CoStar Group Annual Report 2014

FY2014 Annual Report · CoStar Group

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Connecting information
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2014 Annual Report

CoStar Group

2014 Annual Report

FINANCIAL HIGHLIGHTS IN 2014

• Revenue for 2014 was $576 million. This is an

increase of $135 million from 2013. Fourth quarter
revenue was $156 million, which is approximately
35% year-over-year growth.

• EBITDA for 2014 was $151 million. This is a 61%
increase over 2013 and by far the most annual
EBITDA we have generated in our history.

• Adjusted EBITDA for 2014 was $188 million, an

increase of 38% over the full-year of 2013. Margin
expansion continued throughout 2014 even while
we continued to aggressively invest in the business.
We achieved 35% adjusted EBITDA margin in the
fourth quarter of 2014.

• Our 12-month trailing renewal rate on annual

subscription contracts was approximately 92%,
and 98% for customers who have been with us for
over 5 years.

• We added $63 million of annualized net new

sales of subscription services in 2014. In the fourth
quarter of 2014, net new sales were $17.3 million,
the highest in our history.

• In 2014, we raised $1.2 billion in the capital

markets, to finance the $585 million acquisition
of the Apartments.com business and
for future potential acquisitions.

• We ended the year with approximately
$544 million in cash, cash equivalents and

long-term investments.

5-Year CAGR: High Margin
Incremental Revenue

Annual Revenue

In millions

$600

$500

$400

$300

$200

$100

2010

2011

2012

2013

2014

Annual Adjusted EBITDA

In millions

$200

$150

$100

$50

2010

2011

2012

2013

2014

26%
CAGR

38%
CAGR

92% 12-MONTH TRAILING

RENEWAL RATE

98% FOR 5 YRS +

CUSTOMERS

Dear Shareholders,

2014 was an outstanding year
for CoStar Group in all aspects
of the business.

Financially, it was our strongest year ever. Our
ability to achieve excellent financial results is a
direct result of the commitment to excellence
from our entire organization of nearly 3,000
people. These individuals worked together as
a team to deliver high quality services with
exceptional value for our customers that
exceeded our already high expectations.

Under our flagship brands CoStar®, LoopNet®,
Apartments.com™, Lands of America™ and
BizBuySell®, we are providing the commercial real
estate community and business professionals with
services that deliver better communication, more
transparency and increased efficiency. Ultimately,
we believe this enables our clients to close
more transactions.

Most importantly, 2014 was a transformational
year, one that we believe positions
CoStar Group for significant, profitable
growth for many years to come.

02 CoStar Group

2014 Annual Report

The Power of Combining Information and Marketing

Deeper Penetration with a Larger Sales Force

We are the number one provider of mission-critical information,
analytics and online marketplaces for the commercial real estate industry.
This innovative combination is powerful in many ways.

Our innovative approach – combining people and
technology – has built an outstanding unparalleled
platform that is a valuable resource for all industry
participants. In addition to our financial success, I am
very proud that this has resulted in CoStar Group being
recognized by Forbes as one of the most innovative
growth companies in the world in 2014. We ranked 27th
for all companies and in the top ten software and service
companies.

Our marketplaces are an excellent source of potential new
clients for our sales force. They also provide new services
for us to bring to our existing client bases. With LoopNet,
I am very pleased that we have already achieved over
$80 million in revenue synergies since the acquisition
closed in 2012. Most of these synergies resulted from
cross-selling CoStar information and analytics to brokers
and owners using LoopNet. We believe the acquisition of
Apartments.com in April 2014 will result in similar strong
cross-selling opportunities.

Data flows between the marketing sites and CoStar
information services, and this strengthens both. For
example, CoStar has over 1.3 million for sale or for lease
listings that have been researched and verified by CoStar’s
1,500 researchers. Occasionally, a new property is entered
in LoopNet that is not already in CoStar. We are able to
add it to CoStar once it has been reviewed by a CoStar
researcher thus strengthening the CoStar
information offering.

In order to service the needs of the vast market in which we operate,
we needed to grow our sales force. At the end of 2013 and again at the
time of the acquisition of Apartments.com in April 2014, we significantly
increased the size of our field sales force. As a result, we added $63 million
of annualized net new sales on annual subscription services in 2014. In the
fourth quarter of 2014, we achieved the highest annualized net new sales
on annual subscriptions in our history. As these new salespeople gain more
experience, we expect increased sales productivity for many years to come.

managers and owners. Our recently launched CoStar
Market Analytics™ service combines CoStar information
and analytics with the forecasting and market analysis
services of our CoStar Portfolio Strategy™ business to
create a powerful service specifically geared toward the
institutional users of CoStar.

One notable sales hire in 2014 was Max Linnington who
joined us as Executive Vice President, Sales. Max has an
outstanding track record of driving revenue growth across
broad customer segments and regions. Previously he spent
many years as the head of sales for Bloomberg for the
Americas.

Part of the success of our subscription story lies in the
increased penetration into client verticals. We have
meaningfully increased the number of sales people
dedicated to selling high value products to institutional
clients such as banks, institutional investors, large property

Total Subscription Revenue

In millions

$400

$350

$300

$250

$200

$150

$100

2010

2011

2012

2013

2014

04 CoStar Group

2014 Annual Report

The Apartments.com Acquisition

A Success Story: The LoopNet Integration

We closed the
Apartments.com
acquisition in April 2014
and in less than 12 months,
we have created a
formidable presence in the
expanding $1 billion online
apartment marketing
business.

The new Apartments.com was
launched on February 16, 2015 with
the consumers experience foremost
in mind. For the first time in the
online apartment marketing industry,
consumers have been given access to
high quality data and information on
availabilities and communities so that
they can choose their new apartment
with more knowledge than they have
been offered previously.

We are committed to providing
consumers with an excellent user
experience that is unmatched on
the Internet in this space. To raise
consumer awareness, drive traffic
and increase the efficiency of the
advertising spend by property
managers and owners by delivering
higher quality leads, we are investing

an incremental $75 million in 2015
for an extensive marketing campaign
that features acclaimed actor
Jeff Goldblum.

We are using a combination of
television, radio, outdoor, online, and
social media to reach consumers with
the largest advertising campaign ever
in the apartment industry. We also
are supporting Apartments.com with
the industry’s largest search engine
marketing (SEM) program so that
we may capture the dominant share
of renters using a search engine like
Google, Yahoo! or Bing to start their
search.

Not only does Apartments.com
provide obvious advertising sales
potential, we also expect it to be
a strong driver of sales of the CoStar
information services to multifamily
property managers and owners.
Essentially, we expect that our clients
will use a combination of
Apartments.com and CoStar
information and analytics to obtain
renters, set rents and manage their
portfolio of multifamily properties.
We believe the sales opportunity for
multifamily information, analytics and
forecasting is even greater than what
we have achieved with LoopNet.

Paid listings are up 62% since the
acquisition and now represent 52%
of all listings on LoopNet, up from
31% of total listings in March 2012.
We plan to have all listings on
LoopNet as paid listings, and we also
have plans to discontinue LoopNet’s
Premium Searcher™, Property
Comps™ and Property Facts™
offerings over time since we believe
that the CoStar information services
provide significantly more value for our
customers.

LoopNet.com is the number one
commercial real estate marketplace in
the United States and draws by far the
most traffic in commercial real estate.
In January 2015, we had over
5.8 million monthly unique visitors
to the site. This is up 66% from the
3.5 million monthly unique visitors
LoopNet.com had just before our
acquisition closed.

Also, since the close of the acquisition
of LoopNet, we grew the number
of registered LoopNet.com users by
almost 60% from 5.8 million to over
9.3 million. Average monthly profile
views increased to 17.4 million in
January 2015 representing a gain of
45% over average monthly views in
the first quarter of 2012.

Financially, the LoopNet acquisition
and integration has been extremely
successful. Since the close of the
acquisition at the end of April 2012,
the combination has resulted in
$80 million in revenue synergies and
over $20 million in cost synergies.

On the marketing side, we are also
increasing the sales of LoopNet
Premium Lister™ to new clients
and existing CoStar clients. We are
now offering three differentiated
advertising levels for advertisers which
allow them to increase exposure to this
valuable online audience with larger
ads and higher placement in relevant
searches. We also provide LoopNet Pro
Video™ property videos and LoopNet
Targeted Advertising™ services for
brokers, properties and companies
to gain more exposure.

LoopNet Paid Listings

In thousands

300

250

200

150

100

2011

2012*

2013

2014

*acquisition completed in April 2012

LoopNet Registered Members

In millions

2011

2012*

2013

2014

*acquisition completed in April 2012

06 CoStar Group

2014 Annual Report

The 2014 Rebrand

In 2014, we introduced a brand structure that we believe will
accelerate sales growth across our entire family of products.
As CoStar Group experienced dramatic growth in recent
years, both organically and through acquisitions, the number
of brands in our portfolio seemed to grow exponentially.

Therefore, we have realigned the
CoStar Group brand portfolio in a
way that more accurately reflects the
many ways we help our customers,
providing them with information and
insight, and connecting them to the
communities they need to move their
businesses forward. The new structure
also makes it easier for customers to
recognize and access opportunities
across our portfolio.

CoStar Group now serves as the
parent brand that plays a strong
connective role across our portfolio.
We have realigned our businesses
under five primary flagships.

CoStar serves as the single flagship
brand for our information, analytics
and software, and we have migrated
all other information, analytics
and software brands to supportive
offerings under the CoStar flagship.
For example, Property & Portfolio
Research (PPR) has become CoStar
Portfolio Strategy; Virtual Premise
has become CoStar Real Estate
Manager™; REApps is now CoStar
Brokerage Applications™ and Resolve
is called CoStar Investment Analysis™.
These services are already benefitting
from closer alignment with the
CoStar brand.

We plan to invest in LoopNet as
the flagship brand for marketing.
Apartments.com is our flagship
brand for the residential rental space,
BizBuySell is our flagship brand in the
businesses for sale market, and Lands
of America has become the flagship
for the rural land market. I should
note that these Internet marketplaces
play an important role in our move to
consolidate brands, as the secondary
and tertiary brands we own control
valuable shelf space on the Internet
and in search traffic results.

08 CoStar Group

2014 Annual Report

Research Expansion

As our product range and the number of communities and verticals we
serve increased, so did our research organization. In 2014, we hired nearly
300 researchers to meet the new demands for coverage in the multifamily
sector, as well as to support our further expansion in Canada, and to further
strengthen our services for owners, lenders and investors. In April 2014, we
launched a new regional research hub in Atlanta where many of our multifamily
researchers are located. This commitment to strengthening our information
provides the foundation for future growth particularly in the CoStar information
services. We continue to develop innovative research techniques that enhance
the quality and efficiency of our research, while providing outstanding and
accessible services to our information clients.

International

CRE Market

We are also seeing a solid acceleration of our brand
expansion outside of the United States. After two years
of offering CoStar Suite™ and CoStarGo® in the United
Kingdom, we have been successfully moving existing clients
from legacy services at nearly a 34% increase in price.
These customers are clearly seeing the power of CoStar’s
integrated and comprehensive platform. As a result, we
are now operating profitably in the United Kingdom with
strong margins.

Trends in the economy and capital markets combined to
produce an excellent year for U.S. commercial real estate
in 2014. In the United States, commercial real estate sales
volume surged to a record high in 2014 in the apartment,
industrial and retail sectors, while office sector sales
grew by a healthy 16% to near 2006 levels. All four major
property sectors benefited from strong net absorption
rates, which have supported rent growth of 3% or higher
during 2014.

We launched CoStar at the beginning of 2014 in Toronto,
Canada. It has been the fastest uptake by customers in
a newly launched market in the history of our company.
Demand is so strong that we expect to expand into five
additional cities in Canada.

The key trends that supported strong commercial real
estate performance in 2014 are likely to remain
for several years.

2015 and Beyond

I am very excited about the
prospects for CoStar Group in 2015
and beyond. We believe that our
strategic moves through 2014 have
positioned us for an excellent period
of growth for many years to come.
We continue to believe that we are
on our way to reaching our goal of
$1 billion in revenue with a 40%
margin as we exit 2018.

Overall, I am very pleased with our progress and
we continue to position CoStar Group for robust
future growth while delivering strong top line
growth at high margins. This comes with a high
commitment to innovation and investment to
grow and move the business forward.

Andrew C. Florance
Founder & Chief Executive Officer
CoStar Group, Inc.

10 CoStar Group

2014 Annual Report

COSTAR INFORMATION SERVICES

“
Information like ours doesn’t exist anywhere
else, which makes it extremely valuable
to our clients. We are making the
CRE asset class more transparent, which
we believe will in turn attract more players
to it and increase its overall value.”

Frank Carchedi, Executive Vice President, Operations

Content is key to providing the foundation for our
unique comprehensive platform of services to
the industry.

We have demonstrated that the way to obtain
unmatched information is by continuing to build and
facilitate the communication network within the
commercial real estate community. To do so, we are
relentlessly combining innovative research techniques
and the largest, most experienced group of research
professionals in the industry with an unwavering
commitment to client service.

Our research team of approximately 1,500 people
is in contact with tens of thousands of commercial
real estate professionals every day, and our field
researchers canvass commercial real estate all over
North America and the United Kingdom, to constantly
add to this wealth of knowledge.

$1 BILLION INVESTED
IN RESEARCH TO DATE

12 CoStar Group

2014 Annual Report

MARKETPLACES

“

We are changing the way marketplaces
deliver value. By aggregating the most
comprehensive availability information,
we are creating transparency, which means
more efficiency and the reduction of friction
in our entire network of marketplaces.”

Fred Saint, President of LoopNet

Our content advantage in each of our sectors drives
more searchers to our websites and thus more value
to all of our marketplaces.

For example, on Apartments.com, by providing
renters with real-time availabilities, actual rents and
vast amounts of valuable information, we are able to
deliver better informed, higher quality leads to owners
and property managers.

Likewise, our massive commercial real estate content
drives a tremendous amount of traffic to LoopNet.
This traffic results in properties leasing and selling
significantly faster when marketed with our LoopNet
Premium Lister service.

LoopNet Average Monthly
Unique Visitors

In millions

2011

2012*

2013

2014

*acquisition completed in April 2012

LoopNet

The number one website by traffic in
commercial real estate by far is
LoopNet.com. With over 5.8 million unique
visitors and 9.3 million registered users in
January 2015, LoopNet is the marketplace
where owners and brokers list their
properties for sale or for lease. Marketing
these properties on LoopNet attracts
interested people such as potential tenants,
small investors, real estate managers at
corporations and many more.

Apartments.com

For the property manager and owner, we
are committed to driving more traffic and
delivering high quality leads that we expect
will lead to more leases being signed. We
have invested the most money in the industry
in search engine marketing and are building
the brand with an extensive advertising
and marketing campaign that is the largest
ever committed in the apartment space. In
addition to the premium marketing services
we offer, we believe the multifamily sector
will also benefit from our deep, granular
information and analytics, so property
managers and owners can effectively price
the leases in their communities to stay ahead
of market trends.

Land And Business Marketplaces

We also offer the leading land and small
business marketplaces in the United States.
Lands of America and LandAndFarm™
combined generate the most traffic in the
aggregate in land marketing. BizBuySell is
number one in traffic for small businesses.

14 CoStar Group

2014 Annual Report

TECHNOLOGY

“

In 2014, we were able to transfer our
online expertise to the apartments
community by building a marketplace
that is transforming the industry for the
better. We are in a unique position now,
where our software solutions can benefit
multiple verticals simultaneously.”

Frank Simuro, Chief Technology Officer

Through constantly evolving software and
technology solutions, we provide the back-end
architecture that brings CoStar Group’s data and
analytics and our marketplaces to life for each of
the customer verticals we service.

Recently, we have developed incredibly powerful
tools and services such as CoStar Lease Analysis™,
CoStar Market Analytics™ and CoStar Lease
Comps™ that make the CoStar platform even
more valuable to our users. Our mobile platforms
for Android and iOS applications provide access
for our clients wherever, whenever they are.

16 CoStar Group

2014 Annual Report

SALES

“There is a tremendous opportunity in front
of us to bring CoStar Group services to
more customer verticals in commercial
real estate. We are excited to deliver an
increasingly strong suite of CoStar
services and marketplaces.”

Max Linnington, Executive Vice President, Sales

Broadening Demand: 2014

% CoStar Annual Revenue

In the past 15 months, we have aggressively
increased the number of field sales people at
CoStar and Apartments.com and added a
robust layer of sales management to expand
our reach and drive topline sales.

We expect that our marketing investment
to raise awareness for Apartments.com
will not only drive renters to our website but
also inform property managers and owners
that Apartments.com is committed to
generating higher quality leads for them. Most
importantly, the new website is expected to
accelerate the cross-sell of CoStar information
and analytics to these customers.

Brokers

Property Management

Institutional Investors

Owners

Lender

Appraisers

Vendors, Governments,
Consultants, Education, etc.

18 CoStar Group

2014 Annual Report

INTERNATIONAL

“

Our ability to successfully export the
CoStar brand and business model to
markets outside of the United States
makes us more important to our
international clients. We expect this will
eventually unlock tremendous revenue
and margin opportunities for many
years to come.”

Giles Newman, Managing Director, CoStar U.K. Ltd.

We have demonstrated that the CoStar core services
can be successfully sold outside the United States.
CoStar Suite and CoStarGo have been very well
received in the United Kingdom, and since their launch
in early 2013 nearly one thousand firms have adopted
the new solution, making it the fastest growing
platform of its kind in the country. We have now
moved to operating profitably in the United Kingdom
with strong margins that we expect will increase
over time.

IN 2014, THE U.K. MOVED
TO PROFITABILITY

CoStar Suite Demand Growth: United Kingdom

In millions

£2.0

£1.5

£1.0

£0.5

£0

2013

2014

20 CoStar Group

2014 Annual Report

PEOPLE

“

In a world increasingly driven by technology,
what makes CoStar Group absolutely unique
is our people. Commercial real estate is a
relationship-based business. Our goal is to
hire and develop talent that is intelligent,
excels at relationship building and is
passionate about what they do.”

Donna Tanenbaum, Vice President, Human Resources

PEOPLE ARE THE
FOUNDATION
OF OUR SUCCESS

Our nearly 3,000 people are an extremely active
and integral part of the commercial real estate
community.

Our researchers have built and continue to grow the
biggest and highest quality commercial real estate
database in the world. Our world-class team of
developers and designers build incredible software
technology that translates data into incredibly
valuable information and analytics. Our people have
built massively popular marketplaces for anyone
interested in office, industrial, retail, multifamily,
land and small businesses. Our sales force delivers
amazing services to individuals who rely on them to
manage and grow their business.

Through all these interactions we enable the CRE
community to operate with more transparency and
greater efficiency.

22 CoStar Group

2014 Annual Report

FINANCE

“

CoStar has an excellent financial
track record with a proven business
model that generates strong and
consistent cash flow.”

Brian Radecki, Chief Financial Officer

2014 was an excellent year financially for CoStar
Group. Revenue grew 31% year-over-year to $576
million. We generated the highest annual EBITDA in
our history and adjusted EBITDA margin was 35% in
the fourth quarter of 2014. Our financial credentials
have historically provided for investment in organic
growth and a long series of successful acquisitions. We
expect this to continue.

Our strong financial results also allow us to access the
capital markets efficiently and at very favorable rates
to finance strategic acquisitions.

In 2014, we raised both debt and equity capital
totaling $1.2 billion. We financed the $585 million
Apartments.com acquisition with cash and debt
at an extremely favorable interest rate.

IN 2014, WE RAISED
$1.2 BILLION IN
DEBT AND EQUITY

24 CoStar Group

2014 Annual Report

FINANCIAL HIGHLIGHTS

Operations
In thousands, except in share data

Revenues

Net Income

2010

2011

2012

2013

2014

$226,260

$251,738

$349,936

$440,943

$575,936

$13,289

$14,656

$9,915

$29,734

$44,869

Net Income per share-diluted

$0.64

$0.62

$0.37

$1.05

$1.46

Weighted average outstanding shares-diluted

20,707

23,527

26,949

28,212

30,641

Balance sheet
In thousands, except in share data

2010

2011

2012

2013

2014

Cash, cash equivalents and investments

$239,316

$573,379

$177,726

$277,943

$544,163

Total Assets

Stockholders’ equity

$439,648

$771,035

$1,165,139

$1,256,982

$2,083,682

$381,502

$659,177

$826,343

$927,862

$1,513,546

Reconciliation of quarterly EBITDA
with 2013-2014 quarterly net income
In millions

Net Income

Purchase amortization

Depreciation and other amortization

Interest income

Interest expense

Income tax expense (benefit), net

EBITDA

2013

$(2.4)

$8.3

$11.1

$12.8

7.1

3.0

6.9

3.1

6.6

3.4

6.4

3.4

2014

$8.2

$13.0

$13.9

17.0

3.7

16.1

4.1

15.5

4.2

$9.7

6.2

3.7

(0.1)

(0.0)

(0.1)

(0.0)

(0.3)

1.8

(1.8)

$7.6

1.8

5.3

1.7

7.0

1.7

7.3

1.6

5.9

3.8

5.0

2.7

7.8

2.4

7.3

$25.3

$29.8

$31.5

$27.0

$37.6

$43.7

$43.0

Quarterly EBITDA
In millions

Five Year Revenue Growth
In millions

$50

$45

$40

$35

$30

$25

$20

$15

$10

$600

$550

$500

$450

$400

$350

$300

$250

$200

$150

$100

2010

2011

2012

2013

2014

2013

2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

Commission file number 0-24531

CoStar Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

52-2091509
(I.R.S. Employer Identification No.)

1331 L Street, NW, Washington, DC 20005
(Address of principal executive offices) (zip code)

(202) 346-6500
(Registrant’s telephone number, including area code)

(877) 739-0486
(Registrant’s facsimile number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $.01 par value

Name of Each Exchange on Which Registered
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer
Non-accelerated filer

Accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

Based on the closing price of the common stock on June 30, 2014 on the Nasdaq Stock Market, Nasdaq Global Select Market,
the aggregate market value of registrant’s common stock held by non-affiliates of the registrant was approximately $4.9 billion.

As of February 20, 2015, there were 32,311,866 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, which is expected to be filed with the Securities and Exchange
Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2014, are incorporated by reference
into Part III of this Report.

TABLE OF CONTENTS

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Item 3.

Item 4.

Properties

Legal Proceedings

Mine Safety Disclosures

PART II

Item 5.

Item 6.

Item 7.

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Selected Consolidated Financial and Operating Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Item 9.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

PART IV

Item 15.

Exhibits and Financial Statement Schedules

Signatures

Index to Exhibits

Index to Consolidated Financial Statements

55
55

57
57

F-1

Item 1.

Business

PART I

In this report, the words “we,” “our,” “us,” “CoStar” or the “Company” refer to CoStar Group, Inc. and its direct and indirect
wholly owned subsidiaries. This report also refers to our websites, but information contained on those sites is not part of this
report.

CoStar Group, Inc., a Delaware corporation, founded in 1987, is the number one provider of information, analytics and online
marketplaces to the commercial real estate industry in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact
that we offer the most comprehensive commercial real estate database available; have the largest research department in the
industry; own and operate the leading online marketplaces for commercial real estate in the U.S. based on the number of unique
visitors per month; provide more information, analytics and marketing services than any of our competitors and believe that we
generate more revenues than any of our competitors. We created and compiled our standardized platform of information, analytics
and online marketplace services where members of the commercial real estate and related business community can continuously
interact and facilitate transactions by efficiently exchanging accurate and standardized commercial real estate information. Our
service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use
properties and hospitality. We manage our business geographically in two operating segments, with our primary areas of
measurement and decision-making being North America, which includes the U.S. and Canada, and International, which includes
the U.K. and France.

Strategy

Since our founding, our strategy has been to provide commercial real estate professionals with critical knowledge to explore
and complete transactions by offering the most comprehensive, timely and standardized information on U.S. commercial real
estate. As we have grown and further developed our plans, we have expanded our services for commercial real estate information,
analytics and online marketplaces in an effort to continue to meet the needs of this industry as it grows and evolves. We have also
extended our offering of comprehensive commercial real estate information to include London and other parts of the U.K., Toronto,
Canada, and parts of France, through acquisitions and internal growth and development. Information about CoStar’s revenues
from, and long-lived assets and total assets located in, foreign countries is included in Notes 2 and 12 of the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K. The revenues; net income before interest, income taxes,
depreciation and amortization (“EBITDA”); and total assets and liabilities for each of our segments are set forth in Note 12 to our
consolidated financial statements. Information about risks associated with our foreign operations is included in “Item 1A. Risk
Factors” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”

We deliver our commercial real estate content to our U.S. customers primarily via an integrated suite of online service offerings
that includes information about space available for lease, comparable sales information, information about properties for sale,
tenant information, internet marketing services, analytical capabilities, information for clients’ websites, information about industry
professionals and their business relationships, data integration and industry news. We also operate complementary online
marketplaces for commercial real estate listings and apartment rentals.

LoopNet, our subsidiary, operates an online marketplace that enables commercial property owners, landlords, and real estate
agents working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.
Commercial real estate agents, buyers and tenants also use LoopNet's online marketplace to search for available property listings
that meet their criteria.

Apartments, LLC (doing business as Apartments.com), our subsidiary, operates an online apartment marketplace for renters
that matches apartment seekers with apartment homes and provides property managers and owners a platform for marketing their
properties. Apartments.com draws on CoStar’s multifamily database, which contains detailed information on apartment properties,
and a research effort to document the apartment industry in the U.S. CoStar designed the new Apartments.com site, which was
launched in February 2015, around the needs of the renter in order to drive traffic to the site and attract advertisers who prefer to
advertise on heavily trafficked apartment websites. The newly launched site provides a comprehensive selection of rentals,
information on actual rental availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history,
schools and other important facts. To help renters find the information that meets their needs, the new site also offers innovative
search tools.

We provide market research and analysis for commercial real estate investors and lenders via our CoStar Portfolio Strategy
and CoStar Market Analytics service offerings, portfolio and debt analysis, management and reporting capabilities through our
CoStar Investment Analysis and CoStar Risk Analytics service offerings; and real estate and lease management solutions, including
lease administration and abstraction services, through our CoStar Real Estate Manager service offerings. We have created and are
continually improving our standardized platform of information, analytics and online marketplaces where members of the
commercial real estate and related business community can continuously interact and facilitate transactions by efficiently
exchanging accurate and standardized commercial real estate information.

Our standardized platform includes the most comprehensive proprietary database in the industry; the largest research
department in the industry; proprietary data collection, information management and quality control systems; a large in-house
product development team; a broad suite of web-based information, analytics and online marketplaces; a large team of analysts
and economists; and a large base of clients. Our database has been developed and enhanced for more than 27 years by a research
department that makes thousands of daily database updates. In addition to our internal efforts to grow the database, we have
obtained and assimilated over 90 proprietary databases.

Our subscription-based services consist primarily of similar services offered over the Internet to commercial real estate industry
and related professionals. Our services are typically distributed to our clients under subscription-based license agreements that
renew automatically, a majority of which have a term of one year. Upon renewal, many of the subscription contract rates may
change in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our services
regularly, we generally charge a fixed monthly amount for our subscription-based information services rather than charging fees
based on actual system usage. Contract rates are generally based on the number of sites, number of users, organization size, the
client's business focus, geography and the number and types of services to which a client subscribes. Our subscription clients
generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis.

Expansion and Growth

Acquisitions

We have continually expanded the geographical coverage of our existing information services and developed new information,
analytics and online marketplace services. In addition to internal growth, we have grown our business through strategic acquisitions.

Historically, our expansion includes the acquisitions of Chicago ReSource in Chicago in 1996 and New Market Systems in
San Francisco in 1997. In August 1998, we expanded into the Houston region through the acquisition of Houston-based real estate
information provider C Data Services. In January 1999, we expanded further into the Midwest and Florida by acquiring LeaseTrend
and into Atlanta and Dallas/Fort Worth by acquiring Jamison Research. In February 2000, we acquired COMPS.COM, a San
Diego-based provider of commercial real estate information. In November 2000, we acquired First Image Technologies, a
California-based provider of commercial real estate software. In September 2002, we expanded further into Portland, Oregon
through the acquisition of certain assets of Napier Realty Advisors (doing business as REAL-NET). In January 2003, we established
a base in the U.K. with our acquisition of London-based FOCUS Information Limited. In May 2004, we expanded into Tennessee
through the acquisition of Peer Market Research, and in June 2004, we extended our coverage of the U.K. through the acquisition
of Scottish Property Network. In September 2004, we strengthened our position in Denver, Colorado through the acquisition of
substantially all of the assets of RealComp, a local comparable sales information provider.

In January 2005, we acquired National Research Bureau, a Connecticut-based provider of U.S. shopping center information.
In December 2006, our U.K. subsidiary, CoStar Limited, acquired Grecam S.A.S. (“Grecam”), a provider of commercial property
information and market-level surveys, studies and consulting services located in Paris, France. In February 2007, CoStar Limited
also acquired Property Investment Exchange Limited (“Propex”), a provider of commercial property information and operator of
an electronic platform that facilitates the exchange of investment property located in London, England. In April 2008, we acquired
the assets of First CLS (doing business as the Dorey Companies and DoreyPRO), an Atlanta-based provider of local commercial
real estate information. In July 2009, we acquired Massachusetts-based CoStar Portfolio Strategy (formerly known as Property
and Portfolio Research), a provider of real estate analysis, market forecasts and credit risk analytics to the commercial real estate
industry, and its wholly owned U.K. subsidiary Property and Portfolio Research Ltd., and in October 2009, we acquired
Massachusetts-based CoStar Investment Analysis (formerly known as Resolve Technology), a provider of business intelligence
and portfolio management software serving the institutional real estate investment industry. In October 2011, we acquired CoStar
Real Estate Manager (formerly known as Virtual Premise), a Software as a Service, or on-demand software provider of real estate
and lease management solutions located in Atlanta, Georgia. In April 2012, we completed the acquisition of LoopNet, an online
marketplace that enables property owners, landlords, and commercial real estate agents working on their behalf to list properties
for sale or for lease and to submit detailed information about property listings. More recently, on April 1, 2014, we purchased
certain assets and assumed certain liabilities related to the Apartments.com business (collectively, the “Apartments.com Business”),
a national online apartment rentals resource for renters, property managers and owners, from Classified Ventures, LLC (“CV”).

Expansion and Development

We expect to continue our software development efforts to improve existing services, introduce new services, integrate products
and services, cross-sell existing services, and expand and develop supporting technologies for our research, sales and marketing
organizations. We are committed to supporting and improving our information, analytics and online marketplace solutions.

In October 2013, we introduced technology enhancements to CoStar Suite, our platform of service offerings consisting of
CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant. The enhancements improve Costar Suite's user
interface, search functionality and analytic capabilities. For example, the CoStar Multifamily® information search feature allows
users to access our extensive multifamily property database. In addition, CoStar Lease AnalysisTM, an integrated workflow tool,
provides users a simple way to produce understandable cash flows for any proposed or existing lease. We plan to continue our
software development efforts to enhance our new Lease Analysis workflow tool and to develop other potential lease comparable
services in 2015.

In October 2013, we also released CoStarGo® 2.0, the next generation of our mobile application, which was launched in the
U.S. on August 15, 2011 and introduced in the U.K. on November 5, 2012. CoStarGo is our iPad application that integrates and
provides CoStar Suite subscribers mobile access to our comprehensive property, tenant and comparable sales information. CoStarGo
2.0 adds powerful analytic capabilities to our comprehensive mobile solution.

In 2014, we introduced enhancements to our flagship marketing platform, LoopNet.com. For example, we added a targeted
advertising service that allows brokers or firms to purchase advertisements based on geographic and property type criteria.
Additionally, we introduced ProVideo, a service that enables owners and brokers to enhance their LoopNet listings with high
quality videos of interior spaces, amenities and exterior features.

In February 2015, as a result of our product development efforts, we launched a new Apartments.com website with a cleaner
look, information about actual rental availabilities, rents and other fees, and better search functionality. In conjunction with the
launch, we plan to embark on a wide-scale marketing campaign commencing during the first quarter of 2015 and running throughout
the remainder of 2015 to generate brand awareness and site traffic for Apartments.com, including an incremental investment of
$75.0 million above Apartments.com’s 2014 annualized marketing spend since the close of the acquisition of the Apartments.com
Business. The marketing campaign is expected to feature television and radio advertising, online/digital advertising, social media
and out-of-home ads and will be reinforced by Search Engine Marketing.

We continue to integrate, develop and cross-sell the services offered by the businesses we have acquired, including
Apartments.com and LoopNet. We evaluate potential changes to our service offerings from time to time in order to better align
the services we offer with customers’ needs. Further, in some cases, when integrating and coordinating our services and assessing
industry and client needs, we may decide to combine, shift focus from, de-emphasize, phase out, or eliminate a service that, among
other things, overlaps or is redundant with other services we offer. For example, we are currently assessing whether to transition
the LoopNet marketplace to a pure marketing site for commercial real estate where, eventually, all listings would be paid and users
could search the site for free.

To more fully integrate and connect our services and, ultimately, to provide improved access to our resources, we launched
a new brand identity in May 2014. The new branding is designed to unite our flagship brands - CoStar, LoopNet, Apartments.com,
BizBuySell and LandsofAmerica - with a modern, cohesive look that will enhance customers’ access to the full breadth of our
information, analytics and marketplace solutions. The resulting streamlined network of platforms is expected to improve the
customer experience and make it easier for customers to find the most useful tools for their commercial real estate information,
analytic and marketplace needs. The new brand identity was unveiled in connection with the launch of our new corporate website
and newly designed website interfaces for CoStar, LoopNet and Apartments.com. Our new website interfaces provide streamlined
navigation and search functions for visitors and enable customers to quickly access our market-leading services.

Internationally, we continue to integrate our operations more fully with those in the U.S. Similar to our North America operating
segment, we intend to continue to upgrade our international platform of services and expand the coverage of our service offerings
within our International segment. To further those initiatives, we introduced CoStar Suite in the U.K. during the fourth quarter of
2012 and no longer offered FOCUS to new clients beginning in 2013. CoStar Suite is sold as a consistent international platform
of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant and through the
Company's mobile application, CoStarGo. CoStarGo 2.0 was released in the U.K. in October 2013 simultaneous with its release
in the U.S. Additionally, we upgraded our back-end research operations, fulfillment and Customer Relationship Management
systems to support these new U.K. services. The financial performance of our International operating segment continues to improve.
During the twelve months ended December 31, 2014, International EBITDA increased to a positive amount as a result of increased
revenue and decreased operating expenses as compared to the twelve months ended December 31, 2013. See the “Non-GAAP
Financial Measures” section included in this Annual Report on Form 10-K for further details on the non-GAAP financial measures.

We recently expanded the geographic reach of our North America services. In 2014, we began offering our services in Toronto,
Canada. Building on our experience in Toronto, we plan to expand our research into additional Canadian cities. We believe that
our integration efforts and continued investments in our services, including expansion of our existing service offerings, have
created a platform for long-term revenue growth. We expect these investments to result in further penetration of our subscription-
based information services and the successful cross-selling of our services to customers in existing markets.

We have invested in the expansion and development of our field sales force to support the growth and expansion of our
company in North America and internationally. We plan to continue to invest in, evaluate and strategically position our sales force
as the Company continues to develop and grow. We are also investing in our research capacity to support continued growth of our
information and analytics offerings, to support the Apartments.com Business and to expand into additional Canadian markets.

In support of our continued expansion and development, during June 2014, we completed a public equity offering of 3,450,000
shares of common stock for $160.00 per share, resulting in net proceeds to the Company of approximately $529.4 million. We
intend to use the net proceeds from the public equity offering to fund all or a portion of the costs of any strategic acquisitions we
decide to pursue in the future, to finance the growth of our business and for working capital and other general corporate purposes.

Industry Overview

The market for commercial real estate information and analysis is vast based on the variety, volume and value of transactions
related to commercial real estate. Each transaction has multiple participants and multiple information requirements, and in order
to facilitate transactions, industry participants must have extensive, accurate and current information and analysis. Members of
the commercial real estate and related business community require daily access to current data such as space availability, properties
for sale, rental units available, rental rates, vacancy rates, tenant movements, sales comparables, supply, new construction,
absorption rates and other important market developments to carry out their businesses effectively. Market research (including
historical and forecast conditions) and applied analytics have also become instrumental to the success of commercial real estate
industry participants operating in the current economic environment. There is a strong need for an efficient marketplace, where
commercial real estate professionals can exchange information, evaluate opportunities using standardized data and interpretive
analyses, and interact with each other on a continuous basis.

A large number of parties involved in the commercial real estate and related business community make use of the services

we provide in order to obtain information they need to conduct their businesses, including:

• Sales and leasing brokers
• Property owners

• Property managers

• Government agencies
• Mortgage-backed security issuers

• Appraisers

• Design and construction professionals

• Pension fund managers

• Real estate developers

• Reporters

• Real estate investment trust managers

• Tenant vendors

•

Investment bankers

• Commercial bankers
• Mortgage bankers
• Mortgage brokers

• Retailers

• Building services vendors

• Communications providers

•
•

•

Insurance companies’ managers

Institutional advisors

Investors and asset managers

The commercial real estate and related business community generally has operated in an inefficient marketplace because of
the fragmented approach to gathering and exchanging information within the marketplace. Various organizations, including
hundreds of brokerage firms, directory publishers and local research companies, collect data on specific markets and develop
software to analyze the information they have independently gathered. This highly fragmented methodology has resulted in
duplication of effort in the collection and analysis of information, excessive internal cost and the creation of non-standardized
data containing varying degrees of accuracy and comprehensiveness, resulting in a formidable information gap.

The creation of a standardized information platform for commercial real estate requires an infrastructure including a
standardized database, accurate and comprehensive research capabilities, experienced analysts, easy to use technology and intensive
participant interaction. By combining our extensive database, approximately 1,481 researchers and outside contractors, our
experienced team of analysts and economists, technological expertise and broad customer base, we believe that we have created
such a platform.

Within the apartment rental community, most apartment websites primarily supply only the listings that property owners pay
to advertise and often return results that are inconsistent with the renter's search criteria. These limited results generally do not
provide information about the actual rental availabilities. We believe that consumers expect accurate, actionable and comprehensive
apartment rental information. To create the new Apartments.com website, we have drawn on our multifamily database and
undertaken a research effort collecting and verifying information and visiting and photographing properties. With the launch of
the new Apartments.com website, we believe that we have created an easily searchable site with a comprehensive selection of
rentals, information on actual rental availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife,
history, schools and other important facts.

CoStar’s Comprehensive Database

CoStar has spent more than 27 years building and acquiring a database of commercial real estate information, which includes

information on leasing, sales, comparable sales, tenants, and demand statistics, as well as digital images.

As of January 30, 2015, our database of real estate information covered the U.S., London, England and other parts of the

U.K., and contained information about:

• Approximately 1.3 million sale and lease listings;
• Approximately 4.5 million total properties;
• Approximately 8.2 billion square feet of sale and lease listings;
• Approximately 5.8 million tenants;
• Approximately 2.3 million sales transactions valued in the aggregate at approximately $5.7 trillion; and
• Approximately 16.5 million digital attachments, including building photographs, aerial photographs, plat maps and

floor plans.

This highly complex database is comprised of hundreds of data fields, tracking such categories as:

• Location
• Site and zoning information

• Mortgage and deed information
• For-sale information

• Building characteristics

•

Income and expense histories

• Space availability

• Tax assessments

• Ownership

• Tenant names

• Lease expirations

• Contact information

• Sales and lease comparables

• Historical trends

• Space requirements

• Number of retail stores

• Demographic information

• Retail sales per square foot

CoStar Research

We have developed a sophisticated data collection organization utilizing a multi-faceted research process. In 2014, our full
time researchers and contractors drove millions of miles, conducted hundreds of thousands of on-site building inspections, and
conducted millions of interviews of brokers, owners, tenants, apartment community owners and property managers.

Research Department. As of January 30, 2015, we had approximately 1,481 commercial real estate research professionals
and outside contractors performing research. Our research professionals undergo an extensive training program so that we can
maintain consistent research methods and processes throughout our research department. Our researchers collect and analyze
commercial real estate information through millions of phone calls, e-mails and internet updates each year, in addition to field
inspections, public records review, news monitoring and direct mail. Each researcher is responsible for maintaining the accuracy
and reliability of database information. As part of their update process, researchers develop cooperative relationships with industry
professionals that allow them to gather useful information. Because of the importance commercial real estate professionals place
on our data and our prominent position in the industry, many of these professionals routinely take the initiative and proactively
report available space and transactions to our researchers.

CoStar has an extensive field research effort that includes physical inspection of properties in order to research new markets,
find additional property inventory, photograph properties and verify existing information. CoStar's field research effort also includes
creating high quality videos of interior spaces (including walk-through videos of apartment communities), amenities and exterior
features of properties. CoStar utilizes 146 high-tech, field research vehicles across the U.S., Canada and the U.K. A significant
majority of these vehicles are customized energy efficient hybrid cars that are equipped with computers, proprietary Global
Positioning System tracking software, high resolution digital cameras and handheld laser instruments to help precisely measure
buildings, geo-code them and position them on digital maps. Some of our researchers also use custom-designed trucks with the
same equipment as well as pneumatic masts that extend up to an elevation of twenty-five feet to allow for unobstructed building
photographs from “birds-eye” views. Each CoStar vehicle uses wireless technology to track and transmit field data. A typical site
inspection consists of photographing the building, measuring the building, geo-coding the building, capturing “For Sale” or “For
Lease” sign information, counting parking spaces, assessing property condition and construction, and gathering tenant information.
Certain researchers canvass properties, collecting tenant data suite by suite. Our subsidiary, CoStar Field Research, LLC, recently
entered into an agreement to purchase a low-flying airplane capable of conducting aerial research of commercial real estate. In
2015, we plan to place researchers on the low-flying aircraft to scout additional commercial developments and take aerial
photographs.

Data and Image Providers. We license a small portion of our data and images from public record providers and third party
data sources. Licensing agreements with these entities provide for our use of a variety of commercial real estate information,
including property ownership, tenant information, demographic information, maps and aerial photographs, all of which enhance
various CoStar services. These license agreements generally grant us a non-exclusive license to use the data and images in the
creation and supplementation of our information, analytics and online marketplaces and include what we believe are standard
terms, such as a contract term ranging from one to five years, automatic renewal of the contract and fixed periodic license fees or
a combination of fixed periodic license fees plus additional fees based upon our usage.

Management and Quality Control Systems. Our research processes include automated and non-automated controls to ensure
the integrity of the data collection process. A large number of automated data quality tests check for potential errors, including
occupancy date conflicts, available square footage greater than building area, typical floor space greater than land area and expired
leases. We also monitor changes to critical fields of information to ensure all information is kept in compliance with our standard
definitions and methodology. Our non-automated quality control procedures include:

•
•
•
•

calling our information sources on recently updated properties to re-verify information;
performing periodic research audits and field checks to determine if we correctly canvassed buildings;
providing training and retraining to our research professionals to ensure accurate data compilation; and
compiling measurable performance metrics for research teams and managers for feedback on data quality.

Finally, one of the most important and effective quality control measures we rely on is feedback provided by the commercial

real estate professionals using our data every day.

Proprietary Technology

As of January 30, 2015, CoStar had a staff of 417 product development, database and network professionals. CoStar’s
information technology professionals focus on developing new services for our customers, integrating our current services, and
delivering research automation tools that improve the quality of our data and increase the efficiency of our research analysts.

Our subscription-based information services consist primarily of CoStar SuiteTM services. CoStar Suite is sold as a platform
of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and through
our mobile application, CoStarGo®.

Our information technology team is responsible for developing, improving and maintaining CoStar services, including but
not limited to CoStar Property Professional®, CoStar COMPS Professional®, CoStar Tenant®, CoStar Showcase®, CoStarGo®,
CoStar Connect®, CoStar Lease AnalysisTM, CoStar Multifamily®, LoopNet Premium ListerTM, LoopNet Premium SearcherTM,
LoopLink®, CoStar Portfolio StrategyTM products and services, CoStar Market AnalyticsTM products and services, CoStar
Investment AnalysisTM Portfolio Maximizer and CoStar Investment AnalysisTM Request, CoStar Real Estate ManagerTM products
and services, and Apartments.com products and services.

Our information technology team is responsible for developing the infrastructure necessary to support CoStar’s business
processes, our comprehensive database of commercial real estate information, analytics and online marketplaces and our extensive
image library. The team implements technologies and systems that introduce efficient workflows and controls that increase the
production capacity of our research teams and improve the quality of our data. Over the years, the team has developed data
collection and quality control mechanisms that we believe are unique to the commercial real estate industry. The team continues
to develop and modify our enterprise information management system that integrates CoStar sales, research, field research, customer
support and accounting information. We use this system to maintain our commercial real estate research information, manage
contacts with the commercial real estate community, provide research workflow automation and conduct daily automated quality
assurance checks. In addition, our information technology team has also developed fraud-detection technology to detect and prevent
unauthorized access to our services.

Our information technology professionals also maintain the servers and network components necessary to support CoStar
services and research systems. CoStar's core services are served from multiple data centers to support uninterrupted service for
our customers. CoStar’s services are continually monitored in an effort to ensure our customers fast and reliable access.

CoStar's comprehensive data protection policy provides for use of secure networks, strong passwords, encrypted data fields,

off-site storage and other protective measures in an effort to ensure the availability and security of all core systems.

Services

Our suite of information, analytics and online marketplaces is branded and marketed to our customers. Our services are
primarily derived from a database of building-specific information and offer customers specialized tools for accessing, analyzing
and using our information. Over time, we expect to continue to enhance our existing information, analytics and online marketplaces
and develop additional services that make use of our comprehensive database to meet the needs of our existing customers as well
as potential new categories of customers.

Our principal information, analytics and online marketplaces as of January 30, 2015, are described in the following paragraphs:

CoStar

CoStar Property Professional® CoStar Property Professional, or “CoStar Property,” is the Company’s flagship service. It
provides subscribers a comprehensive inventory of office, industrial, retail and multifamily properties and land in markets
throughout the U.S., U.K. and Toronto, Canada, including for-lease and for-sale listings, historical data, building photographs,
maps and floor plans. Commercial real estate professionals use CoStar Property to identify available space for lease, evaluate
leasing and sale opportunities, value assets and position properties in the marketplace. Our clients also use CoStar Property to
analyze market conditions by calculating current vacancy rates, absorption rates or average rental rates, and forecasting future
trends based on user selected variables. CoStar Property provides subscribers with powerful map-based search capabilities as well
as a user controlled, password protected extranet (or electronic “file cabinet”) where brokers may share space surveys and
transaction-related documents online, in real time, with team members. When used together with CoStar Connect, CoStar Property
enables subscribers to share space surveys and transaction-related documents with their clients, accessed through their corporate
website. CoStar Property, along with all of CoStar’s other core information, analytics and online marketplaces, is delivered solely
via the Internet.

• CoStar Multifamily® CoStar Multifamily information, included as part of CoStar Property Professional,
provides subscribers a comprehensive multifamily property database combined with analytic and forecasting tools
that enable them to make investment decisions about multifamily properties. CoStar Multifamily provides information
about buildings with 20 or more units including rents and occupancy rates, comparable sales transactions, construction
locations, floor plans, high-resolution property images and detailed information on amenities and concessions.

• CoStar Lease AnalysisTM CoStar Lease Analysis is an integrated workflow tool that allows subscribers to
incorporate CoStar data with their own data to perform in depth lease analyses. CoStar Lease Analysis can be used
to produce an understandable cash flow analysis as well as key metrics about any proposed or existing lease. It
combines financial modeling with CoStar’s comprehensive property information, enabling the subscriber to compare
lease alternatives.

CoStar COMPS Professional® CoStar COMPS Professional, or “COMPS Professional,” provides comprehensive coverage
of comparable commercial real estate sales information in the U.S., U.K. and Toronto, Canada. It is the industry’s most
comprehensive database of comparable sales transactions and is designed for professionals who need to research property
comparables, identify market trends, expedite the appraisal process and support property valuations. COMPS Professional offers
subscribers numerous fields of property information, access to support documents (e.g., deeds of trust) for new comparables,
demographics and the ability to view for-sale properties alongside sold properties in three formats – plotted on a map, aerial image
or in a table.

CoStar Tenant® CoStar Tenant is a detailed online business-to-business prospecting and analytical tool providing commercial
real estate professionals with the most comprehensive commercial real estate-related U.S., U.K. and Toronto, Canada tenant
information available. CoStar Tenant profiles tenants occupying space in commercial buildings and provides updates on lease
expirations - one of the service’s key features - as well as occupancy levels, growth rates and numerous other facts. Delivering
this information via the Internet allows users to target prospective clients quickly through a searchable database that identifies
only those tenants meeting certain criteria.

CoStarGo® CoStarGo is an iPad application that integrates and provides subscribers of Costar Suite mobile access to our
comprehensive property, comparable sales and tenant information in our suite of online service offerings – consisting of CoStar
Property Professional, CoStar COMPS Professional and CoStar Tenant. CoStarGo provides a single, location-centric mobile
interface that allows users to access and display comprehensive information on millions of properties and gain instant access to
analytic data and demographic information from the field.

CoStar Advertising® CoStar Advertising offers property owners and brokers a highly targeted and cost effective way to
market a space for lease or a property for sale directly to CoStar subscribers looking for that type of space through interactive
advertising. Our advertising model is based on varying levels of exposure, enabling the advertiser to target as narrowly or broadly
as its budget permits. With the CoStar Advertising program, when the advertiser’s listings appear in a results set, they receive
priority positioning and are enhanced to stand out. The advertiser can also purchase exposure in additional submarkets, or the
entire market area so that this ad will appear even when this listing would not be returned in a results set.

CoStar Portfolio StrategyTM and CoStar Market AnalyticsTM Our subsidiary, CoStar Portfolio Strategy, offers products and
services designed to meet the research needs of commercial real estate owners, investors and lenders. CoStar Portfolio Strategy
and CoStar Market Analytics cover metropolitan areas throughout the U.S., the U.K., Toronto, Canada and Europe, with offerings
including historical and forecast market data and analysis by market and property type, and services including access to CoStar
Portfolio Strategy’s analysts, economists, and strategists to develop and deliver custom research solutions. Key tools include
analysis of underlying property data, assessment of current market fundamentals, forecasts of future market performance, and
credit default models.

• CoStar Risk AnalyticsTM COMPASS is CoStar Portfolio Strategy’s premier commercial real estate risk
management tool. It allows users to calculate Probability of Default, Loss Given Default, Expected Loss, and
Confidence Interval (of Expected Loss) results for a loan or a portfolio. It provides direct comparisons of credit risk
and refinance risk across Time, Market, Property Type, and Loan Structure for all macroeconomic forecast scenarios.
COMPASSCRE is used by lenders, issuers, ratings agencies, and regulators to estimate required loss reserves and
economic capital, target lending opportunities, set pricing strategy, objectively compare/price loans, more effectively
allocate capital, and manage refinance risk.

CoStar Investment AnalysisTM Portfolio Maximizer CoStar Investment Analysis Portfolio Maximizer is an industry leading
real estate portfolio management software solution. CoStar Investment Analysis Portfolio Maximizer allows users to model
partnership structures, calculate waterfall distributions and fees, model and analyze debt obligations, and create multiple “what
if” scenarios for alternative investment decisions.

CoStar Investment AnalysisTM Request CoStar Investment Analysis Request is the first business intelligence software solution
built specifically for managing commercial real estate investments. CoStar Investment Analysis Request helps users eliminate
some of the difficulties of consolidating real estate investment data from disparate sources and facilitates standardization of
information presentation and reporting across an organization. CoStar Investment Analysis Request also provides a platform for
users to develop business intelligence and reporting capabilities.

CoStar Real Estate ManagerTM Corporate Edition CoStar Real Estate Manager Corporate Edition is a real estate management
software solution designed for corporate real estate managers, company executives, business unit directors, brokers and project
managers. CoStar Real Estate Manager Corporate Edition helps users connect real estate initiatives with company strategic goals,
streamline portfolio operations, automate the process for collecting and managing space requests, reduce occupancy costs with
analytics that track location performance against targets, and maximize location performance through proactive portfolio
management. CoStar Real Estate Manager also provides lease abstraction and data review services in order to facilitate the effective
implementation of this software solution.

CoStar Real Estate ManagerTM Retail Edition CoStar Real Estate Manager Retail Edition is a real estate management software
solution designed for company executives, real estate dealmakers and store planning and construction managers. CoStar Real
Estate Manager Retail Edition helps users to utilize comprehensive and real-time data to establish goals and store strategies,
manage the execution of real estate strategies, summarize critical portfolio data to drive cost-saving decisions, and benchmark
prerequisite store-level information and metrics for maximizing location performance through proactive portfolio
management. CoStar Real Estate Manager also provides lease abstraction and data review services in order to facilitate the effective
implementation of this software solution.

CoStar Private Sale NetworkTM CoStar Private Sale Network provides clients with custom-designed and branded websites
to market their listings directly to investors. CoStar Private Sale Network allows investors to customize a commercial real estate
website and build and send email communications to announce listings, calls for offers, and bid deadlines.

CoStar Brokerage ApplicationsTM CoStar Brokerage Applications provides users with access to the latest tools to effectively
manage and optimize business operations. These structured and consistent project management tools allow users to track critical
dates, employee or organization-wide results, and current and prospective projects.

LoopNet

LoopNet® Basic and Premium Membership Our subsidiary, LoopNet, offers two types of memberships on the LoopNet
marketplace, basic and premium. Basic membership is available free-of-charge to anyone who registers at our LoopNet website
and enables members to experience some of the benefits of the LoopNet offering, with limited functionality. As of January 30,
2015, LoopNet had approximately 9.4 million registered members, of which 81,856 were premium members.

LoopNet Premium ListerTM LoopNet Premium Lister is designed for commercial real estate professionals and
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other customers who seek the broadest possible exposure for their listings, access to leads lists, and advanced
marketing and searching tools. LoopNet Premium Lister provides subscribers with the ability to market their listings
to all LoopNet.com visitors, as well as numerous other features. LoopNet Premium Lister is available for a quarterly
or annual subscription.

LoopNet Premium SearcherTM LoopNet Premium Searcher is designed for members searching for commercial
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real estate who need commercial real estate marketplace searching access, reports and other marketing and searching
tools. LoopNet Premium Searcher provides subscribers with full access to all LoopNet property listings, including
Premium and Basic Listings, as well as numerous other features. LoopNet Premium Searcher is available for a
monthly, quarterly or annual subscription.

LoopLink® LoopLink is an online real estate marketing and database services suite that enables commercial real estate firms
to showcase their available properties both on the LoopNet marketplace and on the brokerage firm’s own website using hosted
search software. Within LoopNet, each LoopLink listing is branded with the client’s logo and is hyperlinked to the client’s website.
Additionally, the LoopLink service provides customizable, branded property search and results screens that can be integrated into
the client’s website. The LoopNet import service offers the opportunity to simplify the process of submitting listings to LoopNet
from the client’s internal databases, and features advanced data matching and data integrity rules and file conversion capabilities.
LoopNet charges a monthly subscription fee to commercial real estate firms for the LoopLink service. Key features of LoopLink
include comprehensive reporting and listing administration tools, a searchable and seamlessly integrated professional directory,
property mapping for geographic and feasibility analysis, thumbnail photos and expanded property descriptions in search results.

Apartments.com

Apartments.comTM Our subsidiary, Apartments, LLC (doing business as Apartments.com), operates an online apartment
marketplace for renters that matches apartment seekers with apartment homes and provides property managers and owners a
platform for marketing their properties. Apartments.com provides a variety of ad packages and enhancements that allow property
managers and owners to fully showcase their apartment community through increased exposure and interactions that allow renters
to view, engage and connect with the community, including featured community listings, customized flyers and brochures, and
special offer coupons.

ApartmentHomeLiving.comTM ApartmentHomeLiving.com provides renters with another national online apartment rentals
resource that showcases apartments for rent with official prices, pictures, floor plans and detailed information on each apartment.

LandsofAmerica

LandsofAmericaTM and LandAndFarmTM LandsofAmerica.com and LandAndFarm.com are leading online marketplaces for
rural land for sale. Sellers pay a fee to list their land for sale, and interested buyers can search the respective sites' listings for free.

BizBuySell

BizBuySell® and BizQuest® BizBuySell.com and BizQuest.com are leading online marketplaces for operating businesses
for sale. Business sellers pay a fee to list their operating businesses for sale, and interested buyers can search the respective sites'
listings for free. The BizBuySell and BizQuest Franchise Directories allow interested business buyers to search hundreds of
franchise opportunities, and franchisors can list their availabilities in the directory on a cost per lead basis.

Clients

We draw clients from across the commercial real estate and related business community. Commercial real estate brokers have
traditionally formed the largest portion of CoStar clients, however, we also provide services to owners, developers, landlords,
property managers, financial institutions, retailers, vendors, appraisers, investment banks, government agencies and other parties
involved in commercial real estate. The following chart lists U.S. and U.K. clients that are well known or have the highest annual
subscription fees in each of the various categories, each as of January 30, 2015:

Brokers

Lenders, Investment Bankers

Institutional Advisors, Asset Managers

Avison Young
Binswanger
BNP Paribas — U.K.
CB Richard Ellis
CB Richard Ellis — U.K.
Charles Dunn Company
Coldwell Banker Commercial NRT
Colliers
Colliers International UK — U.K.
CRESA
Cushman & Wakefield
Cushman & Wakefield — U.K.
DAUM Commercial Real Estate Services
Drivers Jonas Deloitte — U.K.
DTZ, a UGL company
Gerald Eve — U.K.
GVA Grimley — U.K.
HFF
Jones Lang LaSalle
Jones Lang LaSalle — U.K.
Kidder Mathews
Knight Frank LLP — U.K.
Lambert Smith Hampton — U.K.
Lee & Associates
Marcus & Millichap
Mohr Partners
Montagu Evans — U.K.
NAI Global
Newmark Grubb Knight Frank
Re/Max
Savills Commercial — U.K.
Savills Studley
Sperry Van Ness
Transwestern
USI Real Estate Brokerage Services
Voit Real Estate Services
Weichert Commercial Brokerage

AEGON USA Realty Advisors
Bank of America, N.A.
Capital One Bank
Citibank
Citigroup Global Markets — U.K.
Deutsche Bank
JP Morgan Chase Bank
Key Bank
Q10 Capital LLC
Suntrust
TD Bank
Wells Fargo
Wells Fargo — U.K.

Bravo Strategies — U.K.
AEW Capital Management LP
BlackRock
Hartford Investment Management Company
ING Investment Management
Lasalle Investment Management — U.K.
Manulife Financial
MetLife Real Estate Investment
NorthMarq Capital
Progressive Casualty Insurance Co.
Prudential
Standard Life Investments — U.K.
USAA Real Estate Company

Owners, Developers

Europa Capital Partners — U.K.
Hines
Industrial Developments
LNR Property Corp
Shorenstein Properties, LLC
Tishman Speyer

Appraisers, Accountants

Deloitte
Integra
KPMG
Marvin F. Poer
Price Waterhouse Coopers
Ryan LLC

Retailers

7-Eleven
Carter's
Dollar General Corporation
Jos. A Bank
Massage Envy
Petco
Rent-A-Center
Sony
Spencer Gifts LLC
Walgreens

Government Agencies

City of Chicago
Cook County Assessor’s Office
County of Los Angeles
Federal Deposit Insurance Corporation
Federal Reserve Bank of New York
Internal Revenue Service
Transportation Security Administration
U.S. Department of Housing and Urban Development
U.S. General Services Administration
Valuation Office Agency — U.K.

REITs

Boston Properties
Brandywine Realty Trust
Duke Realty Corporation
KBS Realty Advisors
Kimco Realty Corporation
Simon Property Group
Vornado/Charles E. Smith

Property Managers

AP Commercial
Elliott Associates
Leggat McCall Properties
Lincoln Property Company
Navisys Group
Osprey Management Company
PM Realty Group

Vendors

Comcast Corporation
Cox Communications
Kastle Systems
Regus
Time Warner Cable
Turner Construction Company
Verizon Communications

For the years ended December 31, 2012, 2013 and 2014, no single client accounted for more than 5% of our revenues.

Sales and Marketing

As of January 30, 2015, CoStar had a staff of 751 sales, marketing and customer support professionals, with the majority of
our direct sales force located in field sales offices. Our sales teams are primarily located in 31 field sales offices throughout the
U.S. and in offices located in London, England; Manchester, England; Glasgow, Scotland; Paris, France and Toronto, Canada. Our
inside sales teams are located in our Washington, DC; San Francisco, California; and Chicago, Illinois offices. These teams prospect
for new clients and perform service demonstrations exclusively by telephone and over the Internet to support the direct sales force.
A portion of the inside sales teams are also responsible for selling some of our services.

Our local offices typically serve as the platform for our in-market sales, customer support and field research operations for
their respective regions. The sales force is responsible for selling to new prospects, training new and existing clients, providing
ongoing customer support, renewing existing client contracts and identifying cross-selling opportunities. In addition, the sales
force has primary front line responsibility for customer care. Our customer service and support staff is charged with ensuring high
client satisfaction by providing ongoing customer support.

Our sales strategy is to aggressively attract new clients, while providing ongoing incentives for existing clients to subscribe
to additional services. We actively manage client accounts in order to retain clients by providing frequent service demonstrations
as well as company-client contact and communication. We place a premium on training new and existing client personnel on the
use of our services so as to promote maximum client utilization and satisfaction with our services. Our strategy also involves
entering into multi-year, multi-market license agreements with our larger clients.

We seek to make our services essential to our clients’ businesses. To encourage clients to use our services regularly, we
generally charge a fixed monthly amount for our subscription-based information services rather than fees based on actual system
usage. Contract rates for subscription-based services are generally based on the number of sites, number of users, organization
size, the client’s business focus, geography and the number and types of services to which a client subscribes. Our subscription
clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis.

Our primary marketing methods include: service demonstrations; face to face networking; web-based marketing; direct
marketing; communication via our corporate website and news services; participation in trade show and industry events; Company-
sponsored events; print advertising in trade magazines and other business publications; client referrals; CoStar AdvisorTM,
LoopNewsTM and other company newsletters distributed via email to our clients and prospects. In addition, we recently launched
an improved Apartments.com website with a cleaner look, information about actual rental availabilities, rents and other fees, and
better search functionality. In conjunction with the launch, we plan to embark on a wide-scale marketing campaign commencing
during the first quarter of 2015 and running throughout the remainder of 2015 to generate brand awareness and site traffic for
Apartments.com, including an incremental investment of $75.0 million above Apartments.com’s 2014 annualized marketing spend
since the close of the acquisition of the Apartments.com Business. The marketing campaign is expected to feature television and
radio advertising, online/digital advertising, social media and out-of-home ads and will be reinforced by Search Engine Marketing.

Web-based marketing and direct marketing are effective means for us to find prospective clients. Our web-based marketing
efforts include search engine optimization, paid advertising with major search engines and display advertising on commercial real
estate news and business websites and mobile applications, and our direct marketing efforts include direct mail, email and
telemarketing, and make extensive use of our unique, proprietary database. Once we have identified a prospective client, our most
effective sales method is a service demonstration. We use various forms of advertising to build brand identity and reinforce the
value and benefits of our services. We also sponsor and attend local association activities and events, including industry-leading
events for commercial real estate brokers, owner/investors and retail and financial services institutions, and attend and/or exhibit
at industry trade shows and conferences to reinforce our relationships with our core user groups.

We currently offer dozens of webinars each year aimed at helping customers learn more about the commercial real estate
industry and how to use our services. The webinars are available both as live presentations and as on-demand programs hosted
on our website. On a monthly basis, we issue the CoStar Commercial Repeat Sales Index ("CCRSI"), a comprehensive set of
benchmarks that investors and other market participants can use to better understand commercial real estate price movements. The
Index is produced using our underlying data and is publicly distributed by CoStar through the news media and made available
online at http://www.costargroup.com/costar-news/ccrsi.

Our sales and marketing efforts have focused and will continue to focus on cross-selling and marketing our services. We
continue to cross-sell the services offered by the businesses we have acquired, including Apartments.com and LoopNet. Our goal
is to upsell clients to the services that best meet their needs and to create further cross-selling revenue synergies.

Competition

The market for information, analytics and online marketplaces generally is competitive and rapidly changing. In the commercial
real estate and apartment rentals industries, we believe the principal competitive factors affecting these services and providers are:

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quality and depth of the underlying databases;
ease of use, flexibility, and functionality of the software;
intuitiveness and appeal of the user interface;
timeliness of the data, including listings;
breadth of geographic coverage and services offered;
completeness and accuracy of content;
client service and support;
perception that the service offered is the industry standard;
price;
effectiveness of marketing and sales efforts;
proprietary nature of methodologies, databases and technical resources;
vendor reputation;
brand loyalty among customers; and
capital resources.

We compete directly and indirectly for customers with the following categories of companies:

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online marketing services or websites targeted to commercial real estate brokers, buyers and sellers of commercial real
estate properties, insurance companies, mortgage brokers and lenders, such as commercialsearch.com, PropertyLine.com,
Reed Business Information Limited, officespace.com, MrOfficeSpace.com, TenantWise, www.propertyshark.com, Rofo,
BuildingSearch.com, CIMLS, CompStak, Rightmove, WorkplaceIQ, RealPoint LLC and estatesgazette.com;

publishers and distributors of information, analytics and marketing services, including regional providers and national
print publications, such as Xceligent, eProperty Data, CBRE Economic Advisors, Marshall & Swift, Yale Robbins, Reis,
Real Capital Analytics, The Smith Guide, Pierce Eislen and Axiometrics, Inc.;

internet listing services featuring apartments for rent, such as ApartmentGuide.com, ApartmentFinder.com, ForRent.com,
Zillow Rentals, Trulia Rent, Craigslist, ApartmentList.com, Rent.com, and Move.com;

locally controlled real estate boards, exchanges or associations sponsoring property listing services and the companies
with whom they partner, such as Xceligent, eProperty Data, Catalyst, the National Association of Realtors, CCIM Institute,
Society of Industrial and Office Realtors, the Commercial Association of Realtors Data Services and the Association of
Industrial Realtors;

real estate portfolio management software solutions, such as Cougar Software, MRI Software, Altus and Intuit;

real estate lease management and administration software solutions, such as Accruent, Tririga, Manhattan Software and
AMT;

in-house research departments operated by commercial real estate brokers; and

public record providers.

As the market for information, analytics and online marketplaces develops, additional competitors (including companies
which could have greater access to data, financial, product development, technical, analytic or marketing resources than we do)
may enter the market and competition may intensify. For example, a company like Bloomberg L.P. has the resources, and has
previously announced an intention, to move into the commercial real estate information business. Further, a company like Google,
which has a far-reaching web presence and substantial data aggregation capabilities, could enter the commercial real estate
marketing arena. A company like Zillow, which already has a presence in residential real estate and the apartment rentals industry,
could use its resources to further expand in the online apartment rentals industry creating greater competition among internet
listing services for the marketing budgets of property managers and property owners. While we believe that we have successfully
differentiated ourselves from existing competitors, current or future competitors could materially harm our business.

Proprietary Rights

To protect our proprietary rights in our methodologies, database, software, trademarks and other intellectual property, we

depend upon a combination of:

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trade secret, misappropriation, copyright, trademark, computer fraud, database protection and other laws;
registration of copyrights and trademarks;
nondisclosure, noncompetition and other contractual provisions with employees and consultants;
license agreements with customers;
patent protection; and
technical measures.

We seek to protect our software’s source code, our database and our photography as trade secrets and under copyright law.
Although copyright registration is not a prerequisite for copyright protection, we have filed for copyright registration for many of
our databases, photographs, software and other materials. Under current U.S. copyright law, the arrangement and selection of data
may be protected, but the actual data itself may not be. Certain U.K. database protection laws provide additional protections for
our U.K. databases. We license our services under license agreements that grant our clients non-exclusive, non-transferable rights.
These agreements restrict the disclosure and use of our information and prohibit the unauthorized reproduction or transfer of any
of our proprietary information, methodologies or analytics.

We also attempt to protect our proprietary databases, our trade secrets and our proprietary information through confidentiality
and noncompetition agreements with our employees and consultants. Our services also include technical measures designed to
detect, discourage and prevent unauthorized copying of our intellectual property. We have established an internal antipiracy team
that uses fraud-detection technology to continually monitor use of our services to detect and prevent unauthorized access, and we
actively prosecute individuals and firms that engage in this unlawful activity.

We maintain U.S. and international trademark registrations for CoStar’s core service names and proactively file U.S. and
international trademark applications covering our new and planned service names. Our federally registered trademarks include
CoStar®, CoStar Property®, CoStar COMPS Professional®, CoStar Tenant®, CoStarGo®, CoStar Showcase®, and LoopNet®,
among many others. In the U.S., trademarks are generally valid as long as they are in use and have not been found to be generic. We
consider our trademarks in the aggregate to constitute a valuable asset. In addition, we maintain a patent portfolio that protects
certain of our systems and methodologies. We currently have one granted patent in the U.K., which expires in 2021, covering,
among other things, certain of our field research methodologies and six patents in the U.S. which expire in 2020, 2021 (2 patents),
2022 (2 patents) and 2025, respectively, covering, among other things, critical elements of CoStar’s proprietary field research
technology and mapping tools. We regard the rights protected by our patents as valuable to our business, but do not believe that
our business is materially dependent on any single patent or on our portfolio of patents as a whole.

Employees

As of January 30, 2015, we employed 2,444 employees. None of our employees are represented by a labor union. We have

experienced no work stoppages. We believe that our employee relations are excellent.

Available Information

Our investor relations internet website is http://www.costargroup.com/investors. The reports we file with or furnish to the
Securities and Exchange Commission, including our annual report, quarterly reports and current reports, as well as amendments
to those reports, are available free of charge on our internet website as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission. You may review and copy any of the information
we file with the Securities and Exchange Commission at the Commission's Public Reference Room at 100 F Street, NE, Washington,
DC 20549. You may obtain information regarding the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission
at http://www.sec.gov.

Item 1A. Risk Factors

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Report and make forward-looking statements in our press releases and
conference calls that are subject to risks and uncertainties. Forward-looking statements include information that is not purely
historic fact and include, without limitation, statements concerning our financial outlook for 2015 and beyond, our possible or
assumed future results of operations generally, and other statements and information regarding assumptions about our revenues,
EBITDA, adjusted EBITDA, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per
share, net income, net income per share, fully diluted net income per share, weighted-average outstanding shares, taxable income,
cash flow from operating activities, available cash, operating costs, amortization expense, intangible asset recovery, capital and
other expenditures, effective tax rate, equity compensation charges, future taxable income, purchase amortization, the anticipated
benefits of completed acquisitions, the anticipated benefits of cross-selling efforts, product development and release, sales and
marketing campaigns, product integrations, elimination and de-emphasizing of services, contract renewal rate, the timing of future
payments of principal under our $400.0 million term loan facility available to us under a credit agreement dated April 1, 2014 (the
“2014 Credit Agreement”), expectations regarding our compliance with financial and restrictive covenants in the 2014 Credit
Agreement, acquisitions, financing plans, geographic expansion, capital structure, contractual obligations, legal proceedings and
claims, our database, database growth, services and facilities, employee relations, future economic performance, our ability to
liquidate or realize our long-term investments, management’s plans, goals and objectives for future operations, and growth and
markets for our stock. Sections of this Report which contain forward-looking statements include “Business,” “Risk Factors,”
“Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
“Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures” and the Financial Statements and related
Notes.

Our forward-looking statements are also identified by words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,”
“will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable
terminology. You should understand that these forward-looking statements are estimates reflecting our judgment, beliefs and
expectations, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the forward-looking statements. The following important
factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances,
could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied
in our forward-looking statements: commercial real estate market conditions; the pace of recovery in the commercial real estate
market; general economic conditions; our ability to identify, acquire and integrate acquisition candidates; our ability to realize the
expected benefits, cost savings or other synergies from acquisitions, including the Apartments.com acquisition, on a timely basis
or at all; our ability to combine acquired businesses successfully or in a timely and cost-efficient manner; business disruption
relating to integration of acquired businesses or other business initiatives; the amount of investment for sales and marketing and
our ability to realize a return on investments in sales and marketing; our ability to effectively and strategically combine, eliminate
or de-emphasize service offerings; reductions in revenues as a result of service changes; the time and resources required to develop
upgraded services and expand service offerings; changes or consolidations within the commercial real estate industry; customer
retention; our ability to attract new clients; our ability to sell additional services to existing clients; our ability to integrate our
North America and International product offerings; our ability to successfully introduce new products or upgraded services in U.S.
and foreign markets; our ability to attract consumers to our online marketplaces; competition; foreign currency fluctuations; global
credit market conditions affecting investments; our ability to continue to expand successfully, timely and in a cost-efficient manner,
including internationally; our ability to effectively penetrate and gain acceptance in new sectors; our ability to control costs;
litigation; changes in accounting policies or practices; release of new and upgraded services or entry into new markets by us or
our competitors; data quality; expansion, growth, development and reorganization of our sales force; employee retention; technical
problems with our services; managerial execution; changes in relationships with real estate brokers and other strategic partners;
legal and regulatory issues; and successful adoption of and training on our services.

Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on
information available to us on, the date of this Report. All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred
to in this section. We do not undertake any obligation to update any such statements or release publicly any revisions to these
forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the
occurrence of unanticipated events.

Risk Factors

Risks Related to our Business

Our revenues and financial position will be adversely affected if we are not able to attract and retain clients. Our success and
revenues depend on attracting and retaining subscribers to our information, analytics and online marketplaces. Our subscription-
based information, analytics and online marketplaces generate the largest portion of our revenues. However, we may be unable
to attract new clients, and our existing clients may decide not to add, not to renew or to cancel subscription services. In addition,
in order to increase our revenue, we must continue to attract new customers, continue to keep our cancellation rate low and continue
to sell new services to our existing customers. We may not be able to continue to grow our customer base, keep the cancellation
rate for customers and services low or sell new services to existing customers as a result of several factors, including without
limitation: economic pressures; the business failure of a current client or clients; a decision that customers have no need for our
services; a decision to use alternative services; customers’ and potential customers’ pricing and budgetary constraints; consolidation
in the real estate and/or financial services industries; data quality; technical problems; or competitive pressures. We compete
against many other commercial real estate information, analytics, and marketing service providers for business, including
competitors that offer their services through rapidly changing methods of delivering real estate information. If clients cancel
services or decide not to renew their subscription agreements, and we do not sell new services to our existing clients or attract
new clients, then our renewal rate and revenues may decline.

A downturn or consolidation in the commercial real estate industry may decrease customer demand for our services. The
commercial real estate market may be adversely impacted by many different factors, including lower than expected job growth
or job losses resulting in reduced real estate demand; rising interest rates and slowing transaction volumes that negatively impact
investment returns; excessive speculative new construction in localized markets resulting in increased vacancy rates and diminished
rent growth; and unanticipated disasters and other adverse events such as slowing of the growth in the working age population
resulting in reduced demand for all types of real estate. A reversal of improvements in the commercial real estate industry’s leasing
activity and absorption rates or a renewed downturn in the commercial real estate market may affect our ability to generate revenues
and may lead to more cancellations by our current or future customers, either of which could cause our revenues or our revenue
growth rate to decline and reduce our profitability. A depressed commercial real estate market has a negative impact on our core
customer base, which could decrease demand for our information, analytics and online marketplaces. Also, companies in this
industry are consolidating, often in order to reduce expenses. Consolidation, or other cost-cutting measures by our customers, may
lead to cancellations of our information, analytics and online marketplace services by our customers, reduce the number of our
existing clients, reduce the size of our target market or increase our clients’ bargaining power, all of which could cause our revenues
to decline and reduce our profitability. If cancellations, reductions of services, and failures to pay increase, and we are unable to
offset the resulting decrease in revenue by increasing sales to new or existing customers, our revenues may decline or grow at
lower rates.

If we are unable to hire qualified persons for, or retain and continue to develop, our sales force, or if our sales force is
unproductive, our revenues could be adversely affected. In order to support revenues and future revenue growth, we need to
continue to develop, train and retain our sales force. Our ability to build and develop a strong sales force may be affected by a
number of factors, including: our ability to attract, integrate and motivate sales personnel; our ability to effectively train our sales
force; the ability of our sales force to sell an increased number and different types of services; our ability to manage effectively
an outbound telesales group; the length of time it takes new sales personnel to become productive; the competition we face from
other companies in hiring and retaining sales personnel; our ability to effectively structure our sales force; and our ability to
effectively manage a multi-location sales organization. If we are unable to hire qualified sales personnel and develop and retain
the members of our sales force, including sales force management, or if our sales force is unproductive, our revenues or growth
rate could decline and our expenses could increase.

Negative general economic conditions could increase our expenses and reduce our revenues. Our business and the commercial
real estate industry are particularly affected by negative trends in the general economy. The success of our business depends on a
number of factors relating to general global, national, regional and local economic conditions, including perceived and actual
economic conditions, recessions, inflation, deflation, exchange rates, interest rates, taxation policies, availability of credit,
employment levels, and wage and salary levels. Negative general economic conditions could adversely affect our business by
reducing our revenues and profitability. If we experience greater cancellations or reductions of services and failures to timely pay,
and we do not acquire new clients or sell new services to our existing clients, our revenues may decline and our financial position
would be adversely affected. Adverse national and global economic events, as well as any significant terrorist attack, are likely
to have a dampening effect on the economy in general, which could negatively affect our financial performance and our stock
price. Market disruptions may also contribute to extreme price and volume fluctuations in the stock market that may affect our
stock price for reasons unrelated to our operating performance. In addition, a significant increase in inflation could increase our
expenses more rapidly than expected, the effect of which may not be offset by corresponding increases in revenue. Conversely,
deflation resulting in a decline of prices could reduce our revenues. In the current economic environment, it is difficult to predict
whether we will experience significant inflation or deflation in the near future. A significant increase in either could have an
adverse effect on our results of operations.

We may not be able to compete successfully against existing or future competitors in attracting advertisers, which could harm
our business, results of operations and financial condition. We compete to attract advertisers. Large companies with significant
brand recognition have large numbers of direct sales personnel and web traffic, which may provide a competitive advantage. To
compete successfully for advertisers against future and existing competitors, we must continue to invest resources in developing
our advertising platform and proving the effectiveness and relevance of our advertising services. Pressure from competitors seeking
to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricing and margins, lower our
revenue, and increase our research and development and marketing expenses. If we are unable to compete successfully against
our existing or future competitors, our business, results of operations or financial condition could be adversely affected.

We may be unable to increase awareness of our brands, including CoStar, LoopNet or Apartments.com, which could adversely
affect our business. We rely heavily on our brands, which we believe are key assets of our Company. Awareness and differentiation
of our brands are important for attracting and expanding the number of users of, and subscribers to, our online marketplaces, such
as Apartments.com and LoopNet.com. In 2015, we expect to increase our investment in sales and marketing activities by
approximately $75.0 million to increase brand awareness and grow traffic in conjunction a wide-scale marketing campaign
commencing during the first quarter of 2015 and running throughout the remainder of 2015 to generate brand awareness and site
traffic for the improved Apartments.com website. Further, we expect that sales and marketing expenses for our other brands will
continue to increase as we seek to grow the number of subscribers or advertisers to our marketplaces. Increased advertising may
not be successful in increasing brand awareness or, ultimately, be cost-effective. If we are unable to maintain or enhance user and
advertiser awareness of our brands, or if we are unable to recover our additional marketing and advertising costs through increased
usage of our services, our business, results of operations and financial condition could be adversely affected.

We rely on Internet search engines to drive traffic to our websites. If search results do not feature our websites prominently,
traffic to our websites would decrease and our business could be adversely affected. Google, Bing, Yahoo! and other Internet
search websites drive traffic to our websites, including Apartments.com and LoopNet.com. For example, when a user types an
apartment building address into an Internet search engine, organic search ranking of our Apartments.com webpages will determine
how prominently such webpages are displayed in the search results. However, our ability to maintain high organic search result
rankings is not entirely within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites
receiving a higher search result page ranking than the rankings our websites receive, or Internet search engines could revise their
methodologies in a way that would adversely affect our search result rankings, each of which could slow the growth of our user
base. Further, search engine providers could align with our competitors, which could adversely affect traffic to our websites. Our
websites have experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future.
If we experience a material reduction in the number of users directed to our websites through Internet search engines, our business,
results of operations and financial condition could be adversely affected.

If we are unable to maintain or increase traffic to our marketplaces, our business and operating results could be adversely
affected. Our ability to generate revenue from our marketplace businesses depends, in part, on our ability to attract users to our
websites. If we fail to maintain or increase traffic to our marketplaces, our ability to acquire additional subscribers or advertisers
and deliver leads to existing subscribers and advertisers could be adversely affected. We expect that our marketing expenses may
increase in connection with our efforts to maintain or increase traffic to our websites. Our efforts to maintain or generate additional
traffic to our marketplaces may not be successful. Even if we are able to attract additional users, increases in our operating expenses
could negatively impact our operating results if we are unable to generate more revenue through increased sales of subscriptions
to our marketplace products. We also face competition to attract users to our marketplace websites. Our existing and potential
competitors include companies that could devote greater technical and other resources than we have available to provide services
that users might view as superior to our offerings. Any of our future or existing competitors may introduce different solutions that
attract users away from our services or provide solutions similar to our own that have the advantage of better branding or marketing
resources. If we are unable to increase traffic to our marketplaces, or if we are unable to generate enough additional revenue to
offset increases in expenses related to increasing traffic to our marketplaces, our business and operating results could be adversely
affected.

If real estate professionals or other advertisers reduce or cancel their advertising spending with us and we are unable to
attract new advertisers, our operating results would be harmed. Our marketplace businesses, including the Apartments.com
Business and LoopNet.com, depend on advertising revenue generated primarily through sales to persons in the real estate industry,
including property managers and owners, and other advertisers. Our ability to attract and retain advertisers, and ultimately to
generate advertising revenue, depends on a number of factors, including:

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•
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•
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increasing the number of unique visitors to, and users of, our websites and mobile applications;
the quantity and quality of the leads that we provide to our advertisers;
the success of any increased marketing and product development efforts directed at attracting additional users and
advertisers to our marketplaces;
keeping pace with changes in technology and with our competitors; and
offering an attractive return on investment to our advertisers for their advertising spending with us.

Further, with respect to the Apartments.com marketplace, our ability to attract and retain advertisers also depends on the
current apartment rental market and apartment vacancy rates. If vacancy rates are too high or too low, advertisers may not need
to utilize our marketplace services.

We do not have long-term contracts with most of the advertisers who advertise on our marketplaces. These advertisers could
choose to modify or discontinue their relationships with us with little or no advance notice. In addition, as existing subscriptions
for advertising expire, we may not be successful in renewing these subscriptions or securing new subscriptions. We may not
succeed in retaining existing advertisers’ spending or capturing a greater share of such spending if we are unable to convince
advertisers of the effectiveness of our services as compared to alternatives. In addition, future changes to our pricing methodology
for advertising services may cause advertisers to reduce or discontinue their advertising with us. If current advertisers reduce or
end their advertising spending with us and we are unable to attract new advertisers, our advertising revenue and business, results
of operations and financial condition could be adversely affected.

If we do not invest in product development and provide services that are attractive to our users and to our advertisers, our
business could be adversely affected. Our success depends on our continued improvements to provide services that make our
marketplaces useful for users, and attractive to our advertisers. As a result, we must continually invest resources in research and
development to improve the appeal and comprehensiveness of our services and effectively incorporate new technologies. If we
are unable to provide services that users want to use, then users may become dissatisfied and use competitors’ websites. If we are
unable to continue offering innovative services, we may be unable to attract additional users and advertisers or retain our current
users and advertisers, which could harm our business, results of operations and financial condition.

If we are not able to successfully finance and/or integrate acquisitions, our business operations and financial position could
be adversely affected. We have expanded our markets and services in part through acquisitions of complementary businesses,
services, databases and technologies, and expect to continue to do so in the future. Our strategy to acquire complementary companies
or assets depends on our ability to identify, and the availability of, suitable acquisition candidates. We may incur costs in the
preliminary stages of an acquisition, but may ultimately be unable or unwilling to consummate the proposed transaction for various
reasons. In addition, acquisitions involve numerous risks, including the ability to realize or capitalize on synergy created through
combinations; managing the integration of personnel and products; potential increases in operating costs; managing geographically
remote operations; the diversion of management’s attention from other business concerns and potential disruptions in ongoing
operations during integration; the inherent risks in entering markets and sectors in which we have either limited or no direct
experience; and the potential loss of key employees, clients or vendors and other business partners of the acquired companies. We
may not successfully integrate acquired businesses or assets and may not achieve anticipated benefits of an acquisition, including
expected synergies. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, one-time write-offs
of goodwill and substantial amortization expenses of other intangible assets. We may be unable to obtain financing on favorable
terms, or at all, if necessary to finance future acquisitions making it impossible or more costly to acquire complementary
businesses. If we are able to obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions
may be subject to regulatory approval, which can be time consuming and costly to obtain, and the terms of such regulatory approvals
may impose limitations on our ongoing operations or require us to divest assets or lines of business.

The failure to successfully integrate the Apartments.com Business and/or fully realize expected synergies from the acquisition
in the expected time frame or at all may adversely affect our future results and our business. The success of the Apartments.com
acquisition will depend, in part, on our ability to successfully integrate the Apartments.com Business and realize the benefits and
synergies we anticipate to result from the combination of our business and the Apartments.com Business, including anticipated
growth opportunities and cost savings. We may not be able to achieve these objectives in whole or in part. Any failure to timely
realize these anticipated benefits could have a material adverse effect on our revenues, expenses and operating results.

The success of the acquisition will also depend in part on our ability to minimize or eliminate any difficulties that may occur
in connection with the integration of our business and the Apartments.com Business. The integration process could result in the
loss of key employees, loss of key clients, loss of key vendors and other business partners, increases in operating costs, increases
in taxes, or the disruption of each company's ongoing businesses, any or all of which could adversely affect our ability to achieve
the anticipated benefits and synergies of the acquisition. Our efforts to integrate the two businesses will divert management's
attention and other resources from uses that could otherwise have been beneficial to the Company. In addition, management may
decide to combine or eliminate products or services currently offered by Apartments.com, which could also result in the loss of
revenues, key employees, key clients, key vendors or other business partners.

During the integration process, we will depend on CV to provide certain services to us during a transitional period, including,
among others, billing and collection services. If these services are not provided to us, we may incur additional expense to replicate
or procure these services from other third parties.

Our current or future geographic expansion plans may not result in increased revenues, which may negatively impact our
business, results of operations and financial position. Expanding into new markets and investing resources towards increasing the
depth of our coverage within existing markets imposes additional burdens on our research, systems development, sales, marketing
and general managerial resources. During 2015, we plan to continue to increase the depth of our coverage in the U.S., Canada and
the U.K. If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer than planned or if our
costs for these efforts exceed our expectations, our financial position could be adversely affected. In addition, if we incur significant
costs to improve data quality within existing markets, or are not successful in marketing and selling our services in these markets
or in new markets, our expansion may have a material adverse effect on our financial position by increasing our expenses without
increasing our revenues, adversely affecting our profitability.

If we are not able to obtain and maintain accurate, comprehensive or reliable data, we could experience reduced demand for
our information, analytics and online marketplace services. Our success depends on our clients’ confidence in the
comprehensiveness, accuracy and reliability of the data and analysis we provide. The task of establishing and maintaining accurate
and reliable data and analysis is challenging. If our data, including the data we obtain from third parties, or analysis is not current,
accurate, comprehensive or reliable, we could experience reduced demand for our services or legal claims by our customers, which
could result in lower revenues and higher expenses. Our U.S. researchers use integrated internal research processes to update our
database. Any inefficiencies, errors, or technical problems with this application could reduce the quality of our data, which could
result in reduced demand for our services, lower revenues and higher costs.

We may not be able to successfully introduce new or upgraded information, analytics and online marketplace services or
combine or shift focus from services with less demand, which could decrease our revenues and our profitability. Our future business
and financial success will depend on our ability to continue to anticipate the needs of, and to introduce new and upgraded services
into the marketplace. To be successful, we must adapt to changes in the industry, as well as rapid technological changes by
continually enhancing our information, analytics and online marketplace services. Developing new services and upgrades to
services, as well as integrating and coordinating current services, imposes heavy burdens on our systems department, management
and researchers. The processes are costly, and our efforts to develop, integrate and enhance our services may not be successful.
As we continue to combine our operations with those that we have acquired, we must continue to assess the purposes for which
various services may be used alone or together, and how we can best address those uses through stand-alone services or combinations
or coordinating applications thereof. In addition, successfully launching and selling a new or upgraded service puts pressure on
our sales and marketing resources. We recently launched the new Apartments.com website after undergoing extensive product
development. We also plan to launch a wide-scale marketing campaign in an effort to increase brand awareness and site traffic.
The launch of the new site and/or the new marketing campaign may not result in increased brand awareness, site traffic and/or
revenues. If we are unsuccessful in obtaining greater market share, we may not be able to offset the expense associated with the
new launch and marketing campaign, which could have a material adverse effect on our financial results.

If we are unable to develop new or upgraded services or decide to combine, shift focus from, or phase out a service that
overlaps or is redundant with other services we offer, then our customers may choose a competitive service over ours and our
revenues may decline and our profitability may be reduced. For example, we are currently assessing whether to transition the
LoopNet marketplace to a pure marketing site for commercial real estate where, eventually, all listings would be paid and users
could search the site for free. We would expect to see a short-term reduction in revenues and earnings if we implement this transition.
Although we are assessing the best strategy to implement this shift and will seek to convert customers to higher value, more
profitable annual subscription information services to increase revenues and earnings over time, we cannot predict with certainty
whether we will be successful in shifting customers to higher value, more profitable subscriptions and, consequently, in offsetting
any reduction in revenue and earnings; therefore, if we make this transition, our revenues and earnings may ultimately decline.
In addition, if we incur significant costs in developing new or upgraded services or combining and coordinating existing services,
are not successful in marketing and selling these new services or upgrades, or our customers fail to accept these new or combined
and coordinating services, it could have a material adverse effect on our results of operations by decreasing our revenues and
reducing our profitability.

Competition could render our services uncompetitive. The market for information systems and services in general is highly
competitive and rapidly changing. Competition in this market may increase further if economic conditions or other circumstances
cause customer bases and customer spending to decrease and service providers to compete for fewer customer resources. Our
existing competitors, or future competitors, may have greater name recognition, larger customer bases, better technology or data,
lower prices, easier access to data, greater user traffic or greater financial, technical or marketing resources than we have. Our
competitors may be able to undertake more effective marketing campaigns, obtain more data, adopt more aggressive pricing
policies, make more attractive offers to potential employees, subscribers, distribution partners and content providers or may be
able to respond more quickly to new or emerging technologies or changes in user requirements. If we are unable to retain customers
or obtain new customers, our revenues could decline. Increased competition could result in lower revenues and higher expenses,
which would reduce our profitability.

Our focus on internal and external investments may place downward pressure on our operating margins. Over the past few
years, we have increased the rate of investments in our business, including internal investments in product development and sales
and marketing, to expand the breadth and depth of services we provide to our customers. Our investment strategy is intended to
increase our revenue growth in the future. Our operating margins may experience downward pressure in the short term as a result
of investments. Furthermore, our investments may not have their intended effect. For instance, our external investments may lose
value and we may incur impairment charges with respect to such investments. Such impairment charges may negatively impact
our profitability. If we are unable to successfully execute our investment strategy or if we fail to adequately anticipate and address
potential problems, we may experience decreases in our revenues and operating margins.

If we are unable to enforce or defend our ownership and use of intellectual property, our business, brands, competitive position
and operating results could be harmed. The success of our business depends in large part on our intellectual property, including
intellectual property involved in our methodologies, database, services and software. We rely on a combination of trademark, trade
secret, patent, copyright and other laws, nondisclosure and noncompetition provisions, license agreements and other contractual
provisions and technical measures to protect our intellectual property rights. However, current law may not provide for adequate
protection of our databases and the actual data. In addition, legal standards relating to the validity, enforceability and scope of
protection of proprietary rights in internet related businesses are uncertain and evolving, and changes in these standards may
adversely impact the viability or value of our proprietary rights. If we are not successful in protecting our intellectual property,
including our content, our brands and our business, results of operations and financial condition could be harmed. The same would
be true if a court found that our services infringe other persons’ intellectual property rights. Any intellectual property lawsuits or
threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and
money and distract management’s attention from operating our business. In addition, if we do not prevail on any intellectual
property claims, this could result in a change to our methodology or information, analytics and online marketplace services and
could reduce our profitability.

Effective trademark, trade secret, patent, and copyright protection may not be available in every country in which our services
may be provided. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States
and, therefore, in certain jurisdictions, we may be unable to protect our intellectual property and our proprietary technology
adequately against unauthorized third-party copying or use, which could harm our competitive position.

In addition, we seek to enforce our rights against people and entities that infringe our intellectual property, including through
legal action. Taking such action may be costly, and we cannot ensure that such actions will be successful. Any increase in the
unauthorized use of our intellectual property could make it more expensive for us to do business and harm our results of operations
or financial condition.

We are subject to a number of risks related to acceptance of credit cards and debit cards for customer payments. We accept
payments for our services through credit and debit card transactions. For credit and debit card payments, we pay interchange and
other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would
increase our cost of revenues, either of which could harm our business, financial condition or results of operations.

We depend on processing vendors to complete credit and debit card transactions. If we or our processing vendors fail to maintain
adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit
card companies to disallow our continued use of their payment products. We could lose customers if we are not able to continue
to use payment products of the major credit card companies. In addition, if the systems for the authorization and processing of
credit card transactions fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at
all, our business, revenue, results of operations and financial condition could be harmed.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds
transfers, which could change or be reinterpreted in ways that make it more difficult for us to comply. We are required to comply
with payment card industry security standards. Failing to comply with those standards may violate payment card association
operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to
comply also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit
and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment
systems or the theft, loss, or misuse of data pertaining to credit and debit cards, card holders and transactions. If we fail to
adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security
measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and
financial condition.

If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendors may increase our
transaction fees or terminate their relationships with us. Any increases in our credit and debit card fees could harm our results of
operations, particularly if we elect not to raise our rates for our services to offset the increase. The termination of our ability to
process payments on any major credit or debit card would significantly impair our ability to operate our business.

We may not be able to successfully halt the operation of websites that aggregate our data, as well as data from other companies,
such as copycat websites that may misappropriate our data. Third parties may misappropriate our data through website scraping,
robots or other means and aggregate this data on their websites with data from other companies. In addition, “copycat” websites
may misappropriate data on our website and attempt to imitate our brands or the functionality of our website. We may not be able
to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to stop
their operations. In some cases, particularly in the case of websites operating outside of the U.S., our available remedies may not
be adequate to protect us against the misappropriation of our data. Regardless of whether we can successfully enforce our rights
against the operators of these websites, any measures that we may take could require us to expend significant financial or other
resources.

Litigation or government investigations in which we become involved may significantly increase our expenses and adversely
affect our stock price. Currently and from time to time, we are a party to various lawsuits. Any lawsuits, threatened lawsuits or
government investigations in which we are involved could cost us a significant amount of time and money to defend, could distract
management’s attention away from operating our business, could result in negative publicity and could adversely affect our stock
price. In addition, if any claims are determined against us or if a settlement requires us to pay a large monetary amount or take
other action that materially restricts or impedes our operations, our profitability could be significantly reduced and our financial
position could be adversely affected. Our insurance may not be sufficient to cover any losses we incur in connection with litigation
claims.

If we fail to protect confidential information against security breaches, or if customers or potential customers are reluctant
to use our services because of privacy concerns, we might face additional costs and could lose customers or potential customers.
We collect, use and disclose personally identifiable information, including among other things names, addresses, phone numbers,
and email addresses. We also collect, store and use sensitive or confidential transaction information and, in certain circumstances,
credit card information. Our policies concerning the collection, use and disclosure of these types of information are described on
our websites. While we believe that our policies are appropriate and that we are in compliance with our policies, we could be
subject to legal claims, government action, harm to our reputation or experience significant remediation costs if we experience a
security breach or our practices fail, or are seen as failing, to comply with our policies or with applicable laws concerning personally
identifiable information.

We may be subject to legal liability for collecting, displaying or distributing information. Because the content in our database
is collected from various sources and distributed to others, we may be subject to claims for breach of contract, defamation,
negligence, unfair competition or copyright or trademark infringement or claims based on other theories. We could also be subject
to claims based upon the content that is accessible from our website through links to other websites or information on our website
supplied by third parties. We could also be subject to claims that the collection or provision of certain information breached laws
and regulations relating to privacy and data protection. Even if these claims do not result in liability to us, we could incur significant
costs in investigating and defending against any claims. Our potential liability for information distributed by us to others could
require us to implement measures to reduce our exposure to such liability, which may require us to expend substantial resources
and limit the attractiveness of our information, analytics and online marketplaces to users.

Concern of prospective customers regarding our use of the personal information collected on our websites could keep
prospective customers from subscribing to our services. Industry-wide incidents or incidents with respect to our websites, including
misappropriation of third-party information, security breaches, or changes in industry standards, regulations or laws, could deter
people from using the Internet or our websites to conduct transactions that involve the transmission of confidential information,
which could harm our business. Under various state laws, if there is a breach of our computer systems and we know or suspect
that unencrypted personal customer data has been stolen, we are required to inform any customers whose data was stolen, which
could result in significant costs and harm our reputation and business.

In addition, certain state laws require businesses that maintain personal information in electronic databases to implement
reasonable measures to keep that information secure. Various states have enacted different and sometimes contradictory
requirements for protecting personal information collected and maintained electronically. Compliance with numerous and
contradictory requirements of the different states is particularly difficult for an online business such as ours which collects personal
information from customers in multiple jurisdictions.

We may face adverse publicity and loss of consumer confidence if we are not able to comply with laws requiring us to take
adequate measures to assure the confidentiality of the personally identifiable information that our customers have given to us.
This could result in a loss of customers and revenue that could jeopardize our success. Even if we are in full compliance with all
relevant laws and regulations, we may face liability or disruption of business if we do not comply in every instance or if the security
of the customer data that we collect is compromised, regardless of whether our practices comply or not. If we were required to
pay any significant amount of money in satisfaction of claims under these laws, or if we were forced to suspend operations for
any length of time due to our inability to comply fully with any such laws, our business, operating results and financial condition
could be adversely affected.

Our business depends on retaining and attracting highly capable management and operating personnel. Our success depends
in large part on our ability to retain and attract management and operating personnel, including our President and Chief Executive
Officer, Andrew Florance, and our other officers and key employees. Our business requires highly skilled technical, sales,
management, web development, marketing and research personnel, who are in high demand and are often subject to competing
offers. To retain and attract key personnel, we use various measures, including employment agreements, awards under a stock
incentive plan and incentive bonuses for key employees. These measures may not be enough to retain and attract the personnel
we need or to offset the impact on our business of the loss of the services of Mr. Florance or other key officers or employees.

We may have difficulty attracting, motivating and retaining executives and other key employees in light of the acquisition of
the Apartments.com Business. Uncertainty about the effect of the acquisition on our employees, including employees who joined
the Company as a result of the acquisition of the Apartments.com Business, may have an adverse effect on the combined business.
This uncertainty may impair our ability to attract, retain and motivate key personnel. If our key employees or Apartments.com
key employees depart, we may incur costs in identifying, hiring, training and retaining replacements for departing employees,
which could reduce our ability to realize the anticipated benefits of the acquisition of the Apartments.com Business.

An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth.
Goodwill and identifiable intangible assets not subject to amortization are tested annually by each reporting unit on October 1 of
each year for impairment and are tested for impairment more frequently based upon the existence of one or more indicators. We
consider our operating segments, North America and International, as our reporting units under Financial Accounting Standards
Board (“FASB”) authoritative guidance for consideration of potential impairment of goodwill. We assess the impairment of long-
lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Judgments made by management relate to the expected useful lives of long-lived assets and our ability
to realize undiscounted cash flows of the carrying amounts of such assets. The accuracy of these judgments may be adversely
affected by several factors, including the factors listed below:

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Significant underperformance relative to historical or projected future operating results;
Significant changes in the manner of our use of acquired assets or the strategy for our overall business;
Significant negative industry or economic trends; or
Significant decline in our market capitalization relative to net book value for a sustained period.

These types of events or indicators and the resulting impairment analysis could result in goodwill impairment charges in the
future, which would reduce our profitability. Impairment charges could negatively affect our financial results in the periods of
such charges, which may reduce our profitability. As of December 31, 2014, we had approximately $1.1 billion of goodwill,
including $1.1 billion in our North America segment and $24.4 million in our International segment.

As a result of the consolidation of certain of our facilities, we may incur additional costs. We have taken, and may continue
to take, actions that may increase our cost structure in the short-term but are intended to reduce certain portions of our long-term
cost structure, such as consolidation of office space. As a result of consolidation of office space, we may reduce our long-term
occupancy costs, but incur restructuring charges. If our long-term cost reduction efforts are ineffective or our estimates of cost
savings are inaccurate, our profitability could be negatively impacted. Expected savings from relocating facilities can be highly
variable and uncertain. Further, we may not be successful in achieving the operating efficiencies or operating cost reductions
expected from these efforts in the amounts or at the times we anticipate.

If we are unable to obtain or retain listings from commercial real estate brokers, agents, property owners, and apartment
property managers, our commercial real estate ("CRE") marketplace services, including but not limited to LoopNet,
Apartments.com, CoStar Showcase, LandandFarm.com and Lands of America, could be less attractive to current or potential
customers, which could reduce our revenues. The value of our CRE marketplace services to our customers depends on our ability
to increase the number of property listings provided and searches conducted. The success of our CRE marketplace services depends
substantially on the number of property listings submitted by brokers, agents, property owners and, in the case of apartment rentals,
property managers. This is because an increase in the number of listings increases the utility of the online service and of its
associated search, listing and marketing services. If agents marketing large numbers of property listings, such as large brokers in
key real estate markets, choose not to continue their listings with us, or choose to list them with a competitor, our CRE marketplace
services could be less attractive to other real estate industry transaction participants, resulting in reduced revenue. Similarly, the
value and utility of our other marketplaces, including BizBuySell and BizQuest, are also dependent on attracting and retaining
listings.

If we are unable to convince commercial real estate professionals that our CRE marketplace services are superior to traditional
methods of listing, searching, and marketing commercial real estate, they could choose not to use those services, which could
reduce our revenues or increase our expenses. The primary source of new customers for our CRE marketplace services is participants
in the commercial real estate community. Many commercial real estate professionals are used to listing, searching and marketing
real estate in traditional and off-line ways, such as by distributing print brochures, sharing written lists, placing signs on properties,
word-of-mouth, and newspaper advertisements. Commercial real estate and investment professionals may prefer to continue to
use traditional methods or may be slow to adopt and accept our online products and services. If we are not able to persuade
commercial real estate participants of the efficacy of our online products and services, they may choose not to use our CRE
marketplace services, which could negatively impact our business. Similarly, if we are unable to convince the business and
investment community to utilize our online business for sale marketplaces rather than traditional methods of listing and marketing
businesses for sale, our revenues could be negatively affected.

The number of LoopNet's registered members is higher than the number of actual members. The number of registered members
in LoopNet's network is higher than the number of actual members because some members have multiple registrations or others
may have registered under fictitious names. Given the challenges inherent in identifying these accounts, we do not have a reliable
system to accurately identify the number of actual members, and thus we rely on the number of registered members as a measure
of the size of the LoopNet marketplace. If the number of LoopNet's actual members does not continue to grow and those members
do not convert to premium members, then the LoopNet marketplace business may not grow as fast as we expect, which could
harm our operating and financial results.

If we are unable to increase our revenues or our operating costs are higher than expected, our profitability may decline and
our operating results may fluctuate significantly. We may not be able to accurately forecast our revenues or future revenue growth
rate. Many of our expenses, particularly personnel costs and occupancy costs, are relatively fixed. As a result, we may not be able
to adjust spending quickly enough to offset any unexpected increase in expenses or revenue shortfall. We may experience higher
than expected operating costs, including increased personnel costs, occupancy costs, selling and marketing costs, investments in
geographic expansion, acquisition costs, communications costs, travel costs, software development costs, professional fees and
other costs. If operating costs exceed our expectations and cannot be adjusted accordingly, our profitability may be reduced and
our results of operations and financial position will be adversely affected. Additionally, we may not be able to sustain our historic
revenue growth rates, and our percentage revenue growth rates may decline. Our ability to increase our revenues and operating
profit will depend on increased demand for our services. Our sales are affected by, among other things, general economic and
commercial real estate conditions. Reduced demand, whether due to changes in customer preference, a weakening of the U.S. or
global economy, competition or other reasons, may result in decreased revenue and growth, adversely affecting our operating
results.

International operations expose us to additional business risks, which may reduce our profitability. Our international operations
and expansion subject us to additional business risks, including: currency exchange rate fluctuations; adapting to the differing
business practices and laws in foreign countries; difficulties in managing foreign operations; limited protection for intellectual
property rights in some countries; difficulty in collecting accounts receivable and longer collection periods; costs of enforcing
contractual obligations; impact of recessions in economies outside the U.S.; and potentially adverse tax consequences. In addition,
international expansion imposes additional burdens on our executive and administrative personnel, systems development, research
and sales departments, and general managerial resources. If we are not able to manage our international operations successfully,
we may incur higher expenses and our profitability may be reduced. Finally, the investment required for additional international
expansion could exceed the profit generated from such expansion, which would reduce our profitability and adversely affect our
financial position.

Fluctuating foreign currencies may negatively impact our business, results of operations and financial position. Due to our
acquisitions of CoStar U.K. Limited (formerly FOCUS Information Limited), Grecam S.A.S., and Property and Portfolio Research
Ltd., as well as our expansion into Canada, a portion of our business is denominated in the British Pound, Euro and Canadian
dollar. As a result, fluctuations in foreign currencies may have an impact on our business, results of operations and financial
position. Foreign currency exchange rates have fluctuated and may continue to fluctuate. Significant foreign currency exchange
rate fluctuations may negatively impact our international revenue, which in turn affects our consolidated revenue. Currencies may
be affected by internal factors, general economic conditions and external developments in other countries, all of which can have
an adverse impact on a country’s currency. Currently, we are not party to any hedging transactions intended to reduce our exposure
to exchange rate fluctuations. We may seek to enter into hedging transactions in the future, but we may be unable to enter into
these transactions successfully, on acceptable terms or at all. We cannot predict whether we will incur foreign exchange losses in
the future. Further, significant foreign exchange fluctuations resulting in a decline in the respective, local currency may decrease
the value of our foreign assets, as well as decrease our revenues and earnings from our foreign subsidiaries, which would reduce
our profitability and adversely affect our financial position.

Our indebtedness could adversely affect us, including by decreasing our business flexibility and increasing our costs. On
April 1, 2014 (the “Closing Date”), we entered into the 2014 Credit Agreement by and among CoStar, as borrower, CoStar Realty
Information, Inc., as co-borrower, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative
agent. The 2014 Credit Agreement provides for a $400.0 million term loan facility and a $225.0 million revolving credit facility,
each with a term of five years. The proceeds of the term loan facility and the initial borrowing under the revolving credit facility
on the Closing Date in an amount of $150.0 million were used to refinance the term loan facility and revolving credit facility
established under a credit agreement dated February 16, 2012 (the “2012 Credit Agreement”), including related fees and expenses,
and pay a portion of the consideration and transaction costs related to the acquisition. The 2014 Credit Agreement contains
customary restrictive covenants imposing operating and financial restrictions on us, including restrictions that may limit our ability
to engage in acts that we believe may be in our long-term best interests. These covenants restrict our ability and the ability of our
subsidiaries to (i) incur additional indebtedness, (ii) create, incur, assume or permit to exist any liens, (iii) enter into mergers,
consolidations or similar transactions, (iv) make investments and acquisitions, (v) make certain dispositions of assets, (vi) make
dividends, distributions and prepayments of certain indebtedness, and (vii) enter into certain transactions with affiliates.

The operating restrictions and financial covenants in the 2014 Credit Agreement and any future financing agreements may
limit our ability to finance future operations or capital needs, to engage in other business activities or to respond to changes in
market conditions. Our ability to comply with any financial covenants could be affected materially by events beyond our control,
and we may be unable to satisfy any such requirements. If we fail to comply with these covenants, we may need to seek waivers
or amendments of such covenants, seek alternative or additional sources of financing or reduce our expenditures. We may be
unable to obtain such waivers, amendments or alternative or additional financing on a timely basis or at all, or on favorable terms.

We are required to make periodic principal and interest payments pursuant to the terms of the 2014 Credit Agreement. If an
event of default occurs, the interest rate on overdue amounts will increase and the lenders under the 2014 Credit Agreement may
declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable and may
exercise remedies in respect of the collateral. We may not be able to repay all amounts due under the 2014 Credit Agreement in
the event these amounts are declared due upon an event of default.

Negative conditions in the global credit markets may affect the liquidity of a portion of our long-term investments. Currently,
our long-term investments include mostly AAA-rated auction rate securities (“ARS”), which are primarily student loan securities
supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education.
Continuing negative conditions in the global credit markets have prevented some investors from liquidating their holdings of
auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such
securities. As of December 31, 2014, we held $18.7 million par value of ARS, all of which failed to settle at auctions. When an
auction fails for ARS in which we have invested, we may be unable to liquidate some or all of these securities at par. In the event
we need or desire to immediately access these funds, we will not be able to do so until a future auction on these investments is
successful, a buyer is found outside the auction process or an alternative action is determined. If a buyer is found but is unwilling
to purchase the investments at par, we may incur a loss, which would reduce our profitability and adversely affect our financial
position.

Our ARS investments are not currently actively trading and therefore do not currently have a readily determinable market
value. The estimated fair value of the ARS no longer approximates par value. We have used a discounted cash flow model to
determine the estimated fair value of our investment in ARS as of December 31, 2014. The assumptions used in preparing the
discounted cash flow model include estimates for interest rates, credit spreads, timing and amount of cash flows, liquidity risk
premiums, expected holding periods and default risk of the ARS. We update the discounted cash flow model on a quarterly basis
to reflect any changes in the assumptions used in the model and settlements of ARS investments that occurred during the period.
Based on this assessment of fair value, as of December 31, 2014, we determined there was a decline in the fair value of our ARS
investments of approximately $691,000. The decline was deemed to be a temporary impairment and was recorded as an unrealized
loss in accumulated other comprehensive loss in stockholders’ equity. If the issuers of these ARS are unable to successfully close
future auctions and/or their credit ratings deteriorate, we may be required to record additional unrealized losses in accumulated
other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments, which would reduce
our profitability and adversely affect our financial position.

We have not made any material changes in the accounting methodology used to determine the fair value of the ARS. We do
not expect any material changes in the near term to the underlying assumptions used to determine the unobservable inputs used
to calculate the fair value of the ARS as of December 31, 2014. However, if changes in these assumptions occur, and, should those
changes be significant, we may be required to record additional unrealized losses in accumulated other comprehensive loss or an
other-than-temporary impairment charge to earnings on these investments.

U.S. political, credit and financial market conditions may negatively impact or impair the value of our current portfolio of
cash, cash equivalents and investments, including U.S. Treasury securities and U.S.-backed investments, as well as our access to
credit. Our cash, cash equivalents and investments are held in a variety of common financial instruments, including U.S. treasury
securities. Deterioration in the U.S. credit and financial markets may result in losses or deterioration in the fair value of our cash,
cash equivalents, or investments. On August 5, 2011, Standard & Poor’s lowered its long term sovereign credit rating on the U.S.
from AAA to AA+. This downgrade, and any future downgrades of the U.S. credit rating, could impact the stability of future U.S.
treasury auctions, affect the trading market for U.S. government securities, result in increased interest rates and impair access to
credit. These factors could negatively impact the liquidity or valuation of our current portfolio of cash, cash equivalents, and
investments, which may affect our ability to fund future obligations. Further, these factors may result in an increase in interest
rates and borrowing costs and make it more difficult to obtain credit on acceptable terms, which may affect our ability to fund
future obligations and increase the costs of obtaining financing for future obligations.

Technical problems or disruptions that affect either our customers’ ability to access our services, or the software, internal
applications, database and network systems underlying our services, could damage our reputation and brands and lead to reduced
demand for our information, analytics and online marketplace services, lower revenues and increased costs. Our business, brands
and reputation depend upon the satisfactory performance, reliability and availability of our websites, the Internet and our service
providers. Interruptions in these systems, whether due to system failures, computer viruses, software errors, physical or electronic
break-ins, or malicious hacks or attacks on our systems (such as denial of service attacks), could affect the security and availability
of our services on our mobile applications and our websites and prevent or inhibit the ability of users to access our services. Our
operations also depend on our ability to protect our databases, computers and software, telecommunications equipment and facilities
against damage from potential dangers such as fire, flood, power loss, security breaches, computer viruses, telecommunications
failures, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. Our
users rely on our services when conducting their own businesses. Disruptions in, or reductions in ability to access, our services
for whatever reason could damage our users’ businesses, harm our reputation, result in additional costs or result in reduced demand
for our information, analytics and online marketplace services, any of which could harm our business, results of operations and
financial condition.

In addition, the software, internal applications and systems underlying our services are complex and may not be error-free.
Our careful development and testing may not be sufficient to ensure that we will not encounter technical problems when we attempt
to enhance our software, internal applications and systems. Any inefficiencies, errors or technical problems with our software,
internal applications and systems could reduce the quality of our services or interfere with our customers’ access to our information,
analytics and online marketplaces, which could reduce the demand for our services, lower our revenues and increase our costs.

The majority of the communications, network and computer hardware used to operate our mobile applications and websites
are located at facilities in Virginia and California. We do not own or control the operation of certain of these facilities. Our systems
and operations are vulnerable to damage or interruption from fire, flood, power loss, security breaches, computer viruses,
telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, earthquakes and similar events. These
risks may be increased with respect to operations housed at facilities we do not own or control. The occurrence of any of the
foregoing events could result in damage to our systems and hardware or could cause them to fail completely, and our insurance
may not cover such events or may be insufficient to compensate us for losses that may occur.

A failure of our systems at any site could result in reduced functionality for our users, and a total failure of our systems could
cause our mobile applications or websites to be inaccessible. Problems faced or cause by our information technology service
providers, including content distribution service providers, private network providers, internet providers and third-party web-
hosting providers, or with the systems by which they allocate capacity among their customers (as applicable), could adversely
affect the experience of our users. Any financial difficulties, such as bankruptcy reorganization, faced by these third-party service
providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent
of which are difficult to predict. If our third-party service providers are unable to keep up with our growing needs for capacity,
our business could be harmed. In addition, if distribution channels for our mobile applications experience disruptions, such
disruptions could adversely affect the ability of users and potential users to access or update our mobile applications, which could
harm our business.

Our business interruption insurance may not cover certain events or may be insufficient to compensate us for the potentially
significant losses, including the potential harm to the future growth of our business, which may result from interruptions in our
service as a result of system failures or malicious attacks. Any errors, defects, disruptions or other performance problems with our
services could harm our reputation, business, results of operations and financial condition.

Our operating results and revenues are subject to fluctuations and our quarterly financial results may be subject to seasonality
and market cyclicality, each of which could cause our stock price to be negatively affected. The commercial real estate market
may be influenced by general economic conditions, economic cycles, annual seasonality factors and many other factors, which
in turn may impact our financial results. The market is large and fragmented. The different sectors of the industry, such as office,
industrial, retail, multifamily, and others, are influenced differently by different factors, and have historically moved through
economic cycles with different timing. As such, it is difficult to estimate the potential impact of economic cycles and conditions
or seasonality from year-to-year on our overall operating results. In addition, our results may be impacted by seasonality. The
timing of widely observed holidays and vacation periods, particularly slow downs during the end-of-year holiday period, and
availability of real estate agents and related service providers during these periods, could significantly affect our quarterly operating
results during that period. If we are unable to adequately respond to economic, seasonal or cyclical conditions, our revenues,
expenses and operating results may fluctuate from quarter to quarter. Our operating results, revenues and expenses may fluctuate
for many reasons, including those described below and elsewhere in this Annual Report on Form 10-K:

• Rates of subscriber adoption and retention;
• Timing of our sales conference or significant marketing events;
• A slow-down during the end-of-year holiday period;
• Changes in our pricing strategy and timing of changes;
• The timing and success of new service introductions and enhancements;
• The shift of focus from, or phase out of services that overlap or are redundant with other services we offer;
• The amount and timing of our operating expenses and capital expenditures;
• Our ability to control expenses;
• The amount and timing of non-cash stock-based charges;
• Costs related to acquisitions of businesses or technologies or impairment charges associated with such investments and

acquisitions;
• Competition;
• Changes or consolidation in the real estate industry;
• Our investments in geographic expansion and to increase coverage in existing markets;
•
•
• The development of our sales force;
•
•
• Changes in client budgets.

Interest rate fluctuations;
Successful execution of our expansion and integration plans;

Foreign currency and exchange rate fluctuations;
Inflation; and

These fluctuations or seasonality effects could negatively affect our results of operations during the period in question and/
or future periods or cause our stock price to decline. In addition, changes in accounting policies or practices may affect our level
of net income. Fluctuations in our financial results, revenues and expenses may cause the market price of our common stock to
decline.

The consent order approved by the Federal Trade Commission in connection with the LoopNet merger imposes conditions
that could have an adverse effect on us and our business, and failure to comply with the terms of the consent order may result in
adverse consequences for the combined company. On April 26, 2012, the FTC accepted the consent order in connection with the
LoopNet merger that was previously agreed to among the FTC staff, CoStar, and LoopNet on April 17, 2012. The consent order
was subject to a 30-day public comment period, and on August 29, 2012, the FTC issued its final acceptance of the consent order.

The consent order, which is publicly available on the FTC's website at http://www.ftc.gov/, requires CoStar to maintain certain
business practices that the FTC believes are pro-competitive. For example, the consent order requires CoStar to maintain its
customary practice of selling its products separately and on a market-by-market basis. It also requires CoStar to license its products
to customers who have bought its competitors' products on a non-discriminatory basis. In addition, CoStar is required to maintain
its customary licensing practices with respect to the length of its contracts, to allow customers with multi-year contracts to cancel
with one year's advance notice, and to agree to reduce the cost of any litigation with customers by offering to arbitrate certain
disputes. In the event that CoStar fails or is unable to comply with the terms of the consent order, CoStar could be subject to an
enforcement proceeding that could result in substantial fines and/or injunctive relief. Further, the provisions of the consent order
may result in unanticipated adverse effects on the combined company and, therefore, reduce our ability to realize the anticipated
benefits of the merger. For example, the terms of the consent order that require us to continue to sell our products separately may
prohibit us from combining or eliminating certain business lines, products or services that we believe would result in a long-term
positive impact on our revenue and earnings.

We have incurred and will continue to incur acquisition-related costs. We have incurred severance costs and expect to incur
additional costs to integrate prior acquisitions, such as IT integration expenses and costs related to the renegotiation of redundant
vendor agreements. Costs in connection with acquisitions and integrations may be higher than expected, and we may also incur
unanticipated acquisition-related costs. These costs could adversely affect our financial condition, results of operation or prospects
of the combined business.

Changes in accounting and reporting policies or practices may affect our financial results or presentation of results, which
may affect our stock price. Changes in accounting and reporting policies or practices could reduce our net income, which reductions
may be independent of changes in our operations. These reductions in reported net income could cause our stock price to decline. For
example, in 2006, we adopted authoritative guidance for stock compensation, which required us to expense the value of granted
stock options.

Market volatility may have an adverse effect on our stock price. The trading price of our common stock has fluctuated widely
in the past, and we expect that it will continue to fluctuate in the future. The price could fluctuate widely based on numerous
factors, including: economic factors; quarter-to-quarter variations in our operating results; changes in analysts’ estimates of our
earnings; announcements by us or our competitors of technological innovations, new services, or other significant or strategic
information; general conditions in the commercial real estate industry; developments or disputes concerning copyrights or
proprietary rights or other legal proceedings; and regulatory developments. In addition, the stock market in general, and the shares
of internet-related and other technology companies in particular, have experienced extreme price fluctuations. This volatility has
had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating
performance of the specific companies and may have the same effect on the market price of our common stock.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our headquarters is located at 1331 L Street, NW, in downtown Washington, DC, where we occupy approximately 149,500
square feet of office space. Our lease for our headquarters expires May 31, 2025 (with two 5-year renewal options). Our headquarters
is used primarily by our North America operating segment. Our principal facility in the U.K. is located in London, England, where
we occupy approximately 7,000 square feet of office space. Our lease for this facility has a maximum term ending July 8, 2023,
with early termination at our option on July 9, 2018, with advance notice. This facility is used primarily by our International
operating segment.

In addition to two downtown Washington, DC leased facilities (including our headquarters) and our London, England facility,
our research operations are principally run out of leased spaces in San Diego, California; Columbia, Maryland; Atlanta, Georgia;
Glasgow, Scotland; and Paris, France. Additionally, we lease office space in a variety of other metropolitan areas. These locations
include, without limitation, the following: New York; Los Angeles; Chicago; San Francisco; Sacramento; Boston; Orange County,
California; Philadelphia; Houston; Phoenix; Detroit; Pittsburgh; Miami; Orlando; Denver; Dallas; Kansas City; Cleveland;
Cincinnati; Indianapolis; Austin; Salt Lake City; Las Vegas; Seattle; Portland; St. Louis; Louisville; Minneapolis; San Luis Obispo,
California; Ontario, California; Charlotte; Durham, North Carolina; Manchester, England and Toronto, Canada.

We believe these facilities are suitable and appropriately support our business needs.

Item 3.

Legal Proceedings

Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. Certain pending legal
proceedings are discussed in Note 11 of the Notes to Consolidated Financial Statements included in this Annual Report on Form
10-K. We are not a party to any lawsuit or proceeding that, in the opinion of our management based on consultations with legal
counsel, is likely to have a material adverse effect on our financial position or results of operations.

Item 4.

Mine Safety Disclosures

Not Applicable.

PART II

Item 5.

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Price Range of Common Stock. Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.”
The following table sets forth, for the periods indicated, the high and low daily closing prices per share of our common stock, as
reported by the Nasdaq Global Select Market.

Year Ended December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year Ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

$
$
$
$

109.46
129.51
170.09
186.62

214.00
188.95
160.10
188.39

$
$
$
$

89.28
105.73
131.03
161.29

166.78
150.55
138.76
137.60

As of February 2, 2015, there were 900 holders of record of our common stock.

Dividend Policy. We have never declared or paid any dividends on our common stock. The 2014 Credit Agreement includes
covenants that, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to pay dividends or distributions.
Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable limitations
under Delaware law, and will be dependent upon our results of operations, financial position and other factors deemed relevant
by our Board of Directors. We do not anticipate paying any dividends on our common stock during the foreseeable future, but
intend to retain any earnings for future growth of our business.

Recent Issues of Unregistered Securities. We did not issue any unregistered securities during the year ended December 31,

2014.

Issuer Purchases of Equity Securities. The following table is a summary of our repurchases of common stock during each

of the three months in the quarter ended December 31, 2014:

ISSUER PURCHASES OF EQUITY SECURITIES

Month, 2014
October 1 through 31

November 1 through 30

December 1 through 31

Total

Total Number of
Shares
Purchased

Average Price Paid
per Share

—
3,273

3,331

$148.32

—
167.10

$166.78

(1)

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs

—

(1) The number of shares purchased consists of shares of common stock tendered by employees to the Company to satisfy the
employees’ minimum tax withholding obligations arising as a result of vesting of restricted stock grants under the Company’s
2007 Stock Incentive Plan, as amended, which shares were purchased by the Company based on their fair market value on
the vesting date. None of these share purchases were part of a publicly announced program to purchase common stock of the
Company.

Stock Price Performance Graph

The stock performance graph below shows how an initial investment of $100 in our common stock would have compared to:

• An equal investment in the Standards & Poor's Stock 500 (“S&P 500”) Index;

• An equal investment in the S&P 500 Internet Software & Services Index; and

The comparison covers the period beginning December 31, 2009, and ending on December 31, 2014, and assumes the
reinvestment of any dividends. You should note that this performance is historical and is not necessarily indicative of future price
performance.

Company / Index
CoStar Group, Inc.
S&P 500 Index
S&P 500 Internet Software & Services Index

12/31/09
100
100
100

12/31/10
137.80
115.06
102.56

12/31/11
159.76
117.49
107.95

12/31/12
213.96
136.30
129.36

12/31/13
441.90
180.44
192.46

12/31/14
439.62
205.14
205.16

Item 6.

Selected Consolidated Financial and Operating Data

Selected Consolidated Financial and Operating Data
(in thousands, except per share data)

The following table provides selected consolidated financial and other operating data for the five years ended December 31,
2014. The consolidated statement of operations data shown below for each of the three years ended December 31, 2012, 2013,
and 2014 and the consolidated balance sheet data as of December 31, 2013 and 2014 are derived from audited consolidated financial
statements that are included in this report. The consolidated statement of operations data for each of the years ended December 31,
2010 and 2011 and the consolidated balance sheet data as of December 31, 2010, 2011, and 2012 shown below are derived from
audited consolidated financial statements for those years that are not included in this report. Information about prior period
acquisitions that may affect the comparability of the selected financial information presented below is included in "Item 1. Business."

Consolidated Statement of Operations Data:
Revenues
Cost of revenues
Gross margin
Operating expenses
Income from operations
Interest and other income
Interest and other expense
Income before income taxes
Income tax expense, net
Net income
Net income per share — basic
Net income per share — diluted
Weighted average shares outstanding — basic
Weighted average shares outstanding — diluted

Consolidated Balance Sheet Data:
Cash, cash equivalents, short-term and long-term
investments
Working capital
Total assets
Total long-term liabilities
Stockholders’ equity

$
$
$

2010
226,260
83,599
142,661
119,886
22,775
735
—
23,510
10,221
13,289
0.65
0.64
20,330
20,707

$
$
$

Year Ended December 31,
2012
349,936
114,866
235,070
207,630
27,440
526
(4,832)
23,134
13,219
9,915
0.37
0.37
26,533
26,949

2011
251,738
88,167
163,571
141,800
21,771
798
—
22,569
7,913
14,656
0.63
0.62
23,131
23,527

2013
440,943
129,185
311,758
257,604
54,154
326
(6,943)
47,537
17,803
29,734
1.07
1.05
27,670
28,212

$
$
$

2014
575,936
156,979
418,957
338,079
80,878
516
(10,481)
70,913
26,044
44,869
1.48
1.46
30,215
30,641

2010

2011

As of December 31,
2012

2013

2014

239,316
188,279
439,648
7,252
381,502

573,379
521,401
771,035
50,076
659,177

177,726
97,925
1,165,139
237,158
826,343

277,943
196,913
1,256,982
217,567
927,862

544,163
480,521
2,083,682
450,846
1,513,546

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-
looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could
cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause
actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those
stated above in Item 1A. under the headings “Risk Factors - Cautionary Statement Concerning Forward-Looking Statements” and
“- Risk Factors,” as well as those described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation
to update such statements, whether as a result of new information, future events or otherwise. The following discussion should be
read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities
and Exchange Commission and the consolidated financial statements and related notes included in this Annual Report on Form
10-K.

Overview

CoStar Group, Inc. (the “Company” or “CoStar”) is the number one provider of information, analytics and online marketplaces
to the commercial real estate industry in the United States ("U.S.") and the United Kingdom ("U.K.") based on the fact that we
offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own
and operate the leading online marketplaces for commercial real estate in the U.S. based on the number of unique visitors per
month; provide more information, analytics and marketing services than any of our competitors and believe that we generate more
revenues than any of our competitors. We created and compiled our standardized platform of information, analytics and online
marketplace services where members of the commercial real estate and related business community can continuously interact and
facilitate transactions by efficiently exchanging accurate and standardized commercial real estate information.

We have five flagship brands - CoStar, LoopNet, Apartments.com, BizBuySell and LandsofAmerica. Our subscription-based
information services consist primarily of CoStar SuiteTM services. CoStar Suite is sold as a platform of service offerings consisting
of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and through our mobile application,
CoStarGo®. Our integrated suite of online service offerings includes information about space available for lease, comparable
sales information, information about properties for sale, tenant information, internet marketing services, analytical capabilities,
information for clients' websites, information about industry professionals and their business relationships, data integration and
industry news. We provide market research and analysis for commercial real estate investors and lenders via our CoStar Portfolio
Strategy and CoStar Market Analytics service offerings, portfolio and debt analysis, management and reporting capabilities through
our CoStar Investment Analysis and CoStar Risk Analytics service offerings, and real estate and lease management solutions,
including lease administration and abstraction services, through our CoStar Real Estate Manager service offerings.

Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land,

mixed-use and hospitality.

To more fully integrate and connect our services and, ultimately, to provide improved access to our resources, we launched
a new brand identity in May 2014. The new branding is designed to unite our flagship brands - CoStar, LoopNet, Apartments.com,
BizBuySell and LandsofAmerica - with a modern, cohesive look that will enhance customers’ access to the full breadth of our
information, analytics and online marketplace solutions. The resulting streamlined network of platforms is expected to improve
the customer experience and make it easier for customers to find the most useful tools for their commercial real estate information,
analytics and online marketplace needs. The new brand identity was unveiled in connection with the launch of our new corporate
website and newly designed website interfaces for CoStar, LoopNet and Apartments.com. Our new website interfaces provide
streamlined navigation and search functions for visitors and enable customers to quickly access our market-leading services. Since
introducing our new brand identity in May 2014, we have relaunched the Apartments.com website.

Subscription-Based Services

Our subscription-based information services consist primarily of CoStar SuiteTM services. CoStar Suite is our primary service
offering in our North America and International operating segments. Prior to the third quarter of 2014, FOCUSTM was our primary
service offering in our International operating segment. We introduced CoStar Suite in the U.K. in the fourth quarter of 2012 and
no longer offered FOCUS to new clients beginning in 2013.

As of December 31, 2013 and 2014, our annualized net new sales of subscription-based services on annual contracts were
approximately $15.8 million and $17.3 million, respectively, calculated based on the annualized amount of change in our sales
resulting from new annual subscription-based contracts or upsales on existing annual subscription-based contracts, less write
downs and cancellations, for the period reported. We recognize subscription revenue on a straight-line basis over the life of the
contract. Annual and quarterly advance payments result in deferred revenue, substantially reducing the working capital requirements
generated by accounts receivable.

For the twelve months ended December 31, 2013 and 2014, our contract renewal rate for existing CoStar subscription-based
services was approximately 93% and 92%, respectively, and therefore our cancellation rate for those services was approximately
7% and 8%, respectively, for the same time periods. Our contract renewal rate is a quantitative measurement that is typically
closely correlated with our revenue results. As a result, management also believes that the rate may be a reliable indicator of short-
term and long-term performance. Our trailing twelve-month contract renewal rate may decline if, among other reasons, negative
economic conditions lead to greater business failures and/or consolidations among our clients, reductions in customer spending,
or decreases in our customer base.

Recent Acquisition

On April 1, 2014 (the “Closing Date”), we increased our presence in the multifamily vertical by acquiring the Apartments.com
Business, a national online apartment rentals resource for renters, property managers and owners. We purchased from CV the
Apartments.com Business for $584.2 million in cash, after taking into account net working capital adjustments.

Apartments.com offers renters a database of apartment listings and provides professional property management companies
and landlords with an advertising destination. Renters can conduct personalized searches of apartment listings and view video
demonstrations and community reviews through the Apartments.com website and mobile applications. The Apartments.com
network of rental websites also includes ApartmentHomeLiving.com, another national online apartment rentals resource.

Apartments.com draws on CoStar’s multifamily database, which contains detailed information on apartment properties, and
a research effort to document the apartment industry in the U.S. CoStar designed the new Apartments.com website, which was
launched in February 2015, around the needs of the renter in order to drive traffic to the site and attract advertisers who prefer to
advertise on heavily trafficked apartment websites. The newly launched site provides a comprehensive selection of rentals,
information on actual availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools
and other important facts. To help renters find the information that meets their needs, the new site also offers innovative search
tools.

Similar to our other past acquisitions, we plan to integrate, further develop and cross-sell the services offered by the
Apartments.com Business and the other services we offer. We have incurred and plan to continue to incur product development
costs to improve the online Apartments.com platform, and we plan to increase our sales and marketing expenses in order to support
the Apartments.com Business and to increase brand awareness. In conjunction with the launch of the new Apartments.com website,
we plan to embark on a wide-scale marketing campaign commencing during the first quarter of 2015 and running throughout the
remainder of 2015 to generate brand awareness and site traffic for Apartments.com, including an incremental investment of $75.0
million above Apartments.com’s 2014 annualized marketing spend since the close of the acquisition of the Apartments.com
Business. The marketing campaign is expected to feature television and radio advertising, online/digital advertising, social media
and out-of-home ads and will be reinforced by Search Engine Marketing.

On the Closing Date, we also entered into the 2014 Credit Agreement by and among CoStar, as Borrower, CoStar Realty
Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative
Agent. The 2014 Credit Agreement provides for a $400.0 million term loan facility and a $225.0 million revolving credit facility,
each with a term of five years. The proceeds of the term loan facility and the initial borrowing of $150.0 million under the revolving
credit facility on the Closing Date were used to refinance the term loan facility and revolving credit facility established under a
credit agreement dated February 16, 2012 (the “2012 Credit Agreement”), including related fees and expenses, and to pay a portion
of the consideration and transaction costs related to the acquisition of the Apartments.com Business. The undrawn proceeds of
the revolving credit facility are available for our working capital needs and other general corporate purposes. The obligations
under the 2014 Credit Agreement are guaranteed by all of our material subsidiaries and are secured by a lien on substantially all
of our assets and those of our material subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee
documents entered into on the Closing Date.

Expansion and Development

The launch of the new Apartments.com website in February 2015 is one example of our software development efforts to
improve existing services, introduce new services, integrate products and services, and cross-sell existing services. We believe
the improved site, enhanced search capabilities, and real-time vacancies will draw more consumers, making the service more
valuable to property managers and increasing cross-selling opportunities. Another example is our introduction in October 2013
of technology enhancements to CoStar Suite, our platform of service offerings consisting of CoStar Property Professional, CoStar
COMPS Professional and CoStar Tenant. The enhancements improve CoStar Suite's user interface, search functionality and analytic
capabilities. For example, the CoStar Multifamily® information search allows users to access our extensive multifamily property
database. In addition, CoStar Lease AnalysisTM, an integrated workflow tool, provides users a simple way to produce understandable
cash flows for any proposed or existing lease. We plan to continue our software development efforts to enhance our new Lease
Analysis workflow tool and to develop other potential lease comparable services in 2015. We believe this greater functionality
will make our services valuable to an even broader audience and help us increase sales of our services to brokers, banks, owners
and institutional investors. These technology enhancements are expected to drive continued revenue growth in 2015 and for the
foreseeable future.

We continue to integrate, develop and cross-sell the services offered by the businesses we have acquired, including
Apartments.com and LoopNet. Our goal is to upsell clients to the services that best meet their needs and to create further cross-
selling revenue synergies.

We evaluate potential changes to our service offerings from time to time in order to better align the services we offer with
customers’ needs. Further, in some cases, when integrating and coordinating our services and assessing industry and client needs,
we may decide to combine, shift focus from, de-emphasize, phase out, or eliminate a service that, among other things, overlaps
or is redundant with other services we offer. In the event that we eliminate or phase out service offerings, we may experience
reduced revenues and earnings. The decision to eliminate or phase out a service offering may also ultimately result in increased
revenues and earnings from sales of other services we offer in lieu of the eliminated or phased out services. For example, we are
currently assessing whether to transition the LoopNet marketplace to a pure marketing site for commercial real estate where,
eventually, all listings would be paid and users could search the site for free. We would expect to see a short-term reduction in
revenues and earnings if we implement this transition. Although we are assessing the best strategy to implement this shift and will
seek to convert customers to higher value, more profitable annual subscription information services to increase revenues and
earnings over time, we cannot predict with certainty the amount or timing of any reductions in revenues and earnings or subsequent
increases in revenues and earnings, if any, resulting from eliminations or phasing out of the LoopNet information services or any
other service offering, if implemented.

Our revenues have increased as a result of revenue from acquired businesses and from cross-selling opportunities among the
customers of CoStar and the acquired companies. We expect to continue to achieve revenue synergies from acquisitions as a result
of cross-selling opportunities. We may incur increased expenses in connection with any related marketing and sales campaigns
involving cross-selling opportunities and initiatives and in connection with promotion of our new services and brands.

Internationally, we continue to integrate our operations more fully with those in the U.S. Similar to our North America operating
segment, we intend to continue to upgrade our international platform of services and expand the coverage of our service offerings
within our International segment. To further those initiatives, we introduced CoStar Suite in the U.K. during the fourth quarter of
2012 and no longer offered FOCUS to new clients beginning in 2013. CoStar Suite is sold as a consistent international platform
of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant and through the
Company's mobile application, CoStarGo. CoStarGo 2.0 was released in the U.K. in October 2013 simultaneous with its release
in the U.S. Additionally, we have upgraded our back-end research operations, fulfillment and Customer Relationship Management
systems to support these new U.K. services. The financial performance of our International operating segment continues to improve.
During the twelve months ended December 31, 2014, International EBITDA increased to a positive amount as a result of increased
revenue and decreased operating expenses as compared to the twelve months ended December 31, 2013. See the “Non-GAAP
Financial Measures” section included in this Annual Report on Form 10-K for further details on the non-GAAP financial measures.

We intend to continue to assess the need for additional investments in our business, in addition to the investments discussed
above in order to develop and distribute new services within our current platform or expand the reach of our current service
offerings. Any future product development or expansion of services, combination and coordination of services or elimination of
services or internal expansion, development or restructuring efforts could reduce our profitability and increase our capital
expenditures. Therefore, while we expect current service offerings to remain profitable, driving overall earnings in 2015 and
providing substantial cash flow for our business, it is possible that any new investments, changes to our service offerings or other
unforeseen events could cause us to generate losses and negative cash flow from operations in the future. Further, our credit
facilities contain restrictive covenants that restrict our operations and use of our cash flow, which may prevent us from taking
certain actions that we believe could increase our profitability or otherwise enhance our business.

Financial Matters

Our financial reporting currency is the U.S. dollar. Changes in exchange rates can significantly affect our reported results and
consolidated trends. We believe that our increasing diversification beyond the U.S. economy through our international businesses
benefits our stockholders over the long term. We also believe it is important to evaluate our operating results before and after the
effect of currency changes, as it may provide a more accurate comparison of our results of operations over historical periods.
Currency exchange rate volatility may continue, which may impact (either positively or negatively) our reported financial results
and consolidated trends and period-to-period comparisons of our consolidated operations.

We currently issue stock options and/or restricted stock to our officers, directors and employees, and as a result we record
compensation expense in our consolidated statements of operations. The amount and timing of the compensation expense that we
record depends on the amount and types of equity grants made. We plan to continue to use stock-based compensation for our
officers, directors and employees, which may include, among other things, restricted stock, restricted stock units or stock option
grants that typically will require us to record additional compensation expense in our consolidated statements of operations and
reduce our net income. Grants of equity awards may vest over time or based on achievement of pre-approved performance
conditions or market conditions.

In February 2014, the Compensation Committee (the “Committee”) of our Board of Directors approved grants of restricted
common stock to our executive officers that vest based on our achievement of a three-year cumulative revenue goal established
at the grant date, and are subject to forfeiture in the event the foregoing performance condition is not met by December 31,
2016.These grants of restricted common stock are also subject to continuing employment requirements and a market condition
based on total shareholder return (“TSR”). The actual number of shares that vest at the end of the respective three-year period is
determined based on our achievement of the three-year performance goals described above, as well as our TSR relative to the
Russell 1000 Index over the related three-year performance period. As of December 31, 2014, we reassessed the probability of
achieving the performance and market conditions and determined that it was still probable that the performance and market
conditions for these awards would be met by the December 31, 2016 forfeiture date. As a result, we recorded a total of approximately
$1.1 million of stock-based compensation expense related to the performance-based restricted common stock for the year ended
December 31, 2014. No stock-based compensation expense related to the grant of 2014 performance-based restricted common
stock was recorded for the years ended December 31, 2012 and 2013. We expect to record an estimated unrecognized stock-based
compensation expense related to the performance-based restricted common stock awards of approximately $2.7 million over the
periods 2015, 2016 and 2017.

Property Developments

As in the past, we expect to continue to identify new facilities and consolidate existing facilities to better accommodate the
changing demands of our business and employees. As a result, we may incur additional lease restructuring charges for the
abandonment of certain lease space and the impairment of leasehold improvements.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting
principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during
the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly
dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting
estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the
time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to
occur from period to period, which may have a material impact on the presentation of our financial condition and results of
operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are
determined to be necessary.

Fair Value of Auction Rate Securities

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants. There is a three-tier fair value hierarchy, which categorizes assets and liabilities by the
inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own
assumptions. Our Level 3 assets consist of auction rate securities (“ARS”), whose underlying assets are primarily student loan
securities supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of
Education.

The only significant unobservable input in the discounted cash flow model is the discount rate. The discount rate used represents
our estimate of the yield expected by a market participant from the ARS investments. The weighted average discount rate used in
the discounted cash flow model as of December 31, 2013 and 2014 was approximately 4.9% and 4.1%, respectively. Selecting
another discount rate within the range used in the discounted cash flow model would not result in a significant change to the fair
value of the ARS.

Based on this assessment of fair value, as of December 31, 2014, we determined there was a decline in the fair value of our
ARS investments of approximately $691,000. The decline was deemed to be a temporary impairment and recorded as an unrealized
loss in accumulated other comprehensive loss in stockholders’ equity. If the issuers of these ARS are unable to successfully close
future auctions and/or their credit ratings deteriorate, we may be required to record additional unrealized losses in accumulated
other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments, which would reduce
our profitability and adversely affect our financial position.

We have not made any material changes in the accounting methodology used to determine the fair value of the ARS. We do
not expect any material changes in the near term to the underlying assumptions used to determine the unobservable inputs used
to calculate the fair value of the ARS as of December 31, 2014. However, if changes in these assumptions occur, and, should those
changes be significant, we may be exposed to additional unrealized losses in accumulated other comprehensive loss or an other-
than-temporary impairment charge to earnings on these investments.

Stock-Based Compensation

We account for equity instruments issued in exchange for employee services using a fair-value based method and we recognize
the fair value of such equity instruments as an expense in the consolidated statements of operations. We estimated the fair value
of each option granted on the date of grant using the Black-Scholes option-pricing model, which requires us to estimate the dividend
yield, expected volatility, risk-free interest rate and expected life of the stock option. For equity instruments that vest based on a
market condition, we estimate the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation
model, which also requires us to estimate the dividend yield, expected volatility, risk-free interest rate and expected life of the
equity instruments. These assumptions and the estimation of expected forfeitures are based on multiple factors, including historical
employee behavior patterns of exercising options and post-employment termination behavior, expected future employee option
exercise patterns, and the historical volatility of our stock price. For equity instruments that vest based on performance, we assess
the probability of the achievement of the performance conditions at the end of each reporting period, or more frequently based
upon the occurrence of events that may change the probability of whether the performance conditions would be met. If our initial
estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing of
recognition may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-
based compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed.

We do not expect any material changes in the near term to the underlying assumptions used to calculate stock-based
compensation expense for the year ended December 31, 2014. However, if changes in these assumptions occur, and, should those
changes be significant, they could have a material impact on our stock-based compensation expense.

Valuation of Long-Lived and Intangible Assets and Goodwill

We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected
useful lives of long-lived assets and our ability to realize any undiscounted cash flows of the carrying amounts of such assets. The
accuracy of these judgments may be adversely affected by several factors, including the factors listed below:

•
•
•
•

Significant underperformance relative to historical or projected future operating results;
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
Significant negative industry or economic trends; or
Significant decline in our market capitalization relative to net book value for a sustained period.

When we determine that the carrying value of long-lived and identifiable intangible assets may not be recovered based upon

the existence of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each
reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or
more of the above indicators. We consider our operating segments, North America and International, as our reporting units under
Financial Accounting Standards Board (“FASB”) authoritative guidance for consideration of potential impairment of goodwill.

To determine whether it is necessary to perform the two-step goodwill impairment test, we may first assess qualitative factors
to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if we elect not to assess
qualitative factors, then we perform the two-step process. The first step is to determine the fair value of each reporting unit. We
estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions
and estimates including our discount rate, growth rate and future financial performance. Assumptions about the discount rate are
based on a weighted average cost of capital for comparable companies. Assumptions about the growth rate and future financial
performance of a reporting unit are based on our forecasts, business plans, economic projections and anticipated future cash flows.
Our assumptions regarding the future financial performance of the International reporting unit reflect our expectation as of October
1, 2014, that revenues will continue to increase as a result of further penetration of our international subscription-based information
services and the successful cross-selling of our services to our customers in existing markets due to the release of our upgraded
international platform and expansion of coverage of our international service offerings. These assumptions are subject to change
from period to period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real
estate conditions, and the competitive environment in which we operate. Changes in these or other factors could negatively affect
our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect
on our results of operations.

The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the
reporting unit exceeds the fair value, then the second step of the process is performed to measure the impairment loss. We measure
impairment loss based on a projected discounted cash flow method using a discount rate determined by our management to be
commensurate with the risk in our current business model. As of October 1, 2014, the date of our most recent impairment analysis,
the estimated fair value of each of our reporting units substantially exceeded the carrying value of our reporting units. There have
been no events or changes in circumstances since the date of our impairment analysis on October 1, 2014 that would indicate that
the carrying value of each reporting unit may not be recoverable.

To determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets, we may
first assess qualitative factors to evaluate whether it is more likely than not that the fair value of the indefinite-lived intangible
assets is less than the carrying amount. If we conclude that it is more likely than not that the fair value of the indefinite-lived
intangible assets is less than the carrying amount or if we elect not to assess qualitative factors, then we perform the quantitative
impairment test similar to the test performed on goodwill discussed above.

As of October 1, 2014, the date of our most recent annual impairment analysis, the estimated fair value of our indefinite-lived
intangible assets substantially exceeded the carrying value. There have been no events or changes in circumstances since the date
of our impairment analysis on October 1, 2014 that would indicate that the carrying value of the indefinite-lived intangible asset
may not be recoverable.

During the first quarter of 2014, we finalized a branding initiative plan that included, among other things, re-branding some
of the services provided by our wholly owned subsidiaries, in order to better organize, update, streamline and optimize our branding
strategy. We launched the branding initiative externally in the second quarter of 2014. Following the external launch of the branding
initiative, we ceased using certain of our trade names. We evaluated these assets for impairment during the first quarter of 2014
and determined that the carrying value of trade names we ceased using exceeded the fair value. The adjusted carrying value of
our trade name intangible assets associated with the branding initiative was amortized through the date of the external launch of
the branding initiative and the fully amortized gross carrying amount was written off during the three months ended June 30, 2014.

During the third quarter of 2014, we finalized and launched a separate marketing plan that included the re-branding of a
service provided by another one of our wholly owned subsidiaries, in order to provide our customers with a more enhanced
experience. Following the external launch of the branding initiative, we ceased using one of our trade names. We evaluated the
asset for impairment during the third quarter of 2014 and determined that the carrying value of the trade name that we ceased
using exceeded the fair value.

As a result of these branding and marketing plans during 2014, we recorded impairment charges of approximately $1.8 million
in cost of revenues in the consolidated statements of operations within our North America operating segment for the year ended
December 31, 2014.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in
each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure and assess the
temporary differences resulting from differing treatment of items, such as deferred revenue or deductibility of certain intangible
assets, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within
our consolidated balance sheets. We must then also assess the likelihood that our deferred tax assets will be recovered from future
taxable income, and, to the extent we believe that it is more-likely-than not that some portion or all of our deferred tax assets will
not be realized, we must establish a valuation allowance. To the extent we establish a valuation allowance or change the allowance
in a period, we must reflect the corresponding increase or decrease within the tax provision in the consolidated statements of
operations.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose
and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the Securities
and Exchange Commission. The non-GAAP financial measures that we may disclose include EBITDA, adjusted EBITDA, non-
GAAP net income and non-GAAP net income per diluted share (also referred to as "non-GAAP EPS"). EBITDA is our net income
before interest, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating
segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted
EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and
integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of
business. Non-GAAP net income and non-GAAP net income per diluted share are similarly adjusted for stock-based compensation
expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our
ordinary course of business as well as purchase amortization and other related costs. We may disclose adjusted EBITDA, non-
GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference
calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we use may not be
comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP
financial measures in order to help our investors more meaningfully evaluate and compare our results of operations to our previously
reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share as operating
performance measures and as such we believe that the most directly comparable GAAP financial measure is net income. In
calculating EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share, we exclude from
net income the financial items that we believe should be separately identified to provide additional analysis of the financial
components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the
material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA,
non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP
and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of
performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA,
adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial
measure, including net income. In addition, we urge investors and potential investors in our securities to carefully review the
GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are
filed with the Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial
information with our EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share.

EBITDA, adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share may be used by management
to internally measure our operating and management performance and may be used by investors as supplemental financial measures
to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and
the accompanying reconciliation, provide additional information that is useful to understand the factors and trends affecting our
business. We have spent more than 27 years building our database of commercial real estate information and expanding our markets
and services partially through acquisitions of complementary businesses. Due to the expansion of our information, analytics and
online marketplace services, which has included acquisitions, our net income has included significant charges for purchase
amortization, depreciation and other amortization, acquisition- and integration-related costs and restructuring costs. Adjusted
EBITDA, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful
information about the operating performance of our business, apart from charges for purchase amortization, depreciation and other
amortization, acquisition- and integration-related costs, restructuring costs and settlement and impairment costs incurred outside
our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and
compare our performance from quarter to quarter and from year to year. We also believe the non-GAAP measures we disclose are
measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation,
and other items, such as interest, income taxes, stock-based compensation expenses, acquisition- and integration-related costs,
restructuring costs and settlement and impairment costs incurred outside our ordinary course of business, provides additional
information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts
and others have regularly relied on EBITDA and may rely on adjusted EBITDA, non-GAAP net income or non-GAAP net income
per diluted share to provide a financial measure by which to compare our operating performance against that of other companies
in our industry.

Set forth below are descriptions of the financial items that have been excluded from our net income to calculate EBITDA and

the material limitations associated with using this non-GAAP financial measure as compared to net income:

•

Purchase amortization in cost of revenues may be useful for investors to consider because it represents the use of our
acquired database technology, which is one of the sources of information for our database of commercial real estate
information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our
operating cost structure.

Purchase amortization in operating expenses may be useful for investors to consider because it represents the estimated
attrition of our acquired customer base and the diminishing value of any acquired trade names. We do not believe these
charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

• Depreciation and other amortization may be useful for investors to consider because they generally represent the wear
and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the
current and ongoing cash charges related to our operating cost structure.

• The amount of interest income we generate may be useful for investors to consider and may result in current cash inflows.
However, we do not consider the amount of interest income to be a representative component of the day-to-day operating
performance of our business.

• The amount of interest expense we incur may be useful for investors to consider and may result in current cash outflows.
However, we do not consider the amount of interest expense to be a representative component of the day-to-day operating
performance of our business.

•

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable
for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise
available for use in our business. However, we do not consider the amount of income tax expense to be a representative
component of the day-to-day operating performance of our business.

Set forth below are descriptions of the financial items that have been excluded from our net income to calculate adjusted

EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•

Purchase amortization in cost of revenues, purchase amortization in operating expenses, depreciation and other
amortization, interest income, interest expense, and income tax expense as previously described above with respect to
the calculation of EBITDA.

Stock-based compensation expense may be useful for investors to consider because it represents a portion of the
compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a
high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized
upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude
stock-based compensation in order to better understand the long-term performance of our core business.

• The amount of acquisition- and integration-related costs incurred may be useful for investors to consider because they
generally represent professional service fees and direct expenses related to the acquisition. Because we do not acquire
businesses on a predictable cycle we do not consider the amount of acquisition- and integration-related costs to be a
representative component of the day-to-day operating performance of our business.

• The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs
incurred in connection with a change in the makeup of our properties or personnel. We do not consider the amount of
restructuring related costs to be a representative component of the day-to-day operating performance of our business.

• The amount of material settlement and impairment costs incurred outside of our ordinary course of business may be
useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters.
We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost
structure.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net
income per diluted share are purchase amortization and other related costs, stock-based compensation, acquisition- and integration-
related costs, restructuring costs and settlement and impairment costs incurred outside our ordinary course of business. These
items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated
with using this non-GAAP financial measure as compared to net income. We subtract an assumed provision for income taxes to
calculate non-GAAP net income. In 2012, 2013 and 2014, we assumed a 38% tax rate in order to approximate our long-term
effective corporate tax rate.

Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by

the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure
only to supplement our GAAP results and to provide additional information that is useful to understand the factors and trends
affecting our business.

The following table shows our EBITDA reconciled to our net income and our net cash flows from operating, investing and

financing activities for the indicated periods (in thousands):

Year Ended December 31,
2013

2014

2012

Net income
Purchase amortization in cost of revenues
Purchase amortization in operating expenses
Depreciation and other amortization
Interest income
Interest expense
Income tax expense, net
EBITDA

Net cash flows provided by (used in)

Operating activities
Investing activities
Financing activities

Consolidated Results of Operations

9,915
8,634
13,607
10,511
(526)
4,832
13,219
60,192

29,734
11,883
15,183
12,992
(326)
6,943
17,803
94,212

44,869
26,290
28,432
15,650
(516)
10,481
26,044
151,250

$
$
86,126
$ (640,398) $
$
164,941
$

108,298
143,909
$
(18,966) $ (605,987)
733,513
$
10,405

The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars

and as a percentage of total revenue):

2012

Year Ended December 31,
2013

2014

Revenues $
349,936
Cost of revenues 114,866
Gross margin 235,070
Operating expenses:

84,113
Selling and marketing
32,756
Software development
77,154
General and administrative
Purchase amortization
13,607
Total operating expenses
207,630
27,440
Income from operations
Interest and other income
526
(4,832)
Interest and other expense
23,134
Income before income taxes
Income tax expense, net
13,219
9,915
Net income $

100.0% $
32.8
67.2

440,943
129,185
311,758

100.0% $
29.3
70.7

575,936
156,979
418,957

100.0%
27.3
72.7

24.0
9.4
22.0
3.9
59.3
7.9
0.2
(1.4)
6.7
3.9
2.8% $

98,708
46,757
96,956
15,183
257,604
54,154
326
(6,943)
47,537
17,803
29,734

22.4
10.6
22.0
3.4
58.4
12.3
0.1
(1.6)
10.8
4.1
6.7% $

150,305
55,426
103,916
28,432
338,079
80,878
516
(10,481)
70,913
26,044
44,869

26.1
9.6
18.0
4.9
58.6
14.1
0.1
(1.8)
12.4
4.6
7.8%

Comparison of Year Ended December 31, 2014 and Year Ended December 31, 2013

Revenues. Revenues increased to $575.9 million in 2014, from $440.9 million in 2013. The $135.0 million increase was
primarily attributable to increased revenue of approximately $76.8 million from our April 1, 2014 acquisition of the Apartments.com
Business as well as the further penetration of our subscription-based information services and successful cross-selling of our
services to our customers in existing markets, combined with continued high renewal rates.

Gross Margin. Gross margin increased to $419.0 million in 2014, from $311.8 million in 2013. The gross margin percentage
increased to 72.7% in 2014, from 70.7% in 2013. The increase in the gross margin amount and percentage was principally due to
an increase in revenue partially offset by an increase in cost of revenues of $27.8 million primarily due to the additional cost of
revenues from our April 1, 2014 acquisition of the Apartments.com Business.

Selling and Marketing Expenses. Selling and marketing expenses increased to $150.3 million in 2014, from $98.7 million in
2013, and increased as a percentage of revenues to 26.1% in 2014, from 22.4% in 2013. The increase in the amount and percentage
of selling and marketing expenses was primarily due to the additional selling and marketing expenses from our April 1, 2014
acquisition of the Apartments.com Business.

Software Development Expenses. Software development expenses increased to $55.4 million in 2014, from $46.8 million in
2013, and decreased as a percentage of revenues to 9.6% in 2014, from 10.6% in 2013. The increase in the amount of software
development expense was primarily due to the additional software development expenses from our April 1, 2014 acquisition of
the Apartments.com Business.

General and Administrative Expenses. General and administrative expenses increased to $103.9 million in 2014, from $97.0
million in 2013, and decreased as a percentage of revenues to 18.0% in 2014 from 22.0% in 2013. The increase in the amount of
general and administrative expenses was principally due to additional general and administrative expenses from our April 1, 2014
acquisition of the Apartments.com Business.

Purchase Amortization Expense. Purchase amortization expense increased to approximately $28.4 million in 2014, from $15.2
million in 2013, and increased as a percentage of revenue to 4.9% in 2014, compared to 3.4% in 2013. The increase in the amount
and percentage of purchase amortization expense was due to additional purchase amortization expenses from our April 1, 2014
acquisition of the Apartments.com Business.

Interest and Other Income. Interest and other income increased to approximately $516,000 in 2014 compared to approximately
$326,000 in 2013. The increase was primarily due to our higher cash and cash equivalent balance in 2014 resulting from the public
equity offering completed in June 2014.

Interest and Other Expense. Interest and other expense increased to $10.5 million in 2014 compared to $6.9 million in 2013.
The increase was due to the increase in interest expense resulting from a higher outstanding long-term debt balance during 2014,
compared to 2013.

Income Tax Expense, Net. Income tax expense, net increased to $26.0 million in 2014, from $17.8 million in 2013. This

increase was primarily due to higher income before income taxes in 2014 as a result of our increased profitability.

Comparison of Business Segment Results for Year Ended December 31, 2014 and Year Ended December 31, 2013

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-
making being North America, which includes the U.S. and Canada, and International, which includes the U.K. and France.
Management relies on an internal management reporting process that provides revenue and operating segment EBITDA, which
is our net income before interest, income taxes, depreciation and amortization. Management believes that operating segment
EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by
management to internally measure our operating and management performance and to evaluate the performance of our business.
However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other
measures of financial performance prepared in accordance with GAAP.

Segment Revenues. CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional, CoStar
COMPS Professional and CoStar Tenant and through our mobile application, CoStarGo, and is our primary service offering in
our North America and International operating segments. Prior to the third quarter of 2014, FOCUS was our primary service
offering in our International operating segment. We introduced CoStar Suite in the U.K. in the fourth quarter of 2012 and no longer
offered FOCUS to new clients beginning in 2013. North America revenues increased to $552.1 million for the year ended
December 31, 2014, compared to $420.8 million for the year ended December 31, 2013. This increase in North America revenues
was primarily due to increased revenues of approximately $76.8 million from our April 1, 2014 acquisition of the Apartments.com
Business as well as further penetration of our subscription-based information services and successful cross-selling of our services
to our customers in existing markets, combined with continued high renewal rates. International revenues increased to $23.8
million for the year ended December 31, 2014, compared to $20.1 million for the year ended December 31, 2013. This increase
was primarily due to further penetration of our subscription-based information services resulting from sales of CoStar
Suite. Intersegment revenue decreased to $57,000 for the year ended December 31, 2014, compared to $339,000 for the year ended
December 31, 2013. Intersegment revenue recorded during 2014 was attributable to services performed for CoStar Portfolio
Strategy by Grecam S.A.S. (“Grecam”), a wholly owned subsidiary of CoStar Limited, the Company's wholly owned U.K. holding
company. Intersegment revenue recorded during 2013 was attributable to services performed for our wholly owned subsidiary,
CoStar Portfolio Strategy by Property and Portfolio Research Ltd., a wholly owned subsidiary of CoStar Portfolio
Strategy. Intersegment revenue is recorded at an amount we believe approximates fair value. Intersegment revenue is eliminated
from total revenues.

Segment EBITDA. North America EBITDA increased to $148.9 million for the year ended December 31, 2014, compared to
$97.3 million for the year ended December 31, 2013. The increase in North America EBITDA was due primarily to an increase
in revenues in 2014 compared to 2013. International EBITDA increased to $2.3 million for the year ended December 31, 2014,
compared to a loss of $3.1 million for the year ended December 31, 2013. This increase in International EBITDA was primarily
due to an increase in revenue and a decrease in operating expenses. North America EBITDA includes an allocation of approximately
$1.1 million and $800,000 for the years ended 2014 and 2013, respectively. This allocation represents costs incurred for International
employees involved in development activities of our North America operating segment. International EBITDA includes a corporate
allocation of approximately $300,000 and $400,000 for the years ended December 31, 2014 and 2013, respectively. This allocation
represents costs incurred for North America employees involved in management and expansion activities of our International
operating segment. See the “Non-GAAP Financial Measures” section included in this Annual Report on Form 10-K for further
details on the non-GAAP financial measures.

Comparison of Year Ended December 31, 2013 and Year Ended December 31, 2012

Revenues. Revenues increased to $440.9 million in 2013, from $349.9 million in 2012. The $91.0 million increase was
primarily attributable to increased revenue of approximately $52.8 million from our April 30, 2012 acquisition of LoopNet as well
as the further penetration of our subscription-based information services and successful cross-selling of our services to our customers
in existing markets, combined with continued high renewal rates.

Gross Margin. Gross margin increased to $311.8 million in 2013, from $235.1 million in 2012. The gross margin percentage
increased to 70.7% in 2013, from 67.2% in 2012. The increase in the gross margin amount and percentage was principally due to
an increase in revenue partially offset by an increase in cost of revenues of $14.3 million primarily due to an increase in research
personnel costs of approximately $6.4 million and an increase of approximately $3.5 million in purchase amortization from our
April 30, 2012 acquisition of LoopNet.

Selling and Marketing Expenses. Selling and marketing expenses increased to $98.7 million in 2013, from $84.1 million in
2012, and decreased as a percentage of revenues to 22.4% in 2013, from 24.0% in 2012. The increase in the amount of selling
and marketing expenses was primarily due to the additional selling and marketing expenses from our April 30, 2012 acquisition
of LoopNet.

Software Development Expenses. Software development expenses increased to $46.8 million in 2013, from $32.8 million in
2012, and increased as a percentage of revenues to 10.6% in 2013, from 9.4% in 2012. The increase in the amount and percentage
of software development expense was primarily due to increased personnel costs to support enhancements and upgrades to our
services.

General and Administrative Expenses. General and administrative expenses increased to $97.0 million in 2013, from $77.2
million in 2012, and remained relatively constant as a percentage of revenues at approximately 22.0% in 2013 and 2012. The
increase in the amount of general and administrative expenses was principally due to an increase in stock-based compensation
expense.

Purchase Amortization Expense. Purchase amortization expense increased to approximately $15.2 million in 2013, from $13.6
million in 2012, and decreased as a percentage of revenue to 3.4% in 2013, compared to 3.9% in 2012. The increase in the amount
of purchase amortization expense was due to additional purchase amortization expenses from our April 30, 2012 acquisition of
LoopNet.

Interest and Other Income. Interest and other income decreased to approximately $326,000 in 2013 compared to approximately
$526,000 in 2012. The decrease was primarily due to our lower cash and cash equivalent balance in 2013 resulting from the net
cash paid for our April 30, 2012 acquisition of LoopNet.

Interest and Other Expense. Interest and other expense increased to $6.9 million in 2013 compared to $4.8 million in 2012.
The increase was due to the additional interest expense incurred in 2013 compared to 2012, resulting from the $175.0 million
borrowed under the term loan facility on April 30, 2012 and used to fund a portion of the merger consideration and transaction
costs for the LoopNet acquisition.

Income Tax Expense, Net. Income tax expense, net increased to $17.8 million in 2013, from $13.2 million in 2012. This
increase was primarily due to higher income before income taxes in 2013 as a result of our increased profitability, partially offset
by a lower effective tax rate in 2013. The higher effective tax rate in 2012 was primarily due to costs related to the LoopNet
acquisition that reduced income from operations but were not deductible for tax purposes.

Comparison of Business Segment Results for Year Ended December 31, 2013 and Year Ended December 31, 2012

Segment Revenues. North America revenues increased to $420.8 million from $330.8 million for the years ended December 31,
2013 and 2012 respectively. This increase in North America revenue was primarily due to increased revenue of approximately
$52.8 million from our April 30, 2012 acquisition of LoopNet as well as further penetration of our subscription-based information
services and successful cross-selling of our services to our customers in existing markets, combined with continued high renewal
rates. International revenues increased to $20.1 million from $19.1 million for the years ended December 31, 2013 and 2012,
respectively. This increase was primarily due to further penetration of our subscription-based information services resulting from
sales of CoStar Suite. Intersegment revenue decreased to $339,000 for the year ended December 31, 2013, compared to $1.5
million for the year ended December 31, 2012. Intersegment revenue is attributable to services performed for CoStar Portfolio
Strategy by Property and Portfolio Research Ltd. Intersegment revenue is recorded at an amount we believe approximates fair
value. Intersegment revenue is eliminated from total revenues.

Segment EBITDA. North America EBITDA increased to $97.3 million from $70.2 million for the years ended December 31,
2013 and 2012, respectively. The increase in North America EBITDA was due primarily to an increase in revenues in 2013
compared to 2012, partially offset by an increase in personnel costs, including the stock-based compensation expense we recorded
in 2013. International EBITDA increased to a lower loss of $3.1 million for the year ended December 31, 2013 from a $10.0
million loss for the year ended December 31, 2012. This lower loss was primarily due to a decrease in personnel costs. The
International operating segment continues to experience improved financial performance and during the three months ended
December 31, 2013, International EBITDA increased to a positive amount as a result of increased revenue and decreased operating
expenses. North America EBITDA includes an allocation of approximately $800,000 and $0 for the years ended 2013 and 2012,
respectively. This allocation represents costs incurred for International employees involved in development activities of our North
America operating segment. International EBITDA includes a corporate allocation of approximately $400,000 and $5.3 million
for the years ended December 31, 2013 and 2012, respectively. This allocation represents costs incurred for North America
employees involved in management and expansion activities of our International operating segment. The corporate allocation for
the year ended December 31, 2012 consists primarily of development costs incurred for services of North America employees to
upgrade the international platform of services and expand the coverage of service offerings within the International reporting unit.

Consolidated Quarterly Results of Operations

The following tables summarize our consolidated results of operations on a quarterly basis for the indicated periods (in

thousands, except per share amounts, and as a percentage of total revenues):

Revenues

Cost of revenues

Gross margin

Operating expenses

Income (loss) from operations

Interest and other income

2013

2014

Mar. 31

Jun. 30

Sep. 30

Dec. 31 Mar. 31

Jun. 30

Sep. 30

Dec. 31

$104,033

$108,999

$112,301

$115,610

$119,076

$147,708

$153,056

$156,096

33,606

70,427

73,025

(2,598)

104

32,101

76,898

61,615

15,283

31,724

80,577

60,807

19,770

52
(1,736)

31,754

83,856

62,157

21,699

87
(1,694)

33,643

85,433

68,292

17,141

137
(1,615)

39,481

40,932

42,923

108,227

112,124

113,173

91,318

16,909

62
(3,753)

88,644

23,480

46
(2,698)

89,825

23,348

271
(2,415)

Interest and other expense

(1,755)

(1,758)

Income (loss) before income
taxes

(4,249)

13,608

18,086

20,092

15,663

13,218

20,828

21,204

Income tax expense (benefit), net
Net income (loss)

(1,839)

5,315
$ (2,410) $ 8,293

7,034
$ 11,052

7,293
$ 12,799

5,923
$ 9,740

4,969
$ 8,249

7,871
$ 12,957

7,281
$ 13,923

Net income (loss) per share —
basic

Net income (loss) per share —
diluted

(0.09) $

0.30

(0.09) $

0.29

0.40

0.39

0.46

0.45

0.34

0.28

0.41

0.40

0.44

0.43

2013

2014

Revenues

Cost of revenues

Gross margin

Operating expenses

Income (loss) from operations

Interest and other income

Interest and other expense

Income (loss) before income
taxes

Income tax expense (benefit), net

Jun. 30

Mar. 31
Dec. 31 Mar. 31
100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
32.3

Jun. 30

Dec. 31

Sep. 30

29.5

27.5

28.2

27.5

26.7

28.3

67.7

70.2

(2.5)

0.1

(1.7)

(4.1)

(1.8)

70.5

56.5

14.0

0.1

(1.6)

12.5

4.9

71.8

54.1

17.7

—
(1.5)

16.2

6.4

72.5

53.7

18.8

0.1
(1.5)

17.4

6.3
11.1%

71.7

57.3

14.4

0.1
(1.3)

13.2

5.0
8.2%

73.3

61.9

11.4

0.1
(2.5)

9.0

3.4

73.3

57.9

15.4

—
(1.8)

13.6

5.1

5.6%

8.5%

72.5

57.6

14.9

0.2
(1.5)

13.6

4.7
8.9%

Net income (loss)

(2.3)%

7.6%

9.8%

Recent Acquisitions

Apartments.com. On April 1, 2014, we purchased from CV certain assets and assumed certain liabilities, in each case, related

to the Apartments.com Business, for $584.2 million in cash, after taking into account net working capital adjustments.

Accounting Treatment. We have applied the acquisition method to account for the Apartments.com transaction which requires
that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The
purchase price was allocated to trade names, customer base, database technology, building photography, goodwill and various
other asset and liability accounts. The acquired customer base for the acquisition consists of one distinct intangible asset, is
composed of acquired customer contracts and the related customer relationships, and has an estimated useful life of 10 years. The
acquired database technology has an estimated useful life of 1 year due to our intent to replace the existing database technology
in 2015. The acquired trade names and other intangible assets have a weighted average estimated useful life of 13 years. The
acquired building photography has an estimated useful life of 3 years. Amortization of the acquired customer base is recognized
on an accelerated basis related to the expected economic benefit of the intangible asset, while amortization of the acquired database
technology, acquired building photography and acquired trade names and other intangible assets are recognized on a straight-line
basis over the estimated useful life. Goodwill for the acquisition is not amortized, but is subject to annual impairment tests. The
results of operations of Apartments.com have been consolidated with those of the Company since the date of the acquisition. See
Note 3 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further details on the
acquisition of the Apartments.com Business.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents and debt from our term loan and revolving credit facility. Total
cash and cash equivalents were $527.0 million at December 31, 2014 compared to cash and cash equivalents of $256.0 million at
December 31, 2013. The increase in cash and cash equivalents for the year ended December 31, 2014 was primarily due to $529.4
million in net proceeds from our public equity offering in June 2014 of 3,450,000 shares of common stock for $160.00 per share
and borrowings of $400.0 million under the 2014 Credit Agreement, partially offset by the net cash paid for our April 1, 2014
acquisition of the Apartments.com Business of $584.2 million and the $148.8 million repayment of the amounts owed under the
2012 Credit Agreement.

Changes in cash and cash equivalents are dependent upon changes in, among other things, working capital items such as
accounts receivable, accounts payable, various accrued expenses and deferred revenues, as well as changes in our capital structure
due to stock option exercises and similar events.

Net cash provided by operating activities for the year ended December 31, 2014 was $143.9 million compared to $108.3
million for the year ended December 31, 2013. The $35.6 million increase in net cash provided by operating activities is primarily
due to an increase of approximately $40.2 million from net income plus non-cash items, partially offset by a net decrease of
approximately $4.6 million in changes in operating assets and liabilities due to differences in timing of collection of receipts and
payments of disbursements.

Net cash used in investing activities for the year ended December 31, 2014 was $606.0 million compared to $19.0 million
for the year ended December 31, 2013. This $587.0 million increase in net cash used in investing activities in 2014 was primarily
due to $584.2 million of cash used for the acquisition of the Apartments.com Business on April 1, 2014.

Net cash provided by financing activities was $733.5 million for the year ended December 31, 2014, compared to $10.4
million for the year ended December 31, 2013. This $723.1 million increase in net cash provided by financing activities was
primarily due to proceeds of $550.0 million received under the term loan facility and revolving credit facility on April 1, 2014
and the $529.4 million in net proceeds from our public equity offering in June 2014 less the $148.8 million repayment of amounts
owed under the 2012 Credit Agreement, $150.0 million repayment of the revolving credit facility associated with the 2014 Credit
Agreement and the $10.0 million payment of debt issuance costs associated with the 2014 Credit Agreement which did not occur
during 2013.

Contractual Obligations. The following table summarizes our principal contractual obligations at December 31, 2014 and

the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

Operating leases
Long-term debt obligations(1)
Purchase obligations(2)
Total contractual principal cash obligations

Total
166,297
385,000
10,565
561,862

2015

19,442
20,000
8,513
47,955

2016-2017
37,390
$
55,000
2,006
94,396

2018-2019
33,587
$
310,000
46
343,633

2020 and
thereafter
75,878
$
—
—
75,878

(1)Long-term debt obligations include scheduled principal payments and exclude interest payments, which are based on a
variable rate of interest as defined in the Credit Agreement.

(2)Amounts do not include (i) contracts with terms of twelve months or less, or (ii) multi-year contracts that may be terminated
by a third party or us. Amounts do not include unrecognized tax benefits of $4.7 million due to uncertainty regarding the
timing of future cash payments.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and

integration efforts, and our level of acquisition activity or other strategic transactions.

During 2014, we incurred capital expenditures of approximately $27.4 million. We expect to make aggregate capital

expenditures in 2015 of approximately $30.0 million to $40.0 million, primarily related to the build out of leased office space.

In conjunction with the launch of the improved Apartments.com website, we plan to embark on a wide-scale marketing
campaign commencing during the first quarter of 2015 and running throughout the remainder of 2015, to generate brand awareness
and site traffic for Apartments.com, including an incremental investment of $75.0 million above Apartments.com’s 2014 annualized
marketing spend since the close of the acquisition of the Apartments.com Business.

To date, we have grown in part by acquiring other companies and we may continue to make acquisitions. Our acquisitions
may vary in size and could be material to our current operations. We may use cash, stock, debt or other means of funding to make
these acquisitions.

On April 1, 2014, we purchased the Apartments.com Business from CV for a purchase price of $587.1 million, which was
later reduced by approximately $2.9 million following the final determination of the net working capital of the Apartments.com
Business as of the Closing Date. On the Closing Date, we entered into the 2014 Credit Agreement by and among CoStar, as
Borrower, CoStar Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase
Bank, N.A., as Administrative Agent. We funded the purchase price for the Apartments.com Business at closing through a
combination of cash on hand and the proceeds of the term loan facility and the initial borrowing under the revolving credit facility
under the 2014 Credit Agreement. The 2014 Credit Agreement provides for a $400.0 million term loan facility and a $225.0 million
revolving credit facility, each with a term of five years. The proceeds of the term loan facility and the initial borrowing of $150.0
million under the revolving credit facility on the Closing Date were also used to refinance the term loan facility and revolving
credit facility established under the 2012 Credit Agreement, including related fees and expenses. The undrawn proceeds of the
revolving credit facility are available for our working capital needs and other general corporate purposes. As of December 31,
2014, maturities of our borrowings under the 2014 Credit Agreement for each of the next five years ended December 31, 2015 to
2019, are expected to be $20.0 million, $20.0 million, $35.0 million, $55.0 million and $255.0 million, respectively. During June
2014, we repaid the $150.0 million initial borrowing under the revolving credit facility.

The revolving credit facility includes a subfacility for swingline loans of up to $10.0 million, and up to $10.0 million of the
revolving credit facility is available for the issuance of letters of credit. The term loan facility will amortize in quarterly installments
in amounts resulting in an annual amortization of 5% during each of the first, second and third years, 10% during the fourth year
and 15% during the fifth year after the Closing Date, with the remainder payable at final maturity. The loans under the 2014 Credit
Agreement bear interest, at our option, either (i) during any interest period selected by us, at the London interbank offered rate
for deposits in U.S. dollars with a maturity comparable to such interest period, adjusted for statutory reserves (“LIBOR”), plus an
initial spread of 2.00% per annum, subject to adjustment based on our First Lien Secured Leverage Ratio (as defined in the 2014
Credit Agreement), or (ii) at the greatest of (x) the prime rate from time to time announced by JPMorgan Chase Bank, N.A., (y)
the federal funds effective rate plus ½ of 1% and (z) LIBOR for a one-month interest period plus 1.00%, plus an initial spread of
1.00% per annum, subject to adjustment based on our First Lien Secured Leverage Ratio. If an event of default occurs under the
2014 Credit Agreement, the interest rate on overdue amounts will increase by 2.00% per annum. The obligations under the 2014
Credit Agreement are guaranteed by all of our material subsidiaries and are secured by a lien on substantially all of our assets and
those of our material subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee documents entered
into on the Closing Date.

The 2014 Credit Agreement requires us to maintain (i) a First Lien Secured Leverage Ratio (as defined in the 2014 Credit
Agreement) not exceeding 4.00 to 1.00 during each full fiscal quarter after the Closing Date through the three months ended March
31, 2016, and 3.50 to 1.00 thereafter and (ii) after the incurrence of additional indebtedness under certain specified exceptions in
the 2014 Credit Agreement, a Total Leverage Ratio (as defined in the 2014 Credit Agreement) not exceeding 5.00 to 1.00 during
each full fiscal quarter after the Closing Date through the three months ended March 31, 2016, and 4.50 to 1.00 thereafter. The
2014 Credit Agreement also includes other covenants, including covenants that, subject to certain exceptions, restrict our ability
to (i) incur additional indebtedness, (ii) create, incur, assume or permit to exist any liens, (iii) enter into mergers, consolidations
or similar transactions, (iv) make investments and acquisitions, (v) make certain dispositions of assets, (vi) make dividends,
distributions and prepayments of certain indebtedness, and (vii) enter into certain transactions with affiliates.

In connection with obtaining the term loan facility and revolving credit facility pursuant to the 2014 Credit Agreement, we
incurred approximately $10.1 million in debt issuance costs as of April 1, 2014. The debt issuance costs were comprised of
approximately $9.7 million in underwriting fees and approximately $400,000 primarily related to legal fees associated with the
debt issuance. Approximately $10.0 million of the fees associated with the refinancing, along with the unamortized debt issuance
cost from the 2012 Credit Agreement, were capitalized and are amortized as interest expense over the term of the 2014 Credit
Agreement using the effective interest method.

As of December 31, 2013 and 2014, no amounts were outstanding under our revolving credit facilities. Total interest expense
for our term loan facilities and revolving credit facilities was approximately $4.8 million, $6.9 million and $10.5 million for the
years ended December 31, 2012, 2013 and 2014, respectively. Interest expense included amortized debt issuance costs of
approximately $2.0 million, $3.0 million and $3.3 million for the years ended December 31, 2012, 2013 and 2014, respectively.
Total interest paid for the term loan facilities was approximately $2.5 million, $4.3 million and $7.0 million for the years ended
December 31, 2012, 2013 and 2014, respectively.

In 2012, we granted a total of 399,413 shares pursuant to performance-based restricted common stock awards with a forfeiture
date of March 31, 2017. Upon vesting of these awards during the first quarter of 2014, consistent with minimum tax withholding
requirements, a portion of the shares subject to the awards were remitted by the employees for payment of their individual income
tax obligations. The shares remitted were canceled and we made a cash tax payment equivalent to the fair market value of the
canceled shares of approximately $31.9 million during the three months ended March 31, 2014.

Based on current plans, we believe that our available cash combined with positive cash flow provided by operating activities

should be sufficient to fund our operations for at least the next 12 months.

As of December 31, 2014, we had $18.7 million par value of long-term investments in student loan ARS, which failed to
settle at auctions. The majority of these investments are of high credit quality with AAA credit ratings and are primarily securities
supported by guarantees from the FFELP of the U.S. Department of Education. While we continue to earn interest on these
investments, the investments are not liquid in the short-term. In the event we need to immediately access these funds, we may
have to sell these securities at an amount below par value. Based on our ability to access our cash and cash equivalents and our
expected operating cash flows, we do not anticipate having to sell these investments below par value in order to operate our
business in the foreseeable future.

As more fully described in Note 11 of the Notes to Consolidated Financial Statements included in this Annual Report on Form
10-K, on January 3, 2012, LoopNet, our wholly owned subsidiary, was sued by CIVIX-DDI, LLC (“Civix”) for alleged patent
infringement, and the complaint was later amended to add CoStar as a defendant. The complaint sought unspecified damages,
attorneys' fees and costs. On December 1, 2014, we settled all outstanding litigation with Civix for $2.9 million, which was paid
on December 9, 2014.

Recent Accounting Pronouncements

In May 2014, the FASB and International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition
standard that will improve financial reporting by creating common recognition guidance for U.S. GAAP and International Financial
Reporting Standards (“IFRS”). This guidance provides a more robust framework for addressing revenue issues, improves the
comparability of revenue recognition practices across industries, provides more useful information to users of financial statements
through improved disclosure requirements and simplifies the presentation of financial statements. The core principle of the guidance
is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is
effective on a retrospective basis for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. Early application is not permitted. This guidance permits the use of either a full retrospective method or a
modified retrospective approach in which it would be applied only to the most current period presented along with a cumulative-
effect adjustment at the date of adoption. We have not yet selected a transition method and are currently evaluating the impact this
guidance will have on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We provide information, analytics and online marketplace services to the commercial real estate and related business
community in the U.S., U.K., Toronto, Canada and France. Our functional currency for our operations in the U.K., Canada and
France is the local currency. As such, fluctuations in the British Pound, Canadian dollar and Euro may have an impact on our
business, results of operations and financial position. For the year ended December 31, 2014, revenue denominated in foreign
currencies was approximately 4.7% of total revenue. For the year ended December 31, 2014, our revenue would have decreased
by approximately $236,000 if the U.S. dollar exchange rate used strengthened by 10%. In addition, we have assets and liabilities
denominated in foreign currencies. A 10% strengthening of the U.S. dollar exchange rate against all currencies with which we
have exposure at December 31, 2014 would have resulted in an increase of approximately $3.3 million in the carrying amount of
net assets. For the year ended December 31, 2014, our revenue would have increased by approximately $236,000 if the U.S. dollar
exchange rate used weakened by 10%. In addition, we have assets and liabilities denominated in foreign currencies. A 10%
weakening of the U.S. dollar exchange rate against all currencies with which we have exposure at December 31, 2014 would have
resulted in a decrease of approximately $3.3 million in the carrying amount of net assets. We currently do not use financial
instruments to hedge our exposure to exchange rate fluctuations with respect to our foreign subsidiaries. We may seek to enter
hedging transactions in the future to reduce our exposure to exchange rate fluctuations, but we may be unable to enter into hedging
transactions successfully, on acceptable terms or at all. As of December 31, 2014, accumulated other comprehensive loss included
a loss from foreign currency translation adjustments of approximately $5.7 million.

We do not have material exposure to market risks associated with changes in interest rates related to cash equivalent securities
held as of December 31, 2014. As of December 31, 2014, we had $527.0 million of cash and cash equivalents. If there is an increase
or decrease in interest rates, there will be a corresponding increase or decrease in the amount of interest earned on our cash and
cash equivalents.

As of December 31, 2014, we had $385.0 million of long-term debt bearing interest at a variable rate of LIBOR plus 2.00%,
subject to adjustment based on our First Lien Secured Leverage Ratio (as defined in the 2014 Credit Agreement). If there is an
increase or decrease in interest rates, there will be a corresponding increase or decrease in the amount of interest expense on our
long-term debt. Based on our outstanding borrowings as of December 31, 2014, an increase in the interest rate by 25 basis points
would result in an increase of approximately $1.0 million in interest expense annually. Based on our outstanding borrowings as
of December 31, 2014, a decrease in the interest rate by 25 basis points would result in a decrease of approximately $1.0 million
in interest expense annually. Based on our ability to access our cash and cash equivalents, and our expected operating cash flows,
we do not believe that increases or decreases in interest rates will impact our ability to operate our business in the foreseeable
future.

Included within our long-term investments are investments in mostly AAA-rated student loan ARS. These securities are
primarily securities supported by guarantees from the FFELP of the U.S. Department of Education. As of December 31, 2014,
auctions for $18.7 million of our investments in auction rate securities failed to settle at auction. As a result, we may not be able
to sell these investments at par value until a future auction on these investments is successful. In the event we need to immediately
liquidate these investments, we may have to locate a buyer outside the auction process, who may be unwilling to purchase the
investments at par, resulting in a loss. Based on an assessment of fair value of these investments in ARS as of December 31, 2014,
we determined that there was a decline in the fair value of our ARS investments of approximately $691,000, which was deemed
to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. If
the issuers are unable to successfully close future auctions and/or their credit ratings deteriorate, we may be required to adjust the
carrying value of these investments as a temporary impairment and recognize a greater unrealized loss in accumulated other
comprehensive loss or as an other-than-temporary impairment charge to earnings. Based on our ability to access our cash and cash
equivalents, and our expected operating cash flows, we do not anticipate having to sell these securities below par value in order
to operate our business in the foreseeable future. See Notes 4 and 5 to the Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K for further discussion.

We have approximately $1.4 billion in intangible assets as of December 31, 2014. As of December 31, 2014, we believe our
intangible assets will be recoverable, however, changes in the economy, the business in which we operate and our own relative
performance could change the assumptions used to evaluate intangible asset recoverability. In the event that we determine that an
asset has been impaired, we would recognize an impairment charge equal to the amount by which the carrying amount of the assets
exceeds the fair value of the asset. We continue to monitor these assumptions and their effect on the estimated recoverability of
our intangible assets.

Item 8.

Financial Statements and Supplementary Data

Financial Statements meeting the requirements of Regulation S-X are set forth beginning at page F-1. Supplementary data is
set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption
“Consolidated Results of Operations” and "Consolidated Quarterly Results of Operations."

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective and were operating at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Management of CoStar is responsible for establishing and maintaining adequate internal control over financial reporting and
for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange
Commission, internal control over financial reporting is a process designed by, or supervised by, the Company’s principal executive
and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with GAAP.

The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s
assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of

internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

limitations,

inherent

its

In connection with the preparation of the Company's annual financial statements, management of the Company has undertaken
an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 based on
criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“the COSO Framework”). Management's assessment included an evaluation of the
design of the Company's internal control over financial reporting and testing of the operational effectiveness of the Company's
internal control over financial reporting.

Based on this assessment, management did not identify any material weakness in the Company's internal control, and
management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2014.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company's financial statements
included in this report, has issued an attestation report on the effectiveness of internal control over financial reporting, a copy of
which is included in this Annual Report on Form 10-K.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 10.

Directors, Executive Officers and Corporate Governance

PART III

CoStar has adopted a Code of Conduct for its directors. In addition, CoStar has adopted a separate Code of Conduct for its
officers and employees, including its principal executive, financial and accounting officers, or persons performing similar functions.
Copies of each of these codes may be found in the “Investors” section of the Company’s website at http://www.costargroup.com/
investors/governance. We intend to disclose future amendments to certain provisions of our Codes, or waivers of such provisions
granted to executive officers and directors, as required by SEC rules on the website within four business days following the date
of such amendment or waiver.

The remaining information required by this Item is incorporated by reference to our Proxy Statement for our 2015 annual

meeting of stockholders.

Item 11.

Executive Compensation

The information required by this Item is incorporated by reference to our Proxy Statement for our 2015 annual meeting of

stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference to our Proxy Statement for our 2015 annual meeting of

stockholders.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to our Proxy Statement for our 2015 annual meeting of

stockholders.

Item 14.

Principal Accountant Fees and Services

The information required by this Item is incorporated by reference to our Proxy Statement for our 2015 annual meeting of

stockholders.

Item 15.

Exhibits and Financial Statement Schedules

PART IV

(a)(1) The following financial statements are filed as a part of this report: CoStar Group, Inc. Consolidated Financial Statements.

(a)(2) Financial statement schedules:

Schedule II – Valuation and Qualifying Accounts

Years Ended December 31, 2012, 2013, and 2014 (in thousands):

Allowance for Doubtful Accounts and Billing
Adjustments (1)
Year ended December 31, 2012
Year ended December 31, 2013
Year ended December 31, 2014

Balance at
Beginning
of Year

Charged to
Expense

$
$
$

2,524
2,935
3,397

$
$
$

1,456
2,317
4,822

Write-offs,
Charged to
Net of
Other
Accounts (2)
Recoveries
1,520
475
$
$
1,855
— $
$
4,285
$
881
$

Balance at
End of Year
2,935
$
3,397
$
4,815
$

(1) Additions to the allowance for doubtful accounts are charged to bad debt expense.

(2) Amounts represent opening balances from acquired businesses.

Additional financial statement schedules are omitted because they are not applicable or not required or because the required
information is incorporated herein by reference or included in the financial statements or related notes included elsewhere in this
report.

(a)(3) The documents required to be filed as exhibits to this Report under Item 601 of Regulation S-K are listed in the Exhibit

Index included elsewhere in this report, which list is incorporated herein by reference.

Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia,
on the 26th day of February 2015.

SIGNATURES

COSTAR GROUP, INC.

By:

/s/ Andrew C. Florance
Andrew C. Florance
President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints
Andrew C. Florance and Brian J. Radecki, and each of them individually, as their true and lawful attorneys-in-fact and agents,
with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments
to this report, and to file the same, with all exhibits thereto and to all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes
as he might or could do in person, herein by ratifying and confirming all that said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons

on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Capacity

Date

/s/ Michael R. Klein
Michael R. Klein

/s/ Andrew C. Florance
Andrew C. Florance

/s/ Brian J. Radecki
Brian J. Radecki

/s/ David Bonderman
David Bonderman

/s/ Michael J. Glosserman
Michael J. Glosserman

/s/ Warren H. Haber
Warren H. Haber

/s/ John W. Hill
John W. Hill

/s/ Christopher J. Nassetta
Christopher J. Nassetta

/s/ David J. Steinberg
David J. Steinberg

Chairman of the Board

February 26, 2015

Chief Executive Officer and
President and a Director
(Principal Executive Officer)

February 26, 2015

Chief Financial Officer
(Principal Financial and Accounting Officer)

February 26, 2015

February 22, 2015

February 24, 2015

February 22, 2015

February 23, 2015

Director

Exhibit
No.

2.1

2.2

3.1

3.2

4.1

*10.1

*10.2

*10.3

*10.4

*10.5

*10.6

*10.7

*10.8

*10.9

*10.10

*10.11

*10.12

*10.13

*10.14

INDEX TO EXHIBITS

Description

Agreement and Plan of Merger, dated as of April 27, 2011, by and among CoStar Group, Inc., Lonestar Acquisition
Sub, Inc. and LoopNet, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-
K filed with the Commission on April 28, 2011).

Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 20, 2011, among LoopNet, Inc., the Registrant
and Lonestar Acquisition Sub, Inc. (Incorporated by referenced to Exhibit 2.1 to Registrant’s Current Report on Form
8-K filed May 23, 2011).

Third Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant's
Current Report on Form 8-K filed with the Commission on June 6, 2013).

Third Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K filed with the Commission on September 24, 2013).

Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form
S-4 of the Registrant (Reg. No. 333-174214) filed with the Commission on June 3, 2011).

CoStar Group, Inc. 1998 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Report on Form 10-Q for the quarter ended September 30, 2005).

CoStar Group, Inc. 2007 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed June 8, 2012).

CoStar Group, Inc. 2007 Stock Incentive Plan French Sub-Plan (Incorporated by reference to Exhibit 10.3 to the
Registrant’s Report on Form 10-K for the year ended December 31, 2007).

Form of Stock Option Agreement between the Registrant and certain of its officers, directors and employees
(Incorporated by reference to Exhibit 10.8 to the Registrant’s Report on Form 10-K for the year ended December 31,
2004).

Form of Stock Option Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to
Exhibit 10.8.1 to the Registrant’s Report on Form 10-K for the year ended December 31, 2004).

Form of Restricted Stock Agreement between the Registrant and certain of its officers, directors and employees
(Incorporated by reference to Exhibit 10.9 to the Registrant’s Report on Form 10-K for the year ended December 31,
2004).

Form of 2007 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and
employees (Incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed June 22, 2007).

Form of 2007 Plan Restricted Stock Unit Agreement between the Registrant and certain of its officers and employees
(Incorporated by reference to Exhibit 10.8 to the Registrant's Report on Form 10-K for the year ended December 31,
2013).

Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and
employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s Report on Form 10-K for the year ended
December 31, 2008).

Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance
(Incorporated by reference to Exhibit 10.9 to the Registrant’s Report on Form 10-K for the year ended December 31,
2008).
Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers
and employees (Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K for the year
ended December 31, 2008).

Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its directors
(Incorporated by reference to Exhibit 10.11 to the Registrant’s Report on Form 10-K for the year ended December
31, 2008).

Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance
(Incorporated by reference to Exhibit 10.12 to the Registrant’s Report on Form 10-K for the year ended December
31, 2008).

Form of 2007 Plan French Sub-Plan Restricted Stock Agreement between the Registrant and certain of its employees
(Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K for the year ended December
31, 2007).

*10.15 CoStar Group, Inc. 2011 Incentive Bonus Plan (Incorporated by referenced to Exhibit 99.1 to the Registrant’s Current

Report on Form 8-K filed June 8, 2011).

*10.16 CoStar Group, Inc. Employee Stock Purchase Plan, as amended (Incorporated by reference to Exhibit 10.14 to the

Registrant’s Report on Form 10-K for the year ended December 31, 2010).

INDEX TO EXHIBITS — (CONTINUED)

Exhibit
No.
*10.17

*10.18

*10.19

*10.20

*10.21

*10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

21.1

23.1

31.1

31.2

32.1

32.2

Description
Summary of Non-Employee Director Compensation (Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 2013).

Employment Agreement for Andrew C. Florance (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to
the Registration Statement on Form S-1 of the Registrant (Reg. No. 333-47953) filed with the Commission on April
27, 1998).

First Amendment to Andrew C. Florance Employment Agreement, effective January 1, 2009 (Incorporated by
reference to Exhibit 10.16 to the Registrant’s Report on Form 10-K for the year ended December 31, 2008).

Executive Service Contract dated February 16, 2007, between Property Investment Exchange Limited and Paul
Marples (Incorporated by reference to Exhibit 10.14 to the Registrant’s Report on Form 10-K for the year ended
December 31, 2007).

Leaving Agreement dated February 27, 2013, between CoStar U.K. Limited and Paul Marples (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the year ended December 31, 2012).

Separation Agreement and General Release dated October 6, 2013, between CoStar Realty Information, Inc. and
Jennifer Kitchen (Incorporated by reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for the year
ended December 31, 2013).

Form of Indemnification Agreement between the Registrant and each of its officers and directors (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2004).

Agreement for Lease between CoStar UK Limited and Wells Fargo & Company, dated August 25, 2009
(Incorporated by reference to Exhibit 10.26 to the Registrant’s Report on Form 10-K for the year ended December
31, 2009).
Sub-Underlease between CoStar UK Limited and Wells Fargo & Company, dated November 18, 2009
(Incorporated by reference to Exhibit 10.28 to the Registrant’s Report on Form 10-K for the year ended December
31, 2009).
Deed of Office Lease by and between GLL L-Street 1331, LLC and CoStar Realty Information, Inc., dated
February 18, 2011, and made effective as of June 1, 2010 (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Report on form 10-Q for the quarter ended March 31, 2011).

Credit Agreement dated February 16, 2012, by and among the Registrant, as Borrower, CoStar Realty Information,
Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2012).

First Amendment dated as of April 25, 2012, to the Credit Agreement dated as of February 16, 2012, among the
Registrant, CoStar Realty Information, Inc., the Lenders from time to time party thereto and JPMorgan Chase Bank
N.A., as Administrative Agent (Incorporated by referenced to Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed April 30, 2012).

Asset Purchase Agreement, dated as of February 28, 2014, by and between Classified Ventures, LLC and CoStar
Group, Inc. (Incorporated by reference to Exhibit 10.1 to CoStar’s Current Report on Form 8-K, filed March 3,
2014).

Credit Agreement, dated as of April 1, 2014, by and among CoStar Group, Inc., as Borrower, CoStar Realty
Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A.,
as Administrative Agent (Incorporated by reference to Exhibit 10.1 to CoStar’s Current Report on Form 8-K, filed
April 4, 2014).

Subsidiaries of the Registrant (filed herewith).

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).

Certification of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).

INDEX TO EXHIBITS — (CONTINUED)

Exhibit
No.
101

Description
The following materials from CoStar Group, Inc.’s Annual Report on Form 10-K for the year ended December 31,
2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statement of Operations for
the years ended December 31, 2012, 2013 and 2014, respectively; (ii) Consolidated Statements of Comprehensive
Income for the years ended December 31, 2012, 2013 and 2014, respectively; (iii) Consolidated Balance Sheets at
December 31, 2013 and December 31, 2014, respectively; (iv) Consolidated Statements of Stockholders’ Equity for
the years ended December 31, 2012, 2013 and 2014, respectively; (v) Consolidated Statements of Cash Flows for the
years ended December 31, 2012, 2013 and 2014, respectively; (vi) Notes to the Consolidated Financial Statements
that have been detail tagged; and (vii) Schedule II – Valuation and Qualifying Accounts (submitted electronically with
this report).

* Management Contract or Compensatory Plan or Arrangement.

COSTAR GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

F-2

Consolidated Statements of Operations for the years ended December 31, 2012, 2013 and 2014

Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2013 and 2014

F-4

F-5

Consolidated Balance Sheets as of December 31, 2013 and 2014

F-6

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2012, 2013 and 2014

Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2013 and 2014

Notes to Consolidated Financial Statements

F-7

F-8

F-9

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of CoStar Group, Inc.

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. as of December 31, 2014 and 2013,
and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index
at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of CoStar Group, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
CoStar Group, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 26, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia

February 26, 2015

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of CoStar Group, Inc.

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). CoStar Group, Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CoStar Group, Inc. maintained, in all material respects, effective internal control over financial reporting as

of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of CoStar Group, Inc. as of December 31, 2014 and 2013, and the related consolidated statements
of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December
31, 2014 and our report dated February 26, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia

February 26, 2015

F-3

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Revenues
Cost of revenues
Gross margin

Operating expenses:

Selling and marketing
Software development
General and administrative
Purchase amortization

Income from operations
Interest and other income
Interest and other expense
Income before income taxes
Income tax expense, net
Net income

Net income per share — basic
Net income per share — diluted

Weighted average outstanding shares — basic
Weighted average outstanding shares — diluted

See accompanying notes.

Year Ended December 31,
2013

2014

2012

349,936
114,866
235,070

440,943
129,185
311,758

575,936
156,979
418,957

84,113
32,756
77,154
13,607
207,630
27,440
526
(4,832)
23,134
13,219
9,915

0.37
0.37

26,533
26,949

$
$

98,708
46,757
96,956
15,183
257,604
54,154
326
(6,943)
47,537
17,803
29,734

1.07
1.05

27,670
28,212

$
$

150,305
55,426
103,916
28,432
338,079
80,878
516
(10,481)
70,913
26,044
44,869

1.48
1.46

30,215
30,641

$
$

F-4

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Net income

Other comprehensive income (loss), net of tax

Foreign currency translation adjustment

Net decrease in unrealized loss on investments

Total other comprehensive income (loss)

Total comprehensive income

See accompanying notes.

Year Ended December 31,

2012

2013

2014

9,915

29,734

44,869

1,277

773

2,050

610

378

988

11,965

30,722

(1,690)
836
(854)
44,015

F-5

COSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

Current assets:

ASSETS

Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of approximately $3,397 and
$4,815 as of December 31, 2013 and 2014, respectively
Deferred and other income taxes, net
Income tax receivable
Prepaid expenses and other current assets
Debt issuance costs, net

Total current assets

Long-term investments
Property and equipment, net
Goodwill
Intangible assets, net
Deposits and other assets
Debt issuance costs, net
Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt
Accounts payable
Accrued wages and commissions
Accrued expenses
Deferred gain on the sale of building
Income taxes payable
Deferred revenue
Total current liabilities

Long-term debt, less current portion
Deferred gain on the sale of building
Deferred rent
Deferred income taxes, net
Income taxes payable
Total liabilities

December 31,

2013

2014

255,953

527,012

20,761
22,506
—
6,597
2,649
308,466

21,990
57,719
718,587
144,472
1,855
3,893
1,256,982

24,063
4,939
20,104
23,200
2,523
2,362
34,362
111,553

129,062
26,286
22,828
34,582
4,809
329,120

38,694
20,007
1,027
9,736
3,335
599,811

17,151
73,753
1,138,805
241,622
2,676
9,864
2,083,682

20,000
8,608
23,155
27,001
2,523
—
38,003
119,290

365,000
23,762
27,032
30,349
4,703
570,136

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.01 par value; 2,000 shares authorized; none outstanding
Common stock, $0.01 par value; 60,000 shares authorized; 28,848 and 32,318 issued and
outstanding as of December 31, 2013 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

Total stockholders’ equity
Total liabilities and stockholders’ equity

See accompanying notes.

—

288
863,780
(5,530)
69,324
927,862
1,256,982

323
1,405,414
(6,384)
114,193
1,513,546
2,083,682

F-6

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

Balance at December 31, 2011

Net income
Foreign currency translation adjustment
Net decrease in unrealized loss on

investments

Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock compensation expense, net of

forfeitures

Employee stock purchase plan
Consideration for LoopNet
Excess tax benefit from stock-based

compensation

Balance at December 31, 2012

Net income
Foreign currency translation adjustment
Net decrease in unrealized loss on

investments

Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock compensation expense, net of

forfeitures

Employee stock purchase plan
Excess tax benefit from stock-based

compensation

Balance at December 31, 2013

Net income
Foreign currency translation adjustment
Net decrease in unrealized loss on

investments

Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock compensation expense, net of

forfeitures

Stock issued for equity offering
Employee stock purchase plan
Excess tax benefit from stock-based

compensation

Balance at December 31, 2014

Common Stock
Shares Amount
254
$
25,426
—
—
—
—

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Stockholders’
Equity

637,816
—
—

(8,568) $
—
1,277

29,675
9,915
—

659,177
9,915
1,277

—
273
855
(96)

—
10
1,880

—
28,348
—
—

—
409
238
(158)

—
11

—
28,848
—
—

—
68
260
(321)

—
3,450
13

—
2
8
—

—
—
19

—
283
—
—

—
3
2
—

—
—

—
288
—
—

—
1
2
(2)

—
34
—

—
9,194
(8)
(4,204)

12,207
749
137,036

198
792,988
—
—

—
16,820
(2)
(8,469)

41,403
1,455

19,585
863,780
—
—

—
3,802
(2)
(50,553)

28,503
529,326
2,152

773
—
—
—

—
—
—

—
(6,518)
—
610

378
—
—
—

—
—

—
(5,530)
—
(1,690)

836
—
—
—

—
—
—

—
—
—
—

—
—
—

—
39,590
29,734
—

—
—
—
—

—
—

—
69,324
44,869
—

—
—
—
—

—
—
—

773
9,196
—
(4,204)

12,207
749
137,055

198
826,343
29,734
610

378
16,823
—
(8,469)

41,403
1,455

19,585
927,862
44,869
(1,690)

836
3,803
—
(50,555)

28,503
529,360
2,152

—
32,318

—
323

28,406
$ 1,405,414

—
(6,384) $

—
114,193

28,406
1,513,546

See accompanying notes.

F-7

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating
activities:

Year Ended December 31,

2012

2013

2014

9,915

29,734

44,869

Depreciation

Amortization

Amortization of debt issuance costs

Impairment loss

Property and equipment write-off

Excess tax benefit from stock-based compensation

Stock-based compensation expense

Deferred income tax expense (benefit), net

Provision for losses on accounts receivable

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

Income taxes payable

Prepaid expenses and other current assets

Deposits and other assets

Accounts payable and other liabilities

Deferred revenue

Net cash provided by operating activities

Investing activities:

Proceeds from sale and settlement of investments

Purchases of property and equipment and other assets

Acquisitions, net of cash acquired

Net cash used in investing activities

Financing activities:

Proceeds from long-term debt

Payments of long-term debt

Payments of debt issuance costs

Payments of deferred consideration

Excess tax benefit from stock-based compensation

Repurchase of restricted stock to satisfy tax withholding obligations

Proceeds from equity offering, net of transaction costs

Proceeds from exercise of stock options and employee stock purchase
plan

Net cash provided by financing activities

Effect of foreign currency exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

See accompanying notes.

F-8

10,053

22,699

1,989

—

122
(198)
12,282

13,643

1,456

1,295

7,598
(3,316)
1,172

1,629

5,787

86,126

15,365
(14,834)
(640,929)
(640,398)

175,000
(4,375)
(11,546)
—

198
(4,204)
—

9,868

164,941

78
(389,253)
545,280

12,495

27,563

3,014

—

104
(19,585)
41,549
(12,740)
2,317

(6,607)
29,295

2,934

399
(3,882)
1,708

108,298

76
(19,042)
—
(18,966)

—
(17,500)
—
(1,344)
19,585
(8,469)
—

18,133

10,405

189

99,926

156,027

255,953

15,111

55,261

3,312

1,799

1,004
(28,406)
28,267
(1,366)
4,822

(12,353)
24,542
(2,846)
(157)
6,078

3,972

143,909

5,675
(27,444)
(584,218)
(605,987)

550,000
(318,125)
(9,969)
(1,344)
28,406
(50,555)
529,360

5,740

733,513

(376)
271,059

255,953

527,012

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014

ORGANIZATION

CoStar Group, Inc. (the “Company” or “CoStar”) provides information, analytics and online marketplace services to the
commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate
information covering the United States (“U.S.”), the United Kingdom (“U.K.”), Toronto, Canada and parts of France. The Company
provides online marketplaces for commercial real estate listings, apartment rentals, lands for sale and businesses for sale. The
Company operates within two operating segments, North America and International, and its services are typically distributed to
its clients under subscription-based license agreements that renew automatically, a majority of which have a term of one year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating segment.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

Revenue Recognition

The Company primarily derives revenues by providing access to its proprietary database of commercial real estate information.
The Company generally charges a fixed monthly amount for its subscription-based services. Subscription contract rates are based
on the number of sites, number of users, organization size, the client’s business focus, geography and the number and types of
services to which a client subscribes. A majority of the subscription-based license agreements typically have a term of one year
and renew automatically.

Revenue is recognized when (1) there is persuasive evidence of an arrangement, (2) the fee is fixed and determinable, (3)

services have been rendered and payment has been contractually earned and (4) collectability is reasonably assured.

Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. Deferred
revenue results from advance cash receipts from customers or amounts billed in advance to customers from the sale of subscription
licenses and is recognized over the term of the license agreement.

Cost of Revenues

Cost of revenues principally consists of salaries and related expenses for the Company’s researchers who collect and analyze
the commercial real estate data that is the basis for the Company’s information, analytics and online marketplaces. Additionally,
cost of revenues includes the cost of data from third party data sources, credit card and other transaction fees relating to processing
customer transactions, which are expensed as incurred, and the amortization of acquired trade names and other intangible assets
and database technology.

Foreign Currency Translation

The Company’s functional currency in its foreign locations is the local currency. Assets and liabilities are translated into U.S.
dollars as of the balance sheet dates. Revenues, expenses, gains and losses are translated at the average exchange rates in effect
during each period. Gains and losses resulting from translation are included in accumulated other comprehensive loss. Net gains
or losses resulting from foreign currency exchange transactions are included in the consolidated statements of operations. There
were no material gains or losses from foreign currency exchange transactions for the years ended December 31, 2012, 2013 and
2014.

F-9

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED)

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

Foreign currency translation adjustment, net of tax
Accumulated net unrealized loss on investments, net of tax

Total accumulated other comprehensive loss

Year Ended December 31,

2013

2014

(4,003) $
(1,527)
(5,530) $

(5,693)
(691)
(6,384)

There were no amounts reclassified out of accumulated other comprehensive loss to the consolidated statements of operations

for the years ended December 31, 2012, 2013 and 2014, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs, which includes e-commerce, television, radio, print
and other media advertising, were approximately $6.2 million, $7.9 million and $28.7 million for the years ended December 31,
2012, 2013 and 2014, respectively.

Income Taxes

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported
in the Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the difference
between the financial statement and the tax basis of assets and liabilities using enacted rates in effect during the year in which the
differences are expected to reverse. Valuation allowances are provided against assets, including net operating losses, if it is
anticipated that some or all of an asset may not be realized through future taxable earnings or implementation of tax planning
strategies. Interest and penalties related to income tax matters are recognized in income tax expense.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted average number of common shares outstanding
during the period on a basic and diluted basis. The Company’s potentially dilutive securities include stock options and restricted
stock. Diluted net income per share considers the impact of potentially dilutive securities except in periods in which there is a net
loss, as the inclusion of the potentially dilutive common shares would have an anti-dilutive effect.

Stock-Based Compensation

Equity instruments issued in exchange for employee services are accounted for using a fair-value based method and the fair

value of such equity instruments is recognized as expense in the consolidated statements of operations.

Stock-based compensation expense is measured at the grant date of the stock-based awards that vest over set time periods
based on their fair values, and is recognized on a straight-line basis as expense over the vesting periods of the awards, net of an
estimated forfeiture rate. For equity instruments that vest based on performance, the Company assesses the probability of the
achievement of the performance conditions at the end of each reporting period, or more frequently based upon the occurrence of
events that may change the probability of whether the performance conditions would be met. If the Company's initial estimates
of the achievement of the performance conditions change, the related stock-based compensation expense and timing of recognition
may fluctuate from period to period based on those estimates. For equity instruments that vest based on a performance condition
and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-
Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition
to calculate the fair value of the awards. Stock-based compensation expense is updated based on the expected achievement of the
related performance conditions at the end of each reporting period. If the performance conditions are not met, no stock-based
compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed.

F-10

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED)

Stock-Based Compensation — (Continued)

In 2012, the Company granted performance-based restricted common stock awards that vest upon the Company’s achievement
of $90.0 million of cumulative net income before interest, income taxes, depreciation and amortization (“EBITDA”) over a period
of four consecutive calendar quarters if such performance is achieved by March 31, 2017, subject to certain approvals under the
CoStar Group, Inc. 2007 Stock Incentive Plan. As of March 31, 2014, the Company had satisfied all performance and service
conditions, and as a result, the restricted common stock granted under these awards vested. The Company recorded approximately
$0, $21.8 million and $2.2 million of stock-based compensation expense related to the 2012 performance-based restricted common
stock awards for the years ended December 31, 2012, 2013 and 2014, respectively.

In February 2014, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved grants
of restricted common stock to the executive officers that vest based on the Company’s achievement of a three-year cumulative
revenue goal established at the grant date, and are subject to forfeiture in the event the foregoing performance condition is not met
by December 31, 2016. These grants of restricted common stock are also subject to continuing employment requirements and a
market condition based on total shareholder return (“TSR”). The actual number of shares that vest at the end of the respective
three-year period is determined based on the Company’s achievement of the three-year performance goals described above, as
well as its TSR relative to the Russell 1000 Index over the related three-year performance period. As of December 31, 2014, the
Company reassessed the probability of achieving the performance and market conditions and determined that it was probable that
the performance and market conditions for these awards would be met by the December 31, 2016 forfeiture date. As a result, the
Company recorded a total of approximately $1.1 million of stock-based compensation expense related to the performance-based
restricted common stock awards with a market condition for the year ended December 31, 2014. No stock-based compensation
expense related to the grant of 2014 performance-based restricted common stock was recorded for the years ended December 31,
2012 and 2013. The Company expects to record an estimated unrecognized stock-based compensation expense related to the
performance-based restricted common stock awards of approximately $2.7 million over the periods 2015, 2016 and 2017.

Cash flows resulting from excess tax benefits are classified as part of cash flows from operating and financing activities.
Excess tax benefits represent tax benefits for stock-based compensation in excess of the associated deferred tax asset for such
equity compensation recorded as an increase to stockholders' equity. Net cash proceeds from the exercise of stock options and the
purchase of shares under the Employee Stock Purchase Plan (“ESPP”) were approximately $9.9 million, $18.1 million and $5.7
million for the years ended December 31, 2012, 2013 and 2014, respectively. The Company realized approximately $198,000,
$19.6 million and $28.4 million of excess tax benefits from stock options exercised and restricted stock awards vested for the years
ended December 31, 2012, 2013 and 2014, respectively.

Stock-based compensation expense for stock options and restricted stock issued under equity incentive plans and stock

purchases under the ESPP included in the Company’s results of operations were as follows (in thousands):

Year Ended December 31,
2013

2014

2012

2,556
Cost of revenues $
1,966
Selling and marketing
2,241
Software development
General and administrative 5,519
12,282

$
Total stock-based compensation

4,553
4,954
7,244
24,798
41,549

4,759
3,776
5,095
14,637
28,267

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist of money market fund investments and commercial paper. As of December 31, 2013 and
2014, cash of approximately $105,000 and $0, respectively, was held to support letters of credit for security deposits.

F-11

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED)

Investments

The Company determines the appropriate classification of debt and equity investments at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company considers all of its investments to be available-for-sale. The Company's
investments consist of long-term variable rate debt instruments with an auction reset feature, referred to as auction rate securities
(“ARS”). Investments are carried at fair value.

Concentration of Credit Risk and Financial Instruments

The Company performs ongoing credit evaluations of its customers’ financial conditions and generally does not require that
its customers’ obligations to the Company be secured. The Company maintains reserves for estimated inherent credit losses, and
such losses have been within management’s expectations. The large size and widespread nature of the Company’s customer base
and the Company’s lack of dependence on any individual customer mitigates the risk of nonpayment of the Company’s accounts
receivable. No single customer accounted for more than 5% of the Company’s revenues for each of the years ended December 31,
2012, 2013 and 2014. The carrying amount of the accounts receivable approximates the net realizable value. The carrying value
of the accounts receivable, accounts payable, accrued expenses and long-term debt approximates fair value.

Accounts Receivable, Net of Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount. Accounts receivable payment terms vary and amounts due from
customers are stated in the financial statements net of an allowance for doubtful accounts. The allowance for doubtful accounts is
based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by
considering factors such as historical experience, the aging of the balances, and current economic conditions that may affect a
customer’s ability to pay.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation and amortization. All repairs and maintenance
costs are expensed as incurred. Depreciation and amortization are calculated on a straight-line basis over the following estimated
useful lives of the assets:

Leasehold improvements
Furniture and office equipment
Research vehicles
Computer hardware and software

Shorter of lease term or useful life
Five to ten years
Five years
Two to five years

Qualifying internal-use software costs incurred during the application development stage, which consist primarily of internal
product development costs, outside services and purchased software license costs are capitalized and amortized over the estimated
useful life of the asset. All other costs are expensed as incurred.

F-12

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED)

Goodwill and Intangible Assets

Goodwill represents the excess of costs over the fair value of assets of acquired businesses. Goodwill and intangible assets
acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for
impairment at least annually by each reporting unit. The Company’s operating segments, North America and International, are the
reporting units tested for potential impairment. To determine whether it is necessary to perform the two-step goodwill impairment
test, the Company may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount or if the Company elects not to assess qualitative factors, then the Company performs the two-step
process. The first step is to determine the fair value of each reporting unit. The estimate of the fair value of each reporting unit is
based on a projected discounted cash flow model that includes significant assumptions and estimates including the Company's
discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average
cost of capital for comparable companies. Assumptions about the growth rate and future financial performance of a reporting unit
are based on the Company's forecasts, business plans, economic projections and anticipated future cash flows. The fair value of
each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds
the fair value, then the second step of the process is performed to measure the impairment loss. The impairment loss is measured
based on a projected discounted cash flow method using a discount rate determined by the Company’s management to be
commensurate with the risk in its current business model.

To determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets, the
Company may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of the indefinite-lived
intangible assets is less than the carrying amount. If the Company concludes that it is more likely than not that the fair value of
the indefinite-lived intangible assets is less than the carrying amount or if the Company elects not to assess qualitative factors,
then the Company performs the quantitative impairment test similar to the test performed on goodwill discussed above.

Intangible assets with estimable useful lives that arose from acquisitions on or after July 1, 2001 are amortized over their
respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up, and are reviewed at least annually for impairment.

Acquired database technology, customer base and trade names and other intangible assets are related to the Company’s
acquisitions (see Notes 3, 7 and 8). Acquired database technology is amortized on a straight-line basis over periods ranging from
one to eight years. With the exception of the acquired trade name recorded in connection with the acquisition of LoopNet, acquired
trade names and other intangible assets are amortized on a straight-line basis over periods ranging from two to fifteen years. The
acquired trade name recorded in connection with the LoopNet acquisition has an indefinite estimated useful life and is not amortized,
but is subject to annual impairment tests. The acquired intangible asset characterized as customer base consists of one distinct
intangible asset composed of acquired customer contracts and the related customer relationships. Acquired customer bases are
typically amortized on an accelerated basis related to the expected economic benefit of the intangible asset. The cost of capitalized
building photography is amortized on a straight-line basis over periods ranging from three to five years.

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair
value of the asset.

Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held
for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

F-13

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (CONTINUED)

Capitalized Product Development Costs

Product development costs are expensed as incurred until technological feasibility has been established, at which time such
costs are capitalized. Costs are capitalized, to the extent that the capitalizable costs do not exceed the realizable value of such costs,
until the product is available for general release to customers. The Company defines the establishment of technological feasibility
as the completion of all planning, designing, coding and testing activities that are necessary to establish products that meet design
specifications including functions, features and technical performance requirements. The Company’s capitalized product
development costs had a total net book value of approximately $111,000 and $0 as of December 31, 2013 and 2014, respectively.
These capitalized product development costs are included in intangible and other assets in the Company’s consolidated balance
sheets. Amortization is computed using a straight-line method over the remaining estimated economic life of the product, typically
three to five years after the software is ready for its intended use. The Company amortized capitalized product development costs
of approximately $191,000, $191,000 and $111,000 for the years ended December 31, 2012, 2013 and 2014, respectively.

Debt Issuance Costs

Costs incurred in connection with the issuance of long-term debt are capitalized and amortized as interest expense over the
term of the related debt using the effective interest method. Upon a refinancing, previously capitalized debt issuance costs are
expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification
of the related debt. If the Company determines that there has not been a substantial modification of the related debt, any previously
capitalized debt issuance costs are amortized as interest expense over the term of the new debt instrument using the effective
interest method. The Company had capitalized debt issuance costs of approximately $6.5 million and $13.2 million as of
December 31, 2013 and 2014, respectively. The debt issuance costs are associated with the financing commitment received from
JPMorgan Chase Bank, N.A. (“J.P. Morgan Bank”) on April 27, 2011, the subsequent term loan facility and revolving credit facility
established under a credit agreement dated February 16, 2012 (the “2012 Credit Agreement”), the financing commitment received
from J.P. Morgan Bank, Bank of America, N.A., SunTrust Bank and Wells Fargo Bank, National Association on February 28,
2014, and the subsequent term loan facility and revolving credit facility established under a credit agreement dated April 1, 2014
(the “2014 Credit Agreement”). See Note 9 for additional information regarding the term loan facility and revolving credit
facility. The Company amortized debt issuance costs of approximately $2.0 million, $3.0 million and $3.3 million for the years
ended December 31, 2012, 2013 and 2014, respectively.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”)
jointly issued a new revenue recognition standard that will improve financial reporting by creating common recognition guidance
for U.S. GAAP and International Financial Reporting Standards (“IFRS”). This guidance provides a more robust framework for
addressing revenue issues, improves the comparability of revenue recognition practices across industries, provides more useful
information to users of financial statements through improved disclosure requirements and simplifies the presentation of financial
statements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. This guidance is effective on a retrospective basis for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Early application is not permitted. This guidance permits the use of
either a full retrospective method or a modified retrospective approach in which it would be applied only to the most current period
presented along with a cumulative-effect adjustment at the date of adoption. The Company has not yet selected a transition method
and is currently evaluating the impact this guidance will have on its financial statements.

F-14

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

ACQUISITION

On February 28, 2014, the Company and Classified Ventures, LLC (“CV”) entered into an Asset Purchase Agreement (the
“Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, on April 1, 2014 (the “Closing Date”), the Company
purchased from CV certain assets and assumed certain liabilities, in each case, related to the Apartments.com business (collectively,
the “Apartments.com Business”). Apartments.com is a national online apartment rentals resource for renters, property managers
and owners. Apartments.com offers renters a database of apartment listings and provides professional property management
companies and landlords with an advertising destination. Renters can conduct personalized searches of apartment listings and
view video demonstrations and community reviews through the Apartments.com website and mobile applications. The
Apartments.com network of rental websites also includes ApartmentHomeLiving.com, another national online apartment rentals
resource. The acquisition increased the Company's presence in the multifamily vertical.

In consideration for the purchase of the Apartments.com Business, on April 1, 2014, the Company paid $587.1 million in
cash, including an estimated $2.1 million in connection with a preliminary net working capital adjustment as of the Closing Date.
Pursuant to the terms of the Asset Purchase Agreement, the purchase price was reduced by approximately $2.9 million following
the final determination of the net working capital of the Apartments.com Business as of the Closing Date, and CV paid the Company
$2.9 million on July 9, 2014.

The Company applied the acquisition method to account for the Apartments.com transaction, which requires that, among
other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The following table
summarizes the amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):

Accounts receivable
Goodwill
Acquired trade names and other intangible assets
Acquired customer base
Acquired database technology
Acquired building photography
Other assets and liabilities

Fair value of identifiable net assets acquired

11,402
421,724
71,779
69,684
11,489
1,006
(2,866)
$ 584,218

The net assets of Apartments.com were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair
value estimates were based on, but were not limited to, future expected cash flows, market rate assumptions for contractual
obligations, and appropriate discount rates.

The acquired customer base for the acquisition consists of one distinct intangible asset, is composed of acquired customer
contracts and the related customer relationships, and has an estimated useful life of ten years. The acquired database technology
has an estimated useful life of one year due to the Company's intent to replace the existing database technology in 2015. The
acquired trade names and other intangible assets have a weighted average estimated useful life of thirteen years. The acquired
building photography has an estimated useful life of three years. Amortization of the acquired customer base is recognized on an
accelerated basis related to the expected economic benefit of the intangible asset, while amortization of the acquired database
technology, acquired building photography and acquired trade names and other intangible assets are recognized on a straight-line
basis over the estimated useful life. Goodwill recorded in connection with this acquisition is not amortized, but is subject to annual
impairment tests. The $421.7 million of goodwill recorded as part of the acquisition is associated with the Company's North
America operating segment and the entire amount of goodwill is expected to be deductible for income tax purposes in future
periods.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future
economic benefits arising from other assets acquired that could not be individually identified and separately recognized.
Specifically, the goodwill recorded as part of the Apartments.com acquisition includes: (i) the expected synergies and other benefits
that the Company believes will result from combining its operations with Apartments.com's operations; and (ii) any intangible
assets that do not qualify for separate recognition, such as the assembled workforce.

F-15

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

ACQUISITIONS — (CONTINUED)

The Company's consolidated revenue for the year ended December 31, 2014, included $76.8 million from the Apartments.com
Business. The Company's consolidated income before income taxes for the year ended December 31, 2014, included a $23.9
million loss before income taxes from the Apartments.com Business. The Company's consolidated revenue and income before
income taxes for the years ended December 31, 2012 and 2013 did not include any amount from the Apartments.com Business.

The following unaudited pro forma amounts present consolidated information as if the acquisition had been completed as of

January 1, 2013 (in thousands except per share data):

Revenue

Net income

Net income per share — basic

Net income per share — diluted

Year Ended December 31,

2013

526,811

14,432

0.52

0.51

2014

598,340

51,649

1.71

1.69

This information is based on historical results of operations, adjusted for the allocation of purchase price and other acquisition
accounting adjustments, including: (i) the amortization associated with the acquired intangible assets; (ii) interest expense
associated with debt used to fund a portion of the acquisition; and (iii) income tax expense associated with pro forma adjustments
and the historical results of Apartments.com calculated at a tax rate of 38%. The unaudited pro forma results do not include: (i)
any potential synergies, cost savings or other expected benefits of the acquisition and (ii) the non-recurring acquisition costs
incurred through the date of acquisition. Accordingly, the unaudited pro forma amounts are for comparative purposes only and
may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning
of the applicable period and may not be indicative of the results that will be attained in the future.

As a result of the acquisition of the Apartments.com Business, the Company recorded approximately $1.4 million in acquisition-
related costs for the year ended December 31, 2014. These costs include expenses directly related to acquiring the Apartments.com
Business, are expensed as incurred and are recorded in general and administrative expense. The Company did not record any
acquisition-related costs for the year ended December 31, 2013 and recorded approximately $5.2 million in acquisition-related
costs for the year ended December 31, 2012 as a result of the acquisition of LoopNet on April 30, 2012.

INVESTMENTS

Scheduled maturities of investments classified as available-for-sale as of December 31, 2014 are as follows (in thousands):

Maturity
Due in:
2015
2016 — 2019
2020 — 2024
2025 and thereafter

Available-for-sale investments

Fair Value

—
822
—
16,329
17,151

The Company had no realized gains on its investments for the years ended December 31, 2012, 2013 and 2014, respectively. The
Company had no realized losses on its investments for the years ended December 31, 2012, 2013 and 2014, respectively. Realized
gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis.

F-16

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

INVESTMENTS — (CONTINUED)

Changes in unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of accumulated other comprehensive loss in stockholders’ equity until realized.
A decline in market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a
reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when earned.

As of December 31, 2014, the amortized cost basis and fair value of investments classified as available-for-sale were as follows

(in thousands):

Auction rate securities

Available-for-sale investments

Amortized
Cost

$
$

17,842
17,842

$
$

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

380
380

$
$

(1,071) $
(1,071) $

17,151
17,151

As of December 31, 2013, the amortized cost basis and fair value of investments classified as available-for-sale were as follows

(in thousands):

Auction rate securities

Available-for-sale investments

Amortized
Cost

$
$

23,517
23,517

$
$

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

411
411

$
$

(1,938) $
(1,938) $

21,990
21,990

The unrealized losses on the Company’s investments as of December 31, 2013 and 2014 were generated primarily from
changes in interest rates and ARS that failed to settle at auction, due to adverse conditions in the global credit markets. The losses
are considered temporary, as the contractual terms of these investments do not permit the issuer to settle the security at a price less
than the amortized cost of the investment. Because the Company does not intend to sell these instruments and it is not more likely
than not that the Company will be required to sell these instruments prior to anticipated recovery, which may be at maturity, the
Company does not consider these investments to be other-than-temporarily impaired as of December 31, 2013 and 2014. See Note
5 for further discussion of the fair value of the Company’s financial assets.

The components of the Company’s investments in an unrealized loss position for twelve months or longer were as follows

(in thousands):

Auction rate securities

Investments in an unrealized loss position

December 31,

2013

2014

Aggregate
Fair
Value

Gross
Unrealized
Losses

Aggregate
Fair
Value

Gross
Unrealized
Losses

$
$

21,137
21,137

$
$

(1,938) $
(1,938) $

16,329
16,329

$
$

(1,071)
(1,071)

The Company did not have any investments in an unrealized loss position for less than twelve months as of December 31,

2013 and 2014, respectively.

F-17

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

FAIR VALUE

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants. There is a three-tier fair value hierarchy, which categorizes the inputs used in measuring
fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets
or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;
and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its
own assumptions.

The following table represents the Company's fair value hierarchy for its financial assets (cash, cash equivalents and

investments) measured at fair value on a recurring basis as of December 31, 2014 (in thousands):

Assets:

Cash
Money market funds
Commercial paper
Auction rate securities

Total assets measured at fair value

Level 1

Level 2

Level 3

Total

160,275
310,482
56,255
—
527,012

— $
—
—
—
— $

— $
—
—
17,151
17,151

160,275
310,482
56,255
17,151
544,163

The following table represents the Company's fair value hierarchy for its financial assets (cash, cash equivalents and

investments) and liabilities measured at fair value on a recurring basis as of December 31, 2013 (in thousands):

Assets:

Cash
Money market funds
Commercial paper
Auction rate securities

Total assets measured at fair value
Liabilities:

Deferred consideration

Total liabilities measured at fair value

Level 1

Level 2

Level 3

Total

$
$

134,989
50,593
70,371
—
255,953

— $
— $

— $
—
—
—
— $

— $
— $

— $
—
—
21,990
21,990

134,989
50,593
70,371
21,990
277,943

1,344
1,344

$
$

1,344
1,344

The Company’s Level 3 assets consist of ARS, whose underlying assets are primarily student loan securities supported by

guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education.

F-18

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

FAIR VALUE — (CONTINUED)

The following table summarizes changes in fair value of the Company’s Level 3 assets from December 31, 2008 to December 31,

2014 (in thousands):

Balance at December 31, 2008

Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2009

Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2010

Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2011

Auction rate securities upon acquisition
Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2012

Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2013

Decrease in unrealized loss included in accumulated other comprehensive loss
Settlements

Balance at December 31, 2014

Auction
Rate
Securities

29,340
684
(300)
29,724
40
(575)
29,189
245
(4,850)
24,584
442
836
(4,200)
21,662
378
(50)
21,990
836
(5,675)
17,151

ARS are variable rate debt instruments whose interest rates are reset approximately every 28 days. The majority of the

underlying securities have contractual maturities greater than twenty years. The ARS are recorded at fair value.

As of December 31, 2014, the Company held ARS with $18.7 million par value, all of which failed to settle at auction. The
majority of these investments are of high credit quality with AAA credit ratings and are primarily student loan securities supported
by guarantees from the FFELP of the U.S. Department of Education. The Company may not be able to liquidate and fully recover
the carrying value of the ARS in the near term. As a result, these securities are classified as long-term investments in the Company’s
consolidated balance sheet as of December 31, 2014.

While the Company continues to earn interest on its ARS investments at the contractual rate, these investments are not currently
actively trading and therefore do not currently have a readily determinable market value. The estimated fair value of the ARS no
longer approximates par value. The Company used a discounted cash flow model to determine the estimated fair value of its
investment in ARS as of December 31, 2014. The assumptions used in preparing the discounted cash flow model include estimates
for interest rates, credit spreads, timing and amount of contractual cash flows, liquidity risk premiums, expected holding periods
and default risk. The Company updates the discounted cash flow model on a quarterly basis to reflect any changes in the assumptions
used in the model and settlements of ARS investments that occurred during the period.

The only significant unobservable input in the discounted cash flow model is the discount rate. The discount rate used represents
the Company's estimate of the yield expected by a market participant from the ARS investments. The weighted average discount
rate used in the discounted cash flow model as of December 31, 2013 and 2014 was approximately 4.9% and 4.1%, respectively.
Selecting another discount rate within the range used in the discounted cash flow model would not result in a significant change
to the fair value of the ARS.

F-19

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

FAIR VALUE — (CONTINUED)

Based on this assessment of fair value, as of December 31, 2014, the Company determined there was a decline in the fair
value of its ARS investments of approximately $691,000. The decline was deemed to be a temporary impairment and recorded as
an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. In addition, while a majority of the ARS are
currently rated AAA, if the issuers are unable to successfully close future auctions and/or their credit ratings deteriorate, the
Company may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-
temporary impairment charge to earnings on these investments.

As of December 31, 2014, the Company had no Level 3 liabilities. As of December 31, 2013, the Company held Level 3
liabilities for deferred consideration that it acquired as a result of the April 30, 2012 acquisition of LoopNet. The deferred
consideration included potential deferred cash payments in connection with acquisitions LoopNet completed in 2010 including:
(i) potential deferred cash payments due to the sellers of LandsofAmerica.com, LLC ("LandsofAmerica") on March 31, 2014
based on LandsofAmerica's achievement of financial and operational milestones, resulting in undiscounted deferred consideration
as of December 31, 2013 of approximately $1.0 million; and (ii) potential deferred cash payments due to the sellers of CoStar
Private Sale NetworkTM (formerly known as Reaction Corp. (“Reaction Web”)) on March 31, 2014 based on CoStar Private Sale
Network's achievement of revenue milestones, resulting in undiscounted deferred consideration as of December 31, 2013 of
approximately $344,000. On March 28, 2013, the Company paid $1.0 million to the sellers of LandsofAmerica for the achievement
of financial and operational milestones in 2012 and paid approximately $344,000 to the sellers of CoStar Private Sale Network
for the achievement of revenue milestones in 2012. On March 31, 2014, the Company paid $1.0 million to the sellers of
LandsofAmerica for the achievement of financial and operational milestones in 2013 and paid approximately $344,000 to the
sellers of CoStar Private Sale Network for the achievement of revenue milestones in 2013.

The following table summarizes changes in fair value of the Company’s Level 3 liabilities from December 31, 2012 to

December 31, 2014 (in thousands):

Balance at December 31, 2012

Accretion for 2013
Payments made in 2013
Balance at December 31, 2013
Payments made in 2014
Balance at December 31, 2014

Deferred
Consideration
2,304
$
384
(1,344)
1,344
(1,344)
—

The Company used a discounted cash flow model to determine the estimated fair value of its Level 3 liabilities. The assumptions
used in preparing the discounted cash flow model include the discount rate and probabilities for completion of financial and
operational milestones.

The only significant unobservable input in the discounted cash flow model used to determine the estimated fair value of the
Company's Level 3 liabilities was the discount rate. The discount rate used represented LoopNet's cost of equity at the time of
each acquisition plus a margin for counterparty risk.

F-20

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

Leasehold improvements
Furniture, office equipment and research vehicles
Computer hardware and software
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net

December 31,

2013

2014

36,933
27,395
36,391
100,719
(43,000)
57,719

42,026
31,016
49,655
122,697
(48,944)
73,753

Depreciation expense for property and equipment was approximately $10.1 million, $12.5 million and $15.1 million for the

years ended December 31, 2012, 2013 and 2014, respectively.

GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):

North America

International

Total

Goodwill, December 31, 2012

692,639

25,439

Effect of foreign currency translation

Goodwill, December 31, 2013

Acquisitions

Effect of foreign currency translation

—

692,639

421,724

—

Goodwill, December 31, 2014

1,114,363

509

25,948

—
(1,506)
24,442

718,078

509

718,587

421,724
(1,506)
1,138,805

The Company recorded goodwill of approximately $421.7 million in connection with the April 1, 2014 acquisition of the

Apartments.com Business.

During the fourth quarters of 2012, 2013 and 2014, the Company completed the annual impairment test of goodwill and

concluded that goodwill was not impaired.

F-21

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands, except amortization period data):

December 31,

2013

2014

Weighted-
Average
Amortization
Period
(in years)

Capitalized product development cost

Accumulated amortization

Capitalized product development cost, net

2,140
(2,029)
111

Building photography

Accumulated amortization

Building photography, net

Acquired database technology

Accumulated amortization

Acquired database technology, net

Acquired customer base

Accumulated amortization

Acquired customer base, net

Acquired trade names and other intangible assets(1)
Accumulated amortization

Acquired trade names and other intangible assets, net

13,743
(12,005)
1,738

77,368
(41,073)
36,295

130,960
(74,734)
56,226

59,336
(9,234)
50,102

2,140
(2,140)
—

14,943
(12,665)
2,278

88,739
(60,498)
28,241

199,826
(102,443)
97,383

128,171
(14,451)
113,720

Intangible assets, net

144,472

241,622

(1) The weighted-average amortization period for acquired trade names excludes $48.7 million for acquired trade names
recorded in connection with the LoopNet acquisition on April 30, 2012, which amount is not amortized, but is subject to
annual impairment tests.

Amortization expense for intangible assets was approximately $22.7 million, $27.6 million and $55.3 million for the years

ended December 31, 2012, 2013 and 2014, respectively.

In the aggregate, amortization for intangible assets existing as of December 31, 2014 for future periods is expected to be
approximately $48.5 million, $36.2 million, $22.4 million, $14.9 million and $12.9 million for the years ending December 31,
2015, 2016, 2017, 2018 and 2019, respectively.

During the fourth quarter of 2014, the Company completed the annual impairment test of the acquired trade name recorded

in connection with the LoopNet acquisition and concluded that this indefinite-lived intangible asset was not impaired.

During the first quarter of 2014, the Company finalized a branding initiative plan that included, among other things, re-
branding some of the services provided by its wholly owned subsidiaries, in order to better organize, update, streamline and
optimize the Company’s branding strategy. The Company launched the branding initiative externally in the second quarter of 2014.
Following the external launch of the branding initiative, the Company ceased using certain of its trade names. The Company
evaluated these assets for impairment during the first quarter of 2014 and determined that the carrying value of trade names that
the Company ceased using exceeded the fair value. The adjusted carrying value of the Company's trade name intangible assets
associated with the branding initiative was amortized through the date of the external launch of the branding initiative and the
fully amortized gross carrying amount was written off during the three months ended June 30, 2014.

F-22

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

INTANGIBLE ASSETS — (CONTINUED)

During the third quarter of 2014, the Company finalized and launched a separate marketing plan that included the re-branding
of a service provided by another one of its wholly owned subsidiaries, in order to provide its customers with a more enhanced
experience. Following the external launch of the marketing plan, the Company ceased using one of its trade names. The Company
evaluated the asset for impairment during the third quarter of 2014 and determined that the carrying value of the trade name that
the Company ceased using exceeded the fair value.

As a result of these branding and marketing plans, during 2014, the Company recorded impairment charges of approximately
$1.8 million in cost of revenues in the consolidated statements of operations within its North America operating segment for the
year ended December 31, 2014.

LONG-TERM DEBT

On April 1, 2014, the Company entered into the 2014 Credit Agreement by and among the Company, as Borrower, CoStar
Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent. The 2014 Credit Agreement provides for a $400.0 million term loan facility and a $225.0 million revolving
credit facility, each with a term of five years. The proceeds of the term loan facility and the initial borrowing of $150.0 million
under the revolving credit facility on the Closing Date were used to refinance the 2012 Credit Agreement, including related fees
and expenses, and to pay a portion of the consideration and transaction costs related to the acquisition of the Apartments.com
Business. The undrawn proceeds of the revolving credit facility are available for the Company's working capital needs and other
general corporate purposes. During June 2014, the Company repaid the $150.0 million initial borrowing under the revolving credit
facility. The carrying value of the term loan facility approximates fair value and can be estimated through Level 3 unobservable
inputs using an expected present value technique based on expected cash flows discounted using the current credit-adjusted risk-
free rate, which approximates the rate of interest on the term loan facility at origination.

Effective April 1, 2014, the Company terminated the 2012 Credit Agreement and repaid all amounts outstanding thereunder,
which amounts totaled $148.8 million. The Company evaluated the debt modification and determined that the modification did
not qualify as an extinguishment of debt because the change in the present value of future cash flows between the initial term loan
facility under the 2012 Credit Agreement and the new term loan facility under the 2014 Credit Agreement was not considered a
substantial modification.

The revolving credit facility includes a subfacility for swingline loans of up to $10.0 million, and up to $10.0 million of the
revolving credit facility is available for the issuance of letters of credit. The term loan facility will amortize in quarterly installments
in amounts resulting in an annual amortization of 5% during each of the first, second and third years, 10% during the fourth year
and 15% during the fifth year after the Closing Date, with the remainder payable at final maturity. The loans under the 2014 Credit
Agreement bear interest, at the Company's option, either (i) during any interest period selected by the Company, at the London
interbank offered rate for deposits in U.S. dollars with a maturity comparable to such interest period, adjusted for statutory reserves
(“LIBOR”), plus an initial spread of 2.00% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio (as
defined in the 2014 Credit Agreement) of the Company, or (ii) at the greatest of (x) the prime rate from time to time announced
by JPMorgan Chase Bank, N.A., (y) the federal funds effective rate plus ½ of 1% and (z) LIBOR for a one-month interest period
plus 1.00%, plus an initial spread of 1.00% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio of
the Company. If an event of default occurs under the 2014 Credit Agreement, the interest rate on overdue amounts will increase
by 2.00% per annum. The obligations under the 2014 Credit Agreement are guaranteed by all material subsidiaries of the Company
and are secured by a lien on substantially all of the assets of the Company and those of its material subsidiaries, in each case subject
to certain exceptions, pursuant to security and guarantee documents entered into on the Closing Date.

The 2014 Credit Agreement requires the Company to maintain (i) a First Lien Secured Leverage Ratio (as defined in the 2014
Credit Agreement) not exceeding 4.00 to 1.00 during each full fiscal quarter after the Closing Date through the three months ended
March 31, 2016, and 3.50 to 1.00 thereafter and (ii) after the incurrence of additional indebtedness under certain specified exceptions
in the 2014 Credit Agreement, a Total Leverage Ratio (as defined in the 2014 Credit Agreement) not exceeding 5.00 to 1.00 during
each full fiscal quarter after the Closing Date through the three months ended March 31, 2016, and 4.50 to 1.00 thereafter. The
2014 Credit Agreement also includes other covenants, including covenants that, subject to certain exceptions, restrict the ability
of the Company and its subsidiaries to (i) incur additional indebtedness, (ii) create, incur, assume or permit to exist any liens, (iii)
enter into mergers, consolidations or similar transactions, (iv) make investments and acquisitions, (v) make certain dispositions
of assets, (vi) make dividends, distributions and prepayments of certain indebtedness, and (vii) enter into certain transactions with
affiliates. The Company was in compliance with the covenants in the 2014 Credit Agreement as of December 31, 2014.

F-23

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

LONG-TERM DEBT — (CONTINUED)

In connection with obtaining the term loan facility and revolving credit facility pursuant to the 2014 Credit Agreement, the
Company incurred approximately $10.1 million in debt issuance costs as of April 1, 2014. The debt issuance costs were comprised
of approximately $9.7 million in underwriting fees and approximately $400,000 primarily related to legal fees associated with the
debt issuance. Approximately $10.0 million of the fees associated with the refinancing, along with the unamortized debt issuance
cost from the 2012 Credit Agreement were capitalized and are amortized as interest expense over the term of the 2014 Credit
Agreement using the effective interest method.

As of December 31, 2013 and 2014, no amounts were outstanding under the revolving credit facilities. Total interest expense
for the term loan facilities and revolving credit facilities was approximately $4.8 million, $6.9 million and $10.5 million for the
years ended December 31, 2012, 2013 and 2014, respectively. Interest expense included amortized debt issuance costs of
approximately $2.0 million, $3.0 million and $3.3 million for the years ended December 31, 2012, 2013 and 2014, respectively.
Total interest paid for the term loan facilities was approximately $2.5 million, $4.3 million and $7.0 million for the years ended
December 31, 2012, 2013 and 2014, respectively.

Maturities of the Company's borrowings under the Credit Agreement for each of the next five years as of December 31, 2014

are as follows (in thousands):

Year ending December 31,

Due in:

2015

2016

2017

2018

2019

Long-term debt, including current maturities

10.

INCOME TAXES

Maturities

20,000

35,000

55,000

255,000

385,000

The components of the provision (benefit) for income taxes attributable to operations consist of the following (in thousands):

Current:

Federal
State
Foreign
Total current
Deferred:

Federal
State
Foreign

Total deferred
Total provision for income taxes

Year Ended December 31,
2013

2014

2012

(2,260) $
1,974
55
(231)

15,512
(2,067)
5
13,450
13,219

26,516
3,996
31
30,543

(10,919)
(1,849)
28
(12,740)
17,803

24,741
2,761
53
27,555

(698)
(813)
—
(1,511)
26,044

F-24

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

10.

INCOME TAXES — (CONTINUED)

The components of deferred tax assets and liabilities consists of the following (in thousands):

December 31,

2013

2014

Deferred tax assets:

Reserve for bad debts
Accrued compensation
Stock compensation
Net operating losses
Accrued reserve and other
Unrealized loss on securities
Deferred rent
Deferred revenue
Deferred gain on the sale of building

Total deferred tax assets

Deferred tax liabilities:

Prepaids
Depreciation
Intangibles

Total deferred tax liabilities

1,274
6,725
13,381
17,457
4,284
786
4,329
1,538
11,499
61,273

(1,096)
(6,033)
(55,284)
(62,413)

Net deferred tax liabilities, prior to valuation allowance
Valuation allowance
Net deferred tax liabilities

(1,140)
(10,936)
(12,076) $

1,825
7,287
8,758
15,665
3,360
491
5,902
1,879
10,690
55,857

(1,258)
(9,806)
(47,720)
(58,784)

(2,927)
(7,783)
(10,710)

As of December 31, 2013 and 2014, a valuation allowance has been established for certain deferred tax assets due to the
uncertainty of realization. The valuation allowance as of December 31, 2013 includes an allowance for unrealized losses on ARS
investments, foreign deferred tax assets and certain state net operating loss carryforwards. The valuation allowance as of
December 31, 2014 includes an allowance for unrealized losses on ARS investments and foreign deferred tax assets. The valuation
allowance for the deferred tax asset for unrealized losses on ARS has been recorded as an adjustment to accumulated other
comprehensive loss.

The Company established the valuation allowance because it is more likely than not that a portion of the deferred tax asset
for certain items will not be realized based on the weight of available evidence. A valuation allowance was established for the
unrealized losses on securities as the Company has not historically generated capital gains, and it is uncertain whether the Company
will generate sufficient capital gains in the future to absorb the capital losses. A valuation allowance was established for the foreign
deferred tax assets due to the cumulative loss in recent years in those jurisdictions. The Company has not had sufficient taxable
income historically to utilize the foreign deferred tax assets, and it is uncertain whether the Company will generate sufficient
taxable income in the future to utilize the deferred tax assets. Similarly, the Company has established a valuation allowance for
net operating losses in certain states where it is uncertain whether the Company will generate sufficient taxable income to utilize
the net operating losses before the losses expire.

The Company’s change in valuation allowance was an increase of approximately $446,000 for the year ended December 31,
2013 and a decrease of approximately $3.2 million for the year ended December 31, 2014. The decrease for the year ended
December 31, 2014 is due to a decrease in the valuation allowance for U.S. deferred tax assets of approximately $2.3 million
primarily related to the write-off of tax credits and state net operating loss carryforwards and a decrease in the amount of unrealized
losses on investments as well as the decrease in the valuation allowance for foreign deferred tax assets of approximately $835,000.

F-25

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

10.

INCOME TAXES — (CONTINUED)

The Company had U.S. income before income taxes of approximately $36.1 million, $53.2 million and $70.6 million for the
years ended December 31, 2012, 2013 and 2014, respectively. The Company had foreign losses of approximately $13.0 million
and $5.6 million for the years ended December 31, 2012 and 2013, respectively. The Company had foreign income before income
taxes of approximately $273,000 for the year ended December 31, 2014.

The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax

rate as follows (in thousands):

Expected federal income tax provision at statutory rate
State income taxes, net of federal benefit
Foreign income taxes, net effect
Stock compensation
Increase (decrease) in valuation allowance
Nondeductible compensation
Nondeductible transaction costs
Other adjustments

Income tax expense, net

Year Ended December 31,
2013

2014

2012

8,097
(1,360)
(2,971)
(313)
2,978
656
5,829
303
13,219

16,638
885
(724)
(116)
588
431
—
101
17,803

24,820
1,965
336
35
(2,397)
554
—
731
26,044

The Company’s U.K. subsidiaries with foreign losses are disregarded entities for U.S. income tax purposes. Accordingly, the
losses from these disregarded entities are included in the Company’s consolidated federal income tax provision at the statutory
rate. Federal income taxes attributable to income from these disregarded entities are reduced by foreign taxes paid by those
disregarded entities.

The Company paid approximately $2.6 million, $6.5 million, and $3.0 million in income taxes for the years ended December 31,

2012, 2013 and 2014, respectively.

The Company has net operating loss carryforwards for international income tax purposes of approximately $27.9 million,
which do not expire. The Company has federal net operating loss carryforwards of approximately $11.0 million that begin to
expire in 2020, state net operating loss carryforwards with a tax value of approximately $4.4 million that begin to expire in 2020
and state income tax credit carryforwards with a tax value of approximately $1.9 million that begin to expire in 2020. The Company
realized a cash benefit relating to the use of its tax loss carryforwards of approximately $4.2 million and $1.2 million in 2013 and
2014, respectively.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Unrecognized tax benefits as of December 31, 2011

Increase for current year tax positions
Decrease for prior year tax positions
Expiration of the statute of limitation for assessment of taxes

Unrecognized tax benefits as of December 31, 2012

Increase for current year tax positions
Increase for prior year tax positions
Expiration of the statute of limitation for assessment of taxes

Unrecognized tax benefits as of December 31, 2013

Increase for current year tax positions
Decrease for prior year tax positions
Expiration of the statute of limitation for assessment of taxes

Unrecognized tax benefits as of December 31, 2014

F-26

3,347
792
(161)
(69)
3,909
66
2,037
(55)
5,957
51
(189)
(70)
5,749

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

10.

INCOME TAXES — (CONTINUED)

Approximately $1.6 million and $1.5 million of the unrecognized tax benefits as of December 31, 2013 and 2014, respectively,
would favorably affect the annual effective tax rate, if recognized in future periods. The Company recognized $58,000, $62,000
and $62,000 for interest and penalties in its consolidated statements of operations for the years ended December 31, 2012, 2013
and 2014, respectively. The Company had liabilities of $342,000, $404,000 and $466,000 for interest and penalties in its
consolidated balance sheets as of December 31, 2012, 2013 and 2014, respectively. The Company does not anticipate the amount
of the unrecognized tax benefits to change significantly over the next twelve months.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company’s federal and state
income tax returns for tax years 2011 through 2013 remain open to examination. The Company’s U.K. income tax returns for tax
years 2008 through 2013 remain open to examination.

The Company was previously under an Internal Revenue Service (“IRS”) audit in the U.S. for tax year 2010. During September

2014, the statute of limitations for tax year 2010 expired with no adjustments proposed by the IRS.

During July 2014, the IRS completed its audit of the tax returns filed by LoopNet, the Company's subsidiary, for tax years
2009, 2010, 2011 and the four months ended April 30, 2012. No adjustments were made to the financial statements as a result
of the completion of the IRS audit.

11.

COMMITMENTS AND CONTINGENCIES

The Company leases office facilities and office equipment under various non-cancelable operating leases. The leases contain
various renewal options. Rent expense for the years ended December 31, 2012, 2013 and 2014 was approximately $16.7 million,
$18.3 million and $19.2 million, respectively.

Future minimum lease payments as of December 31, 2014 are as follows (in thousands):

2015
2016
2017
2018
2019
2020 and thereafter

Total future minimum lease payments

19,442
18,783
18,607
17,680
15,907
75,878
166,297

On April 1, 2014, the Company entered into the 2014 Credit Agreement. The 2014 Credit Agreement provides for a $400.0
million term loan facility and a $225.0 million revolving credit facility, each with a term of five years. See Note 9 for additional
information regarding the term loan facility and revolving credit facility.

F-27

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

11.

COMMITMENTS AND CONTINGENCIES — (CONTINUED)

In May 2011, LoopNet, the Board of Directors of LoopNet (“the LoopNet Board”) and/or the Company were named as
defendants in three purported class action lawsuits brought by alleged LoopNet stockholders challenging LoopNet's then-proposed
merger with the Company. The stockholder actions alleged, among other things, that (i) each member of the LoopNet Board
breached his fiduciary duties to LoopNet and its stockholders in authorizing the sale of LoopNet to the Company, (ii) the merger
did not maximize value to LoopNet stockholders, (iii) LoopNet and the Company made incomplete or materially misleading
disclosures about the transaction and (iv) LoopNet and the Company aided and abetted the breaches of fiduciary duty allegedly
committed by the members of the LoopNet Board. The stockholder actions sought class action certification and equitable relief,
including an injunction against consummation of the merger. The parties stipulated to the consolidation of the actions, and permitted
the filing of a consolidated complaint. In June 2011, counsel for the parties entered into a memorandum of understanding in which
they agreed on the terms of a settlement of this litigation, which could result in a loss to the Company of approximately $200,000.
On March 20, 2013, the California Superior Court declined to grant preliminary approval to the proposed settlement and issued
an order scheduling a hearing on June 11, 2013 to show good cause why the case should not be dismissed. Shortly before the
hearing, the plaintiffs filed a third supplemental submission in support of their motion for preliminary approval of the proposed
settlement. The show cause hearing took place on May 13, 2014 and a follow up hearing took place on July 16, 2014. At the July
16, 2014 hearing the Court again denied preliminary approval of the settlement and encouraged the parties to discuss a potential
disposition of the case due to the mootness of plaintiffs’ disclosure claims. The parties engaged in such discussions, and on October
14, 2014, the plaintiffs requested that the Court dismiss their claims with prejudice. The Court dismissed the action and, pursuant
to an agreement between the parties, the Company and its insurer reimbursed certain legal fees to plaintiffs’ counsel in the total
amount of $300,000. The Company paid approximately $200,000 of this amount.

On January 3, 2012, LoopNet, the Company’s wholly owned subsidiary, was sued by CIVIX-DDI, LLC (“Civix”) in the U.S.
District Court for the Eastern District of Virginia for alleged infringement of U.S. Patent Nos. 6,385,622 and 6,415,291. The
complaint sought unspecified damages, attorneys' fees and costs. On February 16, 2012, LoopNet filed an answer to Civix’s
complaint and filed counterclaims against Civix seeking, among other things, declaratory relief that the asserted patents are invalid,
not infringed, and that Civix committed inequitable conduct during the prosecution and re-examination of the asserted patents.
On or about May 14, 2012, Civix filed a motion for leave to amend its complaint against LoopNet in the U.S. District Court for
the Eastern District of Virginia seeking to add the Company as a defendant, alleging that the Company's products also infringe
Civix’s patents. The Company filed a motion opposing Civix’s motion, and on June 21, 2012, the district court denied Civix’s
motion to amend its complaint. On June 21, 2012, the Company filed an action in the U.S. District Court for the Northern District
of Illinois seeking a declaratory judgment of non-infringement and invalidity against Civix. On August 14, 2012, the Company
amended its complaint against Civix to assert an affirmative claim against Civix for breach of contract, alleging Civix violated its
license agreement with, and covenant not to sue, one of the Company's technology licensors. On August 30, 2012, the Eastern
District of Virginia transferred Civix’s case against LoopNet to the Northern District of Illinois,. On October 29, 2012, Civix filed
a separate action against LoopNet in the Northern District of Illinois alleging infringement of U.S. Patent No. 8,296,335. That
case was later consolidated with Civix’s original lawsuit against LoopNet. Civix amended its complaint against the Company on
November 8, 2012 to add claims under Patent No. 8,296,335 as well. On November 15, 2012, LoopNet filed an amended answer
and counterclaim against Civix, asserting an affirmative claim against Civix for breach of contract, alleging Civix violated its
license agreement with, and covenant not to sue, one of LoopNet's technology licensors. The U.S. District Court for the Northern
District of Illinois construed the language of the patent on September 23, 2013, but no trial date was set. On November 25, 2013,
Civix submitted its expert’s report of damages, which estimated the payment it deemed appropriate in the event that the Company
was found liable for infringement. The Company believed that Civix’s calculation of damages was based on improper assumptions
and miscalculations, and was otherwise unsupported. The Company submitted its own expert’s report of damages, which concluded
that the appropriate payment to be made in the event that the Company was found liable for infringement was significantly less
than Civix’s estimate of appropriate damages. Moreover, the Company’s expert’s report of damages concluded that while Civix’s
calculation of damages was fundamentally flawed and should not have been used to determine damages, simply applying certain
necessary adjustments to Civix’s calculation as outlined in the Company’s report resulted in a significant reduction in Civix’s
calculation of damages to approximately $3.7 million. The Court granted a motion submitted by the parties requesting a settlement
conference, which took place on November 20, 2014. Subsequent to the settlement conference, on December 1, 2014 the Company
settled all outstanding litigation with Civix for $2.9 million, which was paid on December 9, 2014.

F-28

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

11.

COMMITMENTS AND CONTINGENCIES — (CONTINUED)

Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. In accordance
with GAAP, the Company records a provision for a liability when it is both probable that a liability has been incurred and the
amount can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome may occur
as a result of one or more of the Company’s current litigation matters, management has concluded that it is not probable that a loss
has been incurred in connection with the Company’s current litigation other than as described above. In addition, other than as
described above, the Company is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome
in the Company’s current litigation and accordingly, the Company has not recognized any liability in the consolidated financial
statements for unfavorable results, if any, other than described above. Legal defense costs are expensed as incurred.

12.

SEGMENT REPORTING

The Company manages its business geographically in two operating segments, with the primary areas of measurement and
decision-making being North America, which includes the U.S. and Canada, and International, which includes the U.K. and France.
The Company’s subscription-based information services consist primarily of CoStar SuiteTM services. CoStar Suite is sold as a
platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant®
and through the Company's mobile application, CoStarGo®. CoStar Suite is the Company’s primary service offering in the North
America and International operating segments. Prior to the third quarter of 2014, FOCUSTM was the Company’s primary service
offering in the International operating segment. The Company introduced CoStar Suite in the U.K. in the fourth quarter of 2012
and no longer offered FOCUS to new clients beginning in 2013. CoStar's and its subsidiaries' subscription-based services consist
primarily of similar services offered over the Internet to commercial real estate industry and related professionals. Management
relies on an internal management reporting process that provides revenue and operating segment EBITDA, which is the Company’s
net income before interest, income taxes, depreciation and amortization. Management believes that operating segment EBITDA
is an appropriate measure for evaluating the operational performance of the Company’s operating segments. EBITDA is used by
management to internally measure operating and management performance and to evaluate the performance of the business.
However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other
measures of financial performance prepared in accordance with GAAP.

Summarized information by operating segment consists of the following (in thousands):

Revenues
North America
International

External customers
Intersegment revenue
Total International revenue
Intersegment eliminations

Total revenues

EBITDA
North America
International

Total EBITDA

Year Ended December 31,
2013

2014

2012

330,805

420,817

552,141

19,131
1,514
20,645
(1,514)
349,936

70,199
(10,007)
60,192

20,126
339
20,465
(339)
440,943

97,348
(3,136)
94,212

23,795
57
23,852
(57)
575,936

148,913
2,337
151,250

F-29

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

12.

SEGMENT REPORTING — (CONTINUED)

The reconciliation of EBITDA to net income consists of the following (in thousands):

EBITDA
Purchase amortization in cost of revenues
Purchase amortization in operating expenses
Depreciation and other amortization
Interest income
Interest expense
Income tax expense, net

Net income

Year Ended December 31,
2013

2014

2012

60,192
(8,634)
(13,607)
(10,511)
526
(4,832)
(13,219)
9,915

94,212
(11,883)
(15,183)
(12,992)
326
(6,943)
(17,803)
29,734

151,250
(26,290)
(28,432)
(15,650)
516
(10,481)
(26,044)
44,869

Intersegment revenue recorded during 2014 was attributable to services performed for the Company’s wholly owned subsidiary,
CoStar Portfolio Strategy by Grecam S.A.S. (“Grecam”), a wholly owned subsidiary of CoStar Limited, the Company's wholly
owned U.K. holding company. Intersegment revenue recorded during 2012 and 2013 was attributable to services performed for
CoStar Portfolio Strategy by Property and Portfolio Research Ltd., a wholly owned subsidiary of CoStar Portfolio
Strategy. Intersegment revenue is recorded at an amount the Company believes approximates fair value. North America EBITDA
includes a corresponding cost for the services performed by Grecam and Property and Portfolio Research Ltd.

There were no costs allocated to North America EBITDA for the year ended December 31, 2012. North America EBITDA
includes an allocation of approximately $800,000 and $1.1 million for the years ended December 31, 2013 and 2014, respectively.
This allocation represents costs incurred for International employees involved in development activities of the Company's North
America operating segment.

International EBITDA includes a corporate allocation of approximately $5.3 million, $400,000 and $300,000 for the years
ended December 31, 2012, 2013 and 2014, respectively. This allocation represents costs incurred for North America employees
involved in management and expansion activities of the Company’s International operating segment.

F-30

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

12.

SEGMENT REPORTING — (CONTINUED)

Summarized information by operating segment consists of the following (in thousands):

December 31,

2013

2014

53,733
3,986
57,719

692,639
25,948
718,587

1,311,292
43,464
1,354,756

1,354,756
(18,344)
(79,430)
1,256,982

324,626
79,266
403,892

403,892
(74,772)
329,120

71,209
2,544
73,753

1,114,363
24,442
1,138,805

2,138,768
41,896
2,180,664

2,180,664
(18,344)
(78,638)
2,083,682

564,832
75,584
640,416

640,416
(70,280)
570,136

Property and equipment, net
North America
International
Total property and equipment, net

Goodwill
North America
International
Total goodwill

Assets
North America
International
Total operating segment assets

Reconciliation of operating segment assets to total assets
Total operating segment assets
Investment in subsidiaries
Intersegment receivables
Total assets

Liabilities
North America
International
Total operating segment liabilities

Reconciliation of operating segment liabilities to total liabilities
Total operating segment liabilities
Intersegment payables
Total liabilities

F-31

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

13.

STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 2,000,000 shares of preferred stock, $0.01 par value, authorized for issuance as of December 31, 2014. The

Board of Directors may issue the preferred stock from time to time as shares of one or more classes or series.

Common Stock

The Company has 60,000,000 shares of common stock, $0.01 par value, authorized for issuance. Dividends may be declared
and paid on the common stock, subject in all cases to the rights and preferences of the holders of preferred stock and authorization
by the Board of Directors. In the event of liquidation or winding up of the Company and after the payment of all preferential
amounts required to be paid to the holders of any series of preferred stock, any remaining funds shall be distributed among the
holders of the issued and outstanding common stock.

Equity Offering

During June 2014, the Company completed a public equity offering of 3,450,000 shares of common stock for $160.00 per
share. Net proceeds from the public equity offering were approximately $529.4 million, after deducting approximately $22.1
million of underwriting discounts and commissions and offering expenses of approximately $500,000. The Company intends to
use the net proceeds from the sale of the securities to fund all or a portion of the costs of any strategic acquisitions it determines
to pursue in the future, to finance the growth of its business and for general corporate purposes. General corporate purposes may
include additions to working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries, possible
acquisitions and the repurchase, redemption or retirement of securities, including the Company’s common stock.

14.

NET INCOME PER SHARE

The following table sets forth the calculation of basic and diluted net income per share (in thousands except per share data):

Numerator:

Net income

Denominator:

Year Ended December 31,
2013

2014

2012

9,915

29,734

44,869

Denominator for basic net income per share — weighted-average
outstanding shares
Effect of dilutive securities:

Stock options and restricted stock
Denominator for diluted net income per share — weighted-average
outstanding shares

26,533

27,670

30,215

416

542

426

26,949

28,212

30,641

Net income per share — basic
Net income per share — diluted

$
$

0.37
0.37

$
$

1.07
1.05

$
$

1.48
1.46

F-32

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

14.

NET INCOME PER SHARE — (CONTINUED)

Employee stock options with exercise prices greater than the average market price of the Company’s common stock for the
period are excluded from the calculation of diluted net income per share as their inclusion would be anti-dilutive. Additionally,
shares of restricted common stock that vest based on Company performance and service conditions that have not been achieved
as of the end of the period are not included in the computation of basic or diluted earnings per share. Finally, shares of restricted
common stock units that vest based on Company service conditions that have not been achieved as of the end of the period are
not included in the computation of basic or diluted earnings per share. The following table summarizes the potential common
shares excluded from the diluted calculation (in thousands):

Employee stock options
Performance-based restricted stock awards
Service-based restricted stock units

Total shares excluded from computation

15.

EMPLOYEE BENEFIT PLANS

Stock Incentive Plans

Year Ended December 31,
2013

2014

2012

—
399
—
399

—
379
—
379

80
23
1
104

In June 1998, the Company’s Board of Directors adopted the 1998 Stock Incentive Plan (as amended, the “1998 Plan”) prior
to consummation of the Company’s initial public offering. In April 2007, the Company’s Board of Directors adopted the CoStar
Group, Inc. 2007 Stock Incentive Plan (as amended, the “2007 Plan”), subject to stockholder approval, which was obtained on
June 7, 2007. All shares of common stock that were authorized for issuance under the 1998 Plan that, as of June 7, 2007, remained
available for issuance under the 1998 Plan (excluding shares subject to outstanding awards) were rolled into the 2007 Plan and,
as of that date, no shares of common stock were available for new awards under the 1998 Plan. The 1998 Plan continues to govern
unexercised and unexpired awards issued under the 1998 Plan prior to June 7, 2007. The 1998 Plan provided for the grant of stock
and stock options to officers, directors and employees of the Company and its subsidiaries. Stock options granted under the 1998
Plan could be incentive or non-qualified, and the exercise price for an incentive stock option may not be less than the fair market
value of the Company’s common stock on the date of grant. The vesting period of the options and restricted stock grants under
the 1998 Plan was determined by the Board of Directors or a committee thereof and was generally three to four years. Upon the
occurrence of a Change of Control, as defined in the 1998 Plan, all outstanding unexercisable options and restricted stock grants
under the 1998 Plan immediately become exercisable.

The 2007 Plan provides for the grant of stock options, restricted stock, restricted stock units, and stock appreciation rights to
officers, employees, directors and consultants of the Company and its subsidiaries. Stock options granted under the 2007 Plan may
be non-qualified or may qualify as incentive stock options. Except in limited circumstances related to a merger or other acquisition,
the exercise price for an option may not be less than the fair market value of the Company’s common stock on the date of grant. The
vesting period for each grant of options, restricted stock, restricted stock units and stock appreciation rights under the 2007 Plan
is determined by the Board of Directors or a committee thereof and is generally three to four years, subject to minimum vesting
periods for restricted stock and restricted stock units of at least one year. In some cases, vesting of awards under the 2007 Plan
may be based on performance conditions. The Company has issued and/or reserved the following shares of common stock for
issuance under the 2007 Plan (including an increase of 1,300,000 shares of common stock pursuant to an amendment to the 2007
Plan approved by the Company’s stockholders on June 2, 2010 and an increase of 900,000 shares of common stock pursuant to
an amendment to the 2007 Plan approved by the Company’s stockholders on June 5, 2012): (a) 3,200,000 shares of common stock,
plus (b) 121,875 shares of common stock that were authorized for issuance under the 1998 Plan that, as of June 7, 2007, remained
available for issuance under the 1998 Plan (not including any Shares that were subject as of such date to outstanding awards under
the 1998 Plan), and (c) any shares of common stock subject to outstanding awards under the 1998 Plan as of June 7, 2007, that on
or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards
to the extent they are exercised for or settled in vested and nonforfeitable shares). Unless terminated sooner, the 2007 Plan will
terminate in April 2017, but will continue to govern unexercised and unexpired awards issued under the 2007 Plan prior to that
date. Approximately 1.2 million shares were available for future grant under the 2007 Plan as of December 31, 2013 and 2014.

F-33

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

15.

EMPLOYEE BENEFIT PLANS — (CONTINUED)

Stock Incentive Plans — (Continued)

At December 31, 2014, there was $51.3 million of unrecognized compensation cost related to stock-based payments, net of

forfeitures, which is expected to be recognized over a weighted-average-period of 2.5 years.

Stock Options

Option activity was as follows:

Outstanding at December 31, 2011

Granted

Exercised

Canceled or expired

Number of
Shares

Range of
Exercise Price

847,102

102,000

$17.34 - $60.23

$58.95 - $58.95

(274,842)

$17.34 - $57.16

(541)

$54.51 - $54.51

Outstanding at December 31, 2012

673,719

$25.00 - $60.23

Granted

Exercised

Canceled or expired

126,800

$102.16 - $102.16

(409,799)

$25.00 - $58.95

(16,380)

$36.48 - $58.95

Outstanding at December 31, 2013

374,340

$36.48 - $102.16

Granted

Exercised

Canceled or expired

87,700

$201.04 - $201.04

(68,126)

$39.00 - $102.16

(23,735)

$58.95 - $201.04

Outstanding at December 31, 2014

370,179

$36.48 - $201.04

Exercisable at December 31, 2012

Exercisable at December 31, 2013

Exercisable at December 31, 2014

432,196

146,161

188,656

$25.00 - $60.23

$36.48 - $60.23
$36.48 - $102.16

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contract
Life (in
years)

Aggregate
Intrinsic
Value
(in thousands)

39.93

58.95

34.04

54.51

45.20

102.16

41.05

47.54

68.94

201.04

55.81

124.09

99.12

40.22

47.72

60.54

7.25

32,677

6.09

23,221

The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common stock at the end of
the period and (ii) the exercise prices of the underlying awards, multiplied by the shares underlying options as of the end of the
period that had an exercise price less than the closing price on that date. Options to purchase 274,842, 409,799 and 68,126 shares
were exercised during the years ended December 31, 2012, 2013, and 2014, respectively. The aggregate intrinsic value of options
exercised, determined as of the date of option exercise, was $11.9 million, $39.0 million and $8.9 million for the years ended
December 31, 2012, 2013, and 2014, respectively.

The weighted-average grant date fair value of each option granted during the years ended December 31, 2012, 2013 and 2014

using the Black-Scholes option-pricing model was $20.99, $34.10 and $58.12 respectively.

F-34

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

15.

EMPLOYEE BENEFIT PLANS — (CONTINUED)

Stock Options — (Continued)

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing

model, using the assumptions in the following table:

Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)

Year Ended December 31,
2013

2014

2012

0%
40%
0.9%
5

0%
37%
0.9%
5

0%
30%
1.5%
5

The assumptions above and the estimation of expected forfeitures are based on multiple factors, including historical employee
behavior patterns of exercising options and post-employment termination behavior, expected future employee option exercise
patterns, and the historical volatility of the Company’s stock price.

The following table summarizes information regarding options outstanding at December 31, 2014:

Range of
Exercise Price

$36.48 - $42.50

$42.51 - $55.83

$55.84 - $57.61

$57.62 - $58.51

$58.52 - $59.59

$59.60 - $81.19

$81.20 - $151.60

$151.61 - $201.04

$36.48 - $201.04

Options Outstanding
Weighted-
Average
Remaining
Contractual
Life (in
years)

Number of
Shares

Options Exercisable

Weighted-
Average
Exercise
Price

Number of
Shares

Weighted-
Average
Exercise
Price

58,603

19,666

43,549

473

54,068

2,320

111,600

79,900

370,179

5.05

3.47

6.17

6.09

7.14

6.42

8.19

9.15

7.25

41.20

49.24

57.16

58.06

58.95

60.23

102.16

201.04

99.12

58,603

19,666

43,549

100

27,800

1,740

37,198

— $

188,656

41.20

49.24

57.16

58.06

58.95

60.23

102.16

—

60.54

F-35

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

15.

EMPLOYEE BENEFIT PLANS — (CONTINUED)

Restricted Stock Awards

In February 2012, the Committee approved grants of restricted common stock to the executive officers that vest based on the
achievement of certain performance conditions. These awards support the Committee’s goals of aligning executive incentives with
long-term stockholder value and ensuring that executive officers have a continuing stake in the long-term success of the Company.
In May and December of 2012, the Company granted additional shares of restricted common stock that vest based on the achievement
of certain performance conditions to other employees. These shares of performance-based restricted common stock vest upon the
Company’s achievement of $90.0 million of cumulative EBITDA over a period of four consecutive calendar quarters, and are
subject to forfeiture in the event the foregoing performance condition is not met by March 31, 2017. The Company granted a total
of 399,413 shares of performance-based restricted common stock during the year ended December 31, 2012. No shares of the
2012 performance-based restricted common stock were granted by the Company during the years ended December 31, 2013 and
2014. All of the awards were made under the 2007 Plan and pursuant to the Company’s standard form of restricted stock grant
agreement. The number of shares granted was based on the fair market value of the Company’s common stock on the grant date.
As of March 31, 2013, the Company initially determined that it was probable that the performance condition for these performance-
based restricted common stock awards would be met by the March 31, 2017 forfeiture date. As of March 31, 2014, the Company
had satisfied all performance and service conditions, and as a result, the restricted common stock granted under these awards
vested. The Company recorded approximately $0, $21.8 million and $2.2 million of stock-based compensation expense related to
the 2012 performance-based restricted common stock for the years ended December 31, 2012, 2013 and 2014, respectively.

In February 2014, the Committee approved grants of restricted common stock to the executive officers that vest based on the
Company’s achievement of a three-year cumulative revenue goal established at the grant date, and are subject to forfeiture in the
event the foregoing performance condition is not met by December 31, 2016. The number of shares that may be earned ranges
between 0% (if the specified threshold performance level is not attained) and 200% (if performance meets or exceeds the maximum
achievement level) of the target awards originally granted. If actual performance exceeds the pre-established threshold, the number
of shares earned is calculated based on the relative performance between specified levels of achievement. These awards support
the Committee’s goals of aligning executive incentives with long-term stockholder value and ensuring that executive officers have
a continuing stake in the long-term success of the Company.

The 2014 performance-based restricted common stock awards are subject to continuing employment requirements and to a
market condition. The actual number of shares that vest at the end of the respective three-year period is determined based on the
Company’s achievement of the three-year performance goals described above, as well as its TSR relative to the Russell 1000 Index
over the related three-year performance period. At the end of the three-year performance period, if the performance condition is
achieved at or above the pre-established threshold, the number of shares earned is further adjusted by a TSR payout percentage,
which ranges between 80.0% and 120.0%, based on the Company’s TSR performance relative to that of the Russell 1000 Index
over the respective three-year period. The Company granted a total of 24,720 shares of 2014 performance-based restricted common
stock during the year ended December 31, 2014.

The Company estimates the fair value of its performance-based restricted common stock awards with a market condition on
the date of grant using a Monte-Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate the
probability of the Company achieving various stock price levels to determine the expected TSR performance ranking. Expense is
only recorded for awards that are expected to vest, net of estimated forfeitures. The assumptions used to estimate the fair value of
performance-based restricted common stock awards with a market condition granted during the year ended December 31, 2014
were as follows:

Dividend yield

Expected volatility

Risk-free interest rate

Expected life (in years)

Weighted-average grant date fair value

F-36

Year Ended
December 31,

2014

30%

0.6%

216.20

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

15.

EMPLOYEE BENEFIT PLANS — (CONTINUED)

Restricted Stock Awards — (Continued)

As of December 31, 2014, the Company reassessed the probability of achieving the performance and market conditions and
determined that it was probable that the performance and market conditions for these awards would be met by December 31, 2016.
As a result, the Company recorded a total of approximately $1.1 million of stock-based compensation expense related to the
performance-based restricted common stock awards with a market condition for the year ended December 31, 2014. There was
no stock-based compensation expense related to the grant of 2014 performance-based restricted common stock recorded for the
years ended December 31, 2012 and 2013. The Company expects to record an estimated unrecognized stock-based compensation
expense related to the performance-based restricted common stock awards of approximately $2.7 million over the periods 2015,
2016 and 2017.

The following table presents unvested restricted stock awards activity without a market condition and performance-based

restricted common stock awards activity with a market condition for the year ended December 31, 2014:

Restricted Stock Awards —
without Market Condition
Weighted-
Average
Grant Date
Fair Value
per Share

Number of
Shares

Restricted Stock Awards —
with Market Condition

Weighted-
Average
Grant Date
Fair Value
per Share

Number of
Shares

$
Unvested restricted stock awards at December 31, 2013

968,270

Granted

Vested

Canceled

Unvested restricted stock awards at December 31, 2014

Restricted Stock Units

234,282
$
(586,842) $
(58,917) $
$
556,793

80.52

167.49

68.34

117.70

126.01

— $

24,720

— $
(2,160) $
$
22,560

—

216.20

—

216.20

The following table presents unvested restricted stock units activity for the year ended December 31, 2014:

Unvested restricted stock units at December 31, 2013

Granted

Vested

Canceled

Unvested restricted stock units at December 31, 2014

Employee 401(k) Plan

Weighted-
Average
Grant Date
Fair Value
per Share

Number of
Shares

— $

887

— $

—

169.16

—

887

169.16

The Company maintains a 401(k) Plan (the “401(k)”) as a defined contribution retirement plan for all eligible employees. The
401(k) provides for tax-deferred contributions of employees’ salaries, limited to a maximum annual amount as established by the
IRS. In 2012, the Company matched 50% of employee contributions up to a maximum of 6% of total compensation. In 2013 and
2014, the Company matched 100% of employee contributions up to a maximum of 4% of total compensation. Amounts contributed
to the 401(k) by the Company to match employee contributions for the years ended December 31, 2012, 2013 and 2014 were
approximately $2.7 million, $5.1 million and $6.1 million, respectively. The Company had no administrative expenses in connection
with the 401(k) plan for the years ended December 31, 2012, 2013 and 2014, respectively.

F-37

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

15.

EMPLOYEE BENEFIT PLANS — (CONTINUED)

Employee Pension Plan

The Company maintains a Group Personal Pension Plan (the “Plan”) for all eligible employees in the Company’s U.K. offices.
The Plan is a defined contribution plan. Employees are eligible to contribute a portion of their salaries, subject to a maximum
annual amount as established by Her Majesty's Revenue and Customs. In 2012, the Company matched 50% of employee
contributions up to a maximum of 6% of total compensation. In 2013 and 2014, the Company's matching contribution was based
on the percentage contributed by the employee, up to a maximum of 6% of total compensation. Amounts contributed to the Plan
by the Company to match employee contributions for the years ended December 31, 2012, 2013 and 2014 were approximately
$180,000, $280,000 and $390,000, respectively.

Employee Stock Purchase Plan

As of August 1, 2006, the Company introduced an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible
employees participating in the plan authorize the Company to withhold specified amounts from the employees’ compensation and
use the withheld amounts to purchase shares of the Company's common stock at 90% of the market price. Participating employees
are able to purchase common stock under this plan during each offering period. An offering period begins the second Saturday
before each of the Company’s regular pay dates and ends on each of the Company’s regular pay dates. There were 34,895 and
21,774 shares available for purchase under the ESPP as of December 31, 2013 and 2014, respectively and approximately 11,291
and 13,121 shares of the Company’s common stock were purchased under the ESPP during 2013 and 2014, respectively.

F-38

Board of Directors and Executive Officers

Andrew C. Florance*
President & Chief Executive
Officer,
CoStar Group, Inc.

Michael R. Klein
Chairman of the Board,
CoStar Group, Inc.
& Chairman of the Board
The Sunlight Foundation

David Bonderman
Founding Partner,
TPG Capital, L.P.

Christopher J. Nassetta
President & Chief Executive
Officer,
Hilton Worldwide

Michael J. Glosserman
Managing Member,
The JBG Companies

Warren H. Haber
Chairman of the Board &
Chief Executive Officer,
Founders Equity, Inc.

John W. Hill
Founder and Chief Executive
Officer, J Hill Group

David J. Steinberg
Chief Executive Officer,
SnappCloud, Inc.

Brian J. Radecki*
Chief Financial Officer,
CoStar Group, Inc.

Max Linnington*
Executive Vice President, Sales,
CoStar Group, Inc.

Frank A. Carchedi*
Executive Vice President,
Operations,
CoStar Group, Inc.

Jonathan A. Coleman
General Counsel & Secretary
CoStar Group, Inc.

Frank A. Simuro
Chief Technology Officer
CoStar Group, Inc.

Fred G. Saint
President, LoopNet

Donna G. Tanenbaum
Vice President,
Human Resources

Giles R. Newman
Managing Director,
CoStar U.K. Ltd.

Senior Management

Susan E. Jeffress
Vice President,
Customer Service

Mark A. Klionsky
Senior Vice President,
Marketing

Simon Law
Vice President, Research

Brad Long
President, Apartments.com

Leah McMurtry
Vice President, LoopNet

Hans G. Nordby
Managing Director,
CoStar Portfolio Strategy

Curtis M. Ricketts
Senior Vice President,
Product Design

Eric Robinson
Vice President,
LoopNet Inside Sales

Lisa Ruggles
Vice President, Field Research

M. Andy Thomas
President of CoStar Real
Estate Manager

Wayne B. Warthen
Chief Technology Officer
& Senior Vice President,
Information Technology,
LoopNet

Scott Yinger
Vice President, Finance

*DENOTES SECTION 16 AND EXECUTIVE OFFICER

1331 L Street, NW
Washington, DC 20005
202-346-6500

costargroup.com

About CoStar Group, Inc.

Shareholder Information

Investor Relations

CoStar Group (NASDAQ: CSGP) is the leading provider

Stock Listing

of commercial real estate information, analytics and

Symbol: CSGP NASDAQ Listed

online marketplaces. Founded in 1987, CoStar conducts

expansive, ongoing research to produce and maintain

Independent Auditors

the largest and most comprehensive database of

Ernst & Young LLP

commercial real estate information. Our suite of

8484 Westpark Drive McLean,

online services enables clients to analyze, interpret

VA 22102

and gain unmatched insight on commercial property

values, market conditions and current availabilities.

Transfer Agent and Registrar

Through LoopNet, the Company operates the most

American Stock Transfer &

heavily trafficked commercial real estate marketplace

Trust Company, LLC

online with more than 9 million registered members.

6201 15th Avenue Brooklyn,

Apartments.com is a premier online apartment

NY 11219

resource for renters that matches apartment seekers

with great apartment homes and provides property

managers and owners a proven platform for marketing

their properties. CoStar operates websites with over

19 million unique monthly visitors in aggregate during

January 2015. Headquartered in Washington, DC,

CoStar maintains offices throughout the U.S., Canada

and Europe with a staff of nearly 3,000 worldwide,

including the industry’s largest professional research

organization. For more information,

visit costargroup.com.

Richard Simonelli
Vice President,
Investor Relations
202-346-6394
rsimonelli@costargroup.com