Homes.com team -- dedicated sales team does a better job with following up with the sales post sales and has higher Net Promoter Scores, dramatically higher Net Promoter Scores than do the salespeople that we're borrowing from the other products and who were basically renting. Have you ever treat a rental car, not as well as you treat your own car. Well, that's a little bit the way these other -- non -- the core sales forces treat some of the Homes folks -- Homes clients. And not in a bad way, it's just that the Homes.com dedicated team has a significantly higher NPS. So, -- and you don't want to -- we have some great products there with Apartments and Homes and you don't really want to push too hard to move them into a sales area there, that is not their long-term focus. So, in terms of -- I'm unaware of any refunds that we put out there. We did have a -- going into the new product, we had a completely lenient canceled policy in the initial time period. So, you could pretty much back out any time you want. It's my understanding that initially one of the single biggest reasons for cancellation is the credit card didn't process, which is not to be -- which is not unusual given residential agents with volumes down and commission-to-commission -- 100% commission-based pay. Now, there's a little bit of the ladder that you're talking about there, which is after two decades of agents being used to buying leads off of lead diversion sites in order to get buyer agency, there is definitely an education process. So, if I am an agent who doesn't really do normal residential real estate listings, I don't normally win listings as an agent, and I've been buying leads from a lead diversion site like Realtor, those sites are scraping the listing leads off of 100% of the agents and funneling them down to a small group of people that are just trying to work those buyer agency leads. We do something very different. We don't do those sort of mass scrape selling buyer agency leads. We focus on giving agents an advantage in selling their owners' home. And so we're giving them dramatically more exposure for their listings on our site and that helps them win new sale listing leads or exclusive listings. And it also helps them win buyer agency. It helps them win general branding and branding for the firm. But if you evaluate it through the lens of buyer agency scrape lead generation, it won't really meet your needs. So, there were a bunch of buyer agency only folks who are looking for something a little bit different upfront and now we don't really focus on those folks. We really direct our energy into people who have listings and the feedback is becoming better and better and better and better and it's really quite good because folks who are using it -- using Homes.com are winning 51% more listings. And if you think about what that means, it means everything. Winning a new listing is much more valuable than winning a buyer agency lead. A significant percentage of buyer agency leads never transact. A super high percentage of listings homes for sale will transact and transact quickly. And with all the things going on in the world, with the NAR, with the lawsuits, and the whole plaintiff lawsuits, the sale listing generation is a safe harbor in that storm and so agents prefer that. So, long, short of it is, yes, we had an incredibly -- just anytime you want to cancel, which is not what we normally do, we're past that, and we're redirecting and making sure that we're not -- we're educating people on, this is not a lead stealing site, this is a promoting the home and allowing agents to win listings and generally build their brand and win by our agency leads. Pete was that a long answer?

Andrew Florance:

Yes.

Alexei Gogolev:

Hi Andy and hi Chris. Welcome to the new role. I wanted to ask a quick question about the new guidance for the resi business. So, as I see it, you're now assuming roughly $4 million sequential increase of resi revenue in 3Q and then another $3 million or $5 million in the 4Q quarter, which is slightly different to the $10 million sequential increase that you were initially targeting. Just wondering what drove that decision to lower the guidance? And what is your feel around the membership additions that you're seeing at the moment?

Andrew Florance:

And again, I would just add that the main issue is rotation of the core sales force back into their core products by their own choice largely and then now you move into the more long-term, as Chris says, into the long-term growth of the core sales group. And definitely a significant number the other product sales groups will keep selling homes because they want to, but you'll be relying on the growth of that dedicated sales force now.

Chris Lown:

Within that range, yes.

Operator:

Thank you. One moment for our next question and it comes from the line of George Tong with Goldman Sachs. Please proceed.

Andrew Florance:

Yes. So, I think the number one factor is human behavior and it is the borrowed sales force, a significant number of the borrowed sales force returning to their comfort zone of selling their core products. So, if I've been selling Apartments.com for seven years and doing really quite well, at some point, I feel anxious about selling a new product that I'm not going to be selling long-term. So, it really -- the beginning, middle and end of it is really about building a dedicated sales team just like CoStar has, just like STR has, just like Real Estate Manager has, just like LoopNet has, we got to build that core sales team for Homes.com, so they can sell and service that product as their first priority. And those folks are doing well. I'm happy with the results of this relatively new sales force, we just need to keep growing it. And that will be our priority. But it is -- as I look at where we are, having the traffic that is phenomenal and having the -- both the end users prefer the product over others in our studies and having the agents signifying -- find significant value in what we're doing if they're actually in real estate, is really good, and it gives -- and now it's just a question of building out that dedicated home sales team. But I'm reluctant, and I'm reluctant to pressure high-performing apartments or CoStar or Real Estate Manager salespeople to move into homes when they're really quite good at their core products.

Operator:

Thank you. One moment for our next question please and is from the line of Heather Balsky with Bank of America. Please proceed.

Andrew Florance:

Yes. So, as you look at the economic environment we're operating in for Apartments.com, I do believe we are in the Goldilocks zone. So, we don't want to see vacancy rates too high. People then aren't -- don't have liquidity to pay for the ads and we don't want to see them too low because the demand for the ads go down. So, in terms of how we maintain our competitive advantage, we have a robust and broad product development line Apartments.com, you can see the traffic continue to grow. And you can see us consistently outpacing and lead to -- in lead-to-lease conversion, into unaided awareness, and the traffic growth, just all the different metrics, we're doing quite well. And really, it's sort of a broader playbook here where there's a lot of room in this space because most of the apartment units are in the smaller category and in the mom-and-pop individual units and houses. And so frankly, nobody has any real penetration there. I mean it is while we're growing down there, we're in the single-digit penetration. So, there's tons of room for us to grow in there. And you will see likely some other players grow in there, but that's because it's a big market, and we're both developing a big market.

Chris Lown:

We did provide guidance to what we did in the second quarter of around 41% and we do expect those to slightly be roughly in the same area.

Chris Lown:

Correct.

Soham Bhonsle:

Hey good evening everyone. Thanks for taking my questions and Chris welcome. Andy, I was hoping you could touch on some of the organic levers for CoStar Suite going forward. I think last quarter, you talked about 220,000-odd subscribers, STR and the lender product being an opportunity. But I was wondering if you could maybe break that down further as we sort of think about the growth drivers of the business over the next two to three years? Thanks.

Soham Bhonsle:

Great. And if I could just follow-up on commercial bookings in the quarter. It looks like you did improve quarter-over-quarter, but it's still down year-over-year. So, any color that you could sort of provide there when do you think that could start getting moving again? Thank you.

Soham Bhonsle:

Got it. Thanks a lot.

Jeff Meuler:

Yes. Just -- Andy, maybe if you could just talk through kind of the key factors that are going to determine the budget for the Homes.com initiative over the next few years just with this -- the stutter in the net bookings? And then what's the exit rate assumed for ARR for Homes.com in the revenue guidance, please? Thank you.

Chris Lown:

Thanks. The ARR question, we had provided previous guidance in the range of $475 million to $500 million and at the lower end of that range is where we still feel comfortable.

John Campbell:

Thanks and Chris, welcome to the CFO seat and congrats and looking forward to working with Rich again. But for Homes.com I know the unaided brand awareness metric, that's an important North Star for you guys. I think we're all trying to get a better grip on the rate of net resi investment spend in the years ahead. And so maybe just a two-part question here. So, first, should we be thinking about Homes.com reaching that 50% level is a trigger point for spend relief? And then secondly, you guys have obviously moved that unaided awareness up quickly. I mean, basically next to nothing when you acquired it. I think 27% now, took Homes.com -- excuse me, Apartments.com almost a decade to get to 50%. Obviously, you're spending multiple times more Homes.com. So, Andy, rather than ask you an exact date for Homes.com, which I wouldn't expect maybe just directionally, if you -- should we be thinking about that 50% level coming in the quarters ahead, the years ahead? Or should we be looking at that path -- Apartments.com path as a guide?

John Campbell:

Okay, that’s helpful. Thank you, Andy.

Nick Jones:

Great. Thanks for taking my questions. Two more on Homes.com. You've done a great job driving traffic up meaningfully. Can you speak to as you aim to get more leverage, the balance between maybe shifting focus to driving more app downloads or time on app in terms of getting maybe cheaper forms of traffic behind upper funnel advertising or social or things like that? And then I have a follow-up.

Nick Jones:

I sure do. And then I guess, maybe a bigger picture question. I think earlier you alluded to maybe buyer leads are not as valuable, as getting listing leads it makes sense. But then how do you balance -- I guess, philosophically, how are you going to balance the value of the platform to essentially home buyers, which, I guess, sounds like our view is less valuable, then providing kind of upper funnel advertising for agents to go win more listings? Because over time, if the marketplace isn't balanced and you can't continue to draw home buyers, how do you continue to drive the ROIs? If the focus is really on driving listing, you follow the question, it's a little --, but I kind of heard two different comments on the call today.

Nick Jones:

Great. Thank you.

Andrew Florance:

Well, thank you, everybody, for joining us today for the call. And Chris, welcome aboard.

Andrew Florance:

No offense to Scott Wheeler, who I hope is listening today with a scotch in his hand, but Scott was good. Chris is clearly better, but so be it. And then Cyndi, thank you for all the calls you've done. Cyndi will be rotating to focusing in her new role as Chief Accounting Officer. And then we've gone to the bull pen and we're bringing the ever famous Rich Simonelli back to sit in the Investor Relations' seat. So, next quarter, I hope you'll be joining us, so we can update you, and we'll have Mr. Simonelli back and we'll ask him to play a brief ballot, we're going to ask them to set the preamble to music. Do you think you can do that, Rich? Thank you all for joining us. Look forward to talking to you guys next quarter.

Operator:

Good day and thank you for standing by. Welcome to the CoStar Group First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Cyndi Eakin, Head of Investor Relations, who will read the Safe Harbor statement. Cyndi, you may begin.

Andrew Florance:

Good -- good evening everyone. Thank you for joining us for CoStar Group's first quarter 2024 earnings call. First quarter 2024 revenue was $656 million, a 12% increase over first quarter of '23, coming in above the high-end of our guidance range and above consensus estimates. Both apartments.com and CoStar surpassed the $1 billion revenue mark in the first quarter, a tremendous milestone for the company. Congratulations to both teams. Company wide net new bookings achieved an all-time high in the first quarter of $86 million fueled by a very strong launch of our Homes.com membership product. In the first quarter, 60% of our net new bookings were from sales of our commercial products and 40% were from net new bookings from our new Homes.com memberships and residential products. Overall, traffic to our global websites reached a record 170 million average monthly unique visitors in the first quarter according to Google Analytics, which is 93% above the first quarter of last year, an impressive 34% above our previous all-time high. CoStar Group has now reached 90% of the 194 million unique visitors still reported in the last earnings call. Our residential network reached a record 156 million monthly unique visitors in March according to Google Analytics. I believe we have clearly established Homes.com and our residential network as one of the two most trafficked residential marketplaces in the United States. Yesterday, we announced that we reached a definitive agreement to acquire Matterport, the global leader in immersive 3D Digital Twins and Artificial Intelligence for the real estate industry for $5.50 per share. Founded in 2011, Matterport pioneered the development of the first 3D capture solution to deliver dimensionally accurate photorealistic virtual tours or digital twins for any type of property. Matterport's proprietary and patented technology enables anyone to digitize a property using a variety of camera technologies, including cameras found on most smartphones. Matterport's 3D technology is utilized in nearly every sector of real estate, spanning residential, commercial, hospitality, retail and industrial spaces among others. Over the years, Matterport has curated what is considered the largest and most precise collection of spatial property data worldwide, with over 12 million spaces captured in 177 countries and representing more than 38 billion square feet of digital commercial property under management. Hundreds of thousands of new 3D digital twins for properties around the world are being added to this impressive database each month. Matterport makes it possible to experience real estate remotely. People now select their next home apartment, office, store, hotel or warehouse on their mobile device often without ever visiting the property. The pandemic accelerate the remote real estate shopping trend and we believe it is the new normal. CoStar Group and Matterport have nearly identical mission statements of digitizing the world's real estate. CoStar Group was one of the first adapters -- adopters of Matterport's technology and currently has almost 300,000 Matterport digital twins available in the CoStar information product and online property marketplaces. In March of this year, there were over 7.4 million views of Matterport 3D tours on Apartments.com. Visitors who interact with the Matterport on Apartments.com spend 16.6 minutes on the site, which is 134% more than the 7.1 minutes time on site if they do not interact with a Matterport. Properties with a Matterport generated 74 leads, which is 10x the seven leads generated for property without Matterport. Currently, 50% to 60% of consumers looking for an apartment say they're comfortable selecting their next apartment without visiting the property at all. As we listen to corporate real estate executives who use loop net, discussed their challenges of buying and leasing properties around the world. They tell us 3D digital twins are invaluable in facilitating technology for them. In residential focus groups, homebuyers are clearly telling us that they prefer listings that offer 3D digital twins so they can best understand the property. We believe that our substantial empirical data in our market research clearly shows that consumers and advertisers prefer real estate portals with digital twins. We intend to go all in on 3D digital twins adding more digital twins to Apartments.com, LoopNet, Homes.com. CoStar Land.com, BizBuySell, Real Estate Manager, STR Belbex on the market and others. We intend to add Matterport as one of the benefits of Homes.com membership. We believe adding 3D digital twins for Homes.com members will increase the leads we deliver, increased customer satisfaction, increased renewal rates, increase sales and increased site traffic further. We have thoroughly researched the many 3D digital twin solutions out there and have concluded that Matterport is the best solution for our client's needs. Given the fact that we intend to make a much greater commitment to capturing 3D digital twins, we decided to capture the value of our increased volumes by acquiring Matterport. We decided to capture the value of our increased volumes by acquiring Matterport. As we make Matterport's more ubiquitous, we believe others will buy more Matterport, making the company more valuable. We believe that we can accelerate Matterport sales to non CoStar Group advertisers by increasing Matterport's investments in sales and marketing. Well, Matterport has been very responsive to us as customers over the past 9 years, we see the acquisition is giving us increased ability to influence the product roadmap for Matterport to best serve our clients needs. I believe we're standing on the verge of a potential exponential acceleration in the technology surrounding 3D digital twins, which will create transformative value for real estate. Artificial intelligence, machine learning, generative AI, computational photography, NeRF, SMERF and Gaussian Splat, all have tremendous potential for real estate. Matterport has incredible research and development talent. These are the people who are very passionate about the future of digital twins and literally invented the genre. And we believe we're the -- they are the ones who will imagine and create the industry's future. Right Dave? We intend to actively support invest in Matterport spatial technology research and development efforts. Imagine the potential scan your home and move 3D digital twins of your furniture and art into a virtual moving truck and trialing it out in a potential new home virtually. Imagine using a 3D digital twin to virtually see various potential kitchen renovations in seconds. Imagine the value of creating a 3D twin of an unattractive raw office space and using generative AI to rapidly generate 3D realistic potential build outs of the office space for a future tenant to see.

Scott Wheeler:

Thank you, Andy. I'll try to remain present for the next 10 or 20 minutes. Well, that was a great start to the year. I wish we could have a quarter like that every year. That's a pretty amazing highlight reel that you shared for the company, with the 3D groundbreaking acquisition and $1 billion businesses, the best product launch ever with Homes, record sales, the Super Bowl marketing launch, you even managed to wiggle in the word Gaussian Splat into your script, which -- it's a real word people, that wasn't a joke. You can look it up. So how are we going to top that in the second quarter? I don't know, but we better get going because we got a lot to do. So our streak of double-digit revenue growth continued in the first quarter at 12% overall for the company. And you know what I think the best news is here, it's our Residential business is now making a solid positive contribution to growth. After 2 years, we've endured this sort of painful revenue decline from the legacy Residential products like this quarterly drip, drip, drip, revenue erosion like water torture, while we are finally on the upswing with the launch of Homes.com monetization. Our Residential revenue came in at $19 million in the first quarter, which was up 90% sequentially from the fourth quarter of '23 and up 42% year-over-year, thanks to our Homes.com launch and a full quarter of OnTheMarket results. First quarter residential revenue was above our $15 million guidance estimate, primarily due to the fast start for the sales of Homes.com. So we are going to raise our revenue forecast for Residential revenues by $15 million at the midpoint to reflect faster growth of Homes.com. Our new estimates have revenue improving almost $10 million sequentially each quarter, with revenue growing to almost $50 million by the fourth quarter of 2024. Year-over-year revenue growth is expected to be 180% in total and around 105% organic in 2024. We now expect the exit run rate for Homes.com to be in the $130 million to $140 million range, which is up from the $100 million exit run rate I provided back in February. Revenue in our commercial businesses for the first quarter came in at $638 million, which was up 12% year-over-year and above expectations. We saw a sales substitution effect, as Andy mentioned in the first quarter, as we launched Homes.com which I expect will shift our revenue mix a bit more towards Residential than what we had assumed in our full year revenue outlook we shared in February. Now my original revenue forecast model, which quite frankly, wasn't much more than an educated guess at the time, given we had not launched Homes.com, I assume that the full year sales split would be 70% commercial and around 30% residential. While the actual sales split in the first quarter was around 60% commercial and 40% residential, which translates to around a $10 million revenue shift for the full year, commercial to residential. Well, it's not really a whole lot in the grand scheme of things. It's only about 0.4% of revenue, but I thought it was at least worth noting. And you'll hear some of those effects as I talk through the rest of the product groups. Apartments.com grew revenue 21% during the first quarter, ahead of our guidance of 20% revenue growth. Crossing $1 billion in annualized revenue and celebrating 10 years from the acquisition, it's remarkable to see five straight quarters thus far on of 20% plus growth of the size and the stage of this business has become. Like whoever puts a 20% growth rate 10 years out in your acquisition model. Well, I guess Fred did because he's done a great job, and the team delivered it. What's encouraging is that Apartments.com revenue reflects only 12% penetration of the multifamily revenue opportunity, and that's just in the United States. With a strong start to the year and considering a modest sales substitution effect, we are maintaining our revenue forecast for Apartments.com of around 17% revenue growth for the full year of 2024. CoStar revenue grew 11% in the first quarter, in line with our guidance expectations. We continue to see strong growth within our hospitality, lender and owner customers, while working through this downturn and the effects of continued high interest rates on commercial real estate. In the first quarter, our CoStar sales team sold more Homes.com memberships than any of our other sales teams. Recognizing the slight shift in sales mix year, we are adjusting our revenue forecast and expected CoStar revenue growth of around 10% for the second quarter and for the full year of 2024. LoopNet revenue grew 9% in the first quarter at the high-end of our guidance range, demonstrating the ongoing productivity improvements within our dedicated net sales team. Welcome to the team, Ben. Looking forward to seeing what you can do in the quarters ahead. We expect 5% to 6% revenue growth for LoopNet in the second quarter of 2024, with full year revenue growth in the mid single digits, broadly in line and unchanged from our previous LoopNet revenue outlook. Revenue from Information Services was $33 million in the first quarter, consistent with expectations. We expect revenue for the full year to be in the range of $130 million to $135 million, in line with the revenue growth guidance range we provided in February. Other Marketplaces revenue was $31 million for the quarter, slightly ahead of guidance. Ten-X trade rates and deal closings improved in the first quarter, providing the extra revenue versus our forecast. Revenue for the second quarter is forecast to be in line with the first quarter's results. and we confirm our previous guidance for the full year 2024 revenue to be relatively flat to the full year 2023 revenue. Adjusted EBITDA was $12 million in the first quarter, $27 million above the midpoint of our guidance range. The outperformance was primarily attributable to our strong revenue performance and lower-than-anticipated personnel costs, with some of the favorability coming from spend -- timing of spend that we now expect to occur in the back half of the year. We remain on track with similar investment levels of Homes.com as we planned for the year and that we discussed last quarter as well as the expected adjusted EBITDA margins in our commercial product businesses unchanged from what we said at the beginning of the year. The size of our sales force is about the same at the end of the first quarter as it was at the end of 2023, 1,200 sales members. As we grow our Homes.com sales force, we expect to have a total of around 1,500 sales team members by the end of this year. Our contract renewal rate was 90% for the first quarter of 2024, while the renewal rate for customers who've been subscribers for 5 years or longer remained strong at 94%. Subscription revenue on annual contracts was 81% for the first quarter of 2024, consistent with the prior quarter. With a strong start to the year, we are increasing our revenue guidance to a range of $2.760 billion to $2.770 billion. Net midpoint guidance is up around $5 million, with Residential revenue up $15 million and Commercial revenue -- Commercial business revenue lower by $10 million from the fine tuning of our sales mix based on the first quarter sales split. Second quarter 2024 revenue is expected to range from $674 million to $679 million, representing revenue growth rate of 11% to 12% for the quarter. Our full year revenue outlook includes revenue growth of 12% in the first half of the year, accelerating to 14% in the second half of 2024. Isn't it great to accelerate revenue growth in a really bad property market? This business is pretty amazing. We are also increasing our adjusted EBITDA guidance and raising the midpoint of our guidance range. The new adjusted EBITDA forecast range for the full year is now $185 million to $205 million, up $15 million at the midpoint and indicating a margin of around 7% at the midpoint of the range. Second quarter adjusted EBITDA margin includes the highest marketing seasonal spend for the year, and are expected to be in the range of $5 million to $10 million or approximately 1%. Margins are expected to increase sequentially in the second half and exit the year in the range of 15% to 16%. Our outlook for interest, capital and taxes remains unchanged for what we communicated back in February. So I'll wrap up with a few financial comments on the pending acquisition of Matterport that was announced yesterday. Financially, Matterport operates a very attractive financial model, very similar to CoStar, but at a smaller scale. Matterport has a history of strong revenue growth with a 5-year compound annual growth rate of 31%. Their subscription business represents 60% of the overall revenue and is growing over 20% per year, has a very high renewal rate similar to CoStar. We love this kind of business. The Matterport subscriber customer base is highly diverse, operating across a variety of vertical markets with no single customer over 3% of revenue. Approximately 30% of their new 3D models, along with around 30% of revenue are generated outside of the United States. This customer and vertical market diversity creates a resilient financial growth profile just like CoStar. Matterport enjoys significant operating leverage on incremental subscription revenue with gross margins of around 70%. This is scalable for high profit margins and cash generation. Matterport has a strong and conservative balance sheet with over $400 million of cash and 0 debt. Sound familiar? The total purchase price of approximately $2 billion comes with around $400 million of cash and investments which is currently on the Matterport balance sheet, yielding an enterprise value of roughly $1.6 billion. The purchase consideration will be paid 50% from our available cash balances and 50% with CoStar stock. On a net basis, after closing, we expect to use around $550 million to $600 million of our cash to complete the acquisition. Matterport expects quarterly cash flow from operations to break even in the second half of 2024 and turn positive in 2025. The breakeven point is somewhat in line with what we might see as the expected time to close the transaction. With Matterport cash flow turning positive in 2025, and modest synergy assumptions, we expect the standalone acquisition to be neutral to slightly accretive to non-GAAP earnings per share in the first year post closing. Now it's far too early to estimate financial guidance outcomes for the acquisition. We expect the post integration benefits from this acquisition to be highly value accretive for many of the reasons that Andy described. We have a strong track record of successfully acquiring, integrating and growing great companies, which I believe will continue with the combination of Matterport technology and CoStar's marketplace scale, research capabilities and project -- product development expertise. We are in a very strong financial position as we head into the second quarter, with our growth and profit plans already exceeding our expectations for the year. We are focused on and committed to accomplishing our stated long-term revenue and profit goals and we've taken a big step closer to achieving those with the fast launch of Homes.com and the potential acquisition of Matterport. I certainly believe there will be many more exciting growth years ahead for the company. Well, that's about wraps it up for me. I guess you could say for the last time on the CoStar earnings call airwaves, I'd like to say thank you, Andy, for taking me along and what I so affectionately call Mr. [indiscernible] wild ride at CoStar for the past 8 years. That's truly been, I must say, the best and without question, the most entertaining time in my professional career. Well, I will, without doubt, miss all of you, as I climb the many peaks on my list, recovering the hot tub, and experiment with the endless combinations of whiskeys available to me in crafting the ultimate Manhattans. If you stop in some time, Andy or Cyndi, I will be certainly happy to mix one up for you. Well, with that, I'll turn the call back over to our operator for a bit of Q&A.

Unidentified Company Representative:

I love Brian. [indiscernible] I know.

Operator:

Thank you. [Operator Instructions] Our first question comes from Peter Christiansen with Citi. You may proceed.

Scott Wheeler:

Thank you, Pete.

Andrew Florance:

Sure. So obviously, exceeded expectations. I would say that it is mostly outbound. There was strong inbound interest. There was a lot of convention sales. So there are a number of industry events out there, and people were buying a lot at various brokerage firm specific events. The close cycle is extremely fast. It typically is demo closed simultaneously. There isn't a win loss really because no one is providing a similar service in the United States. Our offering is unique. They're anecdotally, there -- we have heard some substitution effect with some of the lead diversion model legacy providers. But by and large, it is a short sales cycle pretty straightforward. We are selling the individual agents. They're typically paying with a credit card, but at the end of the demo. And again, the fact that 90% are going for an annual agreement is pretty positive. It would appear that priority for us going forward is just scaling the Homes.com sales team because while it's great to have overall sales force doing it, you eventually want to get everyone back to their core products and build big enough sales team to manage the 500,000 to 600,000 prospects we've got for this product.

Andrew Florance:

Thank you.

George Tong:

Hi. Thanks. Good afternoon and I also want to extend, Scott, my congrats to you on your retirement. Well deserved.

George Tong:

So wanted to follow-up on the Homes.com progress with the sales. You mentioned selling 8,000 memberships in the first quarter, average price of $475 to $500 per month. I guess, do you see the average price changing as the growth trajectory matures? Or is it pretty much steady state and primarily going to be driven by volumes? And how have those volumes performed exiting the quarter? So how did the run rates look like exiting 1Q? And how do you overall think about the addressable market, like the total number of memberships that are available out there that you can tackle.

George Tong:

Thanks very much.

Alexei Gogolev:

Hi, everyone. I had a question about EBITDA margin of your non-Residential business. Scott, could you elaborate a bit more what was the level of EBITDA margin in the first quarter and whether or not you're still on track to reach the full year target of roughly 42%?

Alexei Gogolev:

Understood. And considering that you are also looking for positive EBITDA for Homes.com business or rather for the overall business for the second quarter, does that imply that you may have already peaked resi spend in the first quarter and that it will be roughly similar, but not higher in 2Q?

Alexei Gogolev:

It does, Scott. Thank you very much and I appreciate all the help over the years.

Operator:

Thank you. One moment for questions. Our next question comes from Ryan Tomasello with KBW. You may proceed.

Andrew Florance:

So I really am happy with the pricing model we went to market with. We blended -- we obviously have to have an element that is price per listing because each listing takes up valuable real estate as it sorts higher in the order. You also have to acknowledge that someone might be selling properties in a market that the average home sale is 125 and some might be selling properties where the average home sale is $3 million. So our pricing scheme is somewhat bespoke to the particular agent. And the reaction to the pricing that we are putting out there is super positive. And I mean they had not a lot of pushback on it. So there was one person that the formula priced them out at $500,000 a month, and we didn't get the reaction we were looking for with them. But everyone else is doing pretty good. We are super early stages here with just 8,000 members where I anticipate we'll have hundreds of thousands of members. We are super early stage. It's super important, in my view, for a marketplace to go for mass adoption participation of agents is our highest priority. And it's -- we won't look at doing premium tiers for a period of time until our penetration rates are in the teens and 20%. We just want to focus on what is really important, which is getting that first level of membership in there. I can tell you anecdotally from our sales force, there's demand for premium tiers. Our clients, particularly in residential real estate, would appear to be highly competitive with one another. And agents who -- listings are now up on Page 1, instead of Page 30 are now complaining that they would like to buy #1 on the page. I don't want to be #5 on the page. So there's clearly demand for premium. But in other countries or where people have -- you're listing your lead model like we do, often it's the home seller who's paying for the premium going up to the gold diamond platinum levels. But I think there is certainly demand for gold level at the agent level.

Scott Wheeler:

Thanks, Ryan. Like I said, stop by, and I'll whip you one up.

Stephen Sheldon:

Hey, thanks and I'll echo my congrats, Scott. Given the traction that you've seen with Homes.com, curious what you're wanting to see before you shift incentives back in your existing sales force to focus exclusively on their own core businesses, so suite with Apartments.com, et cetera. And do you have a rough time line, I guess, in mind for when that might happen?

Stephen Sheldon:

Very helpful. Thanks.

Surinder Thind:

Thank you. Just switching topics here to Apartments.com, can you maybe talk about the outlook for unit deliveries this year? It looks like that might peak. And then potentially what that means on a go-forward basis as we look into towards the end of the year and into 2025 for growth rates?

Surinder Thind:

Got it. Thank you.

John Campbell:

Hi, guys and Scott, I'll keep it going here. Congrats to you and best wishes on the next journey.

John Campbell:

For sure. Staying on Homes.com, Andy, I think last quarter, you talked to only demoing the product, to 2% of all U.S. agents. I guess just with your hiring plans and the rate you've run this far, just how long do you feel it will take to kind of reach your target market?

Scott Wheeler:

Of the prospects, the 500,000 some prospects up to this point, we've demoed about 7%.

John Campbell:

Okay. That's helpful. And maybe one quick follow-up related to that, [indiscernible]. Those who are subscribing without listings, what do you typically see as the key draw for them?

John Campbell:

Thanks, Andy.

Heather Balsky:

Hi. Thank you for letting me back in. I guess I got scared away by the baby crying.

Heather Balsky:

Appreciate it. I appreciate you have to play it again. So on Matterport, I'm just curious a little bit to hear how you're thinking about that business being part of CoStar going forward? There's been some headlines around Homes.com, but curious about the broader business strategy and its existing sort of standalone business. Like how are you going to integrate it? How do you plan to use it more? And do you think you can do something to kind of jump start the existing sort of revenue growth strategy?

Scott Wheeler:

Leading to extensive write-offs and expensive drones.

Heather Balsky:

Yes. I appreciate the answer. Thank you very much.

Andrew Florance:

Well, I'd like to thank you all for joining us again for our first quarter 2024 earnings call. I'm glad we were able to report good results, initial results on the Homes.com monetization. And again, thank you, Scott, for all the outstanding work you've done. And Brian, I apologize for Scott, poking the bear on the last CFO. Bye, everyone.

Operator:

Thank you. This concludes today's conference call. Thank you for your participating. You may now disconnect.

Operator:

Good day and welcome to the CoStar Group Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Cyndi Eakin, Head of Investor Relations to read the Safe Harbor statements. Cyndi, you may begin.

Andrew Florance:

Fantastic job, Cindy. Thank you. Good evening everyone and thank you for joining us for CoStar Groups fourth quarter and year-end 2023 earnings call Total revenue for the full year of 2023 was $2.46 billion, a 13% increase over the full year of 2022 Coming in above the high end of our guidance range and above consensus estimates. Revenue for the fourth quarter of 2023 was $640 million or 12% growth year-over-year. This is our 13th year in a row of double-digit revenue growth. We turned in another very strong year in sales in 2023 achieving our second highest net new bookings level ever of $286 million, this performance in the face of higher interest rates and demand shocks that kept property markets distressed in 2023 demonstrates the resilience of our business. Our full year 2023 adjusted EBITDA was $492 million and $130 million for the fourth quarter ahead of both the high end of our guidance range and consensus estimates. I'm proud to say that we achieved a major profit milestone in 2023 in our commercial real estate information and marketplace businesses as we deliver adjusted EBITDA margins of 40% for the full year. For the past three years thousands of our team members have worked with professionalism and committed focus to build the new homes.com the premier marketplace for buying, selling and renting homes in the United States. We've conducted dozens of focus groups across the country listening to hundreds of agents, homebuyers and home sellers learning why they were so dissatisfied with the legacy offerings and what they hope for in a better residential portal. We heard loud and clear that brokers, agents, sellers, buyers, and investors all dislike real estate portals that use agent’s listings as bait to draw in homebuyers and then sell them off to other agents as leads with exorbitant commission splits. We learned that homebuyers buy a home in a community not in isolation. So they want quality in-depth information on neighborhood schools, parks, restaurants, and local culture. Our product teams have designed what we believe is clearly the best residential real estate site in the world. The site is clean, powerful, intuitive, appealing, and spam free. Our software developers rose to the challenge and built a lightning-fast reliable platform that met the design specifications perfectly. Good job, Jerry and Zach and crew. Our content team comprised of hundreds of photographers, drone pilots, writers, voiceover talent, musicians, geographers, and video editors captured the essence of tens of thousands of U.S. neighborhoods, schools, and parks. Our dream team drew 2.6 million miles, captured 1.5 million images, shot 3.8 million video clips, and conducted over 350,000 drone flights. This investment creates an experience that consumers love, strengthens our SEO traffic position, and provides a significant advantage over competitive sites. Our efforts to grow traffic on homes.com in 2023 were a big success. Homes.com was the fastest growing real estate website at the end of 2023 with over 600% year-over-year growth in the fourth quarter according to Google Analytics. Our residential network traffic in the fourth quarter totaled 95 million average monthly unique visitors growing 94% year-over-year. We were easily in second place in traffic by this measure, well ahead of the 66 million average monthly unique visitors at realtor.com reported two weeks ago. Our largest competitors Realtor and Zillow reported either flat or declining traffic in the fourth quarter of 2023. I believe we will be able to report even stronger traffic numbers in the near future. After building the site and traffic for over two years, last week we launched a massive marketing campaign for homes.com with four commercials during the Super Bowl, an event that was watched by an estimated 123 million viewers. We ran a clever apartments.com commercial in the first quarter with Invading Aliens to set Jeff Goldblum up for a memorable cameo in the first homes.com ad in the second quarter connecting the two brands. In the spots Dan Levy plays the nephew inheriting his uncle's business homes.com and he sets out to reinvent the company and make it better than ever. He is supported by his hesitant sidekick played by SNL's Heidi Garner. The spots draw attention to the value of our neighborhood and school data that we offer home shoppers. The Super Bowl was only the kick-off. In the week following the Super Bowl we generated an estimated 560 million impressions across prime broadcast TV, syndicated TV, cable TV, morning shows, late-night shows, major streaming audio and video platforms, and of course on Google in various forms. During the course of the year we will be in the Olympics, the Oscars, the Emmys, March Madness, the U.S. Open, the Stanley Cup playoffs, Major League Baseball and much more. We believe that we will generate approximately $80 billion each in 90% of U.S. households with our message in 2024. We believe that no other competitor is investing close to what we're investing in this effort. We believe we can grow share. We believe that we have a better product and can significantly shift share and create a very attractive ROI for our investors. While we have excellent traffic numbers, we do not yet have the unaided awareness we need to sustain the top traffic position and to draw the volume of advertisers we seek. As we did with apartments.com, our plan is to grow unaided awareness from the low single digits to more than 50%. That process will take time, but we believe that it will drive brand awareness, SEO, SEM efficiency, traffic, audience, customer demand, and revenue. On Monday, February 12th, the day after the Super Bowl, we were ready to begin monetizing homes.com, selling memberships to agents a quarter earlier than we had previously communicated to you. As we did when we launched the new LoopNet, the new apartments and the new apartments.com, we deployed the entire CoStar Group sales force to sell homes.com. Our goal is to catapult our growth forward and quickly capitalize on the momentum and exposure generated from our marketing campaign. Our 1,000 plus person sales force gives us instant national reach with experienced sales people that live in many of the very same neighborhoods as the 1.5 million residential property agents that we intend to reach. We trained the full sales team in January and rolled out very attractive incentive structures that reward our sellers to sell both homes and their primary brands like CoStar or apartments along with homes. The more they sell of both brands combined, the more money they make. In addition to leveraging the strength of our entire CoStar Group sales team, we are rapidly building a sales force dedicated to selling only homes.com. We've recruited a vice president, sales managers, and 100 sellers to date and intend to have over 300 account sales representatives in place by the end of the year. The response to our sales effort is phenomenal. From a standing start, we sold almost 5.2 million. It was 5 million half an hour ago. 5.2 million annualized subscription revenue in just a little over a week. From a modest start on Monday, our sales climbed each day and by Friday, we were selling $1.1 million in memberships in a single day. We've sold more than 827 memberships so far with approximately 90% of the agents selecting 12-month memberships with the rest choosing a six-month subscription. We've seen agents with larger portfolios signing up at price points in the thousands of dollars a month, so far topping out at $7,400 a month. We have proposals out at much higher price points. We also have agents with just a listing or so signing up at price points of only $100 to $200 a month. It doesn't matter if you're an agent with a large portfolio or small portfolio. Either way, we're charging a small fraction of the serious ridiculously high 30% to 40% of commissions being charged by Zillow and Realtor.com to agents. We have only demoed 0.02% of the agents out there at this point. If we maintain this pace, we could sell around $200 million in annual reoccurring revenue in our first 12 months of selling. The great news is that agents are definitely willing to spend for advertising exposure and they absolutely love the Homes.com 'your listing, your lead' business model. Our direct field sales team, telephone sales teams, and e-commerce sales channels are all producing results. We are initially focused on approximately 500,000 of the 1.5 million agents in the country. The annual revenue potential of this initial pool of agents for a basic homes.com membership is over $2.5 billion. Knowing that apartments.com basic silver ads comprise around 25% of all apartments.com listings, if this same ratio were to apply to homes.com, then the potential opportunity could be as high as $10 billion. Overall, I'm very proud of what the team has worked so hard to accomplish with homes.com in only three years and believe it will be the most successful product launch in CoStar Group history. This coming year also marks a turning point as we've reached the peak year of our residential investment. With sales and revenue growing in the months ahead, we expect overall company profit levels to increase each quarter throughout the year and for the foreseeable future. In December, we successfully closed our acquisition of OnTheMarket in the United Kingdom for £100 million. We believe that at the time of the acquisition of OnTheMarket, we believe that the time of the acquisition of OnTheMarket was one of the top three residential portals in the U.K. £100 million is 2% of the current leading portal, Rightmove's £4.4 billion market cap. Rightmove currently has significantly more traffic than OnTheMarket, so a top priority for us is to grow the appeal of the site for homebuyers and sellers and grow traffic. Just one month in, we're making huge progress, increasing January 2024 site traffic to OnTheMarket by 81% year-over-year, according to Google Analytics. We didn't waste time. We believe that we are now the fastest growing residential portal in the U.K. As our traffic has grown, our leads have also grown 81% since December of 2023. Rightmove announced at their recent investor day that they plan to grow revenue per agent by 42% to over £2,000 per agent per month over the next five years. That is 10 times what OnTheMarket charges agents today. Rightmove is also committed to maintaining at least 70% profit margin levels through 2028, leaving them little room for investing in product and technology. You simply cannot make this stuff up, but you have to love it. In sharp contrast, we plan to continue CoStar's longstanding strategy of investing and partnering with agents in the industry to generate and attract high intent leads at a fraction of the cost of other U.K. portals while still achieving an attractive margin. Agents are telling us that they're in search of an alternative to Rightmove's unfriendly agent listing fees and are supportive of OnTheMarket. Since acquisition, we have added over 1,000 agent advertisers and 57,000 listings to the site, again, in a matter of two months. Our long-term intention is to create the number one property portal in the U.K. by combining CoStar's marketing and traffic generation expertise, the market-leading technology we've developed in homes.com, CoStar's research and content generation capabilities, and the strength of our established commercial real estate platform in the U.K. The European residential market opportunity is estimated to be $17 billion, and we intend to build and expand our share of the residential opportunity in Europe, beginning with OnTheMarket. Apartments.com had a phenomenal year. Revenue for the year was $914 million, or 23% growth over 2022. This is almost $170 million of incremental annual revenue, the largest contribution ever for any of our brands. As of January this year, Apartments.com is now not only the largest business by revenue at CoStar, but also officially our first billion-dollar revenue run rate business. But here comes CoStar right behind it, and then homes. The sales team delivered exceptional results at Apartments.com in 2023, with annualized net new bookings growing 34% over 2022. We now have almost 71,000 communities advertising their availabilities on Apartments.com, which is 11% above the fourth quarter of 2022, and almost twice that of our nearest competitor. Our highly productive sales team conducted over 623,000 quality meetings in 2023, which was 37% higher than in 2022, and a new record. Our customers love our sales team, rewarding them with a 94% net promoter score rating for the full year of 2023. We continue to expand our mid-market sales effort by growing our sales team and developing targeted product offerings that suit the needs of mid-sized communities. Net productivity for our sales team increased by 14% in 2023, as compared to 2022, which resulted in a 44% growth in properties under 50 units advertising on Apartments.com. The opportunity in the small property sector is massive at almost $7 billion, and our penetration in this sector is still below 5%. Our award-winning marketing campaign, featuring the wonderful and very funny Jeff Goldblum as Brad Bellflower, inventor of the Apartminternet, entertained audiences and delivered over 12 billion media impressions and almost 1 billion visits to our websites during the year. We jump-started our 2024 media campaign with a Super Bowl ad. This is year 10 of our brand-building marketing campaign since we launched Apartments.com back in 2015. This consistent, long-term brand marketing strategy continues to prove successful as we finish the year with 52% unaided brand awareness, with renters in the fourth quarter 6 percentage points above our closest competitor. Based on a recent study by market research firm Market Connections, industry decision makers representing 15,000 communities named Apartments.com as the most widely used advertising solution at 74%. The research also found that Apartments.com was the most well-known advertising solution, beating our closest competitor by 25%. The Apartments.com brand is stronger than it's ever been, delivering almost a billion visits to our websites and 43 million average monthly unique visitors during 2023, according to Google Analytics. Our customers care about the number of potential renters utilizing our site every month to find a place to live, making unique visitors a key metric. For the past eight quarters in a row, Apartments.com held the number one position in terms of monthly average unique visitors when comparing our traffic to Zillow's publicly disclosed average monthly unique visitors. Overall economic conditions are expected to remain favorable for rental property advertising. Vacancy rates increased in 2023 for three to five-star properties by 160 basis points to 9.1%, and are expected to increase in 2024 as new unit deliveries are expected to remain high in 2024 at approximately 470,000 units. We expect to see Apartments.com generate strong double-digit revenue growth in 2024, somewhere in the high teens or more, which is balanced to some degree by the level of Homes.com sales effort that's top-performing advertising Juggernaut delivers in 2024. CoStar delivered another strong quarter with revenues of $925 million and 11% year-over-year growth rate. Fourth quarter, revenue grew 8% year-over-year to $238 million. We have never seen this level of positive revenue growth for CoStar while we're at the bottom of a severe property market downturn. The strength of CoStar continues to be our ability to expand the information, content, and analytic capabilities in the product to diversify into bigger and broader customer sets, like owners, lenders, and corporate tenants. In 2023, we sold twice as much to the owner, lender, and corporate tenant sectors than we did to brokers. Net sales in the fourth quarter to owner, lender, and tenant customers grew almost 30% compared to the third quarter of this year. The CoStar lender product had an exceptional year in 2023, nearly doubling our customer base and delivering over five times the revenue that we realized in 2022. We now have over 1,000 active users for our lender product. Our opportunity pipeline is large, with over 300 institutions progressing through our sales process. Our competitive data advantage has helped us win virtually every deal versus the main competitors in this space, including winning seven of the largest CRE lenders in the industry. Looking ahead, there is significant opportunity to expand the CoStar lender addressable market beyond our initial focus on depository institutions. As regional banks and credit unions tighten up their credit lending requirements, their commercial lending requirements, private lenders are stepping in to fill the void. We believe the total addressable market for our expanded target customer set is over 600 million. We are currently serving less than 15% of this opportunity and have plans to increase our sales and product teams to accelerate our growth next year. We released our hospitality benchmarking product in the CoStar platform in 2023 and are rapidly migrating our SDR customer base into the CoStar environment. Over 600 customers are now using the benchmark product in CoStar, with the remaining customers to be migrated in the first half of 2024. More than 18,000 users are now in CoStar managing their hotel's performance and optimizing their revenue through the reimagined tools and additional analytic capabilities. As a result of the movement of SDR benchmarking at CoStar, revenues from our hospitality benchmark subscriptions will now be reported as part of CoStar, similar to our integrated approach of our lender products for financial institutions being CoStar. The transition of SDR benchmarking to CoStar in 2024 is a major milestone for our roadmap to build the full suite of SDR product capabilities in CoStar. We plan to incorporate forward booking information, complete P&L benchmarking, and international market performance this year and the next. SDR overall had an incredible year. 2023 revenue grew 13% over last year, delivering the highest annual ever result since we bought SDR in 2019. The team had a record sales quarter to end the year, growing 54% over the fourth quarter of last year. Subscription revenue grew 17% in 2023 over the prior year and now makes up 81% of the overall revenue, the highest percentage since the acquisition. SDR's quarterly renewal rate is now in a very impressive 98%. With the full capability of CoStar and SDR combined, we expect to unlock increased value for our customers and grow strong double-digit revenue towards what we believe is a 300 million hospitality market opportunity. Overall, we remain very confident in the strength and value of CoStar's platform and our growth performance in the downturn. Renewal rates for CoStar remain rock solid at 92% and we're seeing early indications of increased leasing and sales activity as we move into the first quarter of 2024. Although it's too early to call a recovery in the property markets, we expect solid mid-single digit revenue growth from CoStar in 2024. LoopNet revenue was $265 million in 2023, up 15% year-over-year and at the high end of our guidance range. Signature listings, signature ad listings were up 11% in the fourth quarter, delivering more traffic and leads to our customers. International revenue in the fourth quarter was up 33% and net new bookings were up 186% over the fourth quarter of 2022. LoopNet continues to be the number one listing site for commercial properties. Average monthly unique visitors to the global network in the fourth quarter were up 11% year-over-year and was seven times the traffic of the next largest competitor. In the U.K., LoopNet is now the number one dedicated commercial property marketplace by traffic after launching only a little over a year ago. We continue to expand internationally given our success to date and the size of the opportunity. We plan to launch LoopNet in France and Spain in 2024. In -- 2023 was a year of growth for LoopNet sales team. At the end of 2022, only 40% of the sales were managed by LoopNet dedicated sales representatives and we've now effectively transitioned to 80% of those accounts from CoStar reps to LoopNet reps. The LoopNet sales team is focused on ramping up activity, face-to-face meetings and MPS scores following the success formula of apartments.com. As a result, we expect to deliver increased sales productivity and bookings as we move through 2024. Ten-X continues to demonstrate the value of our digital sales platform for our commercial properties. In a year when sales transactions were down 49%, Ten-X brought $4.5 billion in assets to the platform, which was a modest decline of 9% relative to the market's steeper decline. We delivered a 52% trade rate in 2023, nearly double the offline trade rate, but below the rates we achieved in 2022. Overall, Ten-X revenue finished the year around 20% below prior year levels. Despite this decline, we increased our share of property sales in the $1million to $10 million asset category during the year, moving more transactions from offline to online. The market outlook for the coming year remains uncertain, although interest rates have stabilized near-term, bid-ask spreads and debt constraints remain a challenge. Regardless of these uncertainties, in the first 45 days of 2024, our trade rate and number of bidders per asset have increased from the fourth quarter of 2023 levels. There are still billions of dollars of transactions occurring each year in the $1 billion to $10 billion asset category, which we continue to pursue as part of what we believe is a $3 billion long-term market opportunity. The real estate capital markets in the fourth quarter continue to be impacted by higher borrowing costs, tight lending standards, and deteriorating real estate fundamentals. In 2023, transaction volumes were down 49% and price declines ranged from 10% to 35% across all sectors. Banks continue to slow their loan growth as property fundamentals decline and delinquencies rise. With interest rates expected to decline later this year, current expectations are for sales volumes to increase compared to last year. We saw some early indications in January with sales volumes rising 6.4%. The office sector continues to be the most challenged with 58 million square feet of negative absorption in 2023. Absorption since the pandemic now sits at negative 178 million square feet. Office attendance is 60% of what it was before 2020, though that understates demand since hybrid work requires higher peak use. The market sits at a record high 13.5% vacancy rate. A silver lining is the decline in construction starts, which we predict will eventually result in a shortage of premium office space. Since our 15-year lease at our Washington DC headquarters location is set to expire in 2025, we assess more than 25 viable sites in the greater Washington DC metro area. We ultimately decided to purchase a five-star trophy LEED Platinum office building located at 1201 Wilson Boulevard in Arlington, Virginia. We were able to purchase the building and the land lease for a significant discount to both recent valuations and current replacement costs. We also received nearly $7 million in both tax and economic incentives. While past performance does not ensure future performance, you might recall that back in 2010 during the great financial crisis, we acquired our 1331 L Street location for $42 million, a then significant discount to replacement costs, and sold it within two years and the sale lease back for $101 million, more than twice what we bought it for. We are betting that the office market is at a Nadar [ph] again. We will likely execute a sales lease back on 1201 Wilson Boulevard at some point in the future. The industrial sector has also seen a historic wave of new construction push vacancies up from all-time lows, but at 5.7%, industrial vacancies are still at half their peak levels. Industrial demand has remained positive, though, and the rise in vacancies should be mitigated by a pullback in construction starts in the second half of 2023. The retail sector continued to be the best performing in the fourth quarter with both positive absorption and limited new construction. The result was vacancy rates dropping to 4%, an all-time low. Conditions should remain healthy for retail with under construction at near all-time level lows. The U.S. hotel sector ended the year with RevPAR growth of 4.9%, outpacing inflation and being driven by ADR growth of 4.3% and occupancy growth of 0.6%. Robust group demand and corporate transient demand were the primary contributors to growth. RevPAR is expected to continue to outpace inflation in 2024 with 4.1% growth projected. In the U.S. residential sector, mortgage rates have come down from 7.8% to 6.6%, but rates are still high enough to prevent homeowners from selling, creating low inventory of homes for sale, and low levels of homes being sold. But if interest rates continue to drop, affordability will improve, and even a drop to 6% would mean home ownership would become affordable for an additional 37 million Americans. In the context of a distressed commercial real estate market, CoStar turned in an outstanding performance in 2023, growing revenue 13% with record levels of profitability in our CRE business. It is clear that CoStar Group's diversified subscription business is highly resilient in a distressed property cycle. We believe that we will improve profits and margins again in 2024 to $1.1 billion in adjusted EBITDA with 42% margins. Our entire team has worked extraordinarily hard in building the Homes.com platform and business. We believe that we just launched CoStar Group's next transformative billion-dollar business. In the conversations we are having with brokerage leaders, and agents, they tell us they are 100% behind our year-list and year-lead business model, but it gets better for brokers, agents, homebuyers, and home sellers. I am thrilled to see that support with $5.2 million in annualized subscription sales in just the first six business days of selling Homes.com. The first half of 2024 is the peak investment for Homes.com, and we believe profits and margins will start showing significant growth in the second half of 2024. After my brief remarks, I'm going to turn the call over to our Chief Financial Officer, Scott Wheeler. Are you still there, Scott?

Operator:

Thank you. [Operator Instructions] Our first question comes from Pete Christiansen with Citi. Your line is open.

Andrew Florance:

Well, thank you for the question, Pete. I just wanted to update you since we came in here and began the call. We're now at $5.3 million. We've sold 58 more accounts.

Andrew Florance:

Yes, I think I've addicted to that meter. So the -- yes. So we will engage the entire sales force throughout 2024 on selling the product. To be honest with the whole sales force, I believe, wants to participate in selling the product, and I think it works best. So nothing sounds better than when you listen to a salesperson talking to a prospect and saying I'm a couple of blocks away. I just got another update, it doesn't look real. So the it really is effective when someone -- when we can sign these 500,000 accounts to people right in their own neighborhoods, the salesperson can say, Well, I'm 3 blocks away from your office, I come by tomorrow. That it works really well. So it will take us a full year to build up a dedicated Homes.com sales team. I do not believe that this has dramatically more. I think it will be similar to any other product in terms of service and support. It is like Apartments.com. You do have to touch base with the customers, make sure that they're well taken care of and that they understand the performance of their membership. But I would say that in 2025, you would begin to see the shifting back to the general group. But right now, we want speed of sales.

Operator:

One moment for our next question. Our next question comes from Heather Balsky with Bank of America. Please proceed with your question.

Scott Wheeler:

Thanks for the question, Heather. I'll give you just some context there. Like I mentioned, the peak net investment this year. As we finalize resource growth, obviously, in sales, you'll see some of those costs annualized forward into 2025 off 2024. But the rest of the cost base is now in 2024 doesn't really move much in the years ahead. So that's really how we're thinking about it, and we think we have plenty of investment here to now be growing the Homes.com business for a long, long time at really strong rates. The update that you're looking forward to next quarter is going to be a fun one because we all want to start drawing those lines around the revenue growth for Homes and how that will perform, which obviously sets us on the track towards those 2027 goals. So I think we'll talk more about that next quarter, but we are still seeing traction towards 2027, and we're committed to still reaching those levels. Too early to tell yet on the revenue leverage rates for Homes.com, which make a big difference as you would expect.

Scott Wheeler:

With only a week of experience. More to come, but thanks for the question.

Operator:

One moment for our next question. Our next question comes from George Tong with Goldman Sachs. Please proceed with your question.

Scott Wheeler:

Sure, George. Let me take the margin cadence question. I mentioned that we'll be in the 12% to 13% in the second half. I think exiting the year, we'll be over 15%, probably 16% going out of the year. And then in the first quarter, we mentioned the minus $8 million to $12 million there, and then we'll take a step between first and third quarter in the second. So you see a steady sequential increase in the margin profile overall for the company. When you look at where the investment going for residential, we've added OnTheMarket and as you watched the announcements around what we're doing there, we committed to putting in around $50 million of marketing that right now has us moving up rather quickly with both listings, traffic and inching up closer towards the number two position. So that's proving to be very valuable right now. And then the rest of the investment is, as you would expect, it's in the Homes.com U.S. business, which is the biggest part is going to be our marketing investments and then followed by the teams that run our content research and technology. So those have been the biggest pieces all along. They'll continue to be the biggest pieces probably in that order as we go forward.

George Tong:

Got it. Very helpful, thank you.

Alexei Gogolev:

Thank you everyone. Just to clarify the previous comment, Andy. So do you feel like you are front-loading some of the investments that may have initially been planned for 2025 and 2026, you are front-loading it into 2024 in resi?

Alexei Gogolev:

Understood. Perfect. And Scott, could you help us reconcile the net new bookings figure? I fully recognize that it was a record figure for the year, $286 million. But could you talk a bit more about the dynamic in the fourth quarter and whether there was any cyclicality in there?

Alexei Gogolev:

Perfect. Appreciate it. Got it, thank you.

Ryan Tomasello:

Hi, everyone. Thanks for taking the question. Understanding that the Homes brand campaign is still early innings of seeing how that plays out. But maybe you could elaborate on what flexibility you might maintain around investments this year, depending on how performance evolves? I'm curious if there are specific milestones or circuit breakers you've built in around agent adoption traffic, etcetera, to inform and revisit those plans as the year plays out, whether that's laying on the gas even more or perhaps pulling it back? Just trying to understand how set in stone the investment plans are this year.

Ryan Tomasello:

Great. Thanks for the color.

John Campbell:

Hey guys thanks for taking my questions. Good afternoon. So Andy, as much as I want to ask you if the Homes.com bookings meter has moved over the last couple of minutes, I'm going to hold off. I'm guessing we're going to get plenty of updates in the quarters ahead. But bigger picture question here, just on the industry kind of legal backdrop. Obviously, a lot of moving parts there. I think it's clear, at least from where I sit, that things seem to be progressing in the favor of Homes.com as far as the value proposition. But what is your take specifically on dual agency, whether you think that's where the market is heading and how you think Homes.com is uniquely positioned to capitalize on that?

John Campbell:

Okay. Makes a lot of sense. And then somewhat related to that, you mentioned sending free leads. When you guys refer to the Homes.com revenue model, you often refer to the term membership. I'm hoping if you could maybe unpack what exactly that means, maybe starting off with the base level of spend? And then what other products and services are kind of included in that “membership”?

John Campbell:

Very helpful. Thanks Andy.

Ashish Sabadra:

Thanks for taking my question. I just wanted to drill down further on the resi monetization, the commentary around $200 million annual recurring bookings continuing at this pace. I was just wondering, as we think about like the agent within that bookings, how are you thinking -- you talked about a wide range there from $100, $200 per month to as much as $7,400. Are there certain kinds of agents that you're targeting? Any color there would be helpful. Thanks.

Scott Wheeler:

That's the initial population, of course, that we came out with the targets. And what we're seeing is that the inbound lead flow is very strong from all agents. So our sales force is going after their top prospects in the target list, but also responding to all the leads that are coming in as quickly as possible. And then on top of that, we have our e-commerce channel, which agents can go in and sign up with a few clicks and have all their information and they're ready to go. So all of those are performing well, and we'll continue to expand the group we target. But right out of the gate, we've got a lot to cover quickly.

Ashish Sabadra:

Thanks for the color.

Andrew Florance:

Thank you. Appreciate that. So today, I've got more interested in concluding remarks that I normally have. So I have some news to share with you. Scott Wheeler joined us as our CFO 8 years ago or so. During those 8 years, he's done a fantastic job at the helm of our finance department. We've seen our revenues triple in that time period, and we've gone from strength to strength. I would count Scott more than just a valued colleague. He's become a good friend of mine. As you may know, Scott loves to climb mountains. He was the first father daughter team to summit the tallest mountain in every U.S. state. It wasn't much of an accomplishment in Florida. It was a much bigger accomplishment in Alaska. Scott has accomplished as much as anyone could wish to professionally. So now he's earned the opportunity to retire and pursue his climbing passion in the golden years ahead.

Andrew Florance:

Scott will remain with the company until June to facilitate a transition, and I will bring back the other two former CFOs to help in the transition as well. Scott is our third public company CFO with each of our prior CFOs also having served exactly 8-year tenure. We'll begin a search for our 2024 to 2032 CFO immediately. I would have let Scott announce his own retirement, but the last CFO to retire became for Clint when he announced his retirement so I wanted to avoid that awkwardness today. Scott leaves with no disagreements or issue, he simply wants to enjoy the fruits of his labor Godspeed, Scott, and thank you so much. I would like to thank everyone for joining us for our fourth quarter and year-end 2023 earnings call. We look forward to speaking with you again on our first quarter call on April 2023, 2024. Thank you very much for participating. Thank you, Mr. Scott Wheeler.

Andrew Florance:

You need a tissue, man?

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good day and welcome to the CoStar Group Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Cyndi Eakin, Head of Investor Relations to read the Safe Harbor statements. Cyndi, you may begin.

Andrew Florance:

Fantastic job, Cindy. Thank you. Good evening everyone and thank you for joining us for CoStar Groups fourth quarter and year-end 2023 earnings call Total revenue for the full year of 2023 was $2.46 billion, a 13% increase over the full year of 2022 Coming in above the high end of our guidance range and above consensus estimates. Revenue for the fourth quarter of 2023 was $640 million or 12% growth year-over-year. This is our 13th year in a row of double-digit revenue growth. We turned in another very strong year in sales in 2023 achieving our second highest net new bookings level ever of $286 million, this performance in the face of higher interest rates and demand shocks that kept property markets distressed in 2023 demonstrates the resilience of our business. Our full year 2023 adjusted EBITDA was $492 million and $130 million for the fourth quarter ahead of both the high end of our guidance range and consensus estimates. I'm proud to say that we achieved a major profit milestone in 2023 in our commercial real estate information and marketplace businesses as we deliver adjusted EBITDA margins of 40% for the full year. For the past three years thousands of our team members have worked with professionalism and committed focus to build the new homes.com the premier marketplace for buying, selling and renting homes in the United States. We've conducted dozens of focus groups across the country listening to hundreds of agents, homebuyers and home sellers learning why they were so dissatisfied with the legacy offerings and what they hope for in a better residential portal. We heard loud and clear that brokers, agents, sellers, buyers, and investors all dislike real estate portals that use agent’s listings as bait to draw in homebuyers and then sell them off to other agents as leads with exorbitant commission splits. We learned that homebuyers buy a home in a community not in isolation. So they want quality in-depth information on neighborhood schools, parks, restaurants, and local culture. Our product teams have designed what we believe is clearly the best residential real estate site in the world. The site is clean, powerful, intuitive, appealing, and spam free. Our software developers rose to the challenge and built a lightning-fast reliable platform that met the design specifications perfectly. Good job, Jerry and Zach and crew. Our content team comprised of hundreds of photographers, drone pilots, writers, voiceover talent, musicians, geographers, and video editors captured the essence of tens of thousands of U.S. neighborhoods, schools, and parks. Our dream team drew 2.6 million miles, captured 1.5 million images, shot 3.8 million video clips, and conducted over 350,000 drone flights. This investment creates an experience that consumers love, strengthens our SEO traffic position, and provides a significant advantage over competitive sites. Our efforts to grow traffic on homes.com in 2023 were a big success. Homes.com was the fastest growing real estate website at the end of 2023 with over 600% year-over-year growth in the fourth quarter according to Google Analytics. Our residential network traffic in the fourth quarter totaled 95 million average monthly unique visitors growing 94% year-over-year. We were easily in second place in traffic by this measure, well ahead of the 66 million average monthly unique visitors at realtor.com reported two weeks ago. Our largest competitors Realtor and Zillow reported either flat or declining traffic in the fourth quarter of 2023. I believe we will be able to report even stronger traffic numbers in the near future. After building the site and traffic for over two years, last week we launched a massive marketing campaign for homes.com with four commercials during the Super Bowl, an event that was watched by an estimated 123 million viewers. We ran a clever apartments.com commercial in the first quarter with Invading Aliens to set Jeff Goldblum up for a memorable cameo in the first homes.com ad in the second quarter connecting the two brands. In the spots Dan Levy plays the nephew inheriting his uncle's business homes.com and he sets out to reinvent the company and make it better than ever. He is supported by his hesitant sidekick played by SNL's Heidi Garner. The spots draw attention to the value of our neighborhood and school data that we offer home shoppers. The Super Bowl was only the kick-off. In the week following the Super Bowl we generated an estimated 560 million impressions across prime broadcast TV, syndicated TV, cable TV, morning shows, late-night shows, major streaming audio and video platforms, and of course on Google in various forms. During the course of the year we will be in the Olympics, the Oscars, the Emmys, March Madness, the U.S. Open, the Stanley Cup playoffs, Major League Baseball and much more. We believe that we will generate approximately $80 billion each in 90% of U.S. households with our message in 2024. We believe that no other competitor is investing close to what we're investing in this effort. We believe we can grow share. We believe that we have a better product and can significantly shift share and create a very attractive ROI for our investors. While we have excellent traffic numbers, we do not yet have the unaided awareness we need to sustain the top traffic position and to draw the volume of advertisers we seek. As we did with apartments.com, our plan is to grow unaided awareness from the low single digits to more than 50%. That process will take time, but we believe that it will drive brand awareness, SEO, SEM efficiency, traffic, audience, customer demand, and revenue. On Monday, February 12th, the day after the Super Bowl, we were ready to begin monetizing homes.com, selling memberships to agents a quarter earlier than we had previously communicated to you. As we did when we launched the new LoopNet, the new apartments and the new apartments.com, we deployed the entire CoStar Group sales force to sell homes.com. Our goal is to catapult our growth forward and quickly capitalize on the momentum and exposure generated from our marketing campaign. Our 1,000 plus person sales force gives us instant national reach with experienced sales people that live in many of the very same neighborhoods as the 1.5 million residential property agents that we intend to reach. We trained the full sales team in January and rolled out very attractive incentive structures that reward our sellers to sell both homes and their primary brands like CoStar or apartments along with homes. The more they sell of both brands combined, the more money they make. In addition to leveraging the strength of our entire CoStar Group sales team, we are rapidly building a sales force dedicated to selling only homes.com. We've recruited a vice president, sales managers, and 100 sellers to date and intend to have over 300 account sales representatives in place by the end of the year. The response to our sales effort is phenomenal. From a standing start, we sold almost 5.2 million. It was 5 million half an hour ago. 5.2 million annualized subscription revenue in just a little over a week. From a modest start on Monday, our sales climbed each day and by Friday, we were selling $1.1 million in memberships in a single day. We've sold more than 827 memberships so far with approximately 90% of the agents selecting 12-month memberships with the rest choosing a six-month subscription. We've seen agents with larger portfolios signing up at price points in the thousands of dollars a month, so far topping out at $7,400 a month. We have proposals out at much higher price points. We also have agents with just a listing or so signing up at price points of only $100 to $200 a month. It doesn't matter if you're an agent with a large portfolio or small portfolio. Either way, we're charging a small fraction of the serious ridiculously high 30% to 40% of commissions being charged by Zillow and Realtor.com to agents. We have only demoed 0.02% of the agents out there at this point. If we maintain this pace, we could sell around $200 million in annual reoccurring revenue in our first 12 months of selling. The great news is that agents are definitely willing to spend for advertising exposure and they absolutely love the Homes.com 'your listing, your lead' business model. Our direct field sales team, telephone sales teams, and e-commerce sales channels are all producing results. We are initially focused on approximately 500,000 of the 1.5 million agents in the country. The annual revenue potential of this initial pool of agents for a basic homes.com membership is over $2.5 billion. Knowing that apartments.com basic silver ads comprise around 25% of all apartments.com listings, if this same ratio were to apply to homes.com, then the potential opportunity could be as high as $10 billion. Overall, I'm very proud of what the team has worked so hard to accomplish with homes.com in only three years and believe it will be the most successful product launch in CoStar Group history. This coming year also marks a turning point as we've reached the peak year of our residential investment. With sales and revenue growing in the months ahead, we expect overall company profit levels to increase each quarter throughout the year and for the foreseeable future. In December, we successfully closed our acquisition of OnTheMarket in the United Kingdom for £100 million. We believe that at the time of the acquisition of OnTheMarket, we believe that the time of the acquisition of OnTheMarket was one of the top three residential portals in the U.K. £100 million is 2% of the current leading portal, Rightmove's £4.4 billion market cap. Rightmove currently has significantly more traffic than OnTheMarket, so a top priority for us is to grow the appeal of the site for homebuyers and sellers and grow traffic. Just one month in, we're making huge progress, increasing January 2024 site traffic to OnTheMarket by 81% year-over-year, according to Google Analytics. We didn't waste time. We believe that we are now the fastest growing residential portal in the U.K. As our traffic has grown, our leads have also grown 81% since December of 2023. Rightmove announced at their recent investor day that they plan to grow revenue per agent by 42% to over £2,000 per agent per month over the next five years. That is 10 times what OnTheMarket charges agents today. Rightmove is also committed to maintaining at least 70% profit margin levels through 2028, leaving them little room for investing in product and technology. You simply cannot make this stuff up, but you have to love it. In sharp contrast, we plan to continue CoStar's longstanding strategy of investing and partnering with agents in the industry to generate and attract high intent leads at a fraction of the cost of other U.K. portals while still achieving an attractive margin. Agents are telling us that they're in search of an alternative to Rightmove's unfriendly agent listing fees and are supportive of OnTheMarket. Since acquisition, we have added over 1,000 agent advertisers and 57,000 listings to the site, again, in a matter of two months. Our long-term intention is to create the number one property portal in the U.K. by combining CoStar's marketing and traffic generation expertise, the market-leading technology we've developed in homes.com, CoStar's research and content generation capabilities, and the strength of our established commercial real estate platform in the U.K. The European residential market opportunity is estimated to be $17 billion, and we intend to build and expand our share of the residential opportunity in Europe, beginning with OnTheMarket. Apartments.com had a phenomenal year. Revenue for the year was $914 million, or 23% growth over 2022. This is almost $170 million of incremental annual revenue, the largest contribution ever for any of our brands. As of January this year, Apartments.com is now not only the largest business by revenue at CoStar, but also officially our first billion-dollar revenue run rate business. But here comes CoStar right behind it, and then homes. The sales team delivered exceptional results at Apartments.com in 2023, with annualized net new bookings growing 34% over 2022. We now have almost 71,000 communities advertising their availabilities on Apartments.com, which is 11% above the fourth quarter of 2022, and almost twice that of our nearest competitor. Our highly productive sales team conducted over 623,000 quality meetings in 2023, which was 37% higher than in 2022, and a new record. Our customers love our sales team, rewarding them with a 94% net promoter score rating for the full year of 2023. We continue to expand our mid-market sales effort by growing our sales team and developing targeted product offerings that suit the needs of mid-sized communities. Net productivity for our sales team increased by 14% in 2023, as compared to 2022, which resulted in a 44% growth in properties under 50 units advertising on Apartments.com. The opportunity in the small property sector is massive at almost $7 billion, and our penetration in this sector is still below 5%. Our award-winning marketing campaign, featuring the wonderful and very funny Jeff Goldblum as Brad Bellflower, inventor of the Apartminternet, entertained audiences and delivered over 12 billion media impressions and almost 1 billion visits to our websites during the year. We jump-started our 2024 media campaign with a Super Bowl ad. This is year 10 of our brand-building marketing campaign since we launched Apartments.com back in 2015. This consistent, long-term brand marketing strategy continues to prove successful as we finish the year with 52% unaided brand awareness, with renters in the fourth quarter 6 percentage points above our closest competitor. Based on a recent study by market research firm Market Connections, industry decision makers representing 15,000 communities named Apartments.com as the most widely used advertising solution at 74%. The research also found that Apartments.com was the most well-known advertising solution, beating our closest competitor by 25%. The Apartments.com brand is stronger than it's ever been, delivering almost a billion visits to our websites and 43 million average monthly unique visitors during 2023, according to Google Analytics. Our customers care about the number of potential renters utilizing our site every month to find a place to live, making unique visitors a key metric. For the past eight quarters in a row, Apartments.com held the number one position in terms of monthly average unique visitors when comparing our traffic to Zillow's publicly disclosed average monthly unique visitors. Overall economic conditions are expected to remain favorable for rental property advertising. Vacancy rates increased in 2023 for three to five-star properties by 160 basis points to 9.1%, and are expected to increase in 2024 as new unit deliveries are expected to remain high in 2024 at approximately 470,000 units. We expect to see Apartments.com generate strong double-digit revenue growth in 2024, somewhere in the high teens or more, which is balanced to some degree by the level of Homes.com sales effort that's top-performing advertising Juggernaut delivers in 2024. CoStar delivered another strong quarter with revenues of $925 million and 11% year-over-year growth rate. Fourth quarter, revenue grew 8% year-over-year to $238 million. We have never seen this level of positive revenue growth for CoStar while we're at the bottom of a severe property market downturn. The strength of CoStar continues to be our ability to expand the information, content, and analytic capabilities in the product to diversify into bigger and broader customer sets, like owners, lenders, and corporate tenants. In 2023, we sold twice as much to the owner, lender, and corporate tenant sectors than we did to brokers. Net sales in the fourth quarter to owner, lender, and tenant customers grew almost 30% compared to the third quarter of this year. The CoStar lender product had an exceptional year in 2023, nearly doubling our customer base and delivering over five times the revenue that we realized in 2022. We now have over 1,000 active users for our lender product. Our opportunity pipeline is large, with over 300 institutions progressing through our sales process. Our competitive data advantage has helped us win virtually every deal versus the main competitors in this space, including winning seven of the largest CRE lenders in the industry. Looking ahead, there is significant opportunity to expand the CoStar lender addressable market beyond our initial focus on depository institutions. As regional banks and credit unions tighten up their credit lending requirements, their commercial lending requirements, private lenders are stepping in to fill the void. We believe the total addressable market for our expanded target customer set is over 600 million. We are currently serving less than 15% of this opportunity and have plans to increase our sales and product teams to accelerate our growth next year. We released our hospitality benchmarking product in the CoStar platform in 2023 and are rapidly migrating our SDR customer base into the CoStar environment. Over 600 customers are now using the benchmark product in CoStar, with the remaining customers to be migrated in the first half of 2024. More than 18,000 users are now in CoStar managing their hotel's performance and optimizing their revenue through the reimagined tools and additional analytic capabilities. As a result of the movement of SDR benchmarking at CoStar, revenues from our hospitality benchmark subscriptions will now be reported as part of CoStar, similar to our integrated approach of our lender products for financial institutions being CoStar. The transition of SDR benchmarking to CoStar in 2024 is a major milestone for our roadmap to build the full suite of SDR product capabilities in CoStar. We plan to incorporate forward booking information, complete P&L benchmarking, and international market performance this year and the next. SDR overall had an incredible year. 2023 revenue grew 13% over last year, delivering the highest annual ever result since we bought SDR in 2019. The team had a record sales quarter to end the year, growing 54% over the fourth quarter of last year. Subscription revenue grew 17% in 2023 over the prior year and now makes up 81% of the overall revenue, the highest percentage since the acquisition. SDR's quarterly renewal rate is now in a very impressive 98%. With the full capability of CoStar and SDR combined, we expect to unlock increased value for our customers and grow strong double-digit revenue towards what we believe is a 300 million hospitality market opportunity. Overall, we remain very confident in the strength and value of CoStar's platform and our growth performance in the downturn. Renewal rates for CoStar remain rock solid at 92% and we're seeing early indications of increased leasing and sales activity as we move into the first quarter of 2024. Although it's too early to call a recovery in the property markets, we expect solid mid-single digit revenue growth from CoStar in 2024. LoopNet revenue was $265 million in 2023, up 15% year-over-year and at the high end of our guidance range. Signature listings, signature ad listings were up 11% in the fourth quarter, delivering more traffic and leads to our customers. International revenue in the fourth quarter was up 33% and net new bookings were up 186% over the fourth quarter of 2022. LoopNet continues to be the number one listing site for commercial properties. Average monthly unique visitors to the global network in the fourth quarter were up 11% year-over-year and was seven times the traffic of the next largest competitor. In the U.K., LoopNet is now the number one dedicated commercial property marketplace by traffic after launching only a little over a year ago. We continue to expand internationally given our success to date and the size of the opportunity. We plan to launch LoopNet in France and Spain in 2024. In -- 2023 was a year of growth for LoopNet sales team. At the end of 2022, only 40% of the sales were managed by LoopNet dedicated sales representatives and we've now effectively transitioned to 80% of those accounts from CoStar reps to LoopNet reps. The LoopNet sales team is focused on ramping up activity, face-to-face meetings and MPS scores following the success formula of apartments.com. As a result, we expect to deliver increased sales productivity and bookings as we move through 2024. Ten-X continues to demonstrate the value of our digital sales platform for our commercial properties. In a year when sales transactions were down 49%, Ten-X brought $4.5 billion in assets to the platform, which was a modest decline of 9% relative to the market's steeper decline. We delivered a 52% trade rate in 2023, nearly double the offline trade rate, but below the rates we achieved in 2022. Overall, Ten-X revenue finished the year around 20% below prior year levels. Despite this decline, we increased our share of property sales in the $1million to $10 million asset category during the year, moving more transactions from offline to online. The market outlook for the coming year remains uncertain, although interest rates have stabilized near-term, bid-ask spreads and debt constraints remain a challenge. Regardless of these uncertainties, in the first 45 days of 2024, our trade rate and number of bidders per asset have increased from the fourth quarter of 2023 levels. There are still billions of dollars of transactions occurring each year in the $1 billion to $10 billion asset category, which we continue to pursue as part of what we believe is a $3 billion long-term market opportunity. The real estate capital markets in the fourth quarter continue to be impacted by higher borrowing costs, tight lending standards, and deteriorating real estate fundamentals. In 2023, transaction volumes were down 49% and price declines ranged from 10% to 35% across all sectors. Banks continue to slow their loan growth as property fundamentals decline and delinquencies rise. With interest rates expected to decline later this year, current expectations are for sales volumes to increase compared to last year. We saw some early indications in January with sales volumes rising 6.4%. The office sector continues to be the most challenged with 58 million square feet of negative absorption in 2023. Absorption since the pandemic now sits at negative 178 million square feet. Office attendance is 60% of what it was before 2020, though that understates demand since hybrid work requires higher peak use. The market sits at a record high 13.5% vacancy rate. A silver lining is the decline in construction starts, which we predict will eventually result in a shortage of premium office space. Since our 15-year lease at our Washington DC headquarters location is set to expire in 2025, we assess more than 25 viable sites in the greater Washington DC metro area. We ultimately decided to purchase a five-star trophy LEED Platinum office building located at 1201 Wilson Boulevard in Arlington, Virginia. We were able to purchase the building and the land lease for a significant discount to both recent valuations and current replacement costs. We also received nearly $7 million in both tax and economic incentives. While past performance does not ensure future performance, you might recall that back in 2010 during the great financial crisis, we acquired our 1331 L Street location for $42 million, a then significant discount to replacement costs, and sold it within two years and the sale lease back for $101 million, more than twice what we bought it for. We are betting that the office market is at a Nadar [ph] again. We will likely execute a sales lease back on 1201 Wilson Boulevard at some point in the future. The industrial sector has also seen a historic wave of new construction push vacancies up from all-time lows, but at 5.7%, industrial vacancies are still at half their peak levels. Industrial demand has remained positive, though, and the rise in vacancies should be mitigated by a pullback in construction starts in the second half of 2023. The retail sector continued to be the best performing in the fourth quarter with both positive absorption and limited new construction. The result was vacancy rates dropping to 4%, an all-time low. Conditions should remain healthy for retail with under construction at near all-time level lows. The U.S. hotel sector ended the year with RevPAR growth of 4.9%, outpacing inflation and being driven by ADR growth of 4.3% and occupancy growth of 0.6%. Robust group demand and corporate transient demand were the primary contributors to growth. RevPAR is expected to continue to outpace inflation in 2024 with 4.1% growth projected. In the U.S. residential sector, mortgage rates have come down from 7.8% to 6.6%, but rates are still high enough to prevent homeowners from selling, creating low inventory of homes for sale, and low levels of homes being sold. But if interest rates continue to drop, affordability will improve, and even a drop to 6% would mean home ownership would become affordable for an additional 37 million Americans. In the context of a distressed commercial real estate market, CoStar turned in an outstanding performance in 2023, growing revenue 13% with record levels of profitability in our CRE business. It is clear that CoStar Group's diversified subscription business is highly resilient in a distressed property cycle. We believe that we will improve profits and margins again in 2024 to $1.1 billion in adjusted EBITDA with 42% margins. Our entire team has worked extraordinarily hard in building the Homes.com platform and business. We believe that we just launched CoStar Group's next transformative billion-dollar business. In the conversations we are having with brokerage leaders, and agents, they tell us they are 100% behind our year-list and year-lead business model, but it gets better for brokers, agents, homebuyers, and home sellers. I am thrilled to see that support with $5.2 million in annualized subscription sales in just the first six business days of selling Homes.com. The first half of 2024 is the peak investment for Homes.com, and we believe profits and margins will start showing significant growth in the second half of 2024. After my brief remarks, I'm going to turn the call over to our Chief Financial Officer, Scott Wheeler. Are you still there, Scott?

Operator:

Thank you. [Operator Instructions] Our first question comes from Pete Christiansen with Citi. Your line is open.

Andrew Florance:

Well, thank you for the question, Pete. I just wanted to update you since we came in here and began the call. We're now at $5.3 million. We've sold 58 more accounts.

Andrew Florance:

Yes, I think I've addicted to that meter. So the -- yes. So we will engage the entire sales force throughout 2024 on selling the product. To be honest with the whole sales force, I believe, wants to participate in selling the product, and I think it works best. So nothing sounds better than when you listen to a salesperson talking to a prospect and saying I'm a couple of blocks away. I just got another update, it doesn't look real. So the it really is effective when someone -- when we can sign these 500,000 accounts to people right in their own neighborhoods, the salesperson can say, Well, I'm 3 blocks away from your office, I come by tomorrow. That it works really well. So it will take us a full year to build up a dedicated Homes.com sales team. I do not believe that this has dramatically more. I think it will be similar to any other product in terms of service and support. It is like Apartments.com. You do have to touch base with the customers, make sure that they're well taken care of and that they understand the performance of their membership. But I would say that in 2025, you would begin to see the shifting back to the general group. But right now, we want speed of sales.

Operator:

One moment for our next question. Our next question comes from Heather Balsky with Bank of America. Please proceed with your question.

Scott Wheeler:

Thanks for the question, Heather. I'll give you just some context there. Like I mentioned, the peak net investment this year. As we finalize resource growth, obviously, in sales, you'll see some of those costs annualized forward into 2025 off 2024. But the rest of the cost base is now in 2024 doesn't really move much in the years ahead. So that's really how we're thinking about it, and we think we have plenty of investment here to now be growing the Homes.com business for a long, long time at really strong rates. The update that you're looking forward to next quarter is going to be a fun one because we all want to start drawing those lines around the revenue growth for Homes and how that will perform, which obviously sets us on the track towards those 2027 goals. So I think we'll talk more about that next quarter, but we are still seeing traction towards 2027, and we're committed to still reaching those levels. Too early to tell yet on the revenue leverage rates for Homes.com, which make a big difference as you would expect.

Scott Wheeler:

With only a week of experience. More to come, but thanks for the question.

Operator:

One moment for our next question. Our next question comes from George Tong with Goldman Sachs. Please proceed with your question.

Scott Wheeler:

Sure, George. Let me take the margin cadence question. I mentioned that we'll be in the 12% to 13% in the second half. I think exiting the year, we'll be over 15%, probably 16% going out of the year. And then in the first quarter, we mentioned the minus $8 million to $12 million there, and then we'll take a step between first and third quarter in the second. So you see a steady sequential increase in the margin profile overall for the company. When you look at where the investment going for residential, we've added OnTheMarket and as you watched the announcements around what we're doing there, we committed to putting in around $50 million of marketing that right now has us moving up rather quickly with both listings, traffic and inching up closer towards the number two position. So that's proving to be very valuable right now. And then the rest of the investment is, as you would expect, it's in the Homes.com U.S. business, which is the biggest part is going to be our marketing investments and then followed by the teams that run our content research and technology. So those have been the biggest pieces all along. They'll continue to be the biggest pieces probably in that order as we go forward.

George Tong:

Got it. Very helpful, thank you.

Alexei Gogolev:

Thank you everyone. Just to clarify the previous comment, Andy. So do you feel like you are front-loading some of the investments that may have initially been planned for 2025 and 2026, you are front-loading it into 2024 in resi?

Alexei Gogolev:

Understood. Perfect. And Scott, could you help us reconcile the net new bookings figure? I fully recognize that it was a record figure for the year, $286 million. But could you talk a bit more about the dynamic in the fourth quarter and whether there was any cyclicality in there?

Alexei Gogolev:

Perfect. Appreciate it. Got it, thank you.

Ryan Tomasello:

Hi, everyone. Thanks for taking the question. Understanding that the Homes brand campaign is still early innings of seeing how that plays out. But maybe you could elaborate on what flexibility you might maintain around investments this year, depending on how performance evolves? I'm curious if there are specific milestones or circuit breakers you've built in around agent adoption traffic, etcetera, to inform and revisit those plans as the year plays out, whether that's laying on the gas even more or perhaps pulling it back? Just trying to understand how set in stone the investment plans are this year.

Ryan Tomasello:

Great. Thanks for the color.

John Campbell:

Hey guys thanks for taking my questions. Good afternoon. So Andy, as much as I want to ask you if the Homes.com bookings meter has moved over the last couple of minutes, I'm going to hold off. I'm guessing we're going to get plenty of updates in the quarters ahead. But bigger picture question here, just on the industry kind of legal backdrop. Obviously, a lot of moving parts there. I think it's clear, at least from where I sit, that things seem to be progressing in the favor of Homes.com as far as the value proposition. But what is your take specifically on dual agency, whether you think that's where the market is heading and how you think Homes.com is uniquely positioned to capitalize on that?

John Campbell:

Okay. Makes a lot of sense. And then somewhat related to that, you mentioned sending free leads. When you guys refer to the Homes.com revenue model, you often refer to the term membership. I'm hoping if you could maybe unpack what exactly that means, maybe starting off with the base level of spend? And then what other products and services are kind of included in that “membership”?

John Campbell:

Very helpful. Thanks Andy.

Ashish Sabadra:

Thanks for taking my question. I just wanted to drill down further on the resi monetization, the commentary around $200 million annual recurring bookings continuing at this pace. I was just wondering, as we think about like the agent within that bookings, how are you thinking -- you talked about a wide range there from $100, $200 per month to as much as $7,400. Are there certain kinds of agents that you're targeting? Any color there would be helpful. Thanks.

Scott Wheeler:

That's the initial population, of course, that we came out with the targets. And what we're seeing is that the inbound lead flow is very strong from all agents. So our sales force is going after their top prospects in the target list, but also responding to all the leads that are coming in as quickly as possible. And then on top of that, we have our e-commerce channel, which agents can go in and sign up with a few clicks and have all their information and they're ready to go. So all of those are performing well, and we'll continue to expand the group we target. But right out of the gate, we've got a lot to cover quickly.

Ashish Sabadra:

Thanks for the color.

Andrew Florance:

Thank you. Appreciate that. So today, I've got more interested in concluding remarks that I normally have. So I have some news to share with you. Scott Wheeler joined us as our CFO 8 years ago or so. During those 8 years, he's done a fantastic job at the helm of our finance department. We've seen our revenues triple in that time period, and we've gone from strength to strength. I would count Scott more than just a valued colleague. He's become a good friend of mine. As you may know, Scott loves to climb mountains. He was the first father daughter team to summit the tallest mountain in every U.S. state. It wasn't much of an accomplishment in Florida. It was a much bigger accomplishment in Alaska. Scott has accomplished as much as anyone could wish to professionally. So now he's earned the opportunity to retire and pursue his climbing passion in the golden years ahead.

Andrew Florance:

Scott will remain with the company until June to facilitate a transition, and I will bring back the other two former CFOs to help in the transition as well. Scott is our third public company CFO with each of our prior CFOs also having served exactly 8-year tenure. We'll begin a search for our 2024 to 2032 CFO immediately. I would have let Scott announce his own retirement, but the last CFO to retire became for Clint when he announced his retirement so I wanted to avoid that awkwardness today. Scott leaves with no disagreements or issue, he simply wants to enjoy the fruits of his labor Godspeed, Scott, and thank you so much. I would like to thank everyone for joining us for our fourth quarter and year-end 2023 earnings call. We look forward to speaking with you again on our first quarter call on April 2023, 2024. Thank you very much for participating. Thank you, Mr. Scott Wheeler.

Andrew Florance:

You need a tissue, man?

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good afternoon. My name is JP and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. Now, Cyndi Eakin, Head of Investor Relations, will lead the safe harbor statement. Cyndi, you may begin.

Andy Florance :

Thank you, Cyndi. It reminds me of summer camp, gather around the campfire kids. Cyndi is going to read the safe harbor statement again. All right. Let's be serious. Good evening, everyone, and thank you for joining us for CoStar Group's Second Quarter 2023 Earnings Call. Revenue for the second quarter of 2023 was $606 million or 13% growth year-over-year. Revenue growth in our Commercial Information and Marketplace business was an impressive 15% year-over-year. We continue to deliver strong double-digit revenue growth which, in this case, is particularly impressive during one of the most difficult property markets in decades. I'm pleased to see our portfolio is strong across the board with Apartments.com, CoStar, LoopNet, Real Estate Manager, STR, Lands.com and businesses for sale all delivering double-digit revenue growth. We continue to deliver outstanding sales results with $82 million of net new bookings in the second quarter, our second highest sales quarter ever. I believe we crossed a monumental milestone in June when our residential portal network continued its phenomenal growth and became the second most heavily trafficked residential marketplace in the U.S. Overall, traffic to CoStar Group's websites reached a high of 105 million monthly unique visitors in June, according to Google Analytics. Earlier this year, we moved into third place when we surpassed Redfin's first quarter self-reported home and estimated rental site traffic. Then in the second quarter, we moved up again the second place, as we had 84 million average monthly unique visitors to our residential portal network, surpassing realtor.com self-reported traffic of 72 million monthly unique visitors from their earnings release on May 11, 2023. CoStar Group's residential network combines residential rental site and homes traffic for sales site traffic, as others do. Homes.com is the fastest-growing residential portal with network traffic growing 130% year-over-year in June to 38 million monthly unique visitors. That's an accomplishment one year after we launched Homes.com or within the first year, won't be launching Homes.com. Congrats, Jerry, Livie and the whole team and Todd. Apartments.com once again delivered an outstanding quarter. Apartments.com revenue was $224 million in the second quarter, accelerating to 23% year-over-year growth. The Apartments.com sales team delivered a record net new sales quarter with net sales bookings increasing 84% compared to the same quarter last year. The month of June was our highest sales month ever. We continue to add new customers to our marketplace at a rapid pace and now have over 66,000 paying communities on our network, representing an increase of 12% over the second quarter of last year. Our mid-market efforts are contributing thousands of new properties, growing paid subscribers by almost 40% in the second quarter. New construction is also contributing to subscriber growth. 65% of all new 100-plus unit communities are advertising with Apartments.com. And of those advertising, 80% are at the platinum level or higher. Our sales team continues to deliver exceptional results and high productivity. Our sales productivity is up 24% over the second quarter of last year. The number of quality meetings with customers increased by 13% to 155,000 compared to the first quarter. Our Net Promoter Score rose to a very impressive 95%, the highest since the quarter -- first quarter -- I'm sorry, that's the highest since the third quarter of 2020, and a really impressive number. I'm proud to say our team delivered strong performance of the National Apartment Association Annual Conference in Atlanta last month. They were motivated by a surprise appearance by an always entertaining Jeff Goldblum. Our team delivered almost double the sales level of last year's conference. I'd like to extend a special thanks to Paige Forrest, Fred Saint and the whole sales team at Apartments.com for in continuing to produce exceptional results quarter after quarter, month after month. In June, monthly unique visitors for Apartments.com grew 9% year-over-year significantly outperforming the market, which is down approximately 9% year-over-year according to Google. Our 2023 Apartments.com marketing campaign is in full swing. We are reaching renters across all media channels during peak rental season and generating over 2.8 billion media impressions, up 11% over last year. Since the launch of this year's campaign, we're already seeing phenomenal results with unaided awareness for Apartments.com reaching a very impressive 49%. That's the highest level ever. Our data indicates that this level of unaided awareness has never been achieved by anyone in the online rental marketplace category. Economic conditions in the apartment industry continue to create a favorable advertising environment. Apartment vacancy rates on three, four and five-star properties continue to rise increasing 220 basis points over prior year to 7.9%. Unit-level deliveries are at all-time highs, and supply will continue to outweigh demand for the foreseeable future. We expect vacancy rates to continue to increase for the next four quarters, peaking at around 9% in mid-2024. With favorable advertising conditions, a strong and growing sales force and industry-leading products, we expect to see Apartments.com revenue growth accelerate to 25% through the end of this year. Over at Homes.com, we continue to make great progress in implementing our strategy. Traffic to our homes network reached a new high of 38 million unique visitors in June according to Google Analytics, growing 130% and over the same period last year. Sequentially, our Homes.com average monthly unique visitors grew 75%, as we continue to grow traffic share towards our next milestone of 50 million unique visitors. With returning users up 416% in June versus a year ago, I believe consumers are appreciating Homes.com's outstanding UX and the ability to contact the listing agents directly and clearly, the ones who know more about the property than some other unrelated agent. According to comScore, Homes.com unique visitors are up 224% in the second quarter over the same quarter last year, while Zillow's traffic is down 5%, realtor.com is down 13% and Redfin is up 4%. I'm pleased with our success growing site traffic on Homes.com to date, and I believe we have a lot of runway ahead as we continue to implement our content, product and marketing plans. This is a marathon and not a sprint. We are clear that we have more and bigger traffic levers to pull to grow traffic over the quarters to come. Our future growth in traffic will come in waves. Any period where traffic lulls, it may just be the trough before a monster wave comes. I'm very confident that 18 months from now, we will have very impressive rankings. Alongside our increase in consumer traffic, we continue to focus on agent engagement. We've built an incredible committee of 1.1 million real estate agents on Homesnap Pro with hundreds of thousands of active users each month. We have integrated the top feature set of our Homesnap Pro product into the Homes.com platform and have begun migrating agents over to Homes Pro, our new agent-facing set of tools. Our new Homes Pro product will provide significant benefit to our current Homesnap users, including access to 15 times the consumer traffic, millions of free leads and additional tools and feature upgrades. With these tools fully integrated, agents for the first time will be able to experience the full value of professional tools integrated with a heavily trafficked, agent-friendly your listing, your lead business model. In June, we launched our first installment of proprietary content on Homes.com with massive volumes of immersive neighborhood videos, informative write-ups and photographs. We also released a comprehensive set of school profiles, information ratings, all giving us what I believe to be the most complete coverage of schools on any residential property website. We are still in the very early stages of our content strategy, but I'm encouraged by the consumer response to what we've built so far. We recently conducted another round of focus groups in various cities with both consumers and agents and tested our product features and content. I have attended hundreds of focus groups in dozens of cities over the past three decades. The consumer and agent response we received them these most recent focus groups is the best I've ever seen, really encouraging responses. I believe we're on the right track. We have much more work ahead to build out the full new Homes.com product offering, but I believe that based upon the focus groups, there will be a very positive consumer response to what we deliver. CoStar revenue for the second quarter was $229 million, an 11% increase over the same period last year. That's coming in above our 10% revenue guidance. We're seeing higher levels of sales to new logo accounts, and I'm encouraged by the strong sales results to owners, lenders and corporate users, which grew 134% over the first quarter of this year. Clearly, our efforts to shift our sales team to focus on owner, lender and tenant prospects is paying off. Sales activities to these customer types were approximately 20% higher in the second quarter than the first quarter of this year, and are expected to increase further in the second half of the year. Another positive sign for CoStar was our 92% renewal rate in the quarter, which increased from the 91% renewal rate in the first quarter. Our CoStar Lender product had its best sales quarter ever, with net new sales nearly doubled the sales results from the first quarter of this year. We've had success selling to financial institutions of all shapes and sizes with a product that's proving far superior to competitive offerings. Our ability to match individual properties to loan portfolios alongside our credit default model are valuable differentiators of CoStar Lender that others simply cannot match. Our clients continue to refer to our solution as the best-in-class and the gold standard. We're still in the early stages of this $300 million market opportunity with 200 customers signed and 5,800 more potential customers ahead. In April, we released property investment fund data into CoStar. The release includes 12,600 investment funds, which we have linked to 70,000 commercial properties in the CoStar database. This new information adds to CoStar's unique data sets, providing the ability to search for funds based on their property portfolio characteristics, transactions and listings. In the two months since we introduced the product, we have closed over 100 CoStar sales where the fund data was a critical part of the value proposition. In May, we released our new tenant application, which includes enhancements to our existing tenant location information as well as a new corporate user feature. The new corporate user feature aggregates all locations for the 32,000 largest corporations that occupy five or more locations. This product allows users to run a query on a large corporate occupier for example, Walmart, and see all of their locations, the types of buildings they occupy, building details, financial information on the company and credit risk. Brokers find this information very valuable as they quickly understand how large tenants utilize space across their portfolios and identify opportunities to serve those companies. I believe the strong pace of new product introductions, alongside the sales team's focus on owners, lenders and corporate users will continue to support strong revenue growth even as we navigate one of the worst points of the current CRE cycle. LoopNet revenue was $66 million for the quarter, up 16% year-over-year and in-line with revenue growth of 16% in the first quarter. LoopNet continues to be the most highly trafficked commercial real estate marketplace, capturing 14 million average monthly unique visitors for the second consecutive quarter, up 13% year-over-year. According to SEM Rush data for the month of June, LoopNet and LoopNet Canada have seven and eight times the traffic of our nearest competitors, respectively. Unique visitors to the Canadian network are up 51% year-over-year. While the LoopNet marketplace remains strong and competitively advantaged, LoopNet's sales growth should have been stronger in the second quarter. We believe the lower sales resulted from a combination of factors and that most of these factors are correctable. These factors include a growing and relatively young sales team a training program, which has room for improvement, a large number of account transitions and a poorly conceived commission plan that drove lower activity levels and a weak customer service, which reduced our renewal rates. Does that sound like a CEO that's not happy with something? That's true. Countering that, the climbing commercial real estate vacancy rates did create positive countercyclical demand for leasing solutions similar to the positive results environment we're seeing in Apartments.com. In fact, I was on the phone this morning with Mike, who is one of our more experienced LoopNet sales reps, and he said he's witnessing unprecedented demand for advertising for LoopNet in this severe downturn. He says that office owners who in the past or industrial owners who never considered advertising before in the internet are now all in trying to drive leads to their troubled leasing assets. We will increase service levels while reinforcing customer retention is a priority in a revised incentive compensation plan. Despite the near-term disruption, I remain very confident in the long-term LoopNet growth opportunity in our direct sales team and strategy. Our LoopNet network of international marketplaces delivered strong growth in the second quarter with revenue increasing 35% year-over-year and net new sales up 24%. Our international expansion efforts will continue in the second half of the year as we plan on launching LoopNet in France and Spain, which will run alongside of our Bureau Loco, Business MO and Belbex marketplaces. STR revenue was 11% compared to the second quarter of last year, with subscription revenue growing an impressive 14%. For the second quarter in a row, STR achieved record sales results with more and more subscriptions. When we purchased STR in 2019, approximately 60% of STR revenue was subscription-based and 40% was one-off transactional. The STR team has done a great job of transitioning the business to 80% subscription revenue currently. Renewal rates on STR subscriptions are at an amazing 97%. In May, we successfully launched our STR benchmarking product in CoStar and the initial results are encouraging. Our teams have migrated over 60 customers to the benchmarking product in CoStar with another 250 customer migrations in progress. The transition is anticipated to be completed in approximately one year, encompassing over 900 corporate accounts and 6,000 independent hotels. The release of the new benchmarking product represents a digital transformation of the beloved and 38-year-old industry standard Star report. The feedback from clients on this integration and enhancement is astounding. One customer referred to it as an epical change. I don't think I refer to anything as epical changes. But owners and operators are thrilled with the new advanced analytics options, data visualizations, abundance of historical data and of course, the trusted STR report. We anticipate this release will open access to new clients as the data is invaluable for asset acquisition, operations and disposition. I'm looking forward to completing the migration to CoStar, which will accelerate our growth into what we see as a $300 million market opportunity. CoStar Real Estate Manager signed a number of the world's largest companies to our lease administration and transaction management solutions in the second quarter. Most of these names are confidential, but you'd recognize, for example, the company behind the word processing software that I wrote this on. Year-over-year subscription revenue grew 14% in the second quarter. Subscription revenue climbed at 92% of revenue in the first half of '23 versus 87% in 2021. We enjoyed a 100% customer renewal rate in the second quarter. Today, 7 out of 10 of the largest U.S. banks are using Real Estate Manager lease accounting, lease administration or transaction management solutions. BizBuySell continues to experience double-digit growth and is expected to exceed $30 million in revenue in 2023, an important milestone. Quarterly traffic to the BizBuySell network reached an all-time high of 12.6 million sessions in Q2, which is 25% growth year-over-year and lead volume to advertisers was up 30% during the same quarter. BizBuySell is the leading marketplace in the business for sale category. Our land business is on track to increase revenue by double digits and to exceed a major milestone of $50 million in revenue. When we acquired Land in Farm and LandsofAmerica, those businesses had $4 million of revenue. So $50 million is an important growth milestone. Implementing our and our playbook, we added LandWatch, combined sites into Land.com network greatly increased traffic exposure for clients and recently added gold and platinum ads. Our investment in product and people continues later this year with the launch of diamond ads and adding sales headcount, which increased 26% year-over-year, and our target is to increase at 50% year-over-year. Ten-X continues to perform well, while overall CRE market conditions remain challenging. Q1 '23 CRE transactions, commercial real estate transactions, were down 51% year-over-year, and Q2 further declined to 63% year-over-year down. That is the steepest decline since the Great Recession where transaction volumes had declined 66% year-over-year. Bid-ask spreads continue to grow wider due to higher interest rates and constricted debt loan-to-value ratios, and all that's caused upward pressure in cap rates. The overall CMBS delinquency rate rose to 3.9% in June, the highest rate in 14 months and it's expected to grow in 2023 and 2024. We appear to be seeing a very severe significant pretend and extend phase from lenders and distressed assets are coming but it's just a question of when, not if. Ten-X applied its proven principles of syncing value expectations with our seller broker customers to onboard assets with reserve pricing set to current market conditions. For Q2, Ten-X onboarded $1.5 billion of inventory, a 27% increase year-over-year and two times '23 volume. And we delivered a solid 52% trade rate, and that compares favorably to the offline world's 23% trade rate. Due to the ongoing bid-ask misalignment, Ten-X over $2.9 billion of potential inventory that was deemed high risk for transaction success because the seller had an unrealistically high opinion of value. So we didn't take those properties on in order to avoid wasting money on underwriting them and lowering our trade rates. We continue to build and improve our platform for the future. The Ten-X sales force grew 36% year-over-year and delivered higher quality high-valued assets in Q2. The average asset value was up 33% year-over-year from $3.5 million to $4.6 million. The average winning bid was up 11% year-over-year from $3.2 million to $3.7 million and the average buyer premium was up 27% year-over-year from 72,000 to 92,000. There was a 53% year-over-year inventory growth in the $1 million to $10 million range which is what we consider Ten-X a sweet spot. We've made significant progress with our technology with the Ten-X platform, now fully integrated in the CoStar ecosystem. Customers can now fully manage their transactions digitally through the marketing auction contracting and closing phases of a sale. Sellers and brokers can now manage their listings and leads in marketing center and buyers can interact with their brokers and sellers via the Ten-X LoopNet and CoStar sites. Finally, to lift everybody up, I would -- I thought I would talk a little bit about the commercial real estate economy, really sort of pick things up. Did you know [Indiscernible] means to lift up, yeah. So the capital markets continue to see the impact of rising interest rates. As I mentioned, second quarter sales transaction volumes were down 63% compared to the same quarter and was down across all property types in the commercial real estate markets. Prices are also falling, but the lack of real deal activity makes price transparency difficult. The debt market has not yet seen a wave of distress with delinquencies still very low by historical standards, but there has been some movement. The next couple of years will bring more clarity to that market as more than $1 trillion in CMBS debt comes due. The office sector continued to weaken in the second quarter and can now be characterized as the worst it's ever been. Vacancies now sit at 13 -- what a horrible thing to have to say. Vacancy rates now sit at 13.1%, their highest levels ever. However, office space that's no longer occupied by a tenant or is underutilized by tenant is not truly stably leased. Most lenders are not considering space leased that -- considering space leased but not occupied to be leased, there's got to be a tenant actually in this space before lenders consider at least. Based on that fact, the phantom or true effective vacancy rate is closer to 57% if you assume a 50% tenant occupancy of lease space. That is, by far, the worst vacancy rate in the history of the office industry. Tenants gave back 40 million square feet in the first half of 2023 with another $100 million forecast to be given back to the remainder of the year. Net absorption was negative again in the second quarter and now totals more than 150 million square feet negative since the pandemic began. Negative absorption was a third of that level in the '28 financial crisis at negative 50 million square feet. So this is much worse than the '08 situation. Conditions will likely not improve anytime soon. We expect vacancy rates continue to arise. Overall sales prices for office buildings are down 5.9% and delinquency rates while still low, have tripled since the end of last year to 4.4% currently. I believe the downward price pressure is much higher than a 5.9% decline and that the quality of office loan collateral is weaker than many presented to be. The hotel sector continues its recent trend of slow growth in the second quarter. Room rates rose at around the level of inflation, having limited potential for improved profitability. Resort destination show signs of slowing growth as consumer spending cooled, while hotels and urban markets report improved growth supported by corporate group demand and transient travelers. Higher interest rates have put a damper on construction and deal activity. The industrial and retail sectors continue to be relatively healthy at 4.7% industrial vacancy rate is historically low and annual growth for rent remains very strong. Retail vacancy reached another all-time low with continued positive absorption. Announced store openings continue to exceed store closures. So that's good news. The residential sector continues to face challenges with a 30-year mortgage rates around 7%, monthly prices on the rise in the last three months, and affordability is reaching a low not seen since 1986. And creates challenging condition. Total home sales fell 16% year-over-year with more than 60% of the existing mortgage rates below 4% and more than 80% below 5% and rate lock will keep inventory of existing homes low. People are not going to be trading out of those low interest rates. Builders have responded though as single-family housing starts moved higher earlier this year new homes account for 15% of all sales compared to only 10% a few years ago. Builders are offering incentives such as mortgage rate buydowns and price discounts to attract buyers. Still, affordability remains a challenge. So despite that difficult real estate market, CoStar delivered yet another quarter of strong double-digit revenue growth, our second highest sales quarter ever. We exceeded 100 million monthly unique visitors for the first time in June, which was an incredible milestone and demonstrates our ability to deliver successful leading property marketplaces across multiple sectors and across multiple countries. Our marketplace networks continue to grow and provide value to our advertising customers as time when vacancies are on the rise. Although the composition of our revenue growth continues to shift with the market dynamics, I'm very confident in our ability to deliver our financial projections for 2023. At this point, I'm going to turn the call over to young Chief Financial Officer, Scott Wheeler.

Andy Florance :

Now, now.

Operator:

At this time, I would like to welcome everyone to the question-and-answer session. [Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs. Your line is now open.

Andy Florance :

Sure. Thank you for pointing out, George, that our residential platform is now the second most heavily traffic platform in the United States. I appreciate that. So I think we have a pretty clear plan or strategy for how we plan to continue to grow that traffic and the value of that platform to consumers. I don't think that the success we're having to date is going to take us off of that plan. So we're largely on track with what we've been intending. We want to continue to grow the traffic even more dramatically in order to make sure that we have the best platform for monetizing at the point that we decided to do that.

Andy Florance :

Thank you, George.

Heather Balsky :

Hi, thank you for taking my question. I wanted to ask about LoopNet and the execution challenges, and I hope that wording fits for the business and kind of what you're looking to do to improve the trajectory? And how quickly you think you can reaccelerate the business and see the results from the investments you've made in the sales force? Thanks.

Heather Balsky :

That's helpful. Thank you.

Peter Christiansen :

Good evening. Thanks for the question. I'm not sure if I heard that right. You guys are number two in that ---

Peter Christiansen :

Okay. All right. I just wasn't sure. I want to dig a little bit more into LoopNet, like what you're seeing on both the broker ads and the signature ads and whether or not you feel the value proposition for some of the signature ads is really compelling enough. I was just wondering if you can draw that distinction, help us understand the differences between the two price levels and how you see that hopefully improving in the near future?

Scott Wheeler :

And Pete, when we look at the growth in the signature ads, the biggest growing category in signature ads is the diamond listings. And those are the biggest, most expensive ones. They're up over 50% year-over-year by ad count. So that tells us that the demand is clearly there. The large owners and property managers really need those higher-performing ads. And so it's just a matter of getting our sales force back on track to cover the market more effectively.

Peter Christiansen :

Good commentary. Thank you.

Ryan Tomasello :

Hi, everyone. Thanks for taking the questions. I guess, Andy, just reading between the lines and some of your comments around homes, I mean, obviously, the traffic growth continues to come in very strong. I mean should we now be expecting perhaps a bit longer of a time line in terms of when you intend to monetize that platform relative to, I think, the year-end commentary you've given in the past? And on the traffic levels, understanding there's some competitive sensitivity there, but any color you can provide around when we can expect these waves of growth to materialize? And then finally, on the content piece, what any one do you say you're in, in that build out there? Thanks.

Scott Wheeler :

Pretty good. I think you got a lot in there.

Operator:

Your next question comes from the line of Jeff Meuler from Baird. Your line is now open.

Andy Florance :

For sure. So I won't have -- I will not have significant digit data for you in front of me, but I will tell you that one of the most important things I look for is return traffic direct, so people that typed in Homes.com, and that is up about 400% year-over-year. So we are not -- I'm not focused on who's coming back in off of SCM. I'm focused on who is coming in direct return. And that number is up dramatically, so very happy with that. Secondarily, I'm looking at the lead flow and the lead flow is, I believe, very solid. I believe and I'm not going to disclose any specific numbers, but I believe that we are delivering twice the lead flow of some of the well-known residential platforms in the United States. And I think there is -- I think that's dramatic. I think that's important. And I think the reason why we're delivering twice the lead flow of some of our competitors is really quite simple. We are putting the name, photo, likeness, contact information of the actual listing agent on the listing, so people can reach out and simply contact the person that knows the listing better than anyone else in the world. Competing sites are setting that lead into a call center and often syndicating the lead out to multiple unrelated agents that don't know that listing at all. So consumers are reasonably smart sometimes, and I think they're on to that and we're getting super high-quality traffic to the site and good lead flow. Now remember also, we have a huge engaged group of residential agents who are in our platforms, and they like our message. They like the fact that we are, your listing, your lead. So they're directing a lot of their clients, I believe, into our platform because they prefer what we're doing to alternatives. And again, that's super high quality. So I'm very happy with the quality, and I would just like to double the overall traffic at some point soon.

Andy Florance :

The content is being loaded on a partial level in all markets. So it's not it's not LA being loaded in Boston not being loaded. It's like x percent of Boston, x percent of LA being loaded. I would tell you that at this point, you haven't -- I don't think there's been time enough to see any traffic impact of the content that's been loaded. I think that's out in the future. And in terms of reaction, it have to go more to the anecdotal just that's like having focus groups interviewing consumers and that is very positive. That's very, very positive. I couldn't be happier with that result.

Operator:

You next question comes from the line of Alexei Gogolev from JPMorgan. Your line is now open.

Andy Florance :

Okay. So I was testing my hearing there a little bit. But -- so one of the most -- and one of the most encouraging and exciting things about what's happening in CoStar is the pace of delivery. So as you listen to what we're doing, where we're bringing the corporate user aggregation data, we're doing the fund data, we're doing CoStar Lender. We're doing -- we're bringing in a stream of functionalities. So Elizabeth Winkle, is doing a good job with her brand development team picking up the pace setting every time she adds in the STR integration. Every time we add another modular element to the product we appeal to a broader audience, where we have more relevance to a particular audience we're trying to penetrate more deeply. So I like this new era of CoStar where we're bringing modules out faster and faster and faster, and that will also include adding more international markets to the coverage area. And as we do that, we create more demand. I believe that our CoStar sales team has done a good job responding and shifting to selling to lenders, owners and corporate users. You see that number going way up. So I think that while Paige Forrest and her team at Apartments.com is knocking on the first milestone of $1 billion, I think Marc Swartz and the CoStar sales team won't be that far behind them. And I think the fact that we are in clearly hands down the toughest commercial real estate market ever, and we're showing the kind of growth we're showing is really a testament to the product quality, the value, the research team and the sales work. So it's not an optimal office market. So we're doing pretty darn well.

Operator:

Your next question comes from the line of Stephanie Moore from Jefferies. Your line is now open.

Andy Florance :

Good afternoon.

Andy Florance :

Sure. Well, you're right. As you point out that we achieved rapidly ascended to the second most heavily trafficked sites in the United States. In terms of the content, adding personnel around the content and what we're doing with that, yes, when we produce the product, and we then test it and focus groups, and we test it with consumers and it's not a mockup. It's not PowerPoint, it's like real product, real data, real content and they clearly respond very positively to what we're doing. That leads us to feel very comfortable with the investment we're making in differentiating our product through a number of content strategies. So we would -- and to be clear, what we're doing is massive. One of the things you hear in focus groups is a, I love what they're doing. And then the next comment they say it is, are they really doing this for the whole United States of America? How are they doing that? But it's well worth it. And if you look at CoStar as a product or STR, sometimes our original content is all the differentiation to create a moat around a product. And in an intermediate term, that investment is a relatively modest percentage of revenue but it always looks much bigger when you're in the early phases of making the investment. But if you're concerned about us bringing additional investment into the content area, the focus groups were bad news for you because they love what we're doing. And then in terms of other investments, nothing has really changed. You can see -- you're not seeing any Jeff Goldblums out there for Homes.com at this point. There's no sort of broad consumer marketing occurring. But at some point, obviously, that is a lever you pull. It's an important lever to pull because it impacts SEO and SEM. It makes your SEO more effective, and it also makes you much more competitive in SEM. So the more likely people are to recognize the brand. The more likely they are to click on the SEM and Google serves it up more frequently at a lower cost to us, and you get a good effect there. But our unaided awareness on Apartments.com right now is 49%. The margin and profitability at Apartments.com is phenomenal. The unaided awareness, I got the first read from our unaided awareness is testing group on Homes.com and I'm not going to share it with you because it's so embarrassing. But one day and a couple of years from now, I hope to be reporting a number higher than 50% for Homes.com. So what right now we're doing is we're building a good loyal following of repeat users, but it's sort of all being earned one user experience at a time in the product.

Stephanie Moore :

Great. Thank you.

Operator:

There are no further questions at this time. We will turn it back to Andy to wrap up. Thank you.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good afternoon. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Now Cyndi Eakin, Head of Investor Relations will read the Safe Harbor statement. Cyndi, you may begin.

Andy Florance:

Good afternoon, and thank you for joining us for CoStar Group's first quarter 2023 earnings call. Revenue for the first quarter of 2023 was $584 million, or 13% growth year-over-year coming in at the high end of our guidance range and above consensus estimates. I'm very pleased with the growth of our commercial information and non-residential marketplace businesses, which delivered 15% year-over-year revenue growth in the first quarter. I'm also very pleased with the progress we're making in building the new Homes.com, which I believe will become the best online residential marketplace in the world bar none. We started the year strong with net new sales of $80 million, our second highest sales quarter ever and a 17% increase over the first quarter of the prior year. Apartments.com achieved the highest net new sales quarter for the second quarter in a row. LoopNet achieved outstanding results in the quarter with a 100% increase in net new sales over the first quarter of last year. We hit a new high watermark in traffic to our marketplaces in March. Monthly unique visitors totaled $94 million for the month with Apartments.com, Homes.com, LoopNet Lands, BizBuySell, Belbex, BureauxLocaux business in all of our marketplaces contributing up to tens of millions of unique visitors. Apartments.com continued its impressive run with another outstanding quarter. Apartments.com revenue was $211 million in the first quarter, climbing to 20% year-over-year for the first time since the first quarter of 2021. Net new sales bookings were at an all-time high breaking the record set just last quarter with an increase of 110% in over the first quarter of '22. Apartments.com while very successful has millions of apartments that do not yet advertise on the site. We are focused on continuing to grow our sales force to reach this huge potential untapped audience. Our attention to attracting the best talent and excellent on-boarding and training of new hires is paying good dividends. Our sales team productivity is up over 40% compared to last year for hires who have been with us less than a year. We are committed to excellent customer service and that's a big contributor to our success. The apartment sales team conducted close to 140000 quality meetings this quarter which is 24% higher than the same quarter last year. Of those 140,000 quality meetings over 50,000 were in person, a 45% increase over the first quarter of '22. This attention to servicing continues to be well received by our clients as evidenced by our industry-leading Net Promoter Score of 94. The number of properties advertising on our platform continues to expand and is now at a record 64000 properties. Our customers are selecting higher ad package levels to obtain more leads as evidenced by our average revenue per property increase of 14% over the prior year. The economic fundamentals of the apartment industry continue to move in our favor. The vacancy rate for three, four and five-star properties rose another 30 basis points to 7.7% in the first quarter and net deliveries continue to outpace net absorption in the quarter with twice the units delivered as absorbed. Deliveries in '23 are expected to be the highest in over 40 years and vacancy rates are forecast to increase for the remainder of the year. There are currently over one million units under construction, with approximately 750,000 of them being at the top end of the market. Pressure on these assets will be intense throughout 2023 as rent levels moderate. We expect vacancy rates to remain elevated by historical standards. All this could create a jet stream like tailwind for advertising demand. March marked the official role to the new 2023 Apartments.com marketing campaign with new TV commercials, streaming videos and streaming audio commercials. Jeff Goldblum, as Brad Bellflower was featured during March Madness and all month across top networks like CVS, BRAVO, TBS, TNT, and more. We launched a new social media campaign, our streaming audio and podcast campaigns have hit the airwaves and engagements are at an all-time high. We anticipate that our 2023 campaign will yield 12 billion media impressions. The early results of this campaign are strong with our first quarter unaided brand awareness for Apartments.com jumping to our highest score ever. Apartments.com continues to attract qualified renters to our platform with an average of over 43 million monthly unique visitors in the quarter according to Google Analytics. Apartments.com is also benefiting from the addition of Homes.com rental area to its network and the tremendous growth in traffic to Homes.com. Visitors to the homes rental area up 83% since the fourth quarter of 2022 and those visitors delivered approximately 200,000 leads to our paying of Apartments.com customers, that's up 124% from just last quarter. With more content than ever before on our network including unit level details and touring capabilities our lead quality continues to outperform our competitors. Our mobile sessions were an all-time high in the first quarter with 75% of Apartments.com user sessions conducted on a mobile device. Just five keywords now account for 33% of unbranded search activity on these devices. When the top 376 cities in the United States are examined, Apartments.com ranks number for all five of these terms 99% of the time. The combination of the kickoff of our 2023 marketing campaign, market conditions and our larger and more seasoned sales teams helped continue to drive strong results. In sum, I am very pleased to report that we expect Apartments.com to deliver 22% to 23% revenue growth in 2023. I'm very excited about the progress we've made on many Homes.com initiatives in the short period of time. Last year, we laid out the key milestones for Homes.com grow, monetize and scale. The grow phase, focused on increasing traffic engaging buyers and sellers on our platform. Our initial goal in the grow phase was to achieve 25 million unique visitors, while our goal in the scale phase was to reach 50 million unique visitors. Traffic to our Homes.com network grew dramatically. We reached 27 million unique visitors in March, according to Google Analytics. Months-to-date in April traffic to Homes.com grew 53% over the same period months-to-date. As of this morning for the partial months-to-date we have already seen 28 million unique visitors to Homes.com network. Unique visitors for our Homes.com network is 88% above March of last year and traffic to our Homes.com site is up 183%, compared to last year. We are now four times the traffic levels from when we purchased Homes.com almost two years ago. By comparison, two years after we purchased Apartments.com, we'd only double the traffic. As we continue to build Homes.com and combine single-family residential with rental content from Apartments.com, we can now aggregate our traffic across both property marketplaces. In total, monthly unique visitors in March for our Apartments.com and Homes.com network was $72 million, according to Google Analytics. For the fourth quarter of 2022, Realtor.com reported 66 million monthly unique visitors while Redfin reported 44 million average monthly unique visitors. According to comScore, Homes.com unique visitors were up 153% year-over-year in March Realtor.com's monthly unique visitors decreased by 20%. Zillow's unique visitors were down 5% and Redfin's traffic increased 5% compared to March of last year. Alongside our increase in consumer traffic engagement agent engagement continues to improve. We now have approximately 1.1 million agents registered in Homes.com network up 37% for the first quarter of 2022. Active users are those who visit the site monthly have increased 64% versus last year. I believe the engagement will continue to improve as we're providing millions of free leads to agents that could generate billions of commission dollars for them under our Your Listing Your Lead Business model. In the months ahead, we're intensely focused on product development, generating proprietary content and building consumer traffic. Our team is extremely talented and singularly focused on winning. I wish I could share more detail on some of the great success stories, but I cannot for competitive reasons. With the progress we've made to-date, I remain confident that we're on track to begin monetizing Homes.com advertising product in the later part of this year. LoopNet was 63 -- revenue was $63 million for the first quarter up 16% year-over-year and accelerating from 12% growth rate in the fourth quarter of 2022. Our investment in building a direct sales force for LoopNet's paying off. Net new bookings are up 100% year-over-year, which is directly attributable to our larger and more effective sales teams. The productivity for sellers in the first year has increased in each of the last four quarters as new reps ramp and become more productive. Sales of new signature ads are up 27% year-over-year. LoopNet captured record traffic in the quarter with 14 million average monthly unique visitors to a network of marketplaces up 12% year-over-year. According to Semrush LoopNet has eight times the traffic of our nearest competitor in March. We're also seeing traffic gains in Canada as our unique visitors for LoopNet Canada in the first quarter are over five times the unique visitors of our nearest competitor there. These accomplishments and investments reinforce our position as the most popular place to find a space and give me confidence in our ability to achieve our target of 18% to 19% revenue growth in 2023. As we continue to focus on international expansion with our revenues they are expected to exceed $80 million in 2023. By revenue our international business now ranks number four behind Apartments.com, CoStar and LoopNet. We now have over 500 international employees including 200 researchers and 130 sales representatives. In Europe, we currently operate more than a dozen cities in five countries with aspirations to expand our CoStar and LoopNet products into most of these major markets. Currently, CoStar and LoopNet are only offered in the US, Canada and the United Kingdom. We believe there's a $30 billion European market for real estate information services and marketplaces, which is roughly the same size as our North American market. A key step to capturing a significant share of that market is building and selling CoStar and LoopNet on a pan-European basis. One of the core unique competencies of our research operations is our on-the-ground field research operations. Our goal over the next few years is to photograph map and document all of the commercial properties 10,000 square feet or larger roughly 1,000 square meters in 15 European countries and approximately 36 cities. We will divide each city into one kilometer grids and capture all the relevant building inventory in each area. We anticipate capturing information on more than 1.5 million properties with a combined value in the trillions of euros. We have done this before in the US, Canada and the UK, and in each instance these massive efforts have resulted in a profitable and very valuable information asset. CoStar revenue increased $225 million in the first quarter, up 13%. For each month of the quarter, we saw a record number of distinct users in CoStar and in March exceeded 140,000 distinct users. Usage of CoStar and product engagement continues to grow as evidenced by nearly 6.5 million log-ins in the first quarter, a 26% increase over the last year. During those user sessions, property searches exceeded $20 million each month and property detail views averaged 15 million a month. Whilst CoStar continues to be the premier product for real estate professionals -- brokers, significant opportunities exist for selling to new customers. We have a 75% plus penetration rate amongst brokerages with five or more brokers and continue to prospect smaller firms with an annual revenue potential of $96 million. In addition, our sales teams are focused on owners, lenders and corporations where we have a significant addressable market. We believe we have over 51,000 owner prospects, 10,000 lender prospects and almost 4,000 corporations or 50 or more locations for a total of $1.4 billion in potential revenue. For the first time this quarter, product demonstrations to these aforementioned prospects exceeded those to the broker customers and broker prospects. Overall, we're seeing slightly lower than -- slightly lower net new bookings for CoStar, but still expect double-digit revenue growth in 2023. We've releasing corporate information on 12,600 real estate investment funds and 70,000 commercial properties within those funds into CoStar. The sub-fund information helps clients understand who has capital available to invest in the commercial real estate and what sort of product types they want to invest in and where they want to invest. We continue to focus on our banking customers with our lender product. Last month marked the one-year anniversary of releasing our fully integrated solution for lenders in CoStar. Sales continued to be strong in Q1 ending our first year by breaking the 150 total client milestone. These clients spend many lender types including banks, life insurance companies, credit unions and private lenders while ranging in size from $50 million CRE portfolios to over $50 billion CRE portfolio, proving a large opportunity moving forward. Our sales pipeline for lender is strong and we expect to build on that pipeline as the solution for lenders is uniquely positioned for continued growth in this uncertain environment. The value proposition is unmatched. No other company can connect a lender's portfolio to our rich property level information and provide a fully integrated credit model that assesses refinance risks as well as stress test a portfolio for an economic downturn. We expect continued sales opportunities due to regulators calling for increased portfolio surveillance by CRE focused lenders for multiple reasons, including the concern over office properties, rising rates, refinancing risks and the threat of a potential economic downturn. I remain confident in our ability to grow CoStar revenue, given our mission-critical data ongoing product enhancements and the continued expansion and diversification, of our customer base. Although overall CRE transaction volume was down 51% year-over-year, Ten-X continues to outperform the market, with a solid 60% trade rate up 3 times that of the off-line market and up 51% in the fourth quarter of 2022. We also saw the average number of bidders per auction on the platform increased over 3.2 in the first quarter, compared to 2.6 in the fourth quarter of 2022. In Q1 2023, Ten-X saw the average asset value increased 18% over the last year from $3.3 million to $3.9 million, average winning bid price increased 29% compared to the prior year from $3.1 million up to $4 million, and the average buyer premium increased 35% over the last year from 71,000 to 97,000. I believe this indicates that our expanded sales force is delivering higher quality assets, that investors are seeking, even in a price-challenged market. With roughly $1.5 trillion of CRE debt maturing in the next 24 months, and $700 billion maturing by year-end, we expect the continued interest rate-driven market shift to drive transaction volume up. Ten-X is already seeing an increase in momentum in the second quarter, with $1.7 billion of inventory come into the platform, a 44% increase from Q2 of 2022. Ten-X remains the go-to platform for accelerated asset transactions, which buyers, sellers, brokers, lenders and special servicers, benefit from as the markets continue to shift. Our land’s business is focused on creating opportunities for our real and clients to capture more leads for their priority properties for sale, with signature ad opportunities. This business continues its consistent profitable growth with 14% year-over-year revenue growth. STR has achieved a record sales quarter with the highest net new in its history, and delivered 14% year-over-year revenue growth, on a constant currency basis compared to the first quarter of 2022. We're on track to launch our new benchmarking product this month, and execute our plan of migrating more than 175,000 users to the CoStar platform. This release will open access to new clients, including owners, hotel operators and brands that will enable execution of our integrated strategy. Owners will have clear visibility into asset performance, market performance and competitive landscape. This insight is invaluable for asset acquisition, repositioning and dispositioning. Operators, will have access to data and tools to better forecast budget, yield, manage and identify demand drivers and supply implications. Hotel brands will have a full suite to support and develop teams, franchise owners, relationships and management contracts, what's not to love about all that. Overall, higher interest rates and increased economic uncertainty have reduced transaction volumes in the market, and impacted prices since the second half of 2022. As I mentioned earlier, transaction volumes declined by over 50% year-over-year in the first quarter of 2023, in the commercial real estate markets. In addition, we're now seeing asset price declines for seven consecutive months with valuations off by 8% over that time. The office sector continues to show real weakness with vacancy rates reaching almost 13% in the first quarter Phantom vacancy rate is much higher than that. And it's matching the all-time peak seen after the great financial crisis. With continued weak demand negative net absorption and other 58 million square feet of deliveries expected in 2023, we expect vacancies to push higher for the foreseeable future. Not surprisingly, delinquency rates on commercial property loans have doubled in the past three months to 2.8% and it's probably actually higher than that. Overall sales prices for office buildings are down 26% from their peak in Q1 of 2022. Fortunately, our 10x platform is well positioned to assist with the recapitalization of those properties as they come to market. The residential housing market remains constrained. Mortgage rates are down from the earlier highs at the end of last year, but affordability is still low by historical standards. Sales of existing homes tipped higher earlier this year after 12 consecutive months of declines. Sales of new homes have trended higher since reaching a bottom last year as builders are offering incentives like rate buydowns to clear inventories. Inventories remain tight which should prevent values from declining rapidly. The retail sector continues to benefit from reduced store closures, steady demand and minimal new supply. Available retail space fell to a new all-time low of 4.7% during the first quarter, leaving it difficult to find space strong market. Industrial net absorption has slowed in the first quarter after two years of record high net absorption and tenant demand is beginning to moderate. At 4.3% the US industrial vacancy rate is half of the levels recorded 10 years ago and rents have climbed 10% over the last 12 months still a strong market. I'm very pleased with the performance of our business in the first quarter. CoStar continues to grow and remain resilient despite industry headwinds elsewhere. Apartments.com and LoopNet show accelerating countercyclical sales success. I am very optimistic about the progress we're making building traffic and value at Homes.com. We're very pleased to see our array of diverse platforms drawing more than 94 million unique visitors in March and I look forward to reporting 100 million unique visitors before too long. At this point, I'm going to turn the call over to the very capable hands of our Chief Financial Officer, Scott Wheeler.

Andy Florance:

It might just be eye.

Operator:

Of course. [Operator Instructions] The first question comes from the line of George Tong with Goldman Sachs. You may proceed.

Scott Wheeler:

Sure, George. Thanks, for the question. So, we do take a quick -- a close look at all of our different customer sectors and how we're performing. As I mentioned, the sales that we're making into the growth sectors, owners, investors, lenders are at if not slightly above the levels we've been doing, over the last four to six quarters. And you just really see this one isolated sector, that is the smallest broker shops that are being impacted by the downturn in transactions and reduction in effort and potential layoffs, in that industry. So, we've taken a close look at that. We reflect those trends. We think that, the second and third quarters, are going to be rough in the industry. I think those are pretty well known economically. And so, we ride along with that sort of expectation and would hope that it starts to get better in the latter part of the year. So, we build all that into our forecast and we see that reflected in the 10%. So with the number of sectors holding up as strong as we have, and with the bigger sales force, we don't see this as being something that would be as disruptive as what happened in the pandemic or anything previous for us. So, we're pretty confident with what we've got built in so far. And then, question on pricing. Yes, we're following -- we follow inflation level pricing. So our -- as inflation levels come down, then we reduce the increases that we put in for renewals to just stay at the rate of inflation. And that's all.

Scott Wheeler:

Sure.

Peter Christiansen:

Good afternoon. Thanks for the question. Andy, just wondering can you elaborate, a little bit on how you're seeing the pipeline for Ten-X, the relationships that you've built, I guess since acquiring the asset -- and how you see that pipeline evolving, I guess, as potentially we hit more distress over the coming months, years. How do you see that evolving versus how Ten-X was prior to being acquired. Thank you.

Peter Christiansen:

Okay. Thank you.

Stephen Sheldon:

Yes. Thanks. LoopNet, really strong booking trends there, so do you think you're at full stride there with the expanded sales force, or is there still a lot more to go I guess in terms of ramping productivity. And then can you talk about the demand environment in LoopNet given the trend in office vacancy rates? It seems like a great environment right now. But do you also think that you could be a point where vacancy rates trend too high, some property owners capitulate and just assume they're not going to find tenants and therefore reduce ad spend? And I guess essentially is there an optimal range for office vacancy rates from your perspective to maximize demand at LoopNet. And if so, what do you think that is?

Scott Wheeler:

As you should.

Stephen Sheldon:

Great. Thank you.

John Campbell:

Hey, guys. Good afternoon. Thanks for taking our questions.

John Campbell:

The first one is -- I guess a two-part question here. So first off a great job on the Homes.com traffic ramp that was a really impressive early start for you guys. So first on the roughly $53 million of sequential -- up in sales and marketing how much of that was tied to resi?

John Campbell:

Okay. And I guess just broadly you're expecting that sales and marketing step up sequentially throughout the remainder of the year even in 4Q.

Andy Florance:

But if you see anyone from -- that we're spending all the money in Madrid.

Andy Florance:

Well for the next -- there's a lot going on. I mean it is a very full plate of initiatives and there's well over 1,000 people working on the initiative right now. I think that the traffic numbers remain a key metric that we're watching obviously. As we mentioned we plan to begin to monetize the platform at the very end of the year. And the first 1,000 customers on that platform are probably the most important customers that you may one day have hundreds of thousands or millions. The first 1,000 the most important. But I would stay with -- I would just stay with the simple traffic numbers. Now I believe that critical traffic numbers are what we talked about before 25 million which we've crossed 50 million which we're moving towards. Beyond that 50 million mark you really have what you need to produce some compelling marketing solutions for your clients and you can really begin to monetize. So I think the numbers correctly you correctly observed that I would say that one of the biggest risk factors for Homes.com has just been reduced with these results today if you're watching.

Operator:

Thank you, Mr. Campbell. The next question is from the line of Ashish Sabadra with RBC. You may proceed.

Scott Wheeler:

So let me take the first part of the question there, Ashish. When you look at our broker mix in CoStar, a little over 35% of our CoStar revenue is from the broker pool, and then about 25% of that group is representative of small, what we call the one or two broker set. So that gives you 25% or 35%. So it's roughly 8% of that pool. So it's pretty limited exposure for now in the small broker set.

Ashish Sabadra:

That’s great. That’s very helpful color. Thanks Andy and Scott.

Mayank Tandon:

Thank you. Good evening. Andy, of the 15 countries -- or was it cities that you mentioned the focal point in Europe, is that going to be an organic initiative, or do you think you could buy assets in these regions that could help accelerate the traction there to be able to penetrate that $30 billion opportunity. And when should we expect meaningful revenue contribution from this initiative?

Mayank Tandon:

That’s very helpful. Thank you.

Jeff Silber:

Thank you so much. This is I guess a follow-up from the prior question. You've obviously, got a sizable cash balance. It's great to see that you're generating more interest income off of there. But when do you think, you might put that cash balance to work? And where would that cash balance be working?

Jeff Silber:

All right. Fair enough. Thanks for the color.

Heather Balsky:

Hi. Thank you. I appreciate you taking my question. I'd love to ask you about the residential piece. You talked about where you are on a traffic basis. There's less risk going forward. I know you're not kind of telling us specifically your sort of spending plans for this year and beyond this year. But if things continue to progress at the rate they do and the pace they do kind of how do you see things evolving at a high level? Can you just kind of help us kind of see your path between now and 2027? Thanks.

Heather Balsky:

Well, I guess, the investment side and how it's tied to your thoughts around how sales progress.

Heather Balsky:

Appreciate the color. Thank you.

Ryan Tomasello:

Hi. Thanks for taking the question. Just a two-part one here. Clearly a lot of confidence in the resiliency of the business, but just given uncertainty that's out there around macro and CRU. It'd just be helpful to hear your thoughts around your willingness to pull expense levers under the scenario that the sales environment does weaken more than you're hoping. And as a follow-up on the Homes.com traffic trends, maybe you could elaborate a bit more Andy on what levers you've leaned on so far to drive that traffic growth in terms of I guess, SEO, SEM, synergies with apartments and what remaining levers you have to pull that you just alluded to? Thanks.

Scott Wheeler:

Yeah. Well, you noticed -- I mean, we look very closely at the last disruptions that happened, the pandemic in 2020 and the great financial crisis more than a decade ago. And as you proceed through each of those you noticed in the last down cycle that our revenue growth didn't slow at all and we see nothing even as disruptive of that this time. And you just look, what's happening with apartments and LoopNet proving to overbalance countercyclical that our revenue growth is not going to slow at this balance in a down cycle and we don't see that coming at all. And we do see a lot of clear data underneath as you might suspect on what's going on. So, our portfolio is much stronger as even three years ago and I think we saw that in the results that we announced today.

Andy Florance :

Wow. We finished seven minutes early. Well, I'd like to thank everyone for joining us for our first quarter 2023 earnings call. We look forward to speaking with you again in our second quarter call in July 25, 2023 at 05:00 p.m. Eastern Standard Time. So thank you very much for participating today, and have a good evening, or a good day, if you're in Asia. Bye-bye.

Operator:

Good afternoon. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group Fourth Quarter and Year End 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Now Cyndi Eakin, Head of Investor Relations will read the Safe Harbor statement. Cindy, you may begin.

Andrew Florance:

Thank you, Cyndi. Good work. That was fantastic Safe Harbor. Good evening, everyone, and thank you for joining us for CoStar Group's fourth quarter 2022 earnings call. Total revenue for the full year of 2022 was $2.2 billion or 12% year-over-year growth coming in at the high end of our guidance range and above consensus estimates. Our fourth quarter revenue grew 13% on a constant currency basis over the fourth quarter of 2021, up to $573 million. This is our 12th year in a row with double digit revenue growth. We had a phenomenal year in sales. We delivered the highest net new sales ever with 2022 sales reaching $305 million or 41% growth over the net new sales in 2021. We delivered exceptional sales results in the fourth quarter as well with annualized net new sales bookings of $77 million. This is a 15% increase over the same quarter in 2021 and our second highest quarterly net sales bookings result ever. Apartments.com had their highest sales quarter ever exceeding their prior record set in the second quarter of 2020 by 25%. So a shout out to [Page Forest] (ph) and her entire team at Apartments.com. We substantially increased the size of our sales force in 2022, adding almost 300 people net. We had a very strong profit performance in 2022 as well. Our full year adjusted EBITDA was $672 million, which was also above the high end of our guidance range and consensus estimates. Overall, we had an exceptional year with both strong sales and profit performance, while continuing to invest and grow the business. Apartments.com revenue was $198 million in the fourth quarter, increasing 16% over the fourth quarter of 2021 and $740 million for the full year was a 10% increase over the prior year. Apartments.com delivered another outstanding quarter with a record in sales and an increase in net bookings of 177% over the same period last year. 2022 was an exceptional year for Apartments.com, our efforts to attract talented sales professionals give them world class training and get them into production paid dividends. We increased the sales force by 40%, adding over 100 sales representatives to the team. At the same time, we were able to increase our sales productivity with monthly net new sales up 187% as compared to 2021. The team also conducted 450,000 quality meetings, both with existing clients and potential prospects, the highest number of meetings in our history. We maintained a very impressive Net Promoter Score with our clients of 93%. The Apartments.com brand is stronger than ever. In 2022, we delivered over 1.2 billion visits to our platforms. Our award winning marketing campaign featuring the wonderful and funny Jeff Goldblum as Brad Bellflower, inventor of the Apartminternet entertained audiences and delivered over 12 billion impressions across linear TV and our other 130 media channels. We continue to reach renters and potential renters where they consume the most content including streaming video, audio, social media platforms and through marketing influencers. Our investments keep proving successful with the new all-time high and unaided brand awareness in the fourth quarter and the number one ranking among our target audience. Rent Dynamics, a leading CRM platform for multifamily properties conducted analysis of over 500,000 rental leads submitted in the fourth quarter of 2022. They determined that the Apartments.com network converted leads to leases at twice the rate of Zillow. To be clear, this data shows that a community would have to get twice as many leads from Zillow as from Apartments.com in order to provide the community with an equal number of leases. In fact, the same studies show that Apartments.com network provided communities with almost 4 times more leases than the Zillow rental network and over 9 times more leases than rent period. As we look ahead, we are well positioned to penetrate the existing -- the estimated $1.4 billion marketing opportunity in apartment buildings which have less than 50 units, but more than five. In 2022, we more than doubled our sales force dedicated to this opportunity and in the fourth quarter we introduced flexible listing plans. The perfect solution for managers who oversee multiple properties in this under 50 unit apartment category. The product allows managers the flexibility to swap properties they advertise at any time based on their current needs and upcoming availabilities. I'm proud to say we launched Apartments.com in Canada in the fourth quarter, marking the brand's first expansion outside the United States. Renters in Canada may now search Canadian geographies for apartments, homes, condos and town homes for rent. Searches can be conducted in English or [French] (ph). Some of the key clients in the United States have either already moved into Canada or plans to move in 2023 and we're ready to support them. 42 of Canada's largest property management companies have already provided us with their data on their communities and we've acquired listing data from the Canadian Real Estate Association. This allows us to present rental listings for various Canadian MLSs on Apartments.com. We have already experienced enormous traffic growth since our recent launch and are positioned at or near the top of organic spot for searches. We believe we are well positioned to penetrate this $600 million estimated Canadian apartment marketing opportunity with our strong brand and unique product offerings. The U.S. macroeconomic conditions continue to support an increase in the demand for advertising. U.S. multifamily vacancy rates rose another 50 basis points to 7.1% compared to the last quarter. The U.S. and Canadian market conditions along with the strength of our brand and our sales force give us confidence in our ability to return to 20% annual revenue growth. CoStar revenue was $837 million and 2022, up 16% over the prior year, making it an outstanding year. CoStar net new sales were record high and 16% more than our prior highest sales year. Both the North American and European sales teams delivered the highest net new sales ever. We added over 60 new sales representatives to the CoStar team this past year, which is an increase of almost 20% over 2021. We're in the final stages of transitioning customers to the global CoStar platform, which to date has generated over $40 million in incremental revenue. We launched the CoStar Lender product, which generated almost $6 million already in net new sales and 140 new customers and we're just getting started there. This quarter, we expect to complete the process of linking over 70,000 commercial properties to 12,600 investment funds or property investment funds, providing our clients with insights into these property fund portfolios. The product will allow a user to search for funds raising capital and those with dry powder to invest and gather insights into a fund manager's investment strategy property type, target country or -- and/or transaction history. We're about to deliver significant enhancements to our tenant product as well. In the past, our tenant product has provided our users with valuable details on over 5 million tenant locations. With the coming upgrade of [tenant] (ph) will provide users with an aggregated roll up of all of a given company's locations so that the user can better understand how the most important tenants utilize space across their portfolios and how our clients can best capitalize on these various tenants' space needs. CoStar definitely had a tremendous year. I'm confident in our ability to continue to grow at double digit rates with the strength of our product capabilities, high renewal rates and continued ongoing thoughtful investments. LoopNet fourth quarter revenue was $61 million up 12% over the prior year. Net new sales bookings in 2022 set a record for LoopNet. Net new sales in the fourth quarter were up 198% over the fourth quarter of last year and trailing 12 month net new sales were up 56% over 2021. We added over 100 sales representatives to LoopNet in 2022, which almost quadrupled the size of the LoopNet sales team. With the successful launch of LoopNet in Canada and U.K. we now have a growing international offering. We have planned launches in France and Spain in 2023. Our brand and our product remains strong with traffic to LoopNet network of sites continuing to outperform competition dramatically, both domestically and internationally. LoopNet now ranks number one for 129,000 relevant commercial keywords on Google, and we have twice the number of keywords ranked in the top three positions than our next closest competitor. In 2023, we'll continue to grow the sales force as well as our SEM investment along with our digital and broad based media campaigns. The new marketing campaign will be focused on elevating LoopNet brand owners and brokers across a mix of multimedia channels, including linear, digital and social platforms. These marketing efforts will drive leads to our expanded sales force and reposition our -- reinforce our position as the most popular place to find a space. Overall, I'm extremely pleased with the progress we've made building out the LoopNet team and its international platform, which gives confidence in our ability to achieve our target of 18% to 19% revenue growth in 2023. STR's revenue growth accelerated from single digit growth in the first quarter of 2022 to 12% year-over-year growth in the fourth quarter of 2022 on a constant currency basis. The hotel industry has recovered in the U.S. average daily rates and revenue per room are well ahead of pre pandemic levels. Internationally, the industry isn't far behind. Current market conditions put us in a great position to launch our new benchmarking product, which we believe will provide incredible new variable to hotel brands, operators and owners around the world. Our new benchmarking product combines the very best of STR's deep hotel industry acumen and expertise with CoStar's innovative technology and industry leading software. Users will find an interactive benchmarking platform with areas that preserve the familiarity of the star report, whilst introducing new features and functionality in analytics charts and graphs to deliver additional insights into their hotel's performance. The deep proprietary performance data and user defined competitive sets aggregates will be available for users to manage their properties, set rate and occupancy strategies and optimize performance. CoStar now houses an inventory of more than 0.25 million hotels, including 77,000 benchmarking participants in over 180 countries with 175,000 unique users for that information. These users will access their performance data and industry data from 572 hospitality markets, 1,900 submarkets and over 6,000 class segments in their selected currency. Owners will have clear visibility into asset performance, market performance and the competitive landscape. This insight is valuable for asset acquisition, repositioning and disposition. Operators will have access to data and tools to better forecast budget yield, manage and identify demand drivers and supply implications. Hotel Brands will have its full suite to support development teams, franchise and owner relationships and management contracts. During 2023, we'll be migrating those 175,000 users, including 900 corporate customers and 6,000 independent hotels to this new digital marketing platform base in CoStar. They've already begun to integrate the outputs with their workflows and we're experiencing significant product -- and are experiencing significant productivity improvements. In short, we're on track to achieve our goal to effectively utilize a digital product that an entire industry relies on and unlocks significant new value for our clients. These enhancements will help us to gain further share and penetrate the $300 million addressable hotel market. Ten-X brought $5 billion in assets to the platform for sale in 2022 for an increase of 42% year-over-year. That's the highest level we've seen the platform since 2012. Ten-X closed $2.5 billion of those asset sales which is up 16% over last year and the highest level since 2016. This performance was in the face of a significant slowdown in overall commercial real estate sales volumes, which had declined almost 55% compared to the fourth quarter of last year. We continue to see consistency in the percentage of non-distressed assets brought to the platform at approximately 80%, indicating that the volume of distressed sales has not yet picked up. Full year revenue for Ten-X grew 11% year-over-year. In 2022, we made significant progress enhancing the platform. We've now fully integrated Ten-X with our CoStar and LoopNet platforms and that's driving sales and operating efficiencies. We had our first buyer bid on a Ten-X property from within LoopNet last week and they won the auction for that property. So they're really fully integrated now. With integration, Ten-X is now positioned to handle dramatically higher volumes. We've also doubled our Ten-X sales force since the last year. New Ten-X sales represents with tenure under 24 months are productive and brought 318% more assets to the platform in 2022 than the prior year and they accounted for 55% of total assets. The commercial property transaction market is in a period of disruption with $93 billion of CMBS loans expected to come due in 2023. Trade rates continue to reflect the spread in buyer and seller expectations. Ten-X continues to maintain a significant advantage of the old offline trade rates and we've exceeded those by 81% over the course of 2021. So we're in a down market dramatically more effective. A digital platform that can close a transaction within 90 days as compared to the market average offline of approximately 300 days has a significant advantage and is well positioned for challenging market conditions. I'm pleased to report that we're making significant gains in building consumer traffic on Homes.com. Unique visitors to Homes.com climbed 130% year-over-year in January according to Google Analytics. Our SEO traffic to Homes.com increased 78% month over month in January. Our SEO traffic to Homes.com increased 78%% month over month in January. According to ComScore, January 2023 over January 2022, our Homes.com traffic increased 100%, while ComScore indicated Realtor.com com was down 15%, Zillow was down 6% and Redfin was relatively flat at about 6%. In total, our Homes.com network had approximately 24 million unique visitors in January according to Google Analytics. We still have a lot of work to do here, but we have a clear roadmap and have our heads down focused on building the best residential real estate portal in the United States. Our team is excited to be working on this. They're highly motivated and committed to the mission. We believe that given our progress in building traffic to date, we'll be in a position to begin monetizing Homes.com in the later part of this year. We now have over 1 million agents registered on our Homes.com platform, which is an increase of 33% over last year. During the year, we successfully integrated the back ends of Homes.com and Homesnap platforms into one efficient residential technology stack. We're making significant progress executing on your listing your lead strategy. While other sites are injecting their agents into the homebuyers search experience somewhat awkwardly, we offer a friction free environment connecting buyers directly to the listing agents who know the property and the home best that the buyers interested in. We're also presenting consumers with hundreds of thousands of highly qualified potential buyer agents for free based upon those buyer agent skills and experiences rather based on how much the buyer agent is willing to give up in commission to the portal. We believe that we offer a dramatically better consumer experience than do sites that try and take commission split from the inquiries buyers submit. I've used some of these competing sites myself and submitted leads on properties I'm interested in. The experience is remarkably awful. The moment you submit a lead and for months afterwards, you're bombarded with cold calls from countless agents who have questionable qualifications. We believe that Homes.com offers a significantly improved consumer experience over that competition. Not only do we believe we offer a superior consumer experience for buyers, we also believe we are much better aligned with real estate agents. The competing models use all the agents' listings in a market to funnel monetize leads to just a very small percentage of agents. So, some of these competing models are diverting all the agents' leads to a small number of agents who are paying the portal. In their model, these few agents pay a huge fees and the vast majority of agents get little value if not downright disadvantage by these competitors. We believe that by respecting your listing your lead, we can serve all the agents better. We are not just providing value to the agents with the listing though, we're making it easier for buyers to find agents who have expertise and experience that are the best match for the needs of those buyers and then facilitating connecting with them and collaborating with them without us trying to again inject ourselves in the process inappropriately. Our product development and research teams have now released a robust agent directory featuring hundreds of thousands of agents and extensive media to enhance their profiles. Our agent collaboration tools are up and running. We've had tremendous feedback from both agents and consumers. The interactive experience replaces the historically inefficient email and text communications back and forth between agents and homebuyers. We've successfully previewed this new Homes.com at the National Association of Realtors Convention in November where we demonstrate our product to close to 2,000 agents and we received very positive feedback across the board. Revenue for residential segment was $74 million in 2022, which was roughly flat compared to revenue in 2021. As we mentioned in our last call, this is legacy Homesnap revenue, mostly selling social media and search engine advertising to agents. We believe that this revenue is less strategic and less sticky than the revenue we'll generate from a high intent marketplace like Homes.com. We have effectively transitioned most of our sales resources to other higher yield marketplaces as we continue to deemphasize the Homesnap products in favor of future Homes.com revenue. In the later part of the year, we'll begin to bring more sales resources back on to the residential segment in the Homes.com product. Our planned investment into marketing to drive traffic to Homes.com will increase later in the year as we approach the point where we are ready to monetize Homes.com. As you've heard us say before, CoStar is always assessing opportunities to maximize shareholder value, including strategic acquisitions. And the discussions announced last month by News Corp with respect to a potential sale of Move Inc., the operator of Realtor.com were part of that ongoing effort. While we typically do not comment on potential acquisition opportunities in light of News Corp's prior announcements, we are confirming here at this point CoStar Group is not acquiring Realtor.com. We have tremendous respect for the people behind Realtor.com and for the National Association of Realtors. But again, I need to make it clear. At this point, CoStar Group is not acquiring Realtor.com. We continue to believe that Homes.com's business model and our principals are well aligned with the interest of NAR members and real estate agents generally. Turning to the real estate economy. The office sector continues to show weakness with vacancies up 13% of the past 14 quarters and now stands at 14.6%. Availability rates are much higher at 18.5%. Many second generation office properties are now in significant distress. We expect to see many of these owners with no choice but to hand the keys back to the bank. We're well positioned to assist in recapitalizing those properties on Ten-X as they come to market. I do believe that there is hope of recovery in the out years for office though. A recent Castle Index reading showed a possible shift in momentum as office usage climbed over to 50% mark over the pre-pandemic levels. That means that for the first time since the pandemic more people are working in an office than are working at home. I believe that's because people are more productive, efficient and in touch when they work together in person. I also believe that teams work together are more competitive. While we expect vacancies to continue to rise and office properties continue to be negatively impacted in the near term, we see the continued return to work trend as a positive sign for the office sector's future. With 1.3 million office using jobs added since the beginning of the pandemic, and negative 118 million square feet of absorption over the same time period, there may be significant pent up demand for office space. The industrial sector posted a healthy fourth quarter and the sector is seeing an unprecedented amount of new supply due to high levels of demand for goods seen since beginning of the start of the pandemic or since the start of the pandemic. The sector's vacancies are at half of their long term average. The retail sector exhibited the strongest fundamentals in the fourth quarter and was the only asset class to see vacancies decline. Relatively strong demand and relatively low supply are both a continuation of trends we've seen since the beginning of the pandemic. Demand has outpaced new supply for seven consecutive quarters leading to a fourth quarter vacancy of 4.2%, the lowest retail vacancy rate ever recorded. So it would appear that the death of retail real estate was only a rumor. The residential housing market is continuing to see softness. Home prices soared during the pandemic due to cheap money, but now mortgage rates have climbed over 7%, as you likely know. In combination, this has resulted in terrible affordability issue at levels not seen in more than 30 years. With buyers being priced out of the market and existing homeowners being discouraged from moving due to having finances at historically low rates, existing home sales have fallen for the 11th consecutive month. An overall drop of 38%. We've recently celebrated our introduction to the NASDAQ 100 and the S&P 500. That's probably connected to the fact that we've now achieved 12 straight years of double-digit revenue growth. 2022 was our highest net new sales bookings year ever, and we now have over 1,100 productive sales representatives, executing on many of our significant market opportunities. We published our second environmental and social and governance report, which you can find in the Investor Relations sector of our website, highlighting our ESG goals and accomplishments for 2022. We are now reporting our baseline greenhouse gas emissions. Inside CoStar Group, we continue to prioritize being a leader in sustainability. We have a hybrid or electric fleet of over 200 research vehicles, we select LEED certified or ENERGY STAR rate of buildings for most of our 80-plus offices. We have facilitated over 30 million virtual tours through Apartments.com, LoopNet, Homes.com land marketplaces thereby potentially avoiding massive amounts of carbon that would have been created by people driving for traditional physical property tours. We've also increased the transparency of our human capital disclosures, including publishing both our EEO-1 and pay GAAP analysis. I am extremely proud of our diverse and equitable workforce. I'm encouraged by all that we've done and all that we're still poised to do in making CoStar Group as sustainable, transparent and a diverse as company as can be. Our 2022 employee engagement scores climbed to a well above average 83%, which is the highest engagement scores we've ever obtained. We're also proud to have a highly engaged workforce, which is reflected in our low average monthly voluntary turnover rate of just 1.6%, which is way below the professional and business services industry rate of 3.3%. So with that, at this point, I'm going to turn the call over to our approximately 83% engaged Chief Financial Officer, Scott Wheeler.

Operator:

[Operator Instructions] Your first question comes from the line of George Tong of Goldman Sachs. Your line is now open.

Scott Wheeler:

George, thanks for the question. So yes, we do have a significant investment plan for the year. And as I listed the investments that we're working on in 2023, I listed those in priority and size order. So as you can expect, our investment into residential will be the biggest increase that we will have in 2023. To your question about the commercial businesses, I said we almost reached the 40% margin that we set out for this year, and we expect to continue to deliver that same margin level next year in our commercial business. as we really focus on getting productivity out of our sales resources and the rest of the teams and the commercial side of the business. So we'll be at the about the 21% margin rate next year Interestingly enough, and this wasn't planned that way, but when we made the Apartments.com investment back in 2015, our margins also went to 21% at that point and have moved up nicely since then, and we are in a market with residential that's at least 2 to 3x the size of the Apartments.com opportunity. So I think that gives you a sense of where our focus is for investment and why we think now is the right time to make that investment ahead of the growth that we're going to get up into 2027. We're not providing any margin guidance right now past 2023. So stay tuned as we'll move throughout time. We'll give you more guidance there.

Operator:

Your next question comes from the line of Peter Christiansen with Citigroup. Your line is now open.

Andrew Florance:

Sure. So there are -- as we have been in exploring different opportunities, there have been other opportunities in the wings, and we assess each one for its potential ROI complexity and risk. So there are additional opportunities out there in both commercial and in residential. And we're also looking at that we're also looking at the buy versus build scenario continuously. So you could use a you could use a real estate analogy, you could buy an existing property or you could build a property. And there are different seasons for each where you get a better ROI on one or another. So right now, you can see some of the success we're having in traffic growth. And we see some of the positive feedback we're getting on the approach we're taking to the market. And so we feel that we have a unique offering on the organic side that no one else is offering out there. And so we're a little more focused on that and acquisitions that might support an organic, inorganic -- a more organic strategy on building out the opportunity. It's important to remember that in the residential portal space, the vast majority of residential agents don't buy anything from the leading portals. So I believe that maybe 97% of active residential agents aren't buying anything from the existing portals. And so we think there's a very attractive organic opportunity there. And we think that there are acquisitions that help you reach that goal. And then there are also less directly related acquisition opportunities. So -- it's a changing landscape and you're making judgments as you go and making sure that you believe it's the best ROI for the investors.

Heather Balsky:

Just going back to the M&A question. with regards to your balance sheet and you guys are sitting on a lot of cash. I guess if -- it sounds like you're thinking organic, you're thinking organic investment, you're thinking, it sounds like maybe some sort of acquisitions that sound like might be tuck-in or you may do something transformational. I guess, in the meantime, how are you thinking about your balance sheet and the cash sitting on your balance sheet?

Heather Balsky:

And I apologize, may I just squeeze in what -- in terms of the investment spend for residential in 2023? Okay. Sorry about that.

Heather Balsky:

Okay. Just the actual dollar spend, specifically for residential in 2023, would you guys mind sharing that?

Andrew Florance:

And there is competitive elements here where you don't want to be terribly transparent on every detail, and you want, we believe investors and analysts can figure some of the stuff out, but we don't want to put it in an earnings call script to make it that easy.

Operator:

Thank you. Your next question comes from the line of Stephen Sheldon with William Blair. Your line is now open.

Andrew Florance:

So I believe we met with a number of investors and discussed a point where we begin to do the first levels of monetization at 25 million uniques. And in January, we were at 24 million uniques. So we're a little ahead of our plan there. And so we are focusing on the back half of the year to build out that product or to build out that offering and apply sales resources to it. It would be no way that it would be meaningful revenue in 2023, just because of the timing of the ramp-up. I think that the question of where you see peak investment includes a psychological element to it. So I think where the point at which you are an investor is not yet seeing the first stage of monetization or seeing traffic strategy or unique positioning of a product. From that perspective, I would say that 2023 is probably the peak psychological negative operating margin time period. And we would hope to be showing signs of success of 24, 25. So we've done this a number of times. This is if you use the analogy of building a building and you're building out first year, you're acquiring the land, design the property second year, you're getting the permits, bidding out the work, third year you're building out, if you're leasing it up. We've built a number of buildings just like this before. And so typically, when people see the groundbreaking in year two, three and the buildings start to come up, they can begin to imagine it. And we're still in the early phases. We're near two really of this initiative. But eventually, people get pretty excited because they realize as a digital building and it has a fixed cost, and you can lease it up repeatedly and repeatedly, repeatedly to make a lot of money on it. So I think 2023 is a substantial investment year. I would anticipate that there would be investment in 2024, but with more KPIs that the world could see and appreciate.

Operator:

Thank you. Your next question comes from the line of Ryan Tomasello with Stifel. Your line is now open.

Andrew Florance:

Sure. So on the CoStar side, the renewal rates are fantastic. And we are not seeing any sort of friction with brokers in any way, shape or form. You had a bit of a surge with -- you had a bit of a surge there with a global platform sale over the last year. But one of the things we do now is we've got our sales force began to focus on some other initiatives that we think are equally valuable on the lender side, the corporate real estate side and the owner side. So we feel that there's more than ample opportunity to continue that growth rate in CoStar. I think I've made that same comment and been right about it for about 140 earnings calls. And on the LoopNet side, we're at a really important junction there where we are actually building up a sales force that is capable of going after this opportunity at a national level, first time we've ever had a dedicated sales force for LoopNet at that level. We did an extensive set of focus groups earlier this earlier very tail end of last year, and we spoke with our market researchers, collective information from owners, from brokers and from corporate real estate users. One of the things that really was impactful was 10 for 10, all the Fortune 1000 real estate folks we were talking to we're using the heck out of LoopNet to select and find their facilities, which leads me to believe that LoopNet is the single most important marketing vehicle in commercial real estate. And in that context in a game -- and not a game in a situation where, in some sectors, particularly say, office, it's a game of musical chairs where the person with the tenant wins big and that person without a tenant is handing the keys back to the bank. I believe that there is smart people would invest in digital marketing campaigns to give themselves the best shot at filling up their properties in a tough environment. So one, building it up by individual rep by rep performance. It gives us the outlook that we think makes sense. And two, just looking at the market conditions and how LoopNet is optimally positioned to help people with very valuable assets with relatively minor investments in digital marketing. It's me talking, which I'm skewed, but when I see a broker or an owner with a significant leasing problem that may cause them to hand back their keys and they failed to market it on LoopNet I am just gobsmacked at what a stupid move that is. So I believe that, again, from listening to hundred hours of focus groups, I believe we've got a winner of a product and executing building a sales force to go after that opportunity and marketing that opportunity will allow us to continue and accelerate the growth rate that you're already seeing us accelerate. Do I sound confident? Do I think -- does it sound like my child is handsome?

Operator:

Thank you for your question. Your next question comes from the line of Jeffrey Meuler with Baird. Your line is now open.

Scott Wheeler:

Yes. So Jeff, to the first part of your question, the margins I referenced on the commercial information marketplace businesses. Yes, includes CoStar, LoopNet Apartments.com, all of the investments that we make in those platforms. So it's everything outside of the residential marketplace. And then I think more notably in the first quarter of the year is the hiring that we did in the second half of the year, last year, along with the increases we give for wages in the first quarter, which we do want to keep our employee base ahead of inflation. It's more of those impacts that roll into the first quarter as opposed to any acceleration of marketing spend across the company in general. So that's what we're seeing -- and then we -- like I mentioned before, we won't be hiring as many of those sales forces this year or other resources that will moderate that increase, flatten it out as we go through the year.

Operator:

Thank you for your question. Your next question comes from the line of John Campbell with Stephens. Your line is now open.

Andrew Florance:

I don't think you can rule anything out like it's a flexible thing. And I think you described it accurately. I think we are fortunate to have a very viable organic path. And again, there are -- there are many, I would say, going into this year or going into the fall, it felt almost sometimes if there were too many M&A opportunities out there. So there are a number of things. But as you know, we're not at liberty to discuss these kinds of things typically in detail.

Operator:

Thank you. The next question is from the line of Ashish Sabadra with RBC. Your line is now open.

Scott Wheeler:

Yes, I appreciate the question. As we really started to make progress into our investments last year, we gave a much broader range of outcomes when we the year, I think our EBITDA range was $40 million, which when you look back in time, we've never really provided that kind of range. It sort of spoke a little bit to the uncertainty that we had coming into last year when we were really initiating some of our uptick in the investments, particularly around content and other parts that we were focused on. So fortunately, we were able to spend less in those areas. And I think what you saw this year is that we've tightened up the range that we go out for the beginning of the year, which would let you know that we have a little bit better line of sight the progress we're making. We're a year further into it, we can gauge our investments more. But that being said, the marketplace changes quarter-to-quarter, and we see the opportunities or the challenges and we'll adjust appropriately, and we're always looking for where do we minimize investment at the right time so that we are building at pace, but not spending too much, but then when it does come to the point where we launch products and we see ramp-ups in revenue, and it's time to put in more investments, then we definitely include some of those in our forecasting. So I think -- I think we have a better line of sight this year. But as you would expect in the early stages and in an investment cycle, you have to be ready for changes along the way. I hope that provides you a little bit of guidance there.

Operator:

Thank you. Your next question is from the line of Andrew Jeffrey with Truist. Your line is now open.

Andrew Florance:

Well, I think Apartments.com probably gives you a good view of what that would look like. It is -- it is something that has, I believe, like post establishing a platform with a unique value proposition and a significant presence I think that you have multiple decades of growth that follows on that and there's ample precedent for that around the world and also in Apartments.com and CoStar and LoopNet. So it definitely is a multibillion-dollar revenue opportunity. And in my mind, it is a north of $1 billion EBITDA opportunity. And it is obviously a multitrillion dollar sales market, it is a vast opportunity. So it does take investment to build out the platform as it took investment to build out the CoStar platform as it took investment to build out the LoopNet platform as it took investment to build out the apartments platform. But the other side of it, you get predictable high-margin growth for decades, similar to building a building. So -- but not similar to build and building because you never lease up. You can just keep selling more and more of it once you get there. So yes, and I would say that we're further into the process. Our confidence in the clarity grows a little bit, which leads to some of our positioning today.

Operator:

Thank you. Next question is from the line of Jeff Silber with BMO. Your line is now open.

Scott Wheeler:

Yes, I would think so. Yes, we -- on a number of elements. One is that we've been through a large hiring stage. And so our own processes and ability to identify the right candidates has increased. I think the candidate pools that are seeing tightening up in other sectors and reductions in staff and other sectors are helping us find good quality candidates. And anyone that's selling digital products can be effective for our sales forces on the information side. And then, we're getting better at not only the Canada identification, but then the onboarding and the training and the coaching as we bring in these cohorts. So starting from the market side, all the way through the pipeline, it's getting easier. And so adding another, let's say, 100 folks in 2023 versus the 300 we added last year seems like a layup for us now, but there's still a lot of work to do to onboard and make sure all of the 300 are getting to be productive and contributing members to that strong revenue growth and then to replace the ones that inevitably, there are some that won't be able to pass that hurdle and we'll know that within about six months and then we replace and move on. We're definitely in a place where we can be selective, and we definitely are a place where we're able to meet our hiring goals. And it's not just on the sales side, it's in the software development side. It's in the research side. It's in -- throughout the company, we're seeing it's much easier to hire now. At the same time, we're retaining people simultaneously. So that's a good place to be in because we are able to put together the absolute highest quality team that you'd want to put together with the ability to hire and the ability to retain right now.

Operator:

Thank you. Next question is from the line of Stephanie Moore with Jefferies. Your line is now open.

Andrew Florance:

I think that the sales cycle in Apartments.com has gotten faster as the markets eroded. I think that the sales cycle and CoStar is a mix because you're selling to so many different sectors when you're selling into lenders or to big corporate users, that tends to be a more deliberate longer sales cycle process. The ownership side is similar on the LoopNet side. I think that it's not so much about sales cycle. It's more about it takes about six to nine months before the LoopNet salespeople really get their sea legs and understand digital marketing and commercial real estate. So it's more of a ramp-up thing, but the sales cycle itself in that -- in LoopNet, I think, is pretty fast. So we're not seeing anything in the -- the only place we're seeing something change fundamentally in sales cycle as apartments and it's shortening.

Operator:

Thank you. Your next question is from the line of Joe Goodwin with JMP. Your line is now open.

Andrew Florance:

Sure. So the market -- the revenue was actually roughly the same, the revenue in place that we had. So I think I don't know 75 -- were roughly 75 last year. So it was roughly the same revenue. The market itself in residential is dramatically larger. Also, our experience with operating digital marketplaces has continued to grow and the number of resources we have to bring to bear in both sales talent, SEO, SEM marketing, software development, the whole range is broader. Also, I believe there is some level of synergy across these platforms. So because you have a strong presence in apartments or LoopNet, there is or land or in any of these areas, there is -- there's a little bit of an accelerating effect across the platforms. But I would say I would go back, one of the things is that people forget, but that in -- with Apartments.com, there was a lot of competition that was better established than we were. So there were 4 or 5 players from Craigs list to Zillow to apartment guide to Rent.com to for rent to apartment finder all bigger than us that we were competing up against. And back then, when you looked around at apartment communities, most we're buying from one or more or several of these different players. There's something very different happening in residential real estate, which is the vast majority of players in residential real estate aren't buying from any of the of the established larger residential portals. The vast majority of people aren't buying anything from them. Our number one competition in my mind is the United States Postal Service. So I feel very comfortable competing against the United States postal surface. In fact, I don't know what your mailbox looks like, but about the last thing in my mailbox is residential ads. So I collect them all from every place have a mailbox and I bring them all and I throw them at a conference table in our office here in the product design studio. Just as a reminder of how much money residential real estate is spending on marketing properties very little of it with who you would consider to be the entrenched real estate portals.

Operator:

Thank you for your question. [Operator Instructions] There are no further questions at this time. So I will turn it back to Andy to wrap up.

Operator:

This concludes today's conference call. You may now disconnect your lines.

Operator:

Good afternoon. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everybody to the CoStar Group Third Quarter 2022 Earnings Call. [Operator Instructions]. Now Cyndi Eakin, Head of Investor Relations, will read the safe harbor statement. Cyndi, you may begin.

Andrew Florance:

Thank you, Cyndi. Good evening, everyone, and thank you for joining us for CoStar Group's Third Quarter 2022 Earnings Call. This is our 97th consecutive earnings call. Total revenue for the third quarter grew 13% year-over-year on a constant currency basis to $557 million, coming in at the high end of our guidance range and above consensus estimates. We delivered exceptional results in the third quarter with annualized net new sales bookings of $76 million, a 62% increase over the same quarter in 2021. This is our second highest quarterly net sales bookings number ever. Adjusted EBITDA was $153 million for the quarter, exceeding the high end of our guidance range and consensus estimates. As a result, we're raising our full year outlook for both revenue and adjusted EBITDA. Apartments.com surged, turning in the highest sales month ever in September and its second highest sales quarter. Year-to-date, net new sales for Apartments.com are up 192% over the prior year. Apartments.com revenues were $190 million in the third quarter, increasing 11% over the third quarter of '21. We are now back to double-digit revenue growth and expect the growth rate to improve in the fourth quarter. Tight multifamily market conditions have been a headwind for Apartments.com, but are now shifting and may, in fact, become a strong tailwind. Vacancy rates rose to 6.1% in the third quarter, an increase of 40 basis points from the last quarter. This is the fourth consecutive quarterly increase in the vacancy rate, and we are now only 40 basis points below the historical long-term average vacancy rate. Unit absorption rates dropped to 52,000 units in the third quarter from 67,000 units in the second quarter. This is the lowest absorption rate in the past 11 quarters. At the same time, though, unit deliveries increased from the second quarter to $122,000, which is at the higher end of historical averages. With the number of units under construction nearing all-time highs and absorption moving towards all-time lows, vacancies are expected to rise further in the coming quarters, which we believe will increase the demand for advertising. The Apartments.com sales force delivered absolutely outstanding results in the third quarter. Good work, Paige and team. Our gross sales productivity per rep was 91% versus the same quarter last year, reaching an all-time high. With 60,000 apartment buildings on the platform, we have now reached an all-time high for participation. Given that we are still very early with relatively low market penetration in this opportunity, we continue to hire aggressively and have increased the sales force by 26% since the end of last year. We plan to continue growing the team over the next year or so until we have doubled the sales force. Our nationwide ad campaign has delivered over 12 billion media impressions and led to an all-time high in consumer brand awareness. Apartments.com continues to provide the highest quality consumer traffic to our customers. We believe that a specific purpose sites such as Apartments.com delivers higher intense leads. We also believe that third-party lead analysis shows that our leads convert to leases at significantly higher rates than any of our competitors. Overall, I'm extremely pleased with the strong performance of Apartments.com marketplace and sales team and have increasing confidence in our ability to return to 20% revenue growth. Revenue for CoStar was $213 million in the third quarter, representing a 17% increase over the same quarter a year ago on a constant currency basis. CoStar sales results increased 55% in the trailing 12 months compared to the trailing 12-month sales in the same quarter a year ago. We surpassed 180,000 subscribers in the third quarter and continue to maintain high renewal rates at 93%. Our consistent double-digit revenue growth and high renewal rates for CoStar are a result of ongoing product investments that broaden the capabilities of CoStar and allow us to reach new customers. Integrating STR hotel data opened up hospitality investors as customers, while our new lender product to make 6,000 medium and large lending institutions, great prospects to become customers. We literally have dozens of major potential product enhancements on our product road map, which will continue to deliver revenue growth opportunities for the next decade or more. The next product enhancement on the CoStar roadmap involves adding information on 12,600 commercial property investment funds that invest almost $3.6 trillion in commercial properties around the world. These investment funds hold over 70,000 commercial properties. Over the past year, our research team has been linking the investment fund's property information to properties in CoStar and adding properties in countries that are currently not in our data sets. Approximately 70% of the investment fund properties are in the United States, Canada and the U.K., while the remaining 30% expand our property coverage throughout the rest of the world. For the first time, these fund investors will have new detailed analytics on their property portfolios through CoStar. They'll be able to access information like historic sales comps, leasing history, pricing, vacancy rates and other important details to help understand their portfolios better. In addition, brokers and owners looking to sell properties will be able to clear the investment fund data to determine which funds still have dry powder and are looking to invest in properties that are similar to theirs. I believe this new investment fund capability unlocks significant potential revenue opportunity. The investment on product is scheduled to release in CoStar in the first quarter of 2023. We believe that there is significantly more revenue opportunity ahead for CoStar, so we're continuing to grow our CoStar sales force to better capture that opportunity. We've added over 50 new sellers so far this year and plan to continue to expand both in the U.S. and internationally. As we add to our sales teams, we've seen productivity levels increase as well. Average gross sales per rep are higher this year than in any single quarter in the past 5 years. With our strong product development capabilities and continued investments in our sales team, I'm confident in our ability to sustain strong double-digit growth in CoStar for many years. LoopNet third quarter revenue was $59 million, up 13% over the prior year on a constant currency basis. Net new sales bookings for LoopNet in the third quarter are up 99% over the third quarter of last year. Just 1 percentage point shy of being up 100% year-over-year. We'll try harder next time. Our sales team is now producing consistent, strong sales results every month. Over the past 6 months, we've produced more net sales bookings than we did in all of 2021. I'm very encouraged by the progress that Dave Male and his team are making as we grow our dedicated LoopNet sales force, which is now 3x the size it was from the beginning of the year. We have now surpassed 100 dedicated sales reps. The result is that dedicated LoopNet sellers now account for roughly half of all the LoopNet sales, and the CoStar sales force is delivering the other half. This is an improvement from a year ago when our dedicated LoopNet sales team produced roughly 1/3 of LoopNet sales. In the long term, we want to free up the CoStar sales force to focus more effort on CoStar as it approaches $1 billion in revenue. Traffic to our LoopNet network of sites reached a high in the third quarter, averaging approximately 13 million unique visitors per month. We now hold the #1 keyword rank across 130,000 commercial real estate search terms and sort to the #1 position 97% of the time across 10,000 of the highest-performing U.S. commercial real estate search terms. Our Space for Dreams media campaign has proven very successful, delivering over 200 million impressions across TV, social media and the web in the third quarter. We continue to expand LoopNet internationally with plans to launch loopnet.co.uk across the United Kingdom in early November. Following our successful launch of LoopNet in Canada in the first quarter, we believe there is significant brand efficiency, revenue, profit advantages in operating a multinational property marketplace. We estimate the potential revenue for digital commercial property advertising in the U.K. to be well north of $100 million, which up to this point is largely untapped. Loopnet.co.uk will bring together the market-leading traffic position of Realla, with a proven international LoopNet brand. We intend to redirect traffic from Realla to LoopNet and sunset Realla. It's been a very successful site. As our CoStar clients in the U.K. are renewing their annual CoStar contracts, our sales force is working with them to add LoopNet advertising to their service. Today, many of the listings on Realla have been free in order to build traffic, but our goal is to convert many to pay on LoopNet over the course of the next 18 months. Following the launch of LoopNet in the U.K., we'll turn our attention to rolling out LoopNet in France, Spain and Germany in 2023. We're really excited to deliver the first multinational commercial real estate marketplaces, and we believe it will have huge appeal. We believe that the LoopNet opportunity is in excess of $1 billion as we extend across Europe. Our Ten-X digital auction platform performed very well in the third quarter despite a significant slowdown in overall CRE sales volumes due to the disruption caused by surging inflation and the rapid increase in interest rates. While CRE transactions were down in the market by almost $30 billion in the third quarter, the volume of properties brought to the Ten-X platform increased 88% over the prior year. Consistent with prior quarters, over 80% of the assets brought to the platform through Ten-X are still market rate performing assets, and less than 20% of the assets are distressed properties. I expect a significant increase in distressed properties in the quarters to come. Clearly, the commercial property transaction market is in a period of disruption, with buyer and seller expectations not yet on the same page. Buyers are quick to recognize price drops, but sellers are slower to accept reality. The result is an overall drop in sales volume across the board. As expected, we are seeing a drop in the rate that properties brought to the platform actually end up selling, what we call the trade rate. The Ten-X trade rates rose to highs of 75% in the fourth quarter of 2021, and have since dropped 27% to around 55%. Nevertheless, Ten-X continues to be a more effective way to sell properties, because in the same time period, we saw traditional off-line trades dropped from 42% from a 43% trade rate to a 55% trade rate. The Ten-X platform trade rate went from outperforming off-line sales by 74% in a stable market to outperforming off-line sales by 120% in a dislocated market. We believe the buyer-seller dislocation is a near-term event that will resolve itself over the next 2 to 3 quarters. Generally, once buyer and seller's expectations align again, sales volumes increase and distressed sales grow significantly. Currently, distressed sales rates are at multiyear lows, but believe they will significantly climb in the intermediate term. In 2008, the year of significant economic dislocation, there were only about 2,900 distressed commercial property sales, and distressed sales took years to peak with about 16,000 distressed sales in 2012. Year-to-date, similar to 2008, there's only been about 2,178 distressed sales. I would not be surprised if the number of distressed property sales quadrupled over the next few years, creating significant revenue opportunity for Ten-X. We've made a major investment to integrate Ten-X into CoStar and LoopNet, and we have dramatically increased the size of the Ten-X sales force. In the next few months, we'll complete all those integration efforts of Ten-X, enabling significant scale efficiencies. I believe the platform has never been stronger and is ready to handle a surge in activity. Regardless of where we are with the economic cycles, we're building Ten-X for the long term. I'm confident our Ten-X digital platform will become the industry standard for fast, efficient property transactions, both for performing and distressed assets. Regardless of the economic cycle, Ten-X will be ready. Our residential business continues to perform well, with third quarter revenue of $19 million. Registered agents for our Homesnap Pro and Pro+ products have grown to over 958,000 at the end of the third quarter, an increase of 23% over the same quarter last year. We're getting close to 1 million registered agents. Registered agents for Citysnap are also growing rapidly. We now have approximately 70% of the Real Estate Board of New York agents registered to use Citysnap, and we only launched the product a little over 3 months ago. Traffic to Homes.com continues to grow, with average monthly unique visitors for the third quarter, up 52% compared to the third quarter of 2021. Site visits to Homes.com were up 83% of the same period last year according to Google Analytics. The greater increase of visits to visitors shows deeper engagement with the site. I'm encouraged by the rapid improvement in consumer traffic. We do have a long way to go, but we're tracking just where we were with traffic growth on Apartments.com at the same time. And Apartments.com was a very successful launch. According to ComScore, September 2022 over September 2021, Homes.com visits grew 27%, while in the same time period, Zillow fell 22% and Realtor fell 30%. As we communicated before in previous earnings calls, our residential product strategy is centered around a Homes.com marketplace that advertises the home as opposed to just advertising agents. We believe consumers that search for properties for sale in a marketplace like Homes.com have higher intent to consumers who are served home-for-sale ads randomly across social media or the Internet. Our objective is to partner with the 1.5 million agents in the United States in support of your listing your lead approach and enable consumers at any agent to collaborate digitally throughout the home buying or selling process. We're focused on building complete coverage of residential listings throughout the United States, as well as developing unique proprietary content by leveraging the skills and capabilities of our awesome nationwide research organization. Overall, we're making great progress developing Homes.com across all these strategic areas, and are looking forward to showcasing a number of our agent-focused product features at the upcoming National Association of Realtors Convention in early November. In fact, I believe we have a big product release Thursday or Friday of this week, if you want to check out some of the incremental upgrades at the end of the week. With rising interest rates and a rapidly cooling residential property market, I believe now is the perfect time to invest in a marketplace that's designed to help consumers and their agents advertise and sell properties faster and at a higher price. Deteriorating market conditions may well create a tailwind for our business model. The majority of Homesnap's revenue is from reselling social media and search engine advertising to agents. We believe that this revenue, while it's good revenue, is less strategic, less durable and just playing less of it than the potential revenue generated by a potentially successful high-intent marketplace like Homes.com. This is a lesson we've learned from our experience with Apartments.com for rent, LoopNet and other marketplaces we operate. In the coming quarters, we're going to deemphasize selling Homesnap concierge and Homesnap Pro+ and temporarily shift those selling resources to our marketplaces, Apartments.com and LoopNet. Our sales teams will gain new skills and become even more well-rounded sellers across multiple marketplaces. After a brief transition period, we believe that we will generate more revenue overall with a shift in sales force allocation. As we have communicated previously, when we have built critical traffic mass for Homes.com we will then reallocate or allocate significant selling resources to Homes.com. There is a potentially interesting development in the residential industry I want to briefly mention. We're closely monitoring ongoing antitrust litigation involving residential listing associations, or MLSs, and 1 that's currently pending in the Western District of Missouri. A class of home sellers allege that NAR and brokerage [indiscernible] created enforced anti-competitive rules that require home sellers to pay a nonnegotiable commission to the broker representing the home buyer, resulting in inflated buyer-side brokerage commissions. To date, the planners have had some success to feeding a motion to dismiss and succeeding class certification. The case is scheduled for trial in February. If the plaintiffs in this case or other similar cases succeed, this could have a significant adverse effect on residential marketplaces that rely primarily on broker sharing commission revenue models. Our residential sales strategy should not be impacted as we are focused on a property advertising model. I do not believe that judgment for the plans would significantly adversely impact most residential agents because most do both seller and buyer representation, and the judgment would just shift fees from the buyer representation business to the seller representation business. More on that in February. The rise in interest rates over the past 7 months is certainly weighing on real estate driving prices down and reducing sales volumes. The slowdown has been broad-based across property types and geographies. Office vacancy rates continue to climb as companies continue to recover from the pandemic. And a significant number, but minority of workers continue to work from home. In the third quarter, vacancy rates rose to 12.4%, and that's approaching historic highs. Inflation-adjusted rents are well below normal levels and rent growth is at a 10-year low. Net absorption has been negative for 7 of the last 10 quarters. Office vacancy will continue to rise and rents will continue to likely experience negative pressure. However, each quarter, millions more office workers are returning to working in person because of the significant advantages of in-person collaboration. According to [indiscernible] security in January of this year, usage of office space was only about 16% of the prepandemic levels. But by last week, office usage had tripled this year to 49%. So from 16% at the beginning of the year to 49% now. That's a pretty fast climb. The trend is obvious. Traditional office using white collar employment is continuing to grow, which means there's more underlying demand. And as more and more people return to the workplace, but new office construction starts are very, very low. This suggests that while we're -- while in the short term, the office market will be very soft and there may be significant distress, there may be a significant rebound 2 to 3 years out. I believe that CoStar, LoopNet and Ten-X can function very well in this sort of volatile economic environment. The story of the industrial sector is very different. Industrial vacancy fell to 3.9% in the second quarter, the lowest rate seen in the sector's history, but ticked higher in the third quarter as developers responded to robust demand. New completions expected in 2023 exceed any annual amount delivered in the last 30 years. Despite these numbers, the sector remains remarkably healthy. Net absorption in the retail sector drifted lower in the third quarter, although slowing demand has outpaced new supply for 6 consecutive quarters, leading to the third quarter vacancy of 4.3%, the lowest retail vacancy rate recorded. Tight vacancies have given rise to some of the strongest rent growth in history, with the third quarter nominal rent growth of 4.5%. As the Federal Reserve battles inflation, mortgage rates are rising to their highest level in years. Combined with double-digit home price gains over the past 2 years, affordability has deteriorated to levels not seen in more than 30 years. With buyers being priced out of the market, home sales are tumbling and prices are falling. Despite the market uncertainty, I believe CoStar is well positioned to sustain our revenue growth and profit through a potential economic cycle. We have proven to be very resilient in previous downturns, which I believe is a direct result of our diversified product mix, low customer concentrations, mission-critical products and a strong predictable subscription model. We have a loyal and exceptional team of leaders and employees working together in our offices, resulting in the best employee retention rates we've seen in years, if not decades. We're expanding our sales capabilities and geographic reach, unlocking new customer segments and revenue opportunities. Our balance sheet has never been stronger, and we view a downturn as the perfect time to go shopping. More than 3 decades ago, while I was still a college student, I founded CoStar in a dorm room with an ambitious vision of digitizing the world's real estate. That first year, we realized a poultry revenue of $7,000. But CoStar was in the right place at the right time. There is almost $200 trillion of real estate in the world, and leading that effort to digitize it can unlock massive value. This mission has drawn a margin of investors and energized colleagues who brought life to the vision. Year-by-year, decade-by-decade, we've consistently and persistently grown those poultry revenues into the impressive billions. This quarter, we achieved an accomplishment almost no company ever achieves, we made the S&P 500. We're also proud and grateful to be here. We're here because of a remarkable group of colleagues who are committed to this mission of digitizing the world's real estate, empowering all people to discover properties, insights and connections, all of which improve people's businesses and lives. Going forward, we are now single mindly focused on reaching the S&P 100. At this point, I'm going to turn the call over to our Chief Financial Officer, Scott Wheeler.

Cyndi Eakin:

I'm actually going to turn it back over to the conference operator, so they can introduce the question.

Operator:

[Operator Instructions]. Our first question today comes from the line of Peter C. Christiansen from Citigroup.

Scott Wheeler:

Thanks, Pete. Good to hear from you. So yes, you noticed that we've been much more efficient this year on the residential investment spend. So I think that's good news. The other good news is it doesn't mean that all of that spending gets pushed into next year, because like I said, we have a lot more efficiency in the content generation, and we don't need to spend as much marketing for the traffic we're getting. So we're not yet ready to give guidance on to the 2023 investment levels. We're working on those now. But we will keep you posted, and be confident that we are still on track to our 5-year numbers that we communicated previously on both the residential and the long-term growth and profitability of the business.

Jeffrey Meuler:

So just on net bookings, obviously, up big year-over-year. I think it's typically seasonally weaker in Q3 than Q2, which was the case this quarter. But normally, I think that's due to apartments, and apartments it sounds like had a record sales month in September. So if you could just kind of like help reconcile what drove the sequential decline. And if you think the record sales in what is typically not the seasonally strongest month is the reflection of kind of the end market trends picking up with net absorption and builds and all of those stats to give us.

Scott Wheeler:

Yes. Jeff, there was 1 other issue that I talked about briefly around the fees for the subscriptions on some of the home Pro access that triggered the $16 million write-off I mentioned. That comes out of the sales numbers. If we had not done that strategic decision, our sales would have been over $80 million for the quarter. And any other variation relative to the second quarter is really just normal quarterly fluctuation amongst the other businesses. But really the standout, as we pointed out, was that apartments for really the first time had a third quarter that was stronger than the second, which is a great testament to both the sales team and the momentum we're seeing back in the apartments advertising space. When we acquired Apartments.com, third quarter used to be no growth and fourth quarter used to be a decline. So it's great to see it same records in the third quarter.

Ryan Tomasello:

I guess it'd be helpful if you could provide an update on how you're thinking about the residential site traffic milestones that you've laid out previously. Have those changed at all in terms of the magnitude and timing? And how are you prioritizing the different levers there in terms of marketing campaigns, SEO and SEM and any other levers that you outlined previously? And then from there, if you have any updated thoughts on the timing of the monetization strategy, when you decide to turn that on and what products you might intend to lean into first?

Operator:

The next question today comes from the line of John Campbell from Stephens.

Scott Wheeler:

Do you want to hit the...

Operator:

The next question today comes from the line of Stephen Sheldon from William Blair.

Scott Wheeler:

Sure, Stephen. Thanks for the question. We're sort of giving any guidance, of course, at this stage for the next year. But you clearly noticed the trends in growth for multifamily have gone from a trough of 6% year-over-year, up to 11%. Now we expect it to be 16%. And based on the strength of this last quarter's sales, then we would expect that to continue north. We've always talked about getting back to those 20% growth rates in multifamily delivered a few years ago. And the way we think of it now is that we have certainly price moving north as the number of leads we produce in the platform have dropped the price per lead for our customers. So those are resonating well. We're starting to see volumes come back into the platform, which we believe can deliver a good mid- to upper single-digit growth range for the business. And then like I mentioned, we're starting to see upgrades, outpace downgrades, which prior to the pandemic, that impact was typically in the 8% to 10% range a quarter. So I think we have 3 really strong levers each to have capability of delivering high single-digit growth rates. I can't call which of that mix is going to happen in which quarter next year, but I think that's the measures we're looking at. And as Andy mentioned, our goal of doubling that sales force to get us to penetrate the other half of the large-scale market we haven't reached, and the vast majority of the mid-market that we haven't reached, there seems to be a great platform for us to extend into the market. So hopefully, that color gives you a little sense of the progression we'll see next year and into the future..

Ashish Sabadra:

I wanted to focus on the M&A pipeline, particularly with the $750 million of equity raised. I understand it was opportunistic, but also should we assume that was that something is imminent? And then obviously, you've shown intent in the past to do some transformational deal on residential side. Is that an area that you would continue to focus on?

Operator:

The next question today comes from the line of Mayank Tandon from Needham & Company.

Scott Wheeler:

Yes, sure. Thanks for the question, Mayank. Yes, I did mention that a little over half of our growth is coming from new customers, and it's -- as we've added so many good platforms with hospitality and with lender and now the fund information that's coming out, CMBS data, it's a broad customer set that our sellers are having a lot of success in. So new customers are a strong part of our growth. As you know, we are continuing to move more and more of our customer base onto the global CoStar platform that provides all the data and the product capabilities. That continues, and that's still providing a few basis points of growth or a few percentage points of growth across the platform, which is really, I consider a strong mix increase of around 3% to 4%. And then the remaining parts of those growth are split between increases in our renewals year-over-year, as well as existing customers then expanding their licenses or expanding their user numbers on the platform. So those are the -- if you look at the top 4 areas that are driving the CoStar growth, you see those rise to the top in this quarter. It may shift a bit from quarter-to-quarter, but I think that gives us a strong platform to continue that size of growth going forward.

Unidentified Analyst:

It's Scott stepping on for Andrew. So my question is end market health. Could you kind of discuss what you're seeing with customer sales cycles? How has that changed as the years progressed?

Unidentified Analyst:

Sorry. Could you talk about end market health for your customers and just how the sales cycle is behaving as it kind of gotten elongated as we get further into the year?

Andrew Florance:

Yes. So at this point, at this point, we are not seeing any of our customers in materially diminished health. Obviously, individual owners of properties may be experiencing levels of distress with high vacancy rates or disadvantageous refinancing on properties that may have been pro forma at lower interest rates. But those individual owner situations don't tend to impact us. Even if somebody is having refinancing difficulties, they may -- they would still want to keep those properties filled. They would still want to understand what's happening in the markets. So at this point, we are not seeing anything negative on sales cycle or any real significant customer distress. And we continue to operate in an environment where we would expect that -- I expect and believe that as you did see end market distress, you have offsetting countercyclical factors that also kick in.

George Tong:

I wanted to ask the M&A question a little differently. With respect to your residential strategy, can you discuss whether your 5-year target assume M&A? Or are you able to get there organically? And if there is M&A assumed in resi, is your focus more on acquiring residential data or residential online traffic?

Andrew Florance:

Yes. And the answer to the second part of the question is we would consider either both or neither. So we're comfortable acquiring and integrating unique content that helps build a more vibrant residential product. We are also experienced with and comfortable with acquiring traffic. And if we can't find the right company at the right price, we could achieve our goals organically. I think it's more likely than not, however, that there will be a number of opportunities over the next 5 years. It would be really hard to believe that there are not. And I am spending probably 20%, 25% of my time right now engaging in those opportunities. The price is too high.

Unidentified Analyst:

This is Ryan on for Jeff Silber. Just 1 question on the CoStar Suite. What has been the feedback from customers on the transition over to the global solutions package? And then how did you expect that transition to flow through to average selling price?

Scott Wheeler:

That was around flowing through the average selling price.

Andrew Florance:

Yes. So the feedback has been very positive. We track Net Promoter Score, so we survey our clients extensively after any sort of interaction with them to understand how they're reacting to our products and services. We have seen a significant uplift in Net Promoter Score as people go from the local CoStar or the 1 or 2 modules of CoStar to go into the global suite. And so that's really nice when you're out there achieving significant price uplifts and end up with a happier customer would, I believe, more likely to renew after you have gotten a price uplift. And it's sort of common sense because if you're just buying one of our modules for given cities, say, comps or just property, when you buy multiple modules and; multiple cities, it becomes a dramatically more powerful product with a lot more to offer the customer. And at the end of the day, the price for our products, while they're not cheap, are not the primary factor. Most successful commercial real estate players can afford the product, and it's a very small percentage of their expense structure. So what they're much more interesting is the functionality and what it does for them. And so we're getting a very positive reaction from folks as they upgrade, and I think it will show higher renewal rates over time. And it definitely is lifting the ASP. Scott probably has some specific data on that.

Operator:

Thank you. There are no further questions at this time. So I'll turn it back to Andy to wrap up.

Operator:

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.

Operator:

Good afternoon and thank you for attending today's CoStar Group Second Quarter Earnings Call. My name is Austin and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Cyndi Eakin with CoStar. Cyndi, please proceed.

Andy Florance:

Thank you, Cyndi. Good evening everyone and thank you for joining us for CoStar Group's second quarter 2022 earnings call. Cyndi and Scott are in our Washington, D.C. office tonight, and I'm joining you from our London office, a little bit later in the evening. We delivered outstanding results in the second quarter, setting our third quarterly sales record in a row. Annualized net new sales bookings were $84 million in the second quarter, a 66% increase over the same quarter in 2021. Our three main products, CoStar, Apartments.com and LoopNet, all have exceptional sales quarters, growing a combined 81% on a year-over-year basis. Total revenue for the second quarter of 2022 was $536 million, growing 12% year-over-year, and coming in above the high end of our guidance range of consensus estimates. Our subscription revenue in the quarter grew to $428 million and clients subscribing for five years or more renewed at 97.8%. As we ramp up our investment in our residential product strategies, we continue to deliver strong profit results with adjusted EBITDA of $159 million in the second quarter, well above the high end of our guidance range and consensus. As a result, we will raise our full year 2022 revenue, adjusted EBITDA and adjusted EPS guidance. Revenue for our CoStar product was $207 million in the second quarter, representing a 17% increase over the same quarter a year ago. CoStar net new sales bookings increased by 60% in the second quarter, making the last four quarters the highest sales quarters on record. The trailing 12-month sales level as of June 30th is 145% greater than the same period 12 months prior. Our consistent strong revenue and sales performance for CoStar is the result of a steady stream of product innovations that deliver expanded capabilities and increased customer value. Over the past few years, we've added hospitality data, integrated CMBS data and analytics, launched a new lender product and opened up full multinational reach for our CoStar customers. We continue to grow our subscriber base and now have 177,000 CoStar professional users. This quarter, we crossed over 40,000 subscribing sites. CoStar's ASP continues to climb as we transition more and more of our customers to our global solutions. Overall, I'm very confident in our ability to sustain our current levels of strong double-digit revenue growth for CoStar Group. I think I've been saying that for 30 years. Apartments.com turned in an outstanding performance in the second quarter with net new sales bookings up 138% compared to the second quarter of last year. This is the second highest quarterly sales ever for Apartments.com. Sequential growth in sales was 35% in the second quarter of this year, which makes this the third quarter in a row of improving sales results. Apartment vacancy rates have increased at a rapid pace throughout the first half of 2022, climbing – quickly climbing from the all-time low vacancy rates for the third quarter of 2021 that were suppressing demand for apartment advertising. Vacancy rates for three, four and five star properties were up 60 basis points to 5.7% in the second quarter from that all-time low of 5.1% in the third quarter of 2021. We're now only 80 basis points below the historic pre-pandemic vacancy rate average for that class of properties. We believe we'll be back to the historic average vacancy rates in the next several quarters. One of the drivers there is demand for apartments stalled in the second quarter of 2022 with absorption of only 67,000 units. That is a dramatic 74% drop from the 260,000 unit absorption level in the second quarter of 2021. New apartment construction deliveries are expected to reach record levels this year, the forecasted 415,000 unit deliveries are on par with the highest levels recorded since the mid-80s, Tampa and Phoenix, for example, will add over 25,000 units while absorption in these markets is projected to be a third of new supply. The need to fill these newly constructed apartments building clearly increases demand for apartments.com. With raising vacancy rates the number of properties advertising on apartments.com increased sequentially in the second quarter of 2022, continuing the positive trend that began in March this year. In addition, cancellation rates have improved by approximately 20 basis points since the end of last year. Our apartments.com sales force delivered outstanding results in the second quarter. Sales productivity per person increased 64% year-over-year and is at an all-time high. With post-pandemic restrictions behind us, we’re once again, focused on in-person meetings with our customers and our prospects. In the second quarter of 2022 our field sales team conducted an impressive 55,000 in-person meetings with our clients. And that's up 35% from the first quarter of this year. This has always been a relationship-based industry and our in-person meetings are the most effective way to build customer satisfaction and demonstrate the value of our products. Traffic to our apartments.com network improves sequentially as we ramped up our advertising campaign, starting Jeff Goldblum as Brad Bellflower, which delivered over four billion impressions in the second quarter alone. I am very happy with the outstanding results our apartments.com team is turning in. And I'm increasingly confident that our positive sales momentum will result in double-digit revenue growth in the second half of this year. Turning to CoStar Real Estate Manager, the product line continues to grow the Fortune 2000 and global customer base of CoStar adding 23 major new customers in Q2. Subscription revenue grew 15% in the first half of 2022, over the same period in 2021. We're on path to have the Real Estate Manager product integrated into CoStar by 2023, this will significantly increase revenue opportunity for CoStar by connecting the Fortune 2000 tenant organic customer base, a real estate manager with the power of the CoStar network. Lands of America are rural land marketplaces focusing on three key growth initiatives. These initiatives include growing the field sales team, introducing signature ads and launching land.com. We've grown our salesforce at lands by 16% year-to-date. Last year, lands of America began offering signature ads similar to the differentiated signature ads at Apartments.com and LoopNet offer. This quarter lands launched platinum signature ads. Our standard ads cost $22.75 per month on average, our gold ads average much higher number, $359 per month. And the platinum ads average $599 per month. Since the recent launch we've sold 932 signature ads. Growing the sales force and introducing premium exposure listings help drive 23.4% year-over-year revenue growth this quarter in the lands of America business. Later this quarter, we will redirect landsofamerica.com to our URL land.com to harness the power of the simple, memorable and valuable domain. lands.com will then join category definers like apartments.com and homes.com. Lunet had the strongest sales quarter in years with net new sales booking growing 43% of the same quarter last year. Second quarter revenue was $56 million up 10% over the prior year. I'm encouraged to see our efforts to build a Lunet net sales force are progressing well. Year-to-date we've grown a dedicated Lunet sales team by 95%. We've built a strong infrastructure with regional sales management team and a strong training program. Our training and onboarding process is much more effective now that we're able to train in onboard together in-person. As a result our new sales team is delivering 100% more sales in their six-month in production then when compared to Lunet sales team, we onboard remotely during the pandemic. Traffic to our Lunet network of sites remain strong in the second quarter, averaging approximately 12 million unique visitors per month. We have an order of magnitude more traffic than our closest competitor. That gap between Lunet and our next closest traffic competitor widens by one million unique visitors during the second quarter. So we're pulling away even further. This demonstrates the effectiveness of our SEO, the quality of our content, the strength of our brand, the quality of site design the performance of the site and the impact of our Space for Dreams advertising campaign which generated $253 million impressions in the second quarter. We believe that LoopNet will deliver significantly more value to customers, users, and shareholders as an international platform. Trillions of dollars across many borders to invest in commercial real estate, an international platform has significant scale advantages in software development, both in functionality and cost per user efficiency. We recently invested to relaunch LoopNet in Canada under LoopNet.ca, the number of monthly unique visitors on the Canadian LoopNet network has surged 45% year-over-year. That investment has significantly widened our competitive lead in Canada against the next closest CRE site Spacelist.ca. According to SEMrush in June of 2021, the LoopNet network had 48% more traffic than did Spacelist.ca. This June, the LoopNet network has pulled away and has 233% more traffic than does Spacelist.ca so a four, five times advantage. We're now investing significant energy into launching LoopNet in the UK, France, Spain, and Germany, and the rest of Europe in that order. In fact, I believe our President of LoopNet just saw him on the video screen in France just now. We currently own leading Siri marketplaces across the UK, Europe with Realla in the UK and BureauxLocaux in France and Belbex in Spain. When we compete, we will have one code base for LoopNet globally and redirect when we're complete with integration, we'll have one code base for LoopNet globally, and we'll redirect traffic from our family of European platforms into LoopNet. Users will be able to use LoopNet to search for investments or properties to lease from Madrid to Paris of London, to New York or San Francisco or Vancouver or more. A property owner with an industrial facility at Heathrow, we’ll be able to appropriately market to robust audiences that may need that warehouse from around the world with just one placement on LoopNet.com. Conventional wisdom is that real estate marketplaces are local product and lack cross-border value or synergy. I believe this couldn't be further from the truth is just assumed because few have made the effort to try and do it. When we released CoStar in the UK in 2012 and rolled out our – rolled our predecessor offering focus into CoStar, our revenues in the UK doubled in the years that followed. About half of CoStar users today now have global subscriptions that can easily access data across borders. 15,800 U.S. users access data in Canadian properties this year, 1,200 Canadian users are accessing data on U.S. properties. 7,600 U.S. users are accessing information on UK properties and 2,300 UK users are accessing data on U.S. properties. In total, just under 20% of all users have accessed tens of millions of property views across borders with CoStar. We intend to release international LoopNet in the UK in the fourth quarter. I'm grateful to be a small part of such an exciting and challenging product with a great team executing this work. Our CoStar Risk Analytics business continued to gain momentum with strong growth driven by the recently released CoStar for Lenders solution. Since released in February, we assigned 66 clients, of which 42 were added in Q2. We believe this growth rate will continue to accelerate with investment in our dedicated sales team the next phase of product innovation and marketing. The strategy behind CoStar for Lenders is to offer a highly scalable, fully integrated solution that is essential to market participants by supporting their risk management, regulatory requirements, loan production, strategic decision-making. The CoStar lender value proposition meets the requirements of our initial client base, which are diverse, including banks, credit units, DUS lenders, private lenders, and life insurance companies of which the CRE portfolios range from as small as $10 million, up to huge $50 billion portfolios. BizBuySell, our leading Business for Sale marketplaces, having a great year. Our revenue grew 27% year-over-year with investments in sales and marketing, driving strong increases in listing supply and buyer demand. We are realizing tremendous synergy between LoopNet and BizBuySell. Business to BizBuySell subscriber listings displayed on LoopNet increased 54% in the first half of the year, reported sold business comps increased 19% in the first half to 44,754 business comps. Thousands of business owners leverage these comps every month to get an estimate of their business' value. BizBuySell accounts of the largest franchise brands among its customers, including 7-Eleven, Mike's Muffler, The UPS Store, Jiffy Lube, Checkers, Jackson Hewitt, and many more open the door to deeper relationships across other CoStar real estate products. SDR continues to grow revenue and add new hotels contributing data while the hotel industry recovers from the global pandemic. SDR now has an all-time high of almost 75,000 hotels contributing daylight data on a monthly basis. There's still 1,500 hotels that previously participated and are currently closed due to COVID. And half of those are in Asia. SDR revenues year-to-date are up 10% year-over-year. When CoStar acquired SDR at the end of 2019, subscription revenue was 60% of total revenues with focused effort, subscription revenue year-to-date is now 77% of total revenues. STR is currently migrating its benchmarking product into the CoStar platform. Customer migration will begin at the start of 2023. At the conclusion of the product rollout, the expectation is to be in a position to double STR revenue through sales of benchmarking to new customers and upgrade existing customers. STR will also be better positioned to introduce CoStar to new hospitality customers once the benchmarking product is in the CoStar platform. That introduction has already begun with STR selling CoStar to hospitalities companies such as Sonder, Hopper, visit [ph] Indianapolis, Atrium Hospitality and Highgate Hotels. Ten-X continues to perform with high volume of assets being brought to the platform, which exceeded $2 billion in the first half of 2022 or 33% over the first half of 2021, and the highest level of activity since 2015. As mentioned last quarter, we launched our Ten-X marketing program for 2022 called Battle of the Bids, which is a gamification of the Ten-X bidding process, in which people can guess the price at which a real estate property will be sold on Ten-X and have a chance to win millions of dollars in cash prizes. Nearly 13,000 brokers and owners have played the game, adding approximately 12,000 new Ten-X accounts. The bidding power on Ten-X is reaching record levels. When a potential bidder registers to bid on Ten-X, we check to ensure that they have sufficient funds to buy the properties they bid on. The amount we prove for them is their proof of funds. In the second quarter of 2022, total proof of funds reached $11.7 billion, up 144% from $4.8 billion in the second quarter of 2020 when we acquired Ten-X. Our residential business continues to perform very well. Second quarter revenue in residential was $20 million, an increase of 40% on an organic basis, compared to the second quarter of 2021. Our Homesnap business continues to focus on expanding age engagement and sales of our Pro+ products, while we develop our Homes.com marketplace. Registered agents for our Homesnap Pro product totaled 880,000 at the end of the second quarter, an increase of 17% over the same quarter last year. Revenue from our Pro+ products grew an impressive 46% year-over-year, while our concierge Pro+ product grew 175% versus the second quarter of last year. Agents continue to spend more and more in our residential products with average agent spend increasing 42% on a year-over-year basis. It’s important that we continue to grow our sales force to reach more agents and prepare for the launch of our Homes.com product next year. We’ve successfully established our direct sales force to support the Pro+ product, and I’m encouraged by the initial sales productivity of that team. We have plans to expand this team to over 100 dedicated sales representatives by the end of 2022. In the second quarter, we grew that team by almost 50%, including adding field-based sales agents who are having some real success. Our research efforts are off to a good start as we build proprietary content for Homes.com around playgrounds, neighborhood, schools and other features that are important to consumers. From a standing start, we have successfully engaged over 1,000 photographers, writers, editors, voice talent and video editors across the country. So far, we have produced content on over 70% of the largest residential markets in the U.S. We expect our rich original data and media content will produce significant organic search results that will be a product differentiator from our competitors. We successfully launched Citysnap in June in coordination with our partners at the Real Estate Board of New York. For the first time, New York renters, buyers and brokers now have a single real-time source for all available Real Estate Board of New York listings. Better yet, all of an agent’s listings appear for free on Citysnap. The launch of Citysnap was well received by the agent community in New York City and in only a few short weeks, over 37% of the Real Estate Board of New York agents have registered to use Citysnap. Citysnap reached the number one spot on the top new category in Google Play and is off to a strong start. As with any new product launch, this is only the beginning, version 1.0, we’re planning a regular pace of product releases focusing on optimizing the user experience and adding more valuable content, which we feel is the key differentiator for CoStar Group. Yesterday marked the formal launch of our Citysnap consumer marketing campaign. Our marketing campaigns are designed to deliver hundreds of millions of media impressions across streaming video, audio, digital, social and out-of-home media. Just before this call began, I got a word that we reached our first 1 million users of Citysnap. To realize our many growth initiatives, it’s imperative that we continue to attract and retain the best talent for CoStar Group, even Scott Wheeler. We’ve had tremendous headcount growth – I was just checking to make sure Scott is still listening, we’ve had tremendous headcount growth over the past six months, surpassing 5,400 team members for the first time in our company history. Our strategic goals of building our residential platform, international expansion and growing our sales teams have been extremely successful. Over the first half of the year, we’ve welcomed more than 1,000 new team members across multiple areas and around the globe. A big contributor to our increased headcount is the creation of hundreds of new jobs in our residential business, thousands of skilled photographers, drone pilots and content writers have applied to CoStar Group with hopes of being able to take part and documenting their cities, park, schools and neighborhoods and beautiful homes as we prepare our Homes.com relaunch later this year. Our new team members have listed a variety of reasons that they decided to come to CoStar Group, including our positioning as an innovative industry leader, our high-performing and fast-paced work environment, the opportunity to build new businesses and products and services for our customers. However, the top reason most new hires mentioned when joining CoStar is the people they get to work with and learn with here. While CoStar offers flexibility to our colleagues, we predominantly work on our mission together in the office, and we thrive in that environment. We believe that working together rather than on a remote screen is becoming competitive edge. For example, and an example of many, the very talented and valuable new colleague, Leslie Hall joined CoStar Group in May to grow our HR business partner function after a successful 26-year career at another very well-known and respected Washington area company, that is still all remote despite maintaining millions of square feet of empty premium office space. She said, I’ve built a career in HR because I love partnering with people solving business problems. She goes on to say, after 2.5 years of remote working on Zoom, I missed the in-person collaboration in connection with business leaders and employees. You simply cannot maintain meaningful and sustainable relationships virtually over the long-term. She was impressed with the caliber of people she met during the interview process and their commitment and enthusiasm for CoStar. We are thrilled to welcome Leslie and 1,000 other new colleagues to CoStar this year. When we first returned to the office last year, that was difficult for some of our colleagues and initially our retention rate dropped. But surprisingly, now that we’re back together in the office, our retention rates are climbing to some of the highest levels we’ve ever seen. According to Castle Security, while many workers in the U.S. have returned to working together in the office, most have not, many think that workers and companies that do not work with their colleagues in person do not form meaningful connections to their companies. According to the Bureau of Labor Statistics, this pandemic induced great resignation. Overall private industry attrition trends remain very elevated, 3.1%. Real estate attrition is slightly lower, 2.8%. I’m pleased to report that we are experiencing the opposite. Our attrition rates continue to improve and are now the best they’ve been in years. In fact, our attrition rate is now less than half of the private sector’s turnover rate. In the most recent 60-day trending, employee retention rate is an impressive 98.5%. We are retaining the best talent at CoStar Group, the average tenure for technology companies is three years. CoStar Group is a clear leader with an average tenure well above both – well above tech or real estate or private sector and is approaching an impressive five years, so five years compared to tech average three years. We’re retaining employees 60% longer than the average company. We’ve been deliberate in our execution of employee retention initiatives, including leadership development programs, management training, career mobility and promotions. In addition, we’ve enhanced our already strong suite of employee benefit offerings to adapt the needs of our people in the current environment. Our approach is proving particularly successful with regard to our sales force as we are simultaneously growing five different sales teams, all of which have the potential to add significant growth capability to the company. For the first half, we’ve grown our sales team by a net 150 sellers. That’s the fastest we’ve ever grown, an increase of 18% since the end of 2021 or the beginning of 2022. This is the largest half year organic growth in sales resources we’ve ever achieved. I’m carefully watching the growing productivity of these new salespeople were onboarding. We have invested carefully in our training programs with talented and committed trainers. I’m pleased to report that while it does take time to ramp up these new salespeople to full productivity, we’re exceeding our historic ramp-up success rate. Our commitment to in-person collaboration coupled with our investments and our people have us well positioned to continue to grow the business as well as execute our strategic objectives. The commercial real estate markets are entering a period of potential disruption as the U.S. economy adjusts to these higher levels of inflation, raising interest rates and lingering pandemic effects. With office vacancy rates climbing to 14%, we’re now observing the highest nationwide vacancy rates in 30 years. The gap between future availability rate and current vacancy is growing, suggesting a bit more pain ahead in vacancy. Office leasing continues to lag pre-crisis levels, central business districts are particularly challenged as more office space is being returned, contributing to slower recoveries. According to Kastle Systems, the percentage of people returned to office has remained around 40% with only modest increases in recent months. This persistent softness in the office market CoStar continues to outperform and our LoopNet and Ten-X products are countercyclical, should the office market deteriorate further. Industrial properties are experiencing the opposite of office properties. Industrial properties are maintaining record occupancy, double digit rent growth and booming construction. Retail leasing helped steady near post-pandemic highs in the second quarter, while new development remains sparse. The retail now – market is now reporting tighter conditions than prior to the pandemic as the amount of retail space available for lease held to the lowest level in over a decade. Store openings remaining – are remaining on pace to significantly eclipse store closures this year. Transaction volumes for commercial real estate properties continue to reach new highs over $216 billion traded during the second quarter, leading to a second quarter record and a record breaking first half for the year. Price depreciation continues across all asset classes with industrial, multi-family leading and retail and office lagging. So far this year distress commercial property sales remain low encompassing only 1,300 assets representing less than 1.5% of all sales. CMBS delinquencies at 30, 60 and 90 days continue to decline in the second quarter, we anticipate that the rise in interest rates will create difficulties with loan maturities and refinancing in the months and years ahead. According to a leading CMBS mortgage servicer request for loan extensions increased 38% request for loan, restructuring increased 21% in the second quarter. An increase in delinquencies could represent a significant revenue opportunity for Ten-X. Well, after those brief remarks, I’m going to turn the call over to our Chief Financial Officer, Scott Wheeler.

Andy Florance:

Hotel California, you can check in that people never leave.

Cyndi Eakin:

Thank you, Scott. I would like to ask participants to keep one question and one part, please. I’ll turn it over to Austin, if you could please open up the line for questions.

George Tong:

Hi, thanks. Good afternoon. You indicated that multifamily vacancy rates are improving. To what extent do vacancy rates need to reach historical levels before Apartments.com revenue growth can return to 20% organic? And what’s the timing for this recovery?

Scott Wheeler:

No, I’ve been encouraged that even as the industry recovers and the vacancies start to move up slightly, our sales performance is recovering faster than the industry, which speaks to the strength of the platform. So, we definitely expect Apartments.com back up to that 20% that you alluded to, George. We haven’t given any guidance or outlook into 2023 yet, but when we do, we’ll be sure to let you know when that’s expected. Thanks for the question.

Operator:

Our next question is with Pete Christiansen from Citi. Pete, your line is open.

Scott Wheeler:

Yeah. Hi Pete, thanks for the question. The revenue growth up to this point as the industry is still rebalancing a bit of where it place ads on the different levels that we offer is primarily the price movements that we've put in place this year. So price is running ahead of the percent that we're talking about. We're starting to see sequential volumes move up. So I'd expect those to start moving as we annual to the low to mid single digits. And I would expect our pricing to stay in that in high single digit range that we're seeing. When the vacancy rates move up a little higher, we then to start to see people moving up the ad stacks again as they need to create more leads for their vacancies. So I think it's when you add that positive mix shift on top of low-to-mid single digit volumes and mid single digits pricing and then you start to add sales people all those will add up then to get back to that 20% that George referenced a bit earlier. So we expect those trends to continue through the rest of year and then strong 2023.

Andy Florance:

I apologize, unfortunately, it looks like our DC line is cracking out a little bit there. So Scott is not trying to avoid the answer. We will have a brand new telephone line for the next earnings call. But the and I had to come all the way to London to find a good line. But yeah, so I think one of the things that will really drive, like there is tons of penetration opportunity apartment still. We are definitely in the early days of that opportunity and we're adding sales people at a great clip and that will drive a new account business and new units for sure. And I think we'll be able to continue to get a price as people are advertising new construction and a like.

Operator:

Our next question is with Jeff Meuler from Baird. Jeff, your line is open.

Andy Florance:

I think that the sales results in the quarter sort of speak for themselves, we're having tremendous growth across LoopNet traffic growth, revenue growth apartments is having tremendous sales growth. So I think that we're getting good results. I mean, we're hearing all the concerns of doom and gloom that everyone else is talking about. But I have to say in our business, we simply are not seeing any of that. And we're watching for it, but it's not there. So we're continuing invest in the opportunity and getting great, good results.

Andy Florance:

I think we probably are. I mean, obviously one of the biggest single budgets is our SCM budgets and it's a little difficult to, like, I think we've had a continuous progression of better and better efficiency, lower cost on our target keywords on SCM. It's tough to separate that continued gain efficiency from just the way we bid and the way we get brand recognition and our click-through rates. It's tough to separate that from less congestion competition. So we are continuing to get efficiency, but it's tough to suss out what component is less competition. I imagine going into 2023, we probably will see it like obviously and clearly.

Operator:

Our next question is with Stephen Sheldon from William Blair. Stephen, your line is open.

Andy Florance:

Yes. So where we would expect to see that content really start to make a difference is as you go into 2023. I have been sitting down with the content teams periodically, and I’ve been looking at the content we’re building, and I have to say, I feel really good about the fact the potential of that content. I mean, individually the different things we’re building look pretty powerful when I think about it with my SEO hat on, I think in some across massive scale, it should be awesome. But that we’re not going to see any of that really impacting till the earliest, the very end of this year and really the beginning of 2023. So right now the traffic growth, I don’t have the year-over-year traffic growth with me, Cyndi has it. You’re not going to see major traffic growth until we relaunch the homes platform and start to bring that content in. Do you have a number there Cyndi for year-over-year homes growth?

Scott Wheeler:

Yes, we were pretty much in line with where we were in the first quarter without spending any additional money on marketing.

Operator:

Our next question is with Ryan Tomasello from KBW. Ryan, your line is open.

Andy Florance:

Well. As usual, we don’t comment anything specific. But I will say that I have been flying more in the last month than I’ve ever flown in my life. There’s – it’s an interesting time. I mean, we have a great balance sheet with a lot of cash. I think we’ve just turned in a really strong quarter. We’ve got strength in all of our businesses and I believe that we’re seeing valuations across half dozen, dozen interesting companies fall to become more and more attractive. So we think that your question is not terribly far off of a range of opportunities we have out in the world. But it’s just – it’s sort of obvious in the time we’re in a company like ours with a great balance sheet, super performance, a track record of M&A and following values both in the United States and Europe are interesting.

John Campbell:

Hey guys, great work on the quarter. Scott, you briefly touched on this, but I think the original 2022 guidance called for, I think it was $200 million, $220 million of a step up. In resi investment, it sounds like you’re now expecting maybe $20 million less moving forward. So I guess first did I hear that right? And then secondly if you could maybe unpack how much of that hit in the first half versus what’s expected in the second half, and then also just to refresh from the expected kind of breakdown and spend across content and marketing?

John Campbell:

Yes. Very helpful. Thank you.

Operator:

Our next question is with Ashish Sabadra from RBC. Ashish, your line is open.

Andy Florance:

Yes. So I think, I mean, again the wonderful thing it's 66 new customers, most of them in the last quarter – 40 some in the last quarter. Great pace we've got, I think, 12 to 14 dedicated sales reps on that right now. The addressable market is I'm going to do this from memory but it is approximately 6,000 to 7,000 lenders who have portfolios. Again we're selling to folks with very small portfolios and very large portfolios then watching the gross margin, these implementations, they look reasonably good. So we believe that the opportunity is well north of $300 million on this product. And it's a wonderful addition to our growth drivers because it's all – it's all new opportunity.

Operator:

Our next question is with Gustavo Laguarda from Truist. Gustavo, your line is open.

Andy Florance:

Yes. So I think it's very similar because back in the day we've picked up an Apartments.com from Classified Ventures, a consortium of newspapers and we completely re-imagined and rebuilt the site over the course of 270 days or so. This one's a little bit bigger scale project but you set a strategy, you have a talented team from both software and field research and content building us up and you'll really see growth in traffic once you release the product. And then once you begin to invest in SCM and in brand marketing. So that's going to be the end of this year, beginning of next year. And so it's very similar, but I think you and I, and everybody are impatient to see that story unfold over the next couple years.

Mayank Tandon:

Thank you. Good evening, Andy looking at CoStar Suite as a whole, do you remind us sort of where the penetration is with brokers and outside the broker world where you obviously have very strong presence? Where are you seeing the best opportunities for growth? Looking out over the Canadian term?

Operator:

Our next question is with Joe Goodwin from JMP. Joe, your line is open.

Andy Florance:

Yes, it is. A company like ours must be disciplined and set our prices in real dollars, not nominal dollars. And so we are watching that closely with the sales force at renewals. And we're reminding people not just with the nominal dollar increases are what the real dollar realities are. So that's very important with Apartments, especially with Apartments where our clients are overwhelmingly doing incredibly well right now. So we have discipline on that, and you can see that in our results. On CoStar Suite, I think we're in a slightly different position. Yes, we are pushing our pricing to at least remain constant on a real dollar basis and a little bit more than that. And – but the real story there is this upselling activity we're in the middle of, where we're reaching out to these tens of thousands of customers who subscribe to a small piece of our product either in the modules they get or the geography they get, and we're upgrading them to our full all modules global suite because we want to see network effects grow across borders. And as I mentioned, we're seeing that happening. We're seeing tens of millions of searches across borders. So in CoStar Suite, it is tens of millions of properties being viewed across borders. In CoStar Suite, the more powerful driver is this upgrading, not price increasing. On LoopNet – on Ten-X, you don't have to move the pricing because in theory, it's a commission against the asset price and inflation in theory would move the asset price up. And Ten-X is more in a place of early days of penetration, it's like still 1% penetrating the opportunity. On LoopNet, we are focused on variable silver ad or base ad pricing, which will be a more powerful revenue driver than just price increases. So that's the initiative where we'll begin baiting it out in a couple of markets, pricing based on the market and on the asset value. So that will be a combination of lowering our prices for low-value assets in smaller markets to drive volume and revenue – overall revenue and increasing prices to recognize the value of the higher-end assets and bigger markets, that will dwarf surges inflation, pricing increases. So we're all over it. This is not our first rodeo. And the one thing I learned in my economics degree was the difference between real and nominal. I can't remember anything else, though.

Operator:

At this time, there are no further questions. [Operator Instructions]

Operator:

That concludes today's call. Thank you for your participation. You may now disconnect your lines.

Operator:

Good day. Thank you for standing by, and welcome to the CoStar Group to report financial results for first quarter 2022. [Operator Instructions]

Gene Boxer:

Thank you, Blue. Good evening, and thank you all for joining us to discuss the first quarter 2022 results of the CoStar Group.

Andrew Florance:

You're welcome, Scott.

Operator:

[Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs.

Scott Wheeler:

Sure, George. Thanks for the question. So yes, we were encouraged with where we're going with multifamily. We expect in the second half that will be in double-digit growth rates. That's going to range between 10% to 14% as we move through the second half of the year. 2023, we haven't set any rates off into 2023. But as you can see, the quarterly trend is moving upward. That should set expectations that 2023 will be ahead of 2022.

Peter Christiansen:

Andy, can you -- or Scott, can you quantify at least on the multifamily side the mix between the different ad level packages, I guess platinum versus gold, all that kind of stuff? Just generally, where we are right now in that mix versus perhaps where normalized levels are. Just trying to get a sense of where we need to go to get back towards that normalized mix level.

Operator:

Your next question comes from the line of Jeff Meuler from Baird.

Andrew Florance:

Yes. So we -- I would just go back to going into the pandemic. We -- going into the pandemic, we were just building that mid-market team to go after that down market opportunity, i.e. 25 or less units down to single unit rentals. The price points we were getting were fantastic and -- on a per unit basis, and we were successfully selling. But with the pandemic, building an inside -- large inside sales team got much more difficult.

Scott Wheeler:

Yes. And when you look at the growth in advertised properties that took a pause, Jeff, in the middle of last year, they started growing pretty significantly in the first quarter of this year. And our mid-market sales team had their highest productivity level ever in the first quarter of 2022. So we stabilized a bit in the mid-2021 as the market adjusted, and now we're seeing growth pick up again in the under 100-unit section.

Gustavo Gala:

It's Gus stepping on for Andrew. Looking at resi -- so looking at resi, you guys are able to ramp it faster than like internally planned. Are you willing to spend more behind it this year?

Stephen Sheldon:

On the -- maybe just a follow-up on the residential content investments and kind of 2 questions there. One, how is the cost efficiency for developing that content then relative to your expectations? And then two, I guess how far along are you now relative to what you planned for 2022 in terms of content breadth if there's a way to frame that?

Operator:

Your next question comes from the line of Ryan Tomasello from KBW.

Andrew Florance:

So I think it's an interesting question. And for the first time in 5 years, we brought our General Counsel, and I don't think he's going to even comment. But the thing I would say is that we have not designed this like we are not in the business. We specifically have not designed Homes.com with a dependency on either the sell side or the buy side. There are a number of other U.S. residential real estate portals who work to monetize the buy side aggressively, and they rely on that dictated buyer split that is being attacked with some of these lawsuits. We're taking a completely different tech.

Operator:

Your next question comes from the line of Mayank Tandon from Needham.

Andrew Florance:

Well, we operate in highly competitive markets, and we have really no pricing leverage anywhere. But if we did, we are focusing on making sure that all of our product managers and leads -- sales leads understand that in a highly inflationary environment, not to maintain price appreciation is to decrease your pricing. So we are keeping that out there, and we seem to be able to able to achieve pricing increases along those objectives of being mindful of inflation and perhaps a little bit more.

Scott Wheeler:

Yes. I think that's been our primary focus this year, is to make sure all of our platforms are keeping a close eye on our -- on the inflation numbers and then as our products annualize their contracts that we move our price up on the inflation curve, which is always part of the contracts that we enter into with customers.

Ashish Sabadra:

So pretty good momentum on the Pro+ and Concierge Pro+ products. Again, I understand it's a smaller base, but good traction there. I was wondering if you could comment on the feedback like. Where is the penetration for both the Pro+ and the Concierge Pro+ product? And also just the slowing home market and the tightening home market -- residential market, how does that affect your ability to sell in that market?

Scott Wheeler:

I know. It's hard not to. The agents really like it.

Joe Goodwin:

I just wanted to ask about the new modern integrated technology platform for Homes.com. And then I guess just kind of what's going on there, what advantages that will launch you. And then any plans to actually connect the Homes.com data and port that into the CoStar back end so that will be available to your CoStar customers?

John Campbell:

Congrats on a great quarter. So on the incremental $100 million to $120 million of resi investment spend you guys have kind of planned for this year, how much of that hit in the quarter? And then also if you're able to share just the breakdown of that spend across content, software and marketing and maybe how that's going to look for the balance of the year.

Scott Wheeler:

Sure. So the incremental spend this year was $200 million to $220 million. So we had called about $210 million. $110 million of that was the content generation. About $65 million or so was for the marketing, and the rest was from technology spend as well as product and some other infrastructure that went into that. There wasn't a major amount of that timed in the first quarter, somewhere in the $10 million to $15 million range, probably incremental. Maybe it's a little higher than that. But the ramp-up really starts to come in the second quarter as we're adding the resources to the content collection.

Operator:

There are no further questions at this time. I would now like to turn the conference back to Andrew Florance.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good day. Thank you for standing by, and welcome to the Fourth Quarter 2021 CoStar Group Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Bill Warmington, Vice President of Investor Relations. Thank you. Please go ahead.

Andy Florance:

Thank you, Bill. Good evening, everyone, and thank you for joining us for CoStar Group's fourth quarter 2021 earnings call. Total revenue for the full year 2021 was $1.94 billion, which is a 17% year-over-year growth rate and above the high end of our guidance range given in late October. Fourth quarter revenue grew 14% year-over-year to $507 million, crossing through an important milestone of a $2 billion run rate for the first time. December 2021 was our best sales month ever. November, December and January were three of our four strongest sales months ever. Net bookings of $67 million in the fourth quarter of 2021 were a new all-time high for us, up 37% year-over-year and 43% sequentially. Our trailing 12-month bookings in the fourth quarter was $217 million, growing 18% year-over-year. This is a significant acceleration from the trailing 12-month bookings growth of 6% year-over-year in the third quarter of 2021. Our profit performance in 2021 was also very strong. Adjusted EBITDA for the full year was $647 million, an increase of 17% and 27% above the high end of our guidance. 2021 was a solid year of growth and expansion for CoStar Group. We made significant investments in the CoStar product, and our unified platform overcame significant overhead apartment market challenges Apartments.com. And we expanded our LoopNet and Ten-X businesses and established a solid foundation in the residential property sector. Our addressable market continues to grow every year and our estimation now approaches $100 billion TAM globally. A couple of weeks ago, I ran across our TAM estimate from the year 2003 and that indicated a global TAM of $1.6 billion. At that point, our total revenue was under $75 million. What a difference we've seen in 20 years is our revenue is now bigger than we estimated the total TAM global to be into 2003. It took us 16 years to go from 0 to $100 million revenue run rate in 2003, another 14 years to get to $1 billion annualized revenue in 2017 and only four years to surpass $2 billion revenue run rate, $5 billion here we come. CoStar revenue was $723 million for the full year 2021, up 9%. CoStar's year-over-year revenue growth accelerated throughout 2021. We started the year with a 4% year-over-year growth in the first quarter of 2021 and it climbed until we exited at 13% in the fourth quarter. The strength is coming from a combination of record sales rep productivity, continued product upgrades, price escalations on subscription renewals and strong renewal rates. Net bookings in the fourth quarter of 2021 grew 3x versus the fourth quarter of 2020 and matched our all-time high quarter in the third quarter of 2021. The CRE sales team is firing on all cylinders, delivering all-time high productivity in 2021, up almost 40% versus 2020. In 2021, we began upgrading the 18,000 accounts, who were using subsets of CoStar's full product offering. This program is very popular with our customers. And by the end of January, we have converted about 5,700 accounts to the full global CoStar product. Our original estimate was that the upgrade program would contribute $30 million to $40 million in incremental revenue over a 12- to 18-month period. The adoption rate, however, has been stronger than we expected. So we expanded the number of accounts to upgrade to include appraisers, owners, government agencies and many others. This raises the number of upgradable accounts from 18,000 to 21,000. As a result, we believe our original estimate that the upgrade opportunity would generate $30 million to $40 million is likely not to exceed $50 million. After having suspended price increases on CoStar subscription renewals during the pandemic, we restarted normal renewal rate increases in the third quarter of this year. Even at these higher price points from annual renewals and upgrades, clients continue to see strong value in the CoStar product and we see that in multiple metrics. Our accelerating revenue growth, for example, is coming from a combination of both volume and price. We're finding that as we upgrade accounts, we're often increasing their number of users and our user count is now over 170,000 subscribers. In addition, our renewal rate for CoStar remains very strong, 94% in the fourth quarter of 2021, well above the historic average of 92.4%. Our sales team has put a significant effort into strengthening our relationships with our clients. We see that effort pay off as our net promoter score has been increasing and as it does, so does our renewal rate. We believe that the launch of our new lender product on February 8 sets up another long-term growth driver for CoStar. Feedback, while the products in beta has been extremely positive, it's a truly revolutionary product that reverses the traditional flow of data in the industry. In the past, most lenders pulled data manually from multiple sources. CoStar lender, in contrast, automatically connects their loan portfolio to CoStar's industry-leading research market analytics and our proprietary Compass credit default model. The Compass credit default model is the most mature in the industry. And this makes this solution unique as the best source for portfolio surveillance, concentration risk, stress testing, current expected credit loss, CECL, supporting loan originations and underwriting. So we're very excited about this new product. We have a dedicated and trained sales team that will be focused on upgrading CoStar's over 1,000 existing lender clients and engaging 6,000 other prospective lenders across the industry. With FASB's second round effective date for CECL fast approaching in January of 2023, we feel our solution is well timed. There are literally thousands of institutions in the U.S. without an answer for CECL in place with this deadline approaching. Because CoStar offers lenders a range of solutions, it positions us favorably versus the competition. We continue to invest in long-term growth opportunities for CoStar and that includes international expansion. To support our growth across Central Europe, we've begun hiring managers and teams of photographers for Spain, France and Germany. These teams will be supporting both our CoStar and marketplace assets as we begin the process of deepening our industry data in the largest European markets. Overall, I feel very good about our growth momentum for CoStar and expected revenue – growth in 2022 to move above the historical 12% to 14% growth range to around 15% year-over-year. I believe CoStar has a $10 billion global market opportunity in which we are less than 10% penetrated today. Apartments.com sales bookings rebounded sharply in the fourth quarter, climbing $20 million over the third quarter driven by improved sales execution and price realization in the face of a continued ultra-low vacancy market. Apartments.com generated $675 million of revenue in 2021, up 13% year-over-year. Revenue growth in the fourth quarter was 6%, in line with our guidance of mid-single digits growth. 2021 was a good year for Apartments.com franchise. Average monthly unique visitors in the fourth quarter of 2021 were 25 million, up 17% year-over-year. That is 2.5x rent past average monthly unique visitors in the fourth quarter of 2021, 10x apartment lists, 17% higher than Zillow's rental network and 11x Zumper. Leads delivered by Apartments.com grew 46% in 2021 and 27% in the fourth quarter. To keep this marketing momentum going, in the first quarter of 2022, we will be releasing a new ad campaign featuring Gold Bloom in five new TV spots and eight new social video campaigns. When you see these new campaigns, I think you'll – these new spots, I think you'll agree with me that is some of the best work our team has produced to date. I look forward to having them out there. 2021 was a great year for our Multifamily customers with record rent growth of 11.3% and a vacancy rate of only 4.6%, the lowest ever recorded. 2022 is expected to have rent growth of 6.5%, which would be the second best year on record with higher but still very low vacancy. The strong industry backdrop for apartment owners, combined with a superior advertising value demonstrate their site traffic and leads, positioned Apartments.com to execute on our new pricing strategy. As a result, cost per lead has begun to improve and we saw a significant improvement in net bookings in the fourth quarter of 2021 over the third quarter of 2021. Client losses have been minimal. The strong net bookings momentum, combined with modest improvements in the macro backdrop, gives us confidence that Multifamily will be able to return to double-digit organic revenue growth in the second half of 2022. We estimate Multifamily is a $7 billion revenue opportunity for us in the U.S. And we believe that Apartments.com is well positioned to pursue that opportunity through unit penetration and demonstrated pricing power. 2021 was a very successful year for the LoopNet franchise. Full year revenue of $208 million in 2021 grew 15%. The Space for Dreams campaign delivered 2.2 billion media impressions in 2021. Unique visitors globally grew 22% year-over-year in the fourth quarter of 2021, and the LoopNet CRE network traffic was 10x the level of the network nearest competitor. Signature ad growth continued to be very strong, up 21% year-over-year in the fourth quarter of 2021. We continue to focus on expanding our sales distribution strength and are currently very close to our year-end 2021 sales headcount goal of 50 and continue to aggressively recruit salespeople for LoopNet. In 2022, we plan to continue the Space for Dreams campaign, support the industry and driving exposure for our advertisers. We expect LoopNet's revenue growth to continue in that 10% range for the first half of 2022 while we continue to build out a dedicated LoopNet sales team. I feel confident that we have never had stronger leadership, a better product road map, more innovative marketing, stronger technology and better traffic than we have now. That's why I believe that LoopNet is well positioned for strong growth going forward. We remain excited that LoopNet has the industry-leading position in what we believe is in the early days of a $4 billion to $5 billion revenue opportunity. Ten-X had a strong year in 2021, the division's first full calendar year as part of CoStar Group. Ten-X sold $2.2 billion in gross merchandise value in 2021, up 47% year-over-year and the company's best since 2016. In the fourth quarter of 2021, Ten-X sold $727 million in gross merchandise value, up 39% year-over-year, the company's best quarter since the fourth quarter of 2015. Full year 2021 revenue of $57 million grew 7% year-over-year. While total sales in the platform is climbing, it does not translate as quickly to revenue because we've lowered our fees to drive more high-margin volume and to play an industry role at greater scale. We're investing in significant site and process automation to be able to process these higher volumes at high margins. Ten-X continues to sell more and close more. Trade rate, which is total assets sold as a percentage of the total assets brought to the platform, has improved from 54% in 2019 to 66% in 2020 and 73% in 2021. And this has happened while we've been expanding the buyer base significantly. We estimate that Ten-X is a $4 billion revenue opportunity. To pursue that TAM, we're aggressively growing Ten-X' sales team currently up to 54 people. These new salespeople have been incredibly productive. In the first quarter 2021, new sales reps didn't add any new deal – didn't add any deals in the quarter. In the second quarter, they delivered 5% of the deals. In the third, they delivered 20%. In the fourth, they delivered almost a third of the deals. In addition, the research team in Richmond, which is in constant contact with brokers and principals, who can benefit from Ten-X, has begun to contribute deals to the Ten-X pipeline. We've opened round one of the Battle of Bids 2022, a gamification of the Ten-X bidding process in which people can guess the price at which a real estate property will be sold with a chance to win up to $3 million in cash prizes. Our goal is to drive broad brand awareness and platform participation. We think we've created a really fun gamification of the CRE sales process that will bring the Ten-X story live and engage tens of thousands of key prospects. 2021 was our first full year in the residential property sector. We generated $75 million of revenue. Homesnap revenue grew 52% year-over-year on a pro forma basis in 2021 driven by our larger direct sales force of 60 people. In the fourth quarter of 2021, Homesnap grew registered users by 12% year-over-year to 786,000 agents and as Homesnap Pro Plus paying subscribers grew 29% year-over-year to 68,000. Our acquisition of Homes.com in May of 2021 was very popular with agents as we implemented a your listing, your lead product approach and double the site traffic year-over-year in the fourth quarter 2021. That's right. We doubled the site traffic in the fourth quarter of 2021. Sounds familiar. Our strategy for transforming this massive TAM into revenue involves three phases

Andy Florance:

You’re welcome.

Andy Florance:

$217 million.

Bill Warmington:

Thank you, Scott. Blue, would you please assemble the queue for Q&A? [Operator Instructions] Thank you. Go ahead, Blue.

Sterling Auty:

Yes. Thanks. Hi, guys. I was just curious, in terms of the investment in residential, help us understand in 2022, how much of that’s going to go into sales and marketing? How much is going to go into R&D? And how that mix will morph as you move towards that 2027 goal? Thank you.

Scott Wheeler:

Sure. Yes. So Sterling, the content portion is over half of the incremental investment, which is I gave a range of $200 million to $220 million. And then the other portion, which is a little less than half, is probably 60% marketing, but as Andy said, it’s more later part of the year as we get ready for broader product rollout. And then the rest is the technology development and software component, which may seem a little low, but as you know, we have a number of software teams in-house now that shift over and help us develop these new products as will happen with our research teams as well. So we'll expect these things to switch places as we go into 2023. As we'll have most of the content development piece behind us, then we'll shift more into marketing and product launch I would expect in the next year or two.

Ashish Sabadra:

Thanks for taking my question. Maybe a quick question around the Multifamily. Again, pretty strong bookings there. Discussion around mid-single-digit growth in the first half and double digit in the back half. I was just wondering how much visibility do you have regarding the acceleration in growth in the back half? Thanks.

Operator:

Your next question comes from the line of George Tong from Goldman Sachs. Your line is now open.

Andy Florance:

Sure. So it's $200 million incremental investment beyond the baseline of operating Homesnap at Homes that's currently in place. So that content – the area where we're adding a lot of content, if you think about the home shopping experience, there are a number of things that are not about the specific home but are about the place, or in the case of a condominium building, about the community, not about the specific unit. Those are very cost-efficient places to collect valuable content, so neighborhoods, parks, schools, condos. And it creates good SEO drivers, and it creates a good shopper experience that we have tested with the markets and gotten very solid feedback on. One of the things we like about that investment is that while it's a lot of hard work and is aggressive, clearly, it's in our wheelhouse. We have visited millions and millions of buildings across many countries and been able to do that effectively and efficiently. The other thing that's good about that investment is it doesn't just benefit Homes. It benefits Apartments. It benefits LoopNet. It's a pretty broad initiative, strengthening our content across the platform. So we think in comparison to the scope of the TAM and the opportunity and the competitive advantage we perceive we can achieve, we feel it's a very reasonable investment. And was there a second part of that question?

Andy Florance:

Let's do that, Scott. Stump the chops.

Operator:

Your next question comes from the line of Pete Christiansen from Citi. Your line is now open.

Andy Florance:

Yes. Definitely. We do have irons in the fire. We are looking at things. And there are opportunities to scale and accelerate that. So obviously, as usual, we can't talk about anything until they're real. But there's some pretty significant – there are some significant things out there that we're really focusing as much as anything on strategic, things that we feel will give us valuable content that will help us build the most heavily traffic site over time. And we're not looking to buy revenue per se.

Andrew Jeffrey:

Hey guys, pardon me. Thanks for taking the question. Andy, for those of us, at least for me, speaking for myself, it might be a little bit answered – slower on the uptake. I think one of the things I'd love to hear you articulate-in as concisely as you can, especially in the context of this big stepped up resi investment. What exactly is this – what is the strategy, right? I mean I just want to understand who you're going, again I realize it's a big TAM, right? We all get that. Who are you going up against? How do you plan to monetize? How do you plan to displace competitors, which I assume are companies like Zillow and Redfin and Zumper[ph]? I mean I think just really concisely, I think investors want to know why you're spending all this money on and not what you're spending and what the return can be and how you get from point A to point B?

Operator:

Your next question comes from the line of...

Operator:

Your next question comes from the line of Mayank Tandon from Needham. Your line is now open.

Scott Wheeler:

Yes. Sure. We do see seasonality not too much different than what we saw when we first jumped into the apartment space where you have apartments as a rental season in the spring and the summer months that would then cool off after kids went back to school. In the residential side, you see a similar pattern where things will start off, I'll say, at a moderate level in – to start the year. And then it picks up in the spring and the summer months, and then by the time we get to the end of the year, the fourth quarter is going to be the weakest as far as new engagement and involvement in the industry. So we think second and third quarter is the biggest. Fourth quarter is the lightest, and first quarter falls somewhere in between. We also expect that's where our investment focus will also follow that pattern when you talk about marketing and being able to collect valuable content during nicer months of the year than versus snowy cold wintery months of the year.

Operator:

Your next question comes from the line of Ryan Tomasello from KBW. Your line is now open.

Scott Wheeler:

Sure. So in the early part of the year, we expect the revenue growth really from the list price and the pricing initiatives that we've implemented. The sales force is doing a great job of getting around to the customers. And as we mentioned in the comments, we are not seeing people drop off the platform. We certainly see some of the fuller buildings in the market, like we commented, I think, last quarter, that might rotate off while other buildings rotate on within a customer's portfolio. So you see a few less properties in total, but you definitely see people staying on the platform. And the pricing initiatives have been very successful. So I expect all the growth in the first half of the year is pretty much from pricing. And then as you get more volumes into the spring and summer season, those volumes will carry over, and you'll start to see, I think, more upgrades, fewer downgrades and a little more volume in the second half to get us back to that double-digit growth.

Operator:

Your next question comes from the line of Stephen Sheldon from William Blair. Your line is now open.

Andy Florance:

Yes. I think we are having – I think we need to – like the most important part of the equation is it's great to have geese that lay golden eggs. What's even better is to have geese that lay golden eggs. So those are recruiters. And one of the things we're doing is we're looking within our own sales force for people that want to evolve their careers or – into moving in the recruiting space. And I think our training programs are pretty darn good at this point. And our onboarding is getting – our success rate as people come on board is getting better. But our sales force is getting pretty large. Again, as you sit there and look at 1,000 people at our sales conference, it is growing. With LoopNet in particular, that is something – just like Apartments.com is following that same trajectory where initially, Apartments.com was sold by the CoStar Group. And eventually, we built our stand-alone sales force to sell Apartments. LoopNet is in that same phase, and we're having some success. As I look at the individual metrics of people going into LoopNet, the salespeople going into that group, stand-alone sales force, they're producing at much better numbers that we saw during the pandemic as we tried to onboard people. And in fact, there's some real success stories in that group. So there's – I think our number 2 producer – number 1 producer, I believe, started with us like just – like two years ago. So – and then we have David Malley, [ph] who just joined us from Homes.com who's an experienced operations executive, now running the LoopNet Group, which is good leadership. And Mark Mathis, who actually started with CoStar many years ago, was a senior player at Realtor, running their sales org, has been with Homes, who's now running the LoopNet team. So we're beginning to bolt the group up, and it's a process. It will be another two or three years before we have a robust several hundred person large LoopNet sales team, but we will get there just like we did with Apartments.

John Campbell:

Hey guys. Thanks for taking my question. Just a quick one here. I mean I think on the sizable residential reinvestment cycle, I mean, I think that was a pretty common fear factor shared across the investor base. The push and pull around that is, I think, partly behind – the stock is on a 52-week low here. But your core business, it seems to be in a great spot. You've got this big bet on resi, kind of being more of an offensive move by you guys. You guys do sound pretty convicted you've got framework around eventually driving up those returns. So I mean, obviously, with things progressing as you guys expected, you've got kind of stock that's kind of dislocated here. I'm sure you guys are eventually waiting for this question, but you've got nearly $4 billion of cash on the balance sheet. It sounds like M&A is maybe a little bit less of a focus in favor of the core. But just give us your latest views on the buyback and how that might change if there's any further dislocation in the stock. Thanks.

Scott Wheeler:

Yes, Andy. We certainly saw a period here in the last – well, it's really only been a year. We just raised a bunch of that capital in mid-2020. So we're really only 1.5 years since money came on board. And certainly a period of high multiples and valuations have weighed a little bit on the pace of our acquisitions. I wouldn't go so far to say that we're not focused on acquisitions anymore. So we definitely are still very seriously focused on acquisitions. And our initial thesis when we brought in the capital is it's going to take probably about five years for us to burn through that as we do deals across the platform. So I think we're still committed to that strategy right now. Obviously, if this continues up for another year, year or two pace, we might have a different conversation. But for now, that's still our direction, and we're focused on putting that money to work first in acquisitions. And then to the extent we need it on organic, we'd do that as well. But like you said, our organic commercial business is producing pretty significant cash flow now. And that's very helpful when you look at our ability to invest in residential and still return – we're still going to do almost $600 million of EBITDA next year even with, as you put it, a big offensive investment. So we're pretty comfortable with the math and the balance of where we are.

Operator:

Your last question comes from the line of Jeff Mueler from Baird. Your line is now open.

Andy Florance:

Yes. So we're really going for the billions, not the hundreds of millions is what it is. And so the most important role Homesnap plays to the company is growing the participating agent user base and getting deeper engagement with those users. So we – you see us up in the 770,000 agents registered. You see us growing the number of folks paying for the premium version. We have multiple products we can sell over at Homesnap. We can sell sort of retargeting and Facebook ads and Instagram and Waze and all kinds of stuff. Those are the higher dollar value things, but they're less strategic. Like getting an agent to buy the $30, $40, $50 a month premium version of Homesnap is much more valuable to us and that they use and engage in the product more. The agents are the key to the supply side of the real estate industry, and we want to be the first place they go when they have a new listing or when they approach the market or when they want to distribute content to their customers. So on the – so that – we're – we are going for the big win not the second or third quarter. And in terms of KPIs, if you go back to that three-step process of grow, monetize and scale. Grow is where we are, and grow is where we will be into 2023. And that is growing content, growing users, growing unique visitors, growing engagement and relevancy. So we do not believe that we should pull the monetizing lever when you haven't scaled traffic. So you are – if you try to pull the monetizing lever before you scale traffic, you're going to be setting price points well below what you could set a year or two out. So we want to build engagement, grow that engagement, grow the unique visits. And for KPI, I would recommend that as we launch the new product, you look at our site traffic, our engagement. In the shorter term, you can look at the volume of content coming out of the site. And in a little basis, you can see that right now. Homes.com unique visitors doubled year-over-year, keep doubling. After a while, it gets larger. And so then the next thing you're going to be looking for in 2023 – we'll continue to grow and monetize Homesnap. It's a great product that people like, and it's getting better. And as you go into 2023, you'll be looking for new high margin products that will be available on Homes.com, whether it's marking agency in a responsible way or in an industry aligned way, or if it's marketing actual – helping people market their actual properties. And the first revenue you see coming in may be measured in tens of millions of dollars, but you can then understand – you now understand the price points and you can understand the penetration opportunity you could begin to paint out a 10-year picture. The scale is – the scaling, more meaningful levels, is probably 2024. And that's when we're beginning to challenge some of our other product areas and move towards that $1 billion revenue goal. So we'll talk about the KPIs in each one of those 3 phases. And I think we are – it's obviously a huge industry. There are some solid competitors out there. So it is not a get rich quick scheme. It's a work hard, build a plan and have a multiyear vision of where you're going. But we'll be able to talk about the KPIs at each of those three phases.

Andy Florance:

Well, thank you, everybody, for joining us for the – for our fourth quarter 2021 earnings call. We're excited about the initiatives we've got going on here. We're very excited about the residential initiative. Our core business is obviously showing great momentum. We're very proud of what we've accomplished. And I want to congratulate our sales leaders, Marc Swartz, Paige Forrest, Brandon Lu, Tim Condon, David Gibson, Joe Valero, and others and their teams who just turned in our best bookings quarter ever with our best – with November, December and January being three of our four strongest sales months ever. Look forward to them continuing to turn in a great result throughout 2022. We believe that the market conditions in residential sector, combined with our strength in our core business, makes this the right time to accelerate our investment in residential and lay the foundation for growth that will enable us to reach our new five-year financial goals. So with our expansion into the residential properties sector, I believe that our investments will yield $5 billion in revenue for CoStar Group in 2027. I'm confident in our ability to scale our information and marketplace business to deliver attractive returns with adjusted EBITDA margins at or above 40% when we achieve that $5 billion in revenue. We look forward to meeting with you again in our first quarter call on April 26 at the same time, on the same channel. Until then, stay safe, and thank you very much for participating. Thank you, Bill. Thank you, Scott. Enjoy doing this earnings call with you.

Scott Wheeler:

Thank you. Good night, everyone.

Operator:

Good day and thank you for standing by. Welcome to the Q3 2021 CoStar Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bill Warmington, Vice President and Head of Investor Relations. Thank you. Please go ahead.

Andy Florance:

Thank you, Bill. You did an excellent job. Good evening, everybody. Total revenue for the third quarter of 2021 grew by 17% year-over-year to $499 million. That’s at the upper end of our guidance range at almost $0.5 billion in revenue for the quarter. Most encouraging, year-over-year revenue growth for CoStar reached double digits this quarter for the first time since before the pandemic. And that’s with a 10% revenue growth in the third quarter and 12% of revenue growth in September. Net bookings of $47 million for the third quarter include the strongest sales quarter in the history of CoStar, which are only dampened by a soft sales quarter for Apartments.com. Adjusted EBITDA of $144 million exceeded the high end of our guidance range, coming in $10 million ahead of the third quarter consensus estimates. Our marketplaces contained to deliver exceptional value to our customers as traffic to our sites increased 25% year-over-year. Our marketing campaigns generated over 4.6 billion impressions in the third quarter across Apartments.com, LoopNet and Ten-X. We are welcoming our newest marketplace, BureauxLocaux, the French commercial marketplace we acquired on October 1st, to our fast growing network of property marketplaces. U.S. apartment market is experiencing the highest unit absorption rate in decades, causing the lowest vacancy rates in decades and the highest rent growth in decades. The absorption rate, vacancy rate and the rental growth are well outside 1 to 2 standard deviations to normal ranges in the past 20 years. The rate of change is stunning and the market stats are best described as whipsawing or extremely volatile. The pandemic initially caused a sharp drop in occupancy high move volumes and slight rent declines. With the availability of vaccine, absorption shot through the roof and occupancy levels and rent growth soared. When you see it on a chart, the slope of the curve is unprecedented. For investment grade rate properties 50 units or more in the United States, the average occupancy range over last 20 years has been -- average occupancy rate has been 93%, 1 standard deviation to low side is 92.3% and 1 standard deviation to high is 93.7%. That’s a very tight range. Owners manage the range tightly to optimize for total revenue by moving unit rents using automated yield management systems. Last year occupancy rates, occupancy fell below the 20-year standard deviation low to 92%. Currently at 95%, the vacancy rate -- the occupancy rate is way above the top end of the standard deviation high of the past 20 years. 95% overall is a very high number. The 20-year average annual net absorption of apartment units is 218,000. This year, the annual absorption rate tripled that average with 658,000 units absorbed. Annual apartment rent growth was 12.4% which is the highest it’s been at any point in the past 20 years. The 20-year average is one sixth that number, at only 2%. The 20-year average rent for an apartment has been $1,250 per month, but today that number has climbed to $1,676 per month. The sky high rents are good for owners, but make for major housing crisis. Investors in apartments are being richly rewarded with the average sales price of an apartment unit at $248,000 a door, which is 82% above the 20-year average. What does this all mean for Apartments.com? Well, our clients are doing very well, very, very well. But it also means that tens of thousands of large investment grade apartment buildings in the United States are now basically fully leased. 12.5% of the U.S. investment grade apartment communities are now 99% leased or more. This is unprecedented. You’ve likely heard anecdotal stories of every major apartment building in some neighborhood having long waiting lists. When a community becomes 99% leased, they may love Apartments.com, but they can lower their advertising level to us. They want to continued presence on our marketplace, but they do not need hundreds of leads a month with zero or one apartment available. Our renewal rates have remained high during this period but thousands of communities that are essentially full have reduced their spend with Apartments. During this high occupancy marketing condition, some may have reduced their spend by 50% or more, though that’s a typical. I believe this is a market anomaly that will resolve back to normal occupancy ranges within a few quarters. From Economics 101, when apartment community is fully leased, it has underpriced its apartments. An optimally full apartment community is about 93% leased. Over time, the automated yield management systems will keep pushing rents until occupancy falls back to 93%, as well as the current levels will draw additional supply, which we’re already seeing high levels of supply -- new supply. I believe the yield management systems were either maxed out by the implied rate of increase necessary to optimize occupancy, or the property managers took the systems offline because they felt the potential rate of rent increase is necessary to maintain optimal occupancy were outside of acceptable social norms for rent increases. One of the primary independent variables in the yield management systems is the number of leads coming into leasing office. More leads means more competition for available units, more competition means the owner can raise rents. We believe that Apartments.com is the primary source of these high value leads that are driving higher rents for the owners. More leads to a point are good. So, despite these wild unprecedented gyrations in the market, we believe that the demand for Apartments.com is stronger than ever. In the year to come, we believe there’ll be unusually high unit turnover and clients will want a steady lead flow during this great migration. In August, we surveyed more than 20,000 renters about their moving intentions. As a result of that survey, we expect apartment market will experience increased turnover, more out of market moves and lower renewals as we head into 2021 -- 2022. When asked, when do you think you will next move into a new residence, 53% of survey respondents said they will move by winter. When asked, what do you plan to do when your current lease expires, only 24% of renters expect to renew within the same community, down from 47% pre-COVID. This all makes sense given the huge affordability changes and changing work-from-home policies. Last month, the National Apartment Association held its first in-person meeting post-pandemic, and I was able to meet with a number of clients. One conversation stands out to me. As we conclude a meeting with our largest client, the senior member of that team said that he wanted to make an important statement. He thanked us profusely for being the single most important partner to his firm. According to him, we were the single greatest source of leads for his communities and helped them have an amazingly successful year. He stressed how much he valued our relationship and how much he appreciates the great work we’re doing for them. I’ve had thousands of client meetings over the last 35 years. His comments were unprecedented in their positivity. Over the past five years, this client has tripled their annual investment with us and become well more than twice the size of our largest CoStar client. Yet while he’s thanking us profusely, his firm is reducing their spending level with us over the past few months by about 5% because of many of its communities were so full. Despite these market gyrations, I believe we have a fantastic relationship with this client and our relationship with them over the intermediate long term will grow and flourish. I believe they will continue to grow their investment in Apartments.com in the years to come, long past this current market condition. While Apartments.com sales were soft this quarter during this unprecedented high-leasing environment, or highly-leased environment, the strength of our platform remains incredibly strong. Lease were up 39% year-over-year in the third quarter and visits were up 17%. This was partially driven by our biggest marketing quarter of the year, where we developed -- where we delivered 3.5 billion media impressions in the quarter. As we’ve discussed here and on our second quarter call in July, the increase in our site traffic, combined with a largely flat pricing, has meant a windfall value to our clients in terms of effective cost per lead. The average cost per lead has decreased about 35% in two years from $9.55 in 2019 to $6.24 in 2021. To address this imbalance, we began rolling out a new rate card for apartments in September. The rate card further segments our prices with larger communities who are receiving more value, commensurately paying higher rates. In September, we began testing the new pricing with 150 clients, representing about 700 properties. The average initial price increases were 7% and went smoothly. I informally pulled the apartment sales leadership team, and they were not aware of any related cancels. Some of discount eliminations are resulting in more significant revenue growth, though, and we’d expect to see more of that going forward. For example, in September, a Florida client with a 380-unit property with a Gold ad was spending $759, and they renewed and they’re now paying $1,399 for an increase of 84%. A Texas client with a 424-unit property with a Platinum ad was paying $1,349, and they renewed and are now paying $1,799 for an increase of 33%. We will continue to scale our right pricing campaign. And though it has not had an impact on this quarter, we believe that it will have impact in out quarters. Given the value of our client relationships and extreme volatility of the current multifamily markets, we’re moving cautiously to protect the long-term value of our franchise. Despite all the sales successes we’ve had over the last five years, there are many more prospects out there today than we have clients so far. Our estimated penetration of 5 to 100-unit buildings is less than 4% and in the 100-plus-unit buildings, our penetration rate is only about 50%. We believe that we have many, many years of growth ahead for Apartments.com just through new client acquisition. Overall, we continue to believe the U.S. apartment market is a $6 billion to $8 billion revenue opportunity for Apartments.com. CoStar had its strongest new bookings quarter of all time in the third quarter with net bookings up 57% sequentially and up over 500% year-over-year. The record performance was driven by multiple factors, including the growing success of our upsell program, high renewal rates, new product and information capabilities, the return of annual price increase for renewals and continued economic recovery. Based on our sales success in the third quarter, we now expect revenue growth for CoStar of 13% in the third quarter, returning to our long-term historical revenue growth rate. Historically, we sold multiple versions of the CoStar product across two dimensions

Andy Florance:

I hear something.

Bill Warmington:

Thank you, Scott. Sadie, would you please give instructions and assemble the roster for the Q&A portion of the call? Analysts, please limit yourselves to one really good question. Thank you.

Pete Christiansen:

Good evening. Thanks for the question. And thanks guys for the added transparency disclosures on the revenue side, I really appreciate. I think I have to ask this question. I know we’re in just the end of October here. But Andy, I guess, as you look forward to 2022, just wondering if you had a sense on spending as you think about ramping up the residential effort? Any sense of how that will play in, whether there’s any connection there with some of the revenue weakness that we’re seeing in the apartment side? Do you have the opportunity to pivot more spending dollars from apartments over to residential? Thank you.

Operator:

For our next question, we have Jackson Ader from JP Morgan.

Andy Florance:

Sure. So, there are two primary factors with Apartments.com, I think I’ve mentioned. One is this unusual volatility. The spike in occupancy levels, that’s unprecedented. I am sort of predicting something that hasn’t happened before. I believe it begins to reconcile in the next two quarters. It could be one to four quarters, but I do not believe that sophisticated operators of apartment communities are going to leave their occupancy levels so high and miss an opportunity to churn rents as well as you just naturally are going to have so much musical chairs and churn going on because of these pricing changes and work-from-home changes. So, I think it will break pretty quickly. Second major factor is the fact that we are delivering significantly more economic value to our customers than we’ve ever delivered before. And I believe there is an opportunity to recognize that. We’ve trialed some of that in September, and we’ll continue to ramp that up into the fourth quarter and first quarter and the second quarter. So, I think you’re probably -- you’re not looking for any dramatic changes in the fourth quarter this year, but I think you’ll move into a strong 2022. And again, I want to stress that the product itself is as strong as it’s ever been. And we’ve actually been a part of probably helping the industry to achieve the highest rents they’ve ever achieved. I wish we had options on rental levels, but we don’t. And I guess, the second question was when would we expect to see Ten-X benefit from distressed levels in office, well, it’s not something we can predict the exact data, something like that. It’s just my sense is, as I walk through all these office buildings, and I don’t see a human being, that there’s a potential problem there. And so, at some point, rational CFOs will begin to rightsize some of these properties. I do believe that work-from-home is not an effective long-term solution. So, I think that will mitigate to some degree in the market. I am seeing all kinds of examples of businesses running into trouble because they’re not operating at the same productivity levels from a work-from-home model. But, I think that -- I think it could be a 2022 thing. I can’t believe there won’t be some distress somewhere, especially sort of second-generation office buildings may have a tougher time, but Ten-X is really good at selling, finding the biggest audience possible to find that buyer for some real oddball stuff and some high-quality stuff. So, I would think 2022, but I’d be surprised if there’s not some sort of something coming there. So, these two facts -- this sort of effective 70% vacancy rate is potentially a tailwind behind LoopNet and Ten-X.