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, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($0.01 par value)
Trading Symbol
CSGP
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.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes x No o
Yes o No x
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 x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
x
o
Accelerated filer
Smaller reporting company
Emerging growth company
o
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of June 30, 2020 the aggregate market value of the common stock (based upon the closing price of the stock on the Nasdaq
Global Select Market) of the registrant held by non-affiliates was approximately $24.6 billion. As of February 19, 2021,
39,410,441 shares of common stock were 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, 2020, are incorporated by
reference into Part III of this Report.
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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 Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial 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
Item 16.
Form 10-K Summary
Signatures
Index to Consolidated Financial Statements
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30
30
31
33
34
50
51
51
51
52
52
52
52
52
52
54
57
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F-1
3
Cautionary Statement Concerning Forward-Looking Statements
We have made forward-looking statements in this Report and make forward-looking statements in our other reports filed
with the SEC, 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 2021
and beyond, our possible or assumed future results of operations generally, and other statements and information regarding
assumptions or expectations about our revenues, revenue growth rates, gross margin percentage, net income, net income per
share, fully diluted net income per share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-generally accepted
accounting principles (“GAAP”) net income, non-GAAP net income per share, weighted-average outstanding shares, cash flow
from operating activities, operating costs, capital and other expenditures, the current and future impacts of COVID-19 on our
operations, our actions in response to the COVID-19 pandemic, key priorities for 2021, trends in customer behavior, legal
proceedings and claims, legal costs, effective tax rate, pending acquisitions, the anticipated benefits of completed or proposed
acquisitions, the anticipated timing of acquisition closings and integrations, the anticipated benefits of cross-selling efforts,
product development and release, geographic and product expansion, planned service enhancements, planned sales and
marketing activities and investments, the impact or results of sales and marketing initiatives, product integrations, elimination
and de-emphasizing of services, net new sales, contract renewal rates, use of proceeds from equity and debt offerings, the use of
proceeds of any draws under our $750 million credit facility (the “2020 Credit Agreement”), expectations regarding our
compliance with financial and restrictive covenants in the 2020 Credit Agreement, employee relations, management’s plans,
goals and objectives for future operations, deferral of tax payments, sources and adequacy of liquidity, 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: the effects of and uncertainty surrounding
the COVID-19 pandemic, including the length and severity of the economic downturn associated with the COVID-19
pandemic, including disruption of the international and national economy and credit markets; actions taken by governments,
businesses and individuals in response to the COVID-19 pandemic such as office and other workplace closures, worker
absenteeism or decreased productivity, quarantines, mass-transit disruptions or other travel or health-related restrictions; how
quickly economies, including the real estate industry in particular, recover after the COVID-19 pandemic subsides; real estate
market conditions; general economic conditions, both domestic and international, including the impacts of “Brexit” and
uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmarks; our ability to
identify, acquire and integrate additional acquisition candidates; our ability to realize the expected benefits, cost savings or
other synergies from acquisitions, including STR, Ten-X and Homesnap, 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 risk that expected investments in acquired businesses, or the timing of any such
investments, may change or may not produce the expected results; our ability to transition acquired service platforms to our
model in a timely manner or at all; changes and developments in business plans or operations; theft of any personally
identifiable information we, or the businesses that we acquire, maintain, store or process; any actual or perceived failure to
comply with privacy or data protection laws, regulations or standards; any disruption of our systems, including due to any
cyberattack or other similar event; 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 or new
services and to expand service offerings; changes or consolidations within the real estate industry; customer retention; our
ability to attract new clients and to sell additional services to existing clients; our ability to develop, successfully introduce and
cross-sell new products or upgraded services in U.S. and foreign markets; our ability to attract consumers to our online
marketplaces; our ability to increase traffic on our network of sites; the success of our marketing campaigns in generating brand
awareness and site traffic; our ability to protect and defend our intellectual property, including against unauthorized or
unlicensed use of our services; 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 and geographies; our ability to control costs; litigation or
government investigations in which we become involved; 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 or
reorganization of our sales force; employee retention, including retention of employees of acquired businesses; technical
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problems with our services; managerial execution; changes in relationships with real estate agents, brokers, owners, property
managers and other strategic partners; legal and regulatory issues, including any actual or perceived failure to comply with
United States (“U.S.”). or international laws, rules or regulations; successful adoption of and training on our services; and the
availability of capital.
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.
PART I
Item 1.
Business
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 leading online marketplaces for commercial real estate and apartment listings in the U.S. based
on the numbers of unique visitors and site visits per month; and provide more information, analytics and marketing services
than any of our competitors. We have created and compiled a standardized platform of information, analytics and online
marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the
related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging
accurate and standardized real estate-related information. Our service offerings span all commercial property types, including
office, retail, industrial, multifamily, commercial land, mixed-use and hospitality. With our recent acquisition of Homesnap,
Inc., (“Homesnap”) we also offer an online mobile software platform for residential real estate agents and brokers.
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 primarily includes Europe, Asia-
Pacific and Latin America. On October 22, 2019, we acquired STR, Inc. and STR Global, Ltd. (together with STR, Inc.,
"STR"), which provides benchmarking and analytics for the hospitality industry. On June 24, 2020, we acquired Ten-X Holding
Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate. On October
26, 2020, we acquired Emporis GmbH, a Germany-based provider of international commercial real estate data and images, and
on December 22, 2020, we acquired Homesnap. See Notes 5 and 9 to the accompanying Notes to the Consolidated Financial
Statements included in Part IV of this Annual Report on Form 10-K for further discussion of the Homesnap acquisition.
Strategy
Our strategy is to provide real estate industry professionals and consumers with critical knowledge to explore and complete
transactions by offering the most comprehensive, timely and standardized information on real estate and the right tools to be
able to effectively utilize that information. Over time, we have expanded, and we continue to expand, our services for real estate
information, analytics and online marketplaces in an effort to continue to meet the needs of the industry as it grows and evolves.
Our standardized platform includes the most comprehensive proprietary database of commercial real estate information 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
marketplace services; a large team of analysts and economists; and a large, diverse base of clients. Our database has been
developed and enhanced for more than 30 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 a significant number of proprietary
databases. Our comprehensive commercial real estate database powers our information services, sources data used in our
analytic services and provides content for most of our online marketplace services and our auction platform. Our ability to
utilize the same commercial real estate information across our standardized platform creates efficiencies in operations and
improves data quality for our customers.
We deliver our comprehensive commercial real estate information content to our U.S. and European customers primarily
via an integrated suite of online service offerings that includes information about space available for-lease, comparable sales
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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, as
well as a commercial real estate auction platform. We strive to cross-sell our services to our customers in order to best suit their
needs.
Information about our revenues, long-lived assets and total assets derived from and located in foreign countries is included
in Notes 2, 3 and 14 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Revenues; net income before interest and other income (expense), income taxes, depreciation and amortization (“EBITDA”);
and total assets and liabilities for each of our segments are set forth in Notes 3 and 14 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” in this Annual Report on Form 10-K.
Our primary brands include CoStar®, LoopNet®, Apartments.comTM, STR®, Ten-X®, BizBuySell®, LandsofAmericaTM,
and HomeSnap®, which are accessible via the Internet and through our mobile applications. Our subscription-based services
consist primarily of CoStar Suite® services, which include information, analytics and online marketplace services offered to the
commercial real estate industry and related professionals. CoStar Suite® is sold as a platform of service offerings consisting of
CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant®, and is our largest service offering in our
North America and International operating segments.
LoopNet® is the flagship brand in our network of commercial real estate marketing sites, which also includes Cityfeet.com
and Showcase.com. Our LoopNet online marketplace enables commercial property owners, landlords, and brokers to advertise
properties for-sale or for-lease and to submit detailed information about property listings. Commercial real estate agents,
buyers, investors, and tenants use LoopNet extensively to search for available property listings that meet their criteria. LoopNet
offers unique, subscription-based advertising solutions for different segments within the industry and delivers value across its
constituent networks. The LoopNet network leverages CoStar’s commercial real estate database to provide in-depth and
accurate information across all commercial property types, including office, industrial, retail, restaurant, shopping center,
multifamily, specialty, health care, hospitality, sports and entertainment, land, and residential income. Investors and tenants are
also able to consume industry news developed by our in-house editorial team.
We are consolidating STR data and services with CoStar Suite to create an integrated platform, which is expected to allow
us to create valuable new and improved tools for industry participants. We are also working on integrating the Ten-X platform
into both LoopNet and CoStar, to expand the audience for Ten-X auctions to include our online commercial real estate users.
Apartments.comTM is the flagship brand in our network of apartment marketing sites, which also includes
ForRent.com®, ApartmentHomeLiving.comTM, WestsideRentals.com®, AFTER55.com®,
ApartmentFinder.comTM,
CorporateHousing.comTM, ForRentUniversity.com®, Apartamentos.comTM, which
is our apartment-listing site offered
exclusively in Spanish, and OffCampusPartners.com, which provides student housing marketplace content and powers off
campus housing sites for many universities across the U.S. Our apartment marketing network of subscription-based services
offers renters a searchable database of apartment listings and provides property owners, professional property management
companies and landlords with an advertising destination. Our apartment marketing network draws on and leverages CoStar’s
multifamily database, which contains detailed information on apartment properties and is designed to meet renter preferences
and demands, in order to drive traffic to those sites and attract advertisers who prefer to advertise on heavily trafficked
apartment websites. Our network of apartment marketing sites 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
facts important to renters. To help renters find the information that meets their needs, we have sites that also offer innovative
search tools such as the PolygonTM Search tool, which allow renters to specifically define the area in which they want to find an
apartment and Plan Commute tools, which allow renters to search property listings that meet their transportation needs. We also
offer complementary services to the rental industry, including the ability for renters to apply for rentals online, and for landlords
to receive applications, screen tenants, and process rental payments and lease renewals.
Our BizBuySell services, which include BizQuest® and FindaFranchise, provide an online marketplace for businesses and
franchises for-sale. Our LandsofAmerica services, which include LandAndFarm and LandWatch®, provide an online
marketplace for rural lands for-sale and are also accessible via our Land.com domain.
We also provide other services that complement those offered through our primary brands. These include real estate and
lease management solutions, lease administration, lease accounting and abstraction services, through our CoStar Real Estate
Manager service offerings; market research, consulting and analysis, portfolio and debt analysis, and management and reporting
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capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service offerings; and benchmarking and
analytics for the hospitality industry through our STR offerings.
Our services are typically distributed to our clients under subscription-based license agreements that renew automatically, a
majority of which have a term of at least 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 services rather than charging fees based on actual
system usage or number of paid clicks. Depending on the type of service, contract rates are generally based on the number of
sites, number of users, organization size, the client's business focus, geography, the number and types of services to which a
client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised
properties in the search results. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may
pay us on a quarterly or annual basis. Auction transaction fees from our newly acquired online auction platform, Ten-X, are
generally charged upon the successful closure of an auction as a percentage of the winning buyer's offer price for the
commercial real estate property sold. We generally see higher sales of Apartments.com listing services during the peak summer
rental season and higher CoStar Suite sales towards the end of the year, however sales fluctuate from year-to-year and revenue
is not generally seasonal because our services are typically sold on a subscription basis.
Expansion and Growth
Acquisitions
We have expanded and continue to expand the coverage and depth of our information, analytics and online marketplace
services. In addition to organic growth, we have grown our business through strategic acquisitions. Most recently, on June 24,
2020, we acquired Ten-X, which operates an online auction platform for commercial real estate; on October 26, 2020, we
acquired Emporis GmbH, a Germany-based provider of international commercial real estate data and images, which we
subsequently merged into another of our German subsidiaries; and on December 22, 2020, we acquired Homesnap, which
operates an online mobile software platform for residential real estate agents and brokers. We continue to integrate our recent
acquisitions and the services they offer into our CoStar network. See Notes 5 and 9 to the accompanying Notes to the
Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for further discussion of these
acquisitions.
Development, Investments and Expansion
We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions,
including expanding and improving our offerings for property owners, property managers, brokers, agents, buyers, commercial
tenants and residential renters. We expect to continue our software development efforts to improve existing services, introduce
new services, integrate and cross-sell services, and expand and develop supporting technologies for our research, sales and
marketing organizations.
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 particular 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.
However, 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 the elimination or phasing out of any service offering.
We are consolidating STR hospitality data and benchmarking and analytics services with CoStar Suite to create an
integrated platform. We expect that the combination of STR's and CoStar's offerings will allow us to create valuable new and
improved tools for commercial real estate industry participants. We plan to drive international expansion, in part, through STR's
global operations and to apply STR's benchmarking expertise to other commercial real estate segments we serve. We are
working on integrating the Ten-X platform into both the LoopNet and CoStar service offerings, to expand the audience for Ten-
X auctions to include our online commercial real estate users. To increase exposure, we have upgraded LoopNet listings for
properties to be auctioned on Ten-X and are allocating banner space on both our CoStar and LoopNet sites to Ten-X to cross-
market our services. We are beginning to incorporate recently acquired Emporis commercial real estate data and images into
CoStar, and our Homesnap team is creating new and improved tools to help agents promote their residential listings, connect
with buyers and sellers and streamline their daily workflow.
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We believe that our integration efforts and continued investments in our services, including acquisitions and 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 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 and our service offerings, and plan to continue to invest in, evaluate and strategically position our sales force as the
Company continues to develop and grow. Specifically, we continue to invest in marketing our services, as well as in our
research operations to support continued growth of our information and analytics offerings to meet the growing content needs
of our clients. Starting in 2019 and continuing throughout 2020, we increased our investment in Apartments.com marketing.
We plan to continue to utilize a multi-channel marketing campaign and to work to determine the optimal level of marketing
investment for our services for future periods. While we believe the investments we make in our business create a platform for
growth, those investments may reduce our profitability and adversely affect our near-term financial position.
To support our continued expansion and development, in 2020 we completed a public equity offering, a Senior Notes
offering and the refinancing of our revolving credit facility. For additional discussion of our public equity offering, Senior
Notes offering and refinancing of our revolving credit facility, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations“—Overview—Development, Investments and Expansion" and Notes 11 and 15 to the
accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K.
Industry Overview
The market for real estate information and analysis is vast based on the variety, volume and value of transactions related to
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 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 are instrumental to the success of industry participants. There is a strong need for an
efficient marketplace, where 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 commercial and residential real estate and the 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 and commercial bankers
• Building services vendors
• Mortgage bankers
• Mortgage brokers
• Retailers
• Hospitality owners
• Real estate agents
• Communications providers
•
•
•
Insurance companies’ managers
Institutional advisors
Investors and asset managers
The commercial real estate and related business community historically 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, collected data on specific markets and
developed software to analyze the information they independently gathered. This highly fragmented methodology resulted in
duplication of efforts 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.
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The creation and maintenance of a standardized information platform for commercial real estate requires 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, researchers, our experienced team of
analysts and economists, technological expertise and broad customer base, we believe that we have created such a platform.
The apartment rental advertising industry serves property managers and owners who are tasked with finding renters to
occupy vacant apartments, as well as renters who are searching for their next home. Property managers have several options at
their disposal, including their own websites, drive-by and outdoor advertising, traditional classified ads, free online listing
services, search engine marketing and Internet listings services (“ILS”), like Apartments.com and the network of apartment
listing websites we own and operate. Many apartment ILS websites feature only the rental availabilities that larger property
owners pay to advertise, resulting in a poor user experience in which the renter’s search criteria return either limited or no
results, irrelevant results or stale results that do not represent actual availabilities.
We believe that consumers expect accurate, actionable and comprehensive apartment rental information. Our apartment
ILS websites include renter-focused features like the ability to filter search results according to various criteria (e.g., commute
time to work); professional images of the properties, including immersive videos and 3-D interactive models; custom
neighborhood profiles; and tenant reviews. Our network of apartment listing websites draws on our multifamily database and
includes researched and verified information. We proactively gather information on available rentals to improve the accuracy of
the listings on our apartment ILS websites, including real time unit-level availability, current pricing, and rent specials. We
have continually invested in our network to improve the features and services offered to property managers and website users.
Recent additions include: dynamic lead forms that provide more information about prospective residents, a reporting suite that
provides customers with rent comparables, making rent trends information publicly available and free digital ad retargeting, and
integrated online rental solutions, including lease applications, and tenant credit and background checks. We believe that we
have created and maintain easily searchable apartment ILS websites with a comprehensive selection of rentals, information on
actual rental availabilities and rents, and in-depth data on neighborhoods, as well as easy to use and actionable tools for the
rental process.
CoStar’s Comprehensive Database
CoStar has spent more than 30 years building and acquiring databases of commercial real estate information, which
includes information on leasing, sales, comparable sales, tenants, and demand statistics, as well as digital images. This highly
complex database is comprised of hundreds of data fields, tracking such categories as location, site and zoning information,
building characteristics, space and unit availability, tax assessments, ownership, sales and lease comparables, space
requirements, number of retail stores, number of listings, mortgage and deed information, for-sale and for-lease listings, income
and expense histories, tenant names, lease expirations, contact information, historical trends, demographic information and
retail sales per square foot. The database also includes building photographs, aerial photographs, 3D virtual tours, plat maps and
floor plans.
CoStar Research
Research Department. 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 phone calls, e-mails and Internet updates, in addition to field inspections, public records review,
news monitoring and third-party data feeds. We have also set up direct feeds from larger apartment sites and have put in place
an automated system that compiles information sourced from the Internet in order to provide the most up-to-date information on
rental availabilities.
Our researchers are responsible for maintaining the accuracy and reliability of our database information, training our clients
to use the CoStar products and handling their customer service questions, creating a "one touch" approach to customer care. As
part of the process, researchers use to update records in our database, 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 through our online tool, which we refer to as our Marketing
Center, or directly to our researchers.
CoStar's field research effort includes physical inspection of properties in order to research new availabilities, find
additional property inventory, new construction, collect tenant information, verify existing information, photograph properties
and create high quality videos of interior spaces (including walk-through videos and 3D virtual tours), amenities and exterior
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features of properties. CoStar utilizes high-tech, field research vehicles primarily within North America and Europe. A
significant majority of these vehicles are customized, energy efficient hybrid cars that are equipped with computers, Global
Positioning System tracking software, high resolution digital cameras and handheld laser instruments to precisely measure
buildings and geo-code and position them on digital maps. 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. Field researchers also canvass properties, collecting tenant data suite-by-suite. CoStar also
utilizes a low-flying airplane and a fleet of drones to conduct aerial research of commercial real estate. We place researchers on
the low-flying aircraft to scout additional commercial developments and take aerial photographs and videos. Our U.S. drone
operators are Federal Aviation Administration certified and trained to capture aerial photographs and videos of commercial real
estate. Our drone operators in the U.K. and Canada are certified and trained to Civil Aviation Authority standards with a
permission for commercial operations pending.
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 allow us to use a variety of commercial real estate information, including
property ownership, tenant information, demographic information, maps, aerial photographs and 3D virtual apartment tours of
apartment communities, 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.
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:
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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 and standardized 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
CoStar’s information technology professionals focus on developing new services and features for our customers, improving
and maintaining existing services, integrating our current services, securing our comprehensive database of commercial real
estate information and delivering research automation tools that improve the quality of our data and increase the efficiency of
our research analysts.
Our information technology team is responsible for developing, improving and maintaining CoStar's information, analytics
and online marketplace services. Our information technology team is also 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 designed to 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
within the commercial real estate industry. The team continues to develop and modify our enterprise information management
system that integrates CoStar's 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. To
supplement the measures we take to prevent misuse of our information, we added state of the art adaptive authentication
technology to the login process of our CoStar Suite product.
Our information technology professionals 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.
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CoStar's comprehensive data protection policy provides for use of secure networks, strong passwords and dual factor
authentication systems, encrypted data fields, end to end encryption, endpoint detection and response systems and services,
security information and event management systems, off-site storage, cloud services, end user and developer security training,
multilayered anti-phishing malware and spam protections 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 have enhanced and expanded, and expect to continue to enhance and
expand, our existing information, analytics and online marketplace services and we have developed and expect to continue to
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 marketplace services are described in the following paragraphs:
Information and Analytics
CoStar Suite®
CoStar Suite® is our integrated suite of online commercial real estate service offerings, which includes information about
space available for-lease, information about properties for-sale, comparable sales information, tenant information, market
analytics including leasing, sales and construction trends, information about industry professionals and their business
relationships and industry news. CoStar Suite includes the following products and services, which are delivered through
desktop, mobile and other Internet-connected devices to our subscribers primarily in our North American and European
markets.
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CoStar Property® provides a comprehensive inventory of office, industrial, retail, multifamily and student housing
properties and land. We also provide for-lease and for-sale listings, historical data, property analytics, building
photographs, demographics, 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 & reporting capabilities.
CoStar COMPS® is the industry’s most comprehensive database of comparable commercial real estate sales
transactions and is designed for professionals who need to research property comparables, identify market trends,
expedite the appraisal process and support property valuations. CoStar COMPS 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 plotted on a map or aerial image or in a table format.
CoStar Market Analytics provides owners, investors, brokers property managers, lenders, appraisers and other
commercial real estate professionals the ability to view and report on aggregated market and submarket trends,
including leasing, vacancy, rental rates, construction, investment sales activity and overall economic conditions that
affect commercial real estate markets. CoStar Market Analytics covers all major real estate sectors including office,
industrial, retail, multifamily and student housing, and provides quantitatively driven and economist curated forecasts
of supply, demand, vacancy, and rent at the submarket level, and job growth and asset pricing at the market level.
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 tenant information available in our
North American markets. 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.
CoStar Lease Comps provides subscribers comprehensive data regarding CoStar researched lease transactions and a
software tool to capture, manage and maintain their own user-entered lease data. In addition, CoStar Lease Comps
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provides subscribers the ability to analyze this combined lease dataset from an aggregate analytic perspective and
generate various reports.
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CoStar Lease Analysis® is a workflow tool that allows subscribers to incorporate CoStar data with their own data to
perform in-depth lease analyses and share those analyses with other subscribers or non-subscribers. 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, either from a landlord or tenant perspective.
CoStar Public Record is CoStar’s newest commercial real estate servicing offering. It provides access to a searchable
database of nearly 38 million commercially-zoned parcels in the U.S. Users can search for property attributes, sale
transaction, loan, lien and tax assessments information. Information in this module is sourced from numerous counties
and jurisdictions that provide this data for ownership, title and property tax assessment purposes.
Information Services
CoStar Real Estate Manager® is a real estate and asset management and lease accounting software solution designed for
corporate real estate managers, company executives, financial accounting directors, business unit directors, brokers and project
managers. CoStar Real Estate Manager 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
through proactive portfolio
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management. Additionally, the software is used to help companies manage their lease accounting and reporting requirements.
location performance against
targets and maximize
location performance
track
CoStar Risk Analytics® is a trusted partner to many of the largest commercial real estate lenders and commercial
mortgage-based securities (CMBS) market participants, providing timely data, advanced analytics, time proven models and
extensive experience to support regulatory examinations, risk management and strategic decision making. The CoStar Risk
Analytics COMPASS credit default model has been used by commercial real estate lenders, CMBS participants and regulators
for over 15 years to estimate required loss reserves, stress test portfolios, generate risk ratings, calculate capital adequacy,
underwrite loans, target lending opportunities and price CMBS bonds. Our clients rely on CoStar Risk Analytics for model
validations and reporting to support regulatory examinations. Additionally, CoStar Risk Analytics solutions connect client loan
and CMBS loan portfolios to CoStar’s industry leading commercial real estate data, research, analytics and the COMPASS
credit model, updated daily, for more informed decision making, portfolio strategy and surveillance. Clients of CoStar Risk
Analytics solutions include many of the largest banks, life insurance companies, asset managers, hedge funds, government
agencies and regulators.
STAR Report is STR’s data analytics report. It provides hospitality benchmarking, measuring a hotel’s performance against
a self-selected aggregated competitive set. STR's confidential data reports enable customers to understand their market position
based on trends and indices. Reports are provided on a monthly, weekly or daily basis and provide insights about key metrics
such as occupancy, average daily rate (ADR) and revenue per available room (RevPAR). STAR Reports are only available to
industry participants who provide data to STR -- typically hotel brands, third party management companies and owners. STR
also offers ad hoc reports with a customizable data set providing aggregated hotel performance data for a bespoke set of hotels
or standardized industry segments (e.g. market or submarket).
Online Marketplaces
Multifamily
Apartments.comTM, the flagship brand of our network of apartment marketing sites, 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. Apartments.com also provides
tools to facilitate the rental process, including online applications, background and credit checks and rental payment processing.
The Apartments.com network consists of numerous other apartment marketing sites, including:
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ApartmentFinder® provides lead generation, advertising and Internet marketing solutions to property managers and
owners through its main site, ApartmentFinder.com.
ForRent.com® provides digital advertising through a network of four multifamily websites - which includes
ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com.
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ApartmentHomeLiving.comTM provides renters with another national online apartment rental resource that showcases
apartments for rent with official prices, pictures, floor plans and detailed information on each apartment.
Apartamentos.comTM provides Spanish speaking renters with an online apartment rentals resource offered exclusively
in Spanish, with the same primary features found on Apartments.com.
• Westside Rentals® specializes in Southern California real estate rentals.
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Off Campus Partners provides student housing marketplace content and technology to U.S. universities, simplifying
the off-campus housing search process for universities, property managers, and students.
Commercial Property and Land
LoopNet Premium Lister® is designed for commercial real estate professionals and 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 Diamond, Platinum and Gold Ads are designed for commercial real estate professionals and other customers who
seek the broadest possible exposure for their listings, access to leads lists, and advanced marketing and searching tools. These
LoopNet Ads provide subscribers with full access to three of the industry’s top commercial real estate marketplaces,
LoopNet®, Cityfeet® and Showcase.com®, as well as online newspaper websites including the Wall Street Journal. LoopNet
Ads are available for a six-month or annual subscription.
Ten-X® operates an online auction platform for commercial real estate. We are working on integrating the Ten-X platform
into both LoopNet and CoStar services, to expand the audience for Ten-X auctions to include our online commercial real estate
users.
LandsofAmericaTM, LandAndFarmTM and LandWatch® LandsofAmerica.com, LandAndFarm.com, and LandWatch.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. The LandsofAmerica.com, LandAndFarm.com and LandWatch.com websites are also
accessible via our Land.com domain.
BizBuySell®, BizQuest® and FindaFranchise BizBuySell.com, BizQuest.com and FindaFranchise.com are leading online
marketplaces for operating businesses and franchises 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, BizQuest and FindaFranchise
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.
HomeSnap® is an industry-leading online and mobile software platform that provides user-friendly applications to
optimize residential real estate agent workflow and reinforce the agent-client relationship.
Clients
We draw clients from across the real estate and related business community, including real estate brokers, agents, owners,
developers, landlords, property managers, financial institutions, retailers, vendors, appraisers, investment banks, government
agencies and other parties involved in real estate. For the years ended December 31, 2020, 2019 and 2018, no single client
accounted for more than 5% of our revenues.
Sales and Marketing
Our overall sales strategy is to provide optimal service to our existing customers, attract new clients and cross-sell the
numerous solutions we have to offer. Our sales teams sell multiple products and are primarily located in field sales offices
throughout the U.S., with others in Canada, the U.K., Spain, France, and Germany. Our inside sales teams are largely based in
Washington, DC and Richmond, Virginia. Our inside sales professionals actively work lead lists, prospect for new customers
and perform virtual product demonstrations. Our professionals utilize the Internet and remote presentation tools to convey the
multiple solutions we offer. In response to the COVID-19 pandemic, our entire sales force has been equipped to operate
remotely.
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Our local offices typically support field sales and field research operations within the markets in which they operate. This
enables our clients to benefit from a local presence. Our field sales force has the primary front-line responsibility for customer
service, ensuring client satisfaction and building long-term relationships. Our local offices act as hubs for training, sources of
market insight, product feedback sessions and connecting industry participants.
We actively manage all client accounts with frequent meetings, trainings, and updates on new enhancements. In 2020, we
successfully implemented a number of important sales initiatives, focused on selling our products to brokers, property owners
and lenders in the U.S. This focus will continue in 2021. Our initiatives to partner with brokers to provide value to property
owners allowed us to successfully position LoopNet Ads as a valuable marketing solution for a property owner’s major risk,
namely, the cost of vacant space and the resulting negative impact on valuation of the property or portfolio, a risk that has been
significantly magnified as a result of the COVID-19 pandemic. Additionally, we worked closely with clients to help them
navigate the unprecedented challenges brought on by the COVID-19 pandemic through relevant training initiatives and curated
webinars. During the fourth quarter of 2020, we began establishing a dedicated LoopNet sales division. Both our field sales and
LoopNet sales teams will continue to sell LoopNet solutions.
To generate brand awareness and site traffic for the Apartments.com network of rental websites, we utilize a multi-channel
marketing campaign featuring television and radio ads, online and digital advertising impressions, streaming audio and
podcasts, social media, email, public relations and news articles, out-of-home and paid search marketing, all of which are
reinforced with substantial Search Engine Optimization efforts. We plan to continue to utilize these marketing methods to
generate brand awareness and site traffic for the Apartments.com network and implement similar marketing strategies for
LoopNet and Ten-X. We will continue to work to determine the optimal level of marketing investment for each of these
services for future periods.
Our CoStar U.K. sales force continued to grow our existing client base, and trained users on the numerous product
enhancements we released during 2019 and 2020. In Canada, our sales representatives were focused on targeting brokers,
owners and lender prospects for subscribing to our suite of products.
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 range of services subscribed for. Our marketing solutions are
priced by exposure levels, the number of properties/spaces for-lease, rent or sale and the market in which they are offered.
Listings for customers who purchase packages with the highest level of exposure usually appear first in search results and offer
the richest media content and engagement opportunities for tenants searching for space, renters looking for an apartment or
investors seeking an opportunity. Our subscription clients generally pay contract fees on a monthly basis, but in some cases
may pay us on a quarterly or annual basis.
In 2020, in response to the COVID-19 pandemic, our primary marketing methods included: virtual service demonstrations;
targeted paid digital marketing; retargeting and social marketing; direct marketing such as email; communication via our
corporate website and news services; participation in virtual trade shows and industry events; virtual Company-sponsored
events; client referrals; content marketing including webinars, seminars, and white papers and other company newsletters
distributed via email to our clients and prospects.
To generate brand awareness and site traffic for the Apartments.com network of rental websites, we utilize a multi-channel
marketing campaign featuring television and radio ads, online and digital advertising impressions, streaming audio and
podcasts, social media, email, public relations and news articles, out-of-home and paid search marketing, all of which are
reinforced with substantial Search Engine Optimization efforts. We plan to continue to utilize these marketing methods to
generate brand awareness and site traffic, and will continue to work to determine the optimal level of marketing investment for
our services for future periods.
Comprehensive digital marketing and direct marketing are effective means for us to find prospective clients. Our digital
marketing efforts include Search Engine Optimization, paid advertising with major search engines, social media and display
advertising on commercial real estate news and business websites and mobile applications, and our direct marketing efforts
include television, radio, out-of-home ads, direct mail and email and, when applicable, 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 integrated marketing and advertising to build brand awareness, brand identity and reinforce the value
and benefits of our services. We also sponsor and attend local virtual association activities and events, including industry-
leading events for commercial real estate brokers, property owners, investors and retail and financial services institutions, and
attend or exhibit at virtual industry trade shows and conferences to reinforce our relationships with our core user groups.
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News has always been a valuable part of CoStar's core subscription offering. CoStar's award-winning news teams report on
the latest deals and developments across our markets, keeping subscribers informed and driving higher usage in our core
product. In 2020, we enhanced our offerings, including producing a series of special reports on the impact of the COVID-19
pandemic on the commercial real estate industry and working with our analyst team, added weekly video updates and periodic
webinars to discuss key changes to national and local markets. We merged STR's Hotel News Now news service into CoStar
News, giving CoStar subscribers direct access to STR's hospitality news and analysis, while expanding the real estate audience
for STR. Similarly, following CoStar's acquisition of Ten-X, we launched news coverage of commercial real estate auctions,
telling the stories of prominent properties up for bid, including those featured on Ten-X. We continued to build our newsletter
franchise, adding one focused on the hospitality industry and another highlighting the best of our analyst reports. We created
new features for our newsletters showcasing the best of CoStar's architectural photography and data graphics. Finally, the news
team, working with CoStar's research group, now produces quarterly Power Broker stories recognizing the top deals in each of
our U.S., U.K. and Canadian markets, increasing broker exposure in the marketplace.
Competition
The market for information, analytics and online marketplaces generally is competitive and extremely dynamic. 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;
Quality and quantity of leads and leases delivered;
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, websites or data exchanges targeted to commercial real estate brokers, buyers and sellers of
commercial real estate properties, insurance companies, mortgage brokers and lenders, such as Reed Business
Information Limited and its Estates Gazette and Radius Data Exchange products, SquareFoot, officespace.com,
Brevitas, Catylist (now a part of Moody's), 42Floors, Altus Group (Commercial Property Search), Digsy, Quantum
Listing, RealNex MarketPlace, TenantWise, Rofo, BuildingSearch.com, CIMLS, CompStak, Rightmove, Yardi
(PropertyShark and CommercialCafe), CREXi, TotalCommercial.com, DebtX, Real Capital Markets, and VTS;
Publishers and distributors of information, analytics and marketing services, including regional providers and national
print publications, such as CBRE Economic Advisors, Marshall & Swift, REIS Network (part of the Moody's
Analytics Accelerator), Real Capital Analytics, Real Capital Markets, Reonomy, Yardi Matrix, RealPage and its
Axiometrics business, Altus Insight and Altus RealNet (Canada);
Search engine and Internet listing services featuring apartments for rent, such as Google, Bing, Facebook Marketplace,
ApartmentGuide.com, Rent.com, Rentals.com, Zillow Rentals, Trulia Rentals, StreetEasy, NakedApartments.com,
HotPads.com, MyNewPlace.com, Zumper, PadMapper, Craigslist, ApartmentList.com, Move.com, Realtor.com,
Adobo, RadPad, RentJungle, RentCafe.com, RentHop, RentBerry, and ApartmentRatings;
Hospitality benchmarking and analytics services, such as Lodging Econometrics, Kalibri Labs, Travelclick, HotStats
and Shigi Group (SnapShot);
• Online and mobile software application providers in the residential real estate industry, including Zillow, Redfin and
Realtor.com, as well as agent marketing platforms and workflow providers;
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Locally controlled real estate boards, exchanges or associations sponsoring property listing services and the companies
with whom they partner, such as Catylist, the National Association of Realtors, CCIM Institute, Society of Industrial
and Office Realtors, the Commercial Association of Realtors Data Services and AIR CRE;
Real estate portfolio management software solutions, such as Cougar Software, MRI Software, Altus, RealPage,
AppFolio and SiteCompli;
Real estate lease management and administration software solutions, such as Accruent, Tririga, Manhattan Software,
Tango Analytics, Lease Accelerator, Visual Lease, Sequnetra, Lease Harbor and AMT Direct;
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, unfair competition, 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.
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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 access to and/or 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 Suite®, CoStar Property®, CoStar COMPS®, CoStar Tenant®, CoStar Lease Analysis®, LoopNet®,
Showcase.com®, Cityfeet.com®, Apartments.com®, Lands of America®, Ten-X® and HomeSnap®, 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,
five patents in Canada, which expire in 2021 (2 patents) and 2036 (3 patents), covering, among other things, certain features of
our field research methodologies and user interface features, and fifteen patents in the U.S. which expire in 2021 (2 patents),
2022 (2 patents), 2025 (1 patent), 2032 (2 patents), 2036 (3 patents), 2037 (4 patents), and 2038 (1 patent), covering, among
other things, certain features of our field research methodologies and user interface feature. 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
portfolio of patents as a whole.
Human Capital Resources
As of January 31, 2021, we employed 4,752 employees. U.S-based employees represent approximately 88% of the overall
employee population, followed by 10% in European and Asia-Pacific and Latin American countries, and 2% in Canadian
provinces. None of our employees are represented by a labor union. We have experienced no work stoppages. We believe that
our employee relations are excellent. As is common with many German companies, employees in our German subsidiary,
Thomas Daily GmbH, have elected five fellow employees to form a Works Council, which represents our employees at the
location. The Works Council has certain co-determination rights and rights to receive information from us and engage us in
discussions under applicable law.
Our human resources and recruiting team works in partnership with business leaders, using a robust and diverse talent
attraction strategy to fill vacancies and contribute to our growth, including our Careers page on our corporate website, employee
referral program, social media and digital platforms, direct outreach, partnerships with commercial real estate industry groups
and universities, and specific partnerships and programs to ensure a diverse slate of candidates for each role. The development
and retention of our employees is critical to our success. To support career development, we offer on-demand and in-person
training programs to new hires, managers, and leaders. We also offer a mentoring program, which pairs employees seeking
mentorship with more experienced colleagues.
To assess employee engagement, we partner with a survey vendor to survey employees annually. Insights and results
gathered from the survey are shared with our leadership, managers and employees and help to inform our human resources
program strategy each year. We believe that diverse teams deliver better and more innovative solutions. The diversity of
thought that comes from different perspectives and backgrounds allows us to deliver cutting edge research and technology
solutions that best serve our customers. We have a dedicated Diversity, Equity and Inclusion team that is tasked with
developing topical programming, communications and training including, but not limited to, celebrations of various heritage
months and oversight of our employee resource groups, which create avenues for mentoring and professional development
within these groups as well as education and awareness across the organization.
We provide competitive pay and benefits to attract and retain high quality talent. In addition to base salaries, compensation
may include annual bonuses, commissions, and equity awards. Employees may also participate in an Employee Stock Purchase
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Plan, and a 401(k) Plan with a company match. Our comprehensive set of health and wellness benefits are affordable, high
quality and valuable to employees and their families. Employees have multiple choices for health plans, access to vision and
dental benefits and may participate in our employee wellness program as well as our employee assistance program. Additional
benefits include paid time off, parental bonding leave, college savings benefits, tuition reimbursement, company-subsidized
commuter benefits and access to mental health, tax, and legal services.
We consider the health and wellbeing of our employees, clients, and communities to be our top priority during the
COVID-19 pandemic. We transitioned from in-office to remote work for non-essential employees in early March of 2020
through the adoption of new, stable, and secure technologies to support employees in remaining fully productive while working
remotely. We also adopted new policies and procedures to ensure safety, which currently include requirements for mask
wearing in the office and when coming into contact with the community. We provide personal protective equipment for all
employees, including face coverings, hand sanitizer, antibacterial surface sanitizer and other protective equipment as needed. In
addition, our office space workstations have been redesigned and upgraded to allow for six feet of social distancing between
them and include physical barrier shielding. HVAC systems in our offices have been upgraded with enhanced filtration,
increased fresh air intake and ultraviolet lighting disinfection. We have also made a significant investment in commercial grade
air filtration equipment and monitor air quality in majority of our office locations. Finally, all high contact surfaces in our
offices are cleaned multiple times during the day and deep cleaned each night. We also provide free COVID-19 PCR and
antibody testing for our employees and their immediate household family members.
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. 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.
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Item 1A.
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 marketplace services. Our
subscription-based services generate the largest portion of our revenues. Our revenue may not grow, or could decrease, if we
cannot 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 low or sell new services to
existing customers as a result of several factors, including, without limitation: economic pressures; the business failure of
current clients; customer decisions that they do not need our services or to use alternative services; customers’ and potential
customers’ budgetary constraints; consolidation in the real estate and/or financial services industries; data quality; technical
problems; competitive pressures; or devaluation of the local currencies of international customers relative to the U.S. dollar
which impairs the purchasing power of such customers. We compete against many other real estate information, analytics, and
marketing service providers for business. 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, net new sales and revenues may
decline or fail to meet expectations.
We may not be able to successfully develop and introduce new or upgraded information, analytics and online marketplace
services that are attractive to our users and advertisers or successfully combine or shift focus from current 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 customers and potential customers, and to successfully introduce new and upgraded
services into the marketplace, including services that make our marketplaces useful for users and attractive to advertisers. To be
successful, we must be able to quickly adapt to changes in the industry, as well as rapid technological changes by continually
enhancing our information, analytics and online marketplace services. 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.
Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes heavy
burdens on our systems department, product development team, management and researchers. The processes are costly, and our
efforts to develop, integrate and enhance our services may not be successful. In addition, launching and selling a new or
upgraded service puts additional strain on our sales and marketing resources. If we are unsuccessful in obtaining greater market
share or in obtaining widespread adoption of new or upgraded services, we may not be able to offset the expenses associated
with the development, launch and marketing of the new or upgraded service, which could have a material adverse effect on our
financial results. For example, to generate brand awareness and site traffic for our Apartments.com network of rental websites,
we invest significant resources in a multi-channel marketing campaign. If the marketing campaign does not continue to increase
brand awareness, site traffic and/or revenues, the cost of the campaign could have an adverse effect on our financial results.
In addition, as we integrate acquired businesses, we continue to assess which services we believe will best meet the needs
of our customers. If we eliminate or phase out a service and are not able to offer and successfully market and sell an alternative
service, our revenue may decrease, which could have a material 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 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. Our competitors may have greater brand recognition or more direct sales personnel than we have
and may generate more web traffic than we do, which may provide them with competitive advantages. To compete successfully
for advertisers, 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.
Our business and results of operations have been and will be, and our financial condition may be, impacted by the
COVID-19 pandemic and such impact could be materially adverse and continue for an unknown period of time. The global
spread of COVID-19 has created significant economic volatility, uncertainty and disruption around the world. The extent to
which COVID-19 will further impact our business, operations and financial results, including the duration and magnitude of
such impact, is uncertain and will depend on numerous rapidly evolving factors that we cannot accurately predict including,
among others:
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the length and severity of the pandemic;
the availability of vaccines to our employees and clients;
the negative impact on global and regional economies, credit markets and economic activity;
governmental, business and individual actions taken in response to the pandemic and the impact of those actions on
global economic activity;
the impact of business disruptions and reductions in employment levels and the level of consumer confidence in the
economy on our clients and the resulting impact on their demand for our services and solutions;
business consolidations or failures among businesses that we serve;
our clients’ ability to pay for our services and solutions and our ability to collect payment for services provided;
our ability to market, develop, provide, and train clients on the use of our services and solutions, including as a result
of our employees or our clients’ employees working remotely, worker absenteeism or decreased productivity,
quarantines, social distancing or other travel or health-related restrictions;
the pace and extent of economic recovery following the COVID-19 pandemic, including recovery in the real estate
industry in particular;
increased costs of additional safety procedures and increased technology-related expenses to provide for business
continuity; and
increased cyber security risk, data accessibility concerns and susceptibility to communication disruptions because our
employees and employees of our clients are working remotely.
As a result of COVID-19 and its impact on global economic conditions, including the real estate industry, towards the end
of the first quarter and in the first two months of the second quarter of 2020, we saw an increase in customer requests for
cancellations or suspensions, a reduction in new customer sales, failures to pay and delays in payments of amounts owed to us.
We may see additional requests as current economic conditions cause customers to reduce expenses and prolong the decision-
making time before purchasing third party services, which may lead to fewer of our services being purchased or service
cancellations. The extent and duration of any future continued weakening of the economy is unknown, and there can be no
assurance that any of the governmental or private sector initiatives designed to strengthen the economy will be successful or
available to us and our customers and, if successful, when the benefits will be seen. We expect that cancellations or
suspensions, reductions of services and failures to pay amounts due to us may increase at any time while the economic impact
of the pandemic and the response to the pandemic impacts our customer base. We compete against many other real estate
information and marketing service providers for business. 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 will
decline and our profitability will be adversely affected.
As a business, we have experienced and may continue to experience challenges, including increased costs, as we have and
continue to pivot our employees’ work locations and hours as deemed necessary to respond to COVID-19 to protect the health
and well-being of our employees, customers and community. Any actual or perceived failure to comply with government
orders, rules, laws or regulations as a result of changes in our operations in response to COVID-19 could subject us to
investigations, claims, fines and other penalties, which in turn could adversely affect our business.
COVID-19, and the disruption in global economic conditions stemming from the pandemic, could also precipitate or
aggravate the other risk factors discussed in this Report, which could materially adversely affect our business, financial
condition and results of operations. Further, the COVID-19 pandemic may also affect our operating and financial results in a
manner that is not presently known to us or that we currently do not consider to present significant risks. For additional
discussion of the impacts of the COVID-19 pandemic, which could be materially adverse to our operations and financial results,
please see "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of the
COVID-19 Pandemic" in Item 7 of Part II of this Annual Report on Form 10-K.
A downturn or consolidation in the real estate industry may decrease customer demand for our services. The 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 due to the impact of the COVID-19
pandemic or otherwise 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 downturn in the
real estate market, including as a result of a decline in leasing activity and absorption rates 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 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 may consolidate, 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
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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 revenues 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 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, including field sales personnel. If we are unable to hire qualified sales
personnel and develop and retain 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.
We may be unable to increase awareness of our brands, including CoStar, LoopNet, Apartments.com, BizBuySell,
LandsofAmerica, STR, Ten-X and Homesnap, 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 LoopNet, the Apartments.com network
of rental websites, CoStar Showcase, and the Land.com network of rural lands for-sale. We expect to continue to invest in sales
and marketing in 2021 as we seek to grow the numbers of subscribers to, and advertisers on, our marketplaces. Our methods of
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 marketing and advertising costs
through increased usage of our services and increased advertising on our websites, our business, results of operations and
financial condition could be adversely affected.
Our internal and external investments may place downward pressure on our operating margins. To increase our revenue
growth, we continue to invest in our business, including internal investments in product development to expand the breadth and
depth of services we provide to our customers and external investments in sales and marketing to generate brand awareness.
Our operating margins may experience downward pressure in the short term as a result of these investments. Furthermore, our
investments may not produce the expected results. If we are unable to successfully execute our investment strategy, we may
experience decreases in our revenues and operating margins.
If Internet search engines do not prominently feature our websites on the search engine results page, traffic to our websites
would decrease and, 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 revenues from our marketplace business depends, in part, on our ability to
attract users to our websites. Google, Bing, DuckDuckGo and other Internet search engines drive traffic to our websites,
including CoStar.com, the Apartments.com network of rental websites, the LoopNet.com network of commercial real estate
websites, Ten-X.com, the BizBuySell.com network of business for-sale websites and the Land.com network of land for-sale
websites. For example, when a user enters in a search query for an apartment building name or address into an Internet search
engine, the Internet search engine’s ranking of our Apartments.com webpages will determine how prominently such webpages
are displayed on the search engine results page. Our ability to maintain prominent search result rankings and positioning is not
entirely within our control. Our competitors’ Search Engine Optimization (SEO) and Search Engine Marketing (SEM) efforts
may result in webpages from their websites receiving higher rankings than the webpages from our websites. Internet search
engines could revise their algorithms and methodologies in ways that would adversely affect our search result rankings. Internet
search engine providers could form partnerships or enter into other business relationships with our competitors resulting in
competitors’ sites receiving higher search result rankings. Internet search engines are increasingly placing alternative search
features (such as featured snippets, local map results and other immersive experiences) on the search engine results page above
or more prominently than search engine results. If our search result rankings are not prominently displayed, traffic to our
websites may decline which could slow the growth of our user base. Our websites have experienced fluctuations in search result
rankings in the past, and we anticipate similar fluctuations will occur in the future. If we experience a material reduction in the
number of users directed to our websites through Internet search engines or otherwise fail to maintain or increase traffic to our
marketplaces, our ability to acquire additional subscribers or advertisers and deliver leads to and retain existing subscribers and
advertisers could be adversely affected. As a result, our business, results of operations and financial condition could be
adversely affected. Our marketing expenses may increase in connection with our efforts to maintain or increase traffic to our
websites. Increases in our operating expenses could negatively impact our operating results if we are unable to generate more
revenues through increased sales of subscriptions to our marketplace products.
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Competition could render our services uncompetitive and reduce our profitability. The markets for information systems
and services and for online marketplaces in general are highly competitive and rapidly changing. Competition in these markets
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 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 to provide services that users might view as superior to our offerings.
Competitors may introduce different solutions that attract users away from our services or provide solutions similar to ours that
have the advantage of better branding or marketing resources. 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, advertisers, distribution partners and content providers or may be able to respond more quickly to new
or emerging technologies or changes in user requirements. Increased competition could result in lower revenues and higher
expenses, which would reduce our profitability.
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 LoopNet, the
Apartments.com network of rental websites, and the Land.com network of rural lands for-sale, depend on advertising revenues
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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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 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 dollars spent with us.
Further, with respect to the Apartments.com network of rental websites, 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.
Many of the advertisers who advertise on our marketplaces do not have long-term contracts. These advertisers could
choose to modify or discontinue their relationships with us with little or no advance notice. 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
revenues and business, results of operations and financial condition could be adversely affected.
If we are not able to successfully identify, finance, integrate and/or manage costs related to 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 acquisition strategy depends on our ability to identify, and the availability of, suitable acquisition candidates. We are likely
to incur costs in connection with proposed acquisitions, but may ultimately be unable or unwilling to consummate any
particular proposed transaction for various reasons. For example, the FTC recently withheld approval for our proposed
acquisition of RentPath, the purchase agreement was subsequently terminated, and we incurred a termination fee of $52 million.
We are also likely to incur severance costs and other integration costs post-acquisition. Costs in connection with acquisitions
and integrations may be higher than expected and could adversely affect our financial condition, results of operation or
prospects of the combined business. In addition, acquisitions involve numerous risks, including risks that we will not be able to
realize or capitalize on synergies created through combinations; manage the integration of personnel and products or services;
manage the integration of acquired infrastructure and controls; control potential increases in operating costs; manage
geographically remote operations; maintain management’s attention on other business concerns and avoid potential disruptions
in ongoing operations during an acquisition process or integration efforts; successfully enter markets and sectors in which we
have either limited or no direct experience, including foreign markets whose practices, regulations or laws may pose increased
risk; and retain 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. For example, we may be unable to fully integrate STR, Ten-X and Homesnap with CoStar when and as
expected.
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We are subject to an FTC consent order, which is publicly available on the FTC's website at http://www.ftc.gov/, that,
among other things, requires us to give the FTC advance notice of certain acquisitions. Compliance with this order could
prevent us from closing certain acquisitions or add significant time and cost to such acquisitions, ultimately making an
acquisition prohibitive or preventing us from realizing its anticipated benefits.
External factors, such as compliance with laws and regulations, and shifting market preferences, may also impact the
successful integration of an acquired business. An acquired business could strain our system of internal controls and diminish
its effectiveness. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, 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 complete future acquisitions. 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 or may be denied, as in the case of RentPath. If
regulatory approval is obtained, the terms of any such approval may impose limitations on our ongoing operations or require us
to divest assets or lines of business. If regulatory approval is denied, we may incur significant, additional costs payable to an
acquisition target as a result of failure to close the transaction. For example, we incurred a termination fee of $52 million in
connection with termination of the RentPath purchase agreement. Significant break-up fees incurred in the future may adversely
affect our results of operation and financial condition.
As a result of our acquisitions, we had approximately $2.7 billion of goodwill and intangibles as of December 31, 2020.
Future acquisitions may increase this amount. If we are required to recognize goodwill and intangibles impairment charges in
the future, this would negatively affect our financial results in the periods of such charges, which may reduce our profitability.
Our actual or perceived failure to comply with privacy laws and standards could adversely affect our business, financial
condition and results of operations. We depend on information technology networks and systems to process, transmit and store
electronic information and to communicate among our locations around the world and with our clients and vendors. We collect,
use and disclose personally identifiable information, such as names, addresses, phone numbers and email addresses. We collect,
store and use biometric data and sensitive or confidential transaction and account information. We also collect personal
information from tenants and landlords, including social security numbers, birthdates and financial information to facilitate the
apartment rental application and payment process between a renter and property manager. As a result, we are subject to a
variety of state, national, and international laws and regulations that apply to the collection, use, retention, protection,
disclosure, transfer and other processing of personal data, including the Fair Credit Reporting Act, the General Data Protection
Regulation (GDPR) and California Consumer Privacy Act (CCPA). These laws and regulations are evolving, with new or
modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or
different interpretations. For example, the GDPR introduced new data protection requirements in the EU and imposes
substantial fines for breaches of the data protection rules. The GDPR increased our responsibility and liability in relation to
personal data that we process. Following the end of the Brexit transition on December 31, 2020, the EU and U.K. agreed, as
part of a wider trade deal, a further transitional period at least another four months, extendable to six months, during which
personal data may flow freely from the European Economic Area (the “EEA”) to the U.K.. During that period, the European
Commission is considering whether to make an “adequacy decision” in favor of the U.K., finding that the U.K. offers protection
of personal data equivalent to the EEA, which will allow data to continue to flow freely between the EEA and the U.K. On
February 19, 2021, the European Commission published draft adequacy decisions. If no final adequacy decision is made in
favor of the U.K. before the end of the further transitional period, because transfers of personal data between an EEA country
and the U.K. will be transfers to a “third country”, we may be required to put in place additional mechanisms in place to enable
transfers of data from EEA countries to the U.K. to ensure compliance with the GDPR. The CCPA, which became effective on
January 1, 2020, expands the rights of California residents to access and require deletion of their personal information, opt out
of certain personal information sharing and receive detailed information about how their personal information is used. The
CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data
breach litigation. Any failure or alleged failure to comply with the rules arising from the GDPR and related national laws of EU
member states or the U.K., CCPA and other privacy or data protection laws adopted by other jurisdictions, could lead to
government enforcement actions and significant penalties against us, and could materially adversely affect our reputation,
business, financial condition, cash flows and results of operations. Compliance with any of the foregoing laws and regulations
can be costly, can delay or impede the development of new products, and may require us to change the way we operate.
The interpretation and application of many privacy and data protection laws are uncertain. These laws may be interpreted
and applied in a manner that is inconsistent with our existing data management practices or the features of our products. If so, in
addition to the possibility of negative publicity, fines, lawsuits and other claims and penalties, we could be required to
fundamentally change our business activities and practices or modify our products, which could harm our business.
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Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition.
As stated above, our business involves the collection, storage, processing and transmission of customers’ personal data. We also
collect, store and process employee personal data. An increasing number of organizations, including large merchants,
businesses, technology companies and financial institutions, as well as government institutions, have disclosed breaches of their
information security systems, some of which have involved sophisticated and highly targeted attacks, including on their
websites, mobile applications, and infrastructure.
The techniques used to obtain unauthorized, improper or illegal access to a target's systems, data or customers' data, disable
or degrade services, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may
be difficult to detect quickly and often are not recognized or detected until after they have been launched against a target. We
expect that unauthorized parties will continue to attempt to gain access to our systems or facilities through various means,
including hacking into our systems or facilities or those of our customers or vendors, or attempting to fraudulently induce (for
example, through spear phishing attacks or social engineering) our employees, customers, vendors or other users of our systems
into disclosing user names, passwords, or other sensitive information, which may in turn be used to access our information
technology systems. Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, phishing
and social engineering schemes, could compromise the confidentiality, availability, and integrity of the data in our systems. Our
efforts to prevent, detect and respond to data security incidents, may not be effective. Further, the security measures and
procedures our customers, vendors and other users of our systems have in place to protect sensitive consumer data and other
information may not be successful or sufficient to counter all data breaches, cyberattacks or system failures.
Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches, and third parties
may be able to access our customers’ or employees’ personal or proprietary information that is stored on or accessible through
those systems. We have experienced from time to time, and may experience in the future, breaches of our security measures due
to human error, malfeasance, system errors or vulnerabilities or other irregularities. Actual or perceived breaches of our security
could result in any of the following, among other things, any of which could adversely affect our business and results of
operations:
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Interrupt our operations,
Result in our systems or services being unavailable,
Result in improper disclosures of data,
Materially harm our reputation and brands,
Result in significant regulatory scrutiny and legal and financial exposure,
Cause us to incur significant remediation costs,
Lead to loss of customer confidence in, or decreased use of, our products and services,
Divert the attention of management from the operation of our business, and
Result in significant contractual penalties or other payments as a result of third-party losses or claims.
In addition, any cyberattacks or data security breaches affecting companies that we acquire or our customers or vendors
(including data center and cloud computing providers) could have similar negative effects on our business. For example, In
December 2020, we became aware that one of our vendors providing IT infrastructure management software, SolarWinds
Corporation, had been compromised by cyberattacks. As of December 22, 2020, we had implemented the fully patched versions
of the SolarWinds software and we took additional measures to block Internet connectivity to and from all SolarWinds' Orion
servers. Although we have not identified any compromise of our IT systems due to the use of SolarWinds software to date, we
continue to monitor our network for any potential impact related to the SolarWinds cyberattack. Any breach of our security
measures or the loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential
data about us or our customers, including the potential loss or disclosure of such information or data as a result of the
SolarWinds cyberattack, could result in litigation and potential liability for us, damage our brand and reputation or otherwise
harm our business. The coverage under our insurance policies may not be adequate to reimburse us for losses caused by
security breaches.
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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 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 users' access to 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.
In addition, the software, internal applications and systems underlying our services are complex and may not be error-free.
We may encounter technical problems when we attempt to enhance our software, internal applications and systems. Our users
rely on our services for the conduct of their own businesses. Disruptions in, technical problems with, or reductions in ability to
access, our services for any reason could damage our users’ businesses, harm our reputation, result in additional costs or reduce
demand for our information, analytics and online marketplace services, any of which could harm our business, results of
operations and financial condition.
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 caused 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 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 increasing the depth of our coverage in
existing markets imposes additional burdens on our research, systems development, sales, marketing and general managerial
resources. If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer or are more
expensive than planned or we are not successful in marketing and selling our services in existing or new markets, our expansion
may have a material adverse effect on our financial position by increasing our expenses without increasing our revenues.
Our operating results and revenues are subject to fluctuations and our quarterly financial results may be subject to market
cyclicality, each of which could negatively affect our stock price. The real estate market may be influenced by general economic
conditions, economic cycles, seasonality and many other factors, which in turn may impact our financial results. The different
sectors of the large and fragmented industry, such as office, industrial, retail, multifamily, single family 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. We generally see higher sales of Apartments.com listing services during the peak summer rental season and
higher CoStar Suite sales towards the end of the year, however sales fluctuate from year-to-year and may fluctuate more widely
when there are changes in general economic conditions or the industry, such as changes resulting from the COVID-19
25
pandemic. In addition, we generally incur greater marketing expenses during the second quarter, which coincides with the peak
season for apartment rentals. The timing of widely observed holidays and vacation periods, particularly slowdowns 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 in this paragraph and 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;
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 expenses and capital expenditures;
The amount and timing of non-cash stock-based charges;
Acquisition-related costs or impairment charges associated with such investments and acquisitions;
Competition;
Changes or consolidation in the real estate industry;
Interest rate fluctuations;
Execution of our expansion and integration plans;
The development of our sales force;
Foreign currency and exchange rate fluctuations;
Inflation; and
Changes in client budgets.
These fluctuations 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.
Fluctuating foreign currencies may negatively impact our business, results of operations and financial position. A portion
of our business is denominated in foreign currencies. We translate sales and other results denominated in foreign currency into
U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international sales and
earnings could be reduced because foreign currencies may translate into fewer U.S. dollars. 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. 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 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 product and 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.
Changes in tax laws, regulations or fiscal and tax policies or the manner of their interpretation or enforcement could
adversely impact our financial performance. New laws or regulations, or changes in existing laws or regulations, or the manner
of their interpretation or enforcement, could increase our cost of doing business. For example, in December 2017, the United
States enacted The Tax Cuts and Jobs Act (the "Tax Act"), and various provisions of the new law may adversely affect us.
Certain aspects of Tax Reform are unclear and may not be clarified for some time. During 2018, the Department of the Treasury
issued certain guidance in the form of notices and proposed regulations with respect to several provisions of the new legislation.
We expect that additional regulations or other guidance may be issued with respect to the Tax Act in subsequent years. We
continue to examine the impact this tax reform legislation may have on our business. In addition, if federal, state, local or
26
foreign tax authorities change applicable tax laws or issue new guidance, including in response to the Tax Act, our overall taxes
could increase, and our business, financial condition or results of operations may be adversely impacted.
We are subject to a number of risks related to acceptance of credit cards and debit cards and facilitation of other customer
payments.
We depend on processing vendors to complete credit and debit card transactions. If we or our processing vendors fail to
maintain adequate systems to authorize and process credit card transactions, one or more of the major credit card companies
could disallow our continued use of their payment products. 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. 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 to authorize and process 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 depend on processing vendors to complete credit and debit card transactions and Automated Clearing House (ACH)
payments, both for payments made to us directly for our services and for payments made by renters to landlords using our
online leasing services. If we or any one or more of these service providers fail to maintain adequate systems for authorization
and processing credit card payments, it could cause one or more of the major credit card companies to disallow our continued
use of their payment products. Further, if we or any one or more of these service providers fail to maintain adequate systems for
authorization and processing of credit, debit, ACH or similar payments or if any such service provider were to terminate or
modify its relationship with us unexpectedly, our ability to process those customer transactions would be adversely affected,
which could decrease sales, discourage customers away from our marketplace services, result in potential legal liability, and
harm our business and reputation. 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, cardholders and transactions.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly
sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail
to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are
compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other
third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be
impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other
payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control
fraudulent payment transactions, we may face civil liability, diminished public perception of our security measures and higher
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.
Risks related to our data, intellectual property and listings
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. Establishing and maintaining accurate and
reliable data and analysis is challenging. If our data, including the data we obtain from third parties or directly from brokers
through the Marketing Center feature on CoStar and LoopNet, or analysis is not current, accurate, comprehensive or reliable,
we could experience reduced demand for our services or be subject to legal claims by our customers, either of which could
result in lower revenues and higher expenses.
27
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, databases, 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. We find our proprietary content
on competitors' sites. 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, have cost us and could continue to 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 an intellectual
property claim, 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 we
provide our services. 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. This risk
will increase as we continue to expand our business into new international jurisdictions.
We may not be able to successfully halt the operation of websites that aggregate our data, as well as data from other
companies, or copycat websites that may misappropriate our data. Third parties may misappropriate our data through website
scraping, robots or other means and aggregate and display this data on their websites. 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 available to us may be
insufficient to stop their operations and the misappropriation of our data. Any measures that we may take to enforce our rights
could require us to expend significant financial or other resources.
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, such as
breach of laws related to privacy and data protection. 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. Even if
these claims do not result in liability to us, we could incur significant costs in investigating and defending against any claims
and we could be subject to public notice requirements that may affect our reputation. 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.
If we are unable to obtain or retain listings from real estate brokers, agents, property owners and apartment property
managers, our marketplace services, could be less attractive to current or potential customers, which could reduce our
revenues. The value of our real estate marketplace services to our customers depends on our ability to increase the number of
property listings provided and searches conducted. As the number of listings increases, so does the utility of a marketplace's
search, listing and marketing services. We depend substantially on brokers, agents, property owners and, in the case of
apartment rentals, property managers to submit listings to our marketplaces. If these parties 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 the BizBuySell.com network of business for-sale websites, are also dependent on attracting and retaining listings.
Risks related to our international operations
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; including differing laws regarding privacy and data protection;
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
28
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 sometimes exceeds the
profit generated from such expansion, which reduces our profitability and may adversely affect our financial position.
The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse
impact on our business and operating results. On June 23, 2016, the U.K. held a referendum in which British citizens approved
an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” On January 31, 2020, the U.K. officially
withdrew from the E.U, beginning a transition period of negotiations between the British government and the E.U. and other
governments. On December 24, 2020, the E.U. and the U.K. announced they had entered into a post-Brexit deal on certain
aspects of trade and other strategic and political issues. The impact of Brexit, the December 2020 post-Brexit agreement and the
future relationship between the E.U. and the U.K., including terms not addressed in the December 2020 agreement, remain
uncertain. Such uncertainty could cause political and economic uncertainty in the U.K. and the rest of Europe, which could
harm our business and financial results. In particular, Brexit caused and could continue to cause significant volatility in global
equity markets, currency exchange rates and other asset prices, including those related to real property. Brexit may also lead to
divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, and compliance with
those laws and regulations may be cumbersome, difficult or costly. Further, Brexit may lead other E.U. member countries to
consider referendums regarding their E.U. membership. We cannot yet predict the future implications of Brexit, including
whether it could increase our cost of doing business or otherwise adversely affect our financial condition or results of
operations. The impact to us from Brexit may affect not only our U.K. operations but operations in other parts of the E.U.
Risks related to our indebtedness
We have a significant amount of indebtedness, which could decrease our flexibility and adversely affect our business,
financial condition, and results of operations. As of December 31, 2020, we had approximately $1 billion of Senior Notes
outstanding and an additional approximately $750 million available to be drawn under the 2020 Credit Agreement. There can
be no assurance that our future cash flows will be sufficient to make payments of interest or principal on the Senior Notes or
any amounts due and payable under the 2020 Credit Agreement. If our cash flows and capital resources are insufficient to fund
our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments
and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or
refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at
all, and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.
Furthermore, we may incur substantial additional indebtedness, including secured indebtedness, and if we incur additional
indebtedness or other liabilities, the related risks that we face could intensify.
The 2020 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 domestic subsidiaries to, among other things, (i) incur additional
indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv)
merge or consolidate with another person, and (v) sell, assign, lease or otherwise dispose of all or substantially all of our assets.
In addition, the 2020 Credit Agreement requires us to comply with a maintenance covenant that we will not exceed a total net
leverage ratio, calculated as total consolidated debt, net of up to $1.0 billion of unrestricted cash and cash equivalents, to
consolidated EBITDA, of 4.50 to 1.00. The operating restrictions and financial covenants in the 2020 Credit Agreement 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.
A breach of the covenants under the 2020 Credit Agreement or the indenture that governs the Senior Notes could result in
an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and
may result in the acceleration of any other debt to which a cross-acceleration provision applies. In the event the holders of the
Senior Notes or our other debt accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient
assets to repay that indebtedness.
Our borrowings under the 2020 Credit Agreement will carry a variable interest rate based on the Euro Interbank Offered
Rate (“EURIBOR”) or the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing the rate of interest.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. The U.K.
authority that regulates LIBOR announced that it will not compel banks to submit rates for the calculation of LIBOR after June
29
2023. The full impact of any transition away from LIBOR remains unclear. We may need or seek to negotiate with our lenders
for an alternative rate. We may not be able to agree with our lenders on a replacement reference rate that is as favorable as
LIBOR, which may increase in the cost of our borrowings under the 2020 Credit Agreement.
Our indebtedness increases our vulnerability to general adverse economic and industry conditions; requires us to dedicate a
portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund capital
expenditures, marketing and other general corporate activities; limits our ability to borrow additional funds; and may limit our
flexibility in planning for, or reacting to, changes in our business and the industries in which we operate.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future
borrowing costs, reduce our access to capital or result in the loss of certain covenant suspensions. Our debt rating could be
lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis
of the rating, such as adverse changes, warrant. Any future lowering of our ratings likely would make it more difficult or more
expensive for us to obtain additional debt financing.
In addition, the 2020 Credit Agreement provides that, during any period of time in which we maintain a corporate
investment grade rating from any two of Standard & Poor’s Rating Services, Fitch Ratings, Inc. or Moody’s Investors Services,
Inc. (such period, a “Covenant Suspension Period”), certain customary negative and affirmative covenants contained in the
2020 Credit Agreement are suspended, including the covenants restricting affiliate transactions, incurrence of indebtedness,
investments, asset sales and restricted payments. A lowering of one or both of our investment grade ratings would result in
increased compliance costs and would impose certain operating restrictions, either of which could be materially adverse to our
operations and financial results.
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
169,093 square feet of office space, with a lease that 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, where we
occupy 23,064 square feet of office space. Our lease for this facility has a term ending August 31, 2025. This facility is used by
our International operating segment.
We also operate our research functions out of leased office spaces in Richmond, Virginia; San Diego, California; and
Atlanta, Georgia. Additionally, we lease office space in a variety of other metropolitan areas. These locations include, among
others, the following: Hendersonville, Tennessee; Irvine, California; Boston, Massachusetts; San Francisco, California; Ontario,
California; and Los Angeles, California.
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, including, among
others, the legal actions discussed under “Contingencies” in Note 13 “Commitments and Contingencies” to our Financial
Statements. While our management presently believes that the ultimate outcome of these proceedings, individually and in the
aggregate, will not materially harm our business, financial position, future results of operations or liquidity, legal proceedings
are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our
business, financial position, future results of operations or liquidity.
Item 4.
Mine Safety Disclosures
Not Applicable.
30
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.” As of January 31, 2021, there
were 1,751 holders of record of our common stock.
Dividend Policy. We have never declared or paid any dividends on our common stock. 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,
2020.
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, 2020:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares
Purchased
Average Price Paid
per Share
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
1,724
2,097
967
$
848.63
835.61
879.64
—
—
—
—
—
—
Month, 2020
October 1 through 31
November 1 through 30
December 1 through 31
4,788
Total
_____________________
(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 2016 Stock Incentive Plan, as amended, which shares were
purchased by the Company based on their fair market value on the trading day immediately preceding the vesting date. None of these share purchases were part
of a publicly announced program to purchase common stock of the Company.
849.19
—
—
$
(1)
31
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; and
An equal investment in the S&P 500 Internet Services & Infrastructure Index.
The comparison covers the period beginning December 31, 2015, and ending on December 31, 2020, and assumes the
reinvestment of any dividends. Note that this performance is historical and is not necessarily indicative of future price
performance.
Company / Index
CoStar Group, Inc.
S&P 500 Index
12/31/15
$
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
100 $
100
91.19 $ 143.67 $ 163.21 $ 289.47 $ 447.18
203.04
130.42
111.96
136.40
171.49
S&P 500 Internet Services & Infrastructure Index
__________________________
100
105.18
148.04
135.52
182.22
211.53
32
Item 6.
Selected Financial Data
Selected Financial Data
(in thousands, except per share data)
The following table provides selected consolidated financial data for the five years ended December 31, 2020. The
consolidated statements of operations data shown below for each of the three years ended December 31, 2020, 2019 and 2018
and the consolidated balance sheet data as of December 31, 2020 and 2019 are derived from audited consolidated financial
statements that are included in this report. The consolidated statements of operations data for each of the years ended 2017 and
2016 and the consolidated balance sheet data as of December 31, 2018, 2017 and 2016 shown below are derived from audited
consolidated financial statements for those years that are not included in this report. Information about prior period acquisitions
and the adoption of recent accounting pronouncements that may affect the comparability of the selected financial information
presented below are included in "Item 1. Business" and Note 2 to the Notes to the Consolidated Financial Statements included
in Part IV of this Annual Report on Form 10-K. The total assets and total long-term liabilities reported in the consolidated
balance sheet data have been reclassified to conform to our current presentation as a result of the retrospective application of the
authoritative guidance to simplify the presentation of debt issuance costs.
The following data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Item 8. Financial Statements and Supplementary Data,” and the other information
contained elsewhere in this Annual Report on Form 10-K.
Consolidated Statements of Operations Data:
Revenues
Cost of revenues
Gross profit
Operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
Net income per share — basic
Net income per share — diluted
Weighted average shares outstanding — basic
Weighted average shares outstanding — diluted
2016
$ 837,630 $
173,814
663,816
518,911
144,905
(9,244)
1,001
136,662
51,591
85,071 $
2.64 $
2.62 $
32,167
32,436
$
$
$
Year Ended December 31,
2018
2020
2019
(5,669)
(3,089)
269,933
921,899
648,335
273,564
10,539
2017
965,230 $ 1,191,832 $ 1,399,719 $ 1,659,019
308,968
220,403
1,350,051
744,827
1,060,849
571,011
289,202
173,816
(17,395)
(827)
270,980
43,852
227,128
5.97
5.93
38,073
38,326
289,239
1,110,480
746,933
363,547
16,742
10,660
390,949
75,986
314,963 $
8.67 $
8.60 $
284,015
45,681
238,334 $
6.61 $
6.54 $
165,058
42,363
122,695 $
3.70 $
3.66 $
36,310
36,630
33,200
33,559
36,058
36,448
(88)
Consolidated Balance Sheet Data:
Cash, cash equivalents and long-term investments
Working capital
Total assets
Total long-term liabilities
Stockholders’ equity
2017
2016
As of December 31,
2018
$ 577,175 $ 1,221,533 $ 1,110,486 $ 1,080,801 $ 3,755,912
3,557,662
1,059,139
6,915,420
3,312,957
1,209,211
136,856
5,375,359
3,021,942
1,141,269
2,873,441
75,525
2,651,250
992,109
3,853,986
241,337
3,405,593
472,545
2,185,063
375,904
1,654,213
2019
2020
33
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
Our principal information, analytics and online marketplace services are described in the following paragraphs by type of
service:
Information and Analytics
CoStar Suite®. Our subscription-based information services consist primarily of CoStar Suite services. CoStar Suite is sold
as a platform of service offerings consisting of CoStar Property®, CoStar COMPS®, CoStar Market Analytics, CoStar
Tenant®, CoStar Lease Comps and CoStar Public Record through our online and mobile applications. 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, and industry news. Our commercial real estate sales
force is currently responsible for selling multiple product lines, including CoStar Suite and LoopNet. Starting in late 2019, we
shifted the focus of our sales force to sales of LoopNet Diamond, Platinum and Gold Ads. As a result of this shift, as well as the
continued impact of COVID-19 on our current and potential customer base, we saw a decline in CoStar Suite revenue growth
rates in 2020 compared to 2019 growth rates and expect similar growth rates throughout 2021.
Information services. We provide real estate and lease management technology solutions, including lease administration,
lease accounting and abstraction services, through our CoStar Real Estate Manager® service offerings, as well as portfolio and
debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics®
service offerings. On October 22, 2019, we acquired STR and we now also provide STR’s complementary benchmarking and
analytics services to the hospitality industry. STR sells the majority of its services on a subscription basis, but also receives one-
time or ad hoc transaction fee revenues. We provide information services internationally, through our Grecam, Belbex and
Thomas Daily businesses in France, Spain and Germany, respectively. The growth rates of information services increased in
2020 compared to 2019 primarily due to the STR acquisition. The hospitality industry has been severely impacted by
COVID-19, as a result, revenue for STR declined in the second quarter of 2020 and increased moderately during the remainder
of the year. We anticipate STR revenue and overall information services growth rates to moderate during 2021.
Online Marketplaces
Multifamily. Apartments.comTM is part of our network of apartment marketing sites, which primarily includes
ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.comTM, Apartamentos.comTM, Westside Rentals, and Off Campus
Partners, LLC ("OCP"). Our network of subscription-based advertising services provides property management companies and
landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching
for available rentals. During 2020, multifamily revenue growth rates generally continued to increase relative to 2019 revenue
growth rates as tenants, property owners and landlords continued to transact in our digital environment.
Commercial property and land. Our LoopNet.com network of commercial real estate websites offer subscription-based,
online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to
advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate
agents, buyers and tenants use the LoopNet.com network of online marketplace services to search for available property listings
that meet their criteria. On June 24, 2020, we acquired Ten-X, an online auction platform for commercial real estate. On
34
December 22, 2020, we acquired Homesnap, an industry-leading online and mobile software platform that provides user-
friendly applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Our
BizBuySell network, which includes BizQuest® and FindaFranchise, and our Land.com network of sites, which includes
LandsofAmerica, LandAndFarm and LandWatch®, are also included in our commercial property and land service revenue. The
BizBuySell network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online
marketplaces for rural lands for-sale. As part of our rebuild and launch of the LoopNet Diamond, Platinum and Gold Ads
products during the fourth quarter of 2019, we shifted the focus of our commercial real estate sales force to LoopNet Ads. As a
result, the LoopNet revenue growth rate increased in the fourth quarter of 2019. Growth was flat during the first half of 2020 as
LoopNet.com sales volumes declined and cancellations increased as a result of COVID-19 and its impact on the commercial
real estate industry. During the second half of 2020, we saw an increase in sales and expect LoopNet revenue growth rates to
continue at those levels in 2021. Overall, revenues in commercial property and land increased during 2020 compared to 2019
primarily due to revenue from our newly acquired online auction platform, Ten-X and, to a lesser extent, revenue growth from
LoopNet.com. Overall, we expect an increase in the commercial property and land growth rates in 2021 compared to 2020
primarily due to the Homesnap acquisition and continued impact of the Ten-X acquisition.
Impact of the COVID-19 Pandemic
A novel strain of coronavirus known as "COVID-19" was first identified in Wuhan, China in December 2019, and was
subsequently declared a pandemic by the World Health Organization on March 11, 2020. COVID-19 has surfaced in nearly all
regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The full
impact of the COVID-19 pandemic is unknown and is evolving as the pandemic continues. The COVID-19 pandemic did not
materially affect our consolidated financial statements for the year ended December 31, 2020.
We are closely and continually monitoring the impact of the COVID-19 pandemic on our business, employees, customers,
and communities. To protect the health and safety of our employees and to help stop the spread of the disease, we shifted to a
digital, remote workplace in mid-March 2020. As of that time, nearly all of our employees began to work from home and
continue to do so as of the date of this filing. We have temporarily shifted certain employees’ job responsibilities so they can
work from home and modified our in-person research and sales processes so that they can be conducted safely and in
compliance with social distancing guidelines to protect our employees, our customers and our communities. We believe our
employees are operating at near normal levels of productivity in this digital environment. We continue to monitor events related
to the pandemic, as well as the guidelines and mandates provided by governmental and health authorities. We plan to continue
adapting our business operations when and as deemed appropriate to comply with these guidelines and mandates and to respond
to changing circumstances.
In connection with the shift to work from home, we incurred and may continue to incur expenses to help employees
perform their jobs effectively and securely. In preparation for an eventual return to work in the office, we have also incurred
and expect to continue to incur expenses to help protect the health and safety of our employees and visitors. In response to the
COVID-19 pandemic, we have taken steps to manage our costs, including minimizing hiring to essential positions, restricting
business travel and canceling in-person marketing events. We expect to continue to minimize travel and restrict in-person
marketing events during the first half of 2021. Overall, the increased direct spend related to the COVID-19 pandemic, including
office reconfiguration, has not been material to date and has had minimal impact on our financial position and operating results
as these expenses have been generally offset by the cost savings described above. As the situation evolves, we may implement
additional cost reductions.
Current general economic conditions in the U.S. and the world as a result of the COVID-19 pandemic are negatively
affecting business operations for our clients and are expected to result in business consolidations and, in certain circumstances,
failures. In general, customers are seeking to reduce expenses as a result of current economic conditions. The extent and
duration of any future continued weakening of the global economy is unknown. There can be no assurance that any of the
governmental or private sector initiatives designed to strengthen the U.S. and other economies will ultimately be successful or
available to us and our customers, and, if successful, when the benefits will be available or seen. Because of the rapidly
evolving nature of the COVID-19 pandemic and responses to it by, and the impact on, global economies, our revenue or
earnings forecasts may not prove to be accurate. Any expected changes in financial results discussed in this report, including
any expected impact of COVID-19, are based on our current observations and experience and involve estimates and
assumptions. As the extent and duration of the impacts from COVID-19 remain unclear, our estimates and assumptions may
evolve as conditions change. Our current observations and past experience and results may not be an indicator of ongoing
trends or future results, and actual results could differ significantly from our estimates and expectations.
Our near-term revenues are relatively predictable as a result of our subscription-based business model; however, we expect
that we will continue to experience the effects of the COVID-19 pandemic on our business, results of operations and overall
35
financial performance. Such effects may include, among others, a decrease in new customer sales and increases in customer
cancellations, suspensions, service reductions and failures to pay or delays in payments of amounts owed to us. We are more
likely to incur asset impairment charges or restructuring charges, or further increase our allowance for credit losses, as a result
of this crisis and related economic downturn, which could adversely affect our results of operations. The amount and frequency
of such actions will be affected by the severity and duration of the COVID-19 pandemic. We experienced a decrease in net new
bookings of subscription-based services and an increase in customer requests for cancellations and suspensions towards the end
of the first quarter of 2020 that continued through May 2020; however, those requests have eased since then, and sales related
to marketplace service offerings have returned to pre-pandemic levels. During 2020, we increased the allowance for credit loss
as a result of increased write-off trends and increased the forecasted credit loss estimate on high credit risk customers to reflect
the uncertainty around the duration and speed of an economic recovery in the first three quarters of 2020. However, the credit
loss expense normalized in the fourth quarter of 2020. Due to the uncertainty associated with the COVID-19 pandemic, we will
continue to monitor customer behavior and its impact on our results of operations. See Note 3 in this Annual Report on Form
10-K for further discussion.
We strengthened our liquidity position through an equity offering of common stock in May 2020 and an offering of Senior
Notes and amendment and restatement of our credit facility in early July 2020. See Note 11 and Note 15 in this Annual Report
on Form 10-K for further discussion of our recent equity and Senior Notes offerings and our 2020 Credit Agreement. The
effects of the pandemic have not affected our ability to date to access funding on reasonably similar terms as were available to
us prior to March 2020. We discuss the current and potential impact of select provisions of the CARES Act (defined below) in
our liquidity discussion.
For the years ended December 31, 2020, 2019 and 2018 our annualized net new bookings of subscription-based services on
all contracts were approximately $184 million, $210 million and $169 million, respectively, calculated based on the annualized
amount of change in our sales resulting from all new subscription-based contracts or upsales on all existing subscription-based
contracts, less write downs and cancellations, for the period reported. We recognize subscription revenues on a straight-line
basis over the life of the contract. Net bookings is considered a key indicator of future subscription revenue growth and is also
used as a metric of salesforce productivity by management and investors.
For the years ended December 31, 2020, 2019 and 2018, our contract renewal rate for existing CoStar subscription-based
services on annual contracts was approximately 89%, 90% and 90% respectively, and, therefore, our cancellation rate for those
services was approximately 11%, 10%, and 10%, respectively. 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.
Development, Investments and Expansion
We plan to continue to invest in our business and our services, evaluate strategic growth opportunities, and pursue our key
priorities as described below, while we closely monitor the economic developments from the COVID-19 pandemic and manage
our response to such developments. We are committed to supporting, improving and enhancing our information, analytics and
online marketplace solutions, including expanding and improving our offerings for our client base and site users, including
property owners, property managers, buyers, commercial tenants and residential renters. We expect to continue our software
development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently
completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations.
We may reevaluate our priorities as the COVID-19 pandemic continues to evolve.
Our key priorities for 2021 currently include:
•
Integrating and developing service offerings of recently completed acquisitions, including STR, Ten-X and Homesnap,
with our business operations. We are consolidating STR data and services with CoStar Suite to create an integrated
platform. We expect that the combination of STR's and CoStar's offerings will allow us to create valuable new and
improved tools for industry participants. We plan to drive international expansion, in part, through STR's global
operations and to apply STR's benchmarking expertise to other commercial real estate segments we serve. We are
working on integrating the Ten-X platform with both LoopNet and CoStar, to expand the audience for Ten-X auctions
to include our online commercial real estate users. To increase exposure, we have upgraded LoopNet listings for
properties to be auctioned on Ten-X and are allocating banner space on both our CoStar and LoopNet sites to Ten-X to
36
•
•
•
cross-market our services. Our Homesnap team is creating new and improved tools to help agents promote their
residential listings, connect with buyers and sellers and streamline their daily workflow.
Continuing to invest in the LoopNet marketplace and the Ten-X auction platform. We are enhancing the content on
LoopNet.com (including high-quality imagery), seeking targeted advertisements, providing premium listing services
(such as LoopNet Diamond, Platinum, and Gold Ads) that increase a property listing’s exposure, and adding more
content for premium listings to better meet the needs of a broader cross section of the commercial real estate industry.
We have started recruiting and developing a dedicated sales team to help support and grow the business. To support
the LoopNet marketplace, we implemented training and incentive programs for our sales team to increase sales of
LoopNet Ads, with a focus on brokers and property owners. We plan to expand the Ten-X sales force during 2021 and
focus on increasing the number of qualified bidders and the number of owners bringing properties to the site. To
generate brand awareness and site traffic for the LoopNet.com network and Ten-X, we plan to significantly increase
our investment in marketing and utilize a multi media marketing campaign, reinforced with search engine
optimization efforts. We will continue to work to determine the optimal level of marketing investment for each of
these services for future periods.
Continuing to invest in CoStar Suite, including capabilities that allow us to broaden the reach of CoStar Suite
internationally by offering multiple languages and currencies on the platform. We plan to enhance CoStar Suite by
making additional investments in analytical and service capabilities focused on lenders and owners of commercial real
estate. We also recently acquired Emporis GmbH, a Germany-based provider of international commercial real estate
data and images that we are integrating into CoStar. In addition, we plan to invest in the technology and infrastructure
of our other existing service offerings and the backend systems that support our offerings.
Continuing to develop, improve and market our Apartments.com service offerings that focus on creating the best and
most comprehensive consumer rental search experience as well as continuing to advance the digital rental experience
that allows renters to apply for leases and make rent payments, and for landlords to run tenant credit and background
checks, all online through a single platform. We seek user feedback as we work to improve our services and continue
to aggressively market our multifamily listing services in an effort to provide more value to consumers and, in turn, to
attract advertisers. Our Apartments.com marketing investment is focused on enhanced brand awareness and search
engine marketing. As we continue to assess the success and effectiveness of our marketing campaign, we will continue
to work to determine the optimal level and focus of our marketing investment for our services for future periods and
may adjust our marketing spend and focus as we deem appropriate.
To support our continued expansion and development, in 2020, we completed a public equity offering, a senior notes
offering and the refinancing of our revolving credit facility. In May 2020, we completed a public equity offering of 2.6 million
shares of common stock for $655 per share. Net proceeds from the public equity offering were approximately $1.7 billion, after
deducting approximately $35 million of underwriting fees, commissions and other stock issuance costs. We expect to use the
net proceeds from the public equity offering to fund all or a portion of the costs of any strategic acquisitions we pursue in the
future, to finance the growth of our business and/or for working capital and other general corporate purposes. General corporate
purposes may include additions to working capital, capital expenditures, repayment of debt, investments in our subsidiaries, and
the repurchase, redemption or retirement of securities, including our common stock.
On July 1, 2020, we issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030 (the “Senior
Notes”). Interest on the Senior Notes is payable semi-annually in arrears beginning January 15, 2021. We may redeem the
Senior Notes in whole or in part (a) at any time prior to April 15, 2030, at a redemption price equal to 100% of the principal
amount of the Senior Notes, plus the Applicable Premium (as calculated in accordance with the indenture governing the Senior
Notes) as of, and any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but
excluding, the redemption date, and (b) on or after April 15, 2030, at a redemption price equal to 100% of the principal amount
of the Senior Notes, plus any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to,
but excluding, the redemption date. We used a portion of the net proceeds from the issuance of the Senior Notes to repay
outstanding borrowings under the 2017 Credit Agreement, and we intend to use the remaining proceeds to fund all or a portion
of the costs of any strategic acquisitions we pursue in the future, to finance the growth of our business and/or for working
capital and other general corporate purposes.
On July 1, 2020, we also entered into a second amended and restated credit agreement (the “2020 Credit Agreement”),
which amended and restated in its entirety our existing credit agreement (the "2017 Credit Agreement"). The 2020 Credit
37
Agreement provides for a $750 million revolving credit facility with a term of five years and a letter of credit sublimit of $20
million from a syndicate of financial institutions as lenders and issuing banks. On July 1, 2020, we repaid the outstanding
borrowings under our existing $750 million revolving credit facility pursuant to the 2017 Credit Agreement using the proceeds
from the issuance of the Senior Notes. Funds drawn down on the revolving credit facility pursuant to the 2020 Credit
Agreement may be used for working capital and other general corporate purposes. The 2020 Credit Agreement, along with the
proceeds from the May equity offering, the July Senior Notes offering and cash generated by our business are expected to
support our continued growth and give us flexibility to act on strategic acquisition opportunities that may arise. See Notes 11
and 15 in this Annual Report on Form 10-K for further discussion of our recent equity and Senior Notes offerings and our 2020
Credit Agreement.
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 and functionality within our current platform or expand the
reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services,
combination and coordination of services or elimination of services or corporate expansion, development or restructuring
efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service
offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow
from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive
covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe
could increase our profitability or otherwise enhance our business.
For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in
this Annual Report on Form 10-K.
Non-GAAP Financial Measures
We prepare and publicly release quarterly unaudited financial statements prepared in accordance with generally accepted
accounting principles (“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 net income before interest (expense) income and other (expense) income, loss on debt extinguishment,
income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, non-GAAP net
income and non-GAAP net income per diluted share. EBITDA is our net income before interest (expense) income and other
(expense) income, loss on debt extinguishment, 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. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the
period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition-
and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our ordinary course of
business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs, and then
subtracting an assumed provision for income taxes. 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.
We may disclose adjusted EBITDA, adjusted EBITDA margin, 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 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, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per
diluted share as operating performance measures. We believe that the most directly comparable GAAP financial measure to
EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP
financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share
and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, 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, adjusted EBITDA margin, non-GAAP
38
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, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a
substitute for any GAAP financial measure, including net income and net income per diluted share. 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, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.
EBITDA, adjusted EBITDA, adjusted EBITDA margin, 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 accompanying reconciliations, provide additional information to investors
that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items.
We have spent more than 30 years building our database of commercial real estate information and expanding our markets and
services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included
significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and
integration-related costs, restructuring costs, and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin,
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 amortization of acquired intangible assets, depreciation
and other amortization, acquisition- and integration-related costs, restructuring costs; 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 without the impact of these items. 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 (expense) income and other (expense)
income, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss
on debt extinguishment 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, adjusted EBITDA margin,
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 financial items that have been excluded from net income to calculate EBITDA and the
material limitations associated with using this non-GAAP financial measure as compared to net income:
•
•
•
•
•
Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it
represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired
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.
Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it
represents the estimated attrition of our acquired customer base. 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 (expense) income and other (expense) income we generate and incur may be useful for
investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of
interest (expense) income and other (expense) income 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
39
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.
•
The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents
losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt
extinguishment to be a representative component of the day-to-day operating performance of our business.
Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted
EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:
•
•
•
•
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 such
costs generally represent professional service fees and direct expenses related to acquisitions. 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 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 or
impairments on acquired intangible assets. We do not believe these charges necessarily reflect the current and ongoing
cash charges related to our operating cost structure.
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 a contract or 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 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 amortization of acquired intangible assets and other related costs, stock-based compensation,
acquisition- and integration-related costs, restructuring and related 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. In addition to
these exclusions from net income, we subtract an assumed provision for income taxes to calculate non-GAAP net income. In
2020 and 2019, we assumed a 25% tax rate, which approximated our historical long-term statutory corporate tax rate, excluding
the impact of discrete items.
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 investors to understand the
factors and trends affecting our business.
40
The following table shows our net income reconciled to our EBITDA and our net cash flows from operating, investing and
financing activities for the indicated periods (in thousands):
Net income
Amortization of acquired intangible assets in cost of revenues
Amortization of acquired intangible assets in operating expenses
Depreciation and other amortization
Interest (expense) income
Other (expense) income
Income tax expense
EBITDA
$
$
Year Ended December 31,
2019
314,963 $
21,357
33,995
25,813
(16,742)
(10,660)
75,986
444,712 $
2020
227,128 $
25,675
62,457
28,812
17,395
827
43,852
406,146 $
2018
238,334
20,586
30,881
26,276
(10,539)
88
45,681
351,307
Net cash flows provided by (used in)
Operating activities
Investing activities
Financing activities
486,106 $
$
$
(464,163) $
$ 2,662,297 $
457,780 $
(483,753) $
(4,154) $
335,458
(448,001)
2,744
41
Consolidated Results of Operations
The following table provides our selected consolidated results of operations for the indicated periods (in thousands and as a
percentage of total revenue):
Revenues
Cost of revenues
Gross profit
Operating expenses:
Selling and marketing (excluding customer base
amortization)
Software development
General and administrative
Customer base amortization
Total operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
2020
$ 1,659,019
308,968
1,350,051
Year Ended December 31,
2019
100 % $ 1,399,719
19
289,239
1,110,480
81
2018
100 % $ 1,191,832
269,933
21
921,899
79
100 %
23
77
535,778
32
408,596
29
359,858
30
162,916
299,698
62,457
1,060,849
289,202
(17,395)
(827)
270,980
43,852
$ 227,128
125,602
10
178,740
18
33,995
4
746,933
64
363,547
17
16,742
(1)
10,660
—
390,949
16
75,986
3
14 % $ 314,963
100,937
9
156,659
13
30,881
2
648,335
53
273,564
26
10,539
1
(88)
1
284,015
28
45,681
5
23 % $ 238,334
8
13
3
54
23
1
—
24
4
20 %
The following table provides our revenues by type of service (in thousands and as a percentage of total revenue):
Information and analytics(1)
CoStar Suite
Information services
Online marketplaces(1)
Multifamily
Commercial property and land
Year Ended December 31,
2020
2019
2018
$ 664,735
40% $ 617,798
44% $ 545,195
46%
130,070
8
88,446
6
67,624
6
598,555
265,659
36
16
490,631
202,844
35
15
405,795
173,218
34
14
Total revenues
__________________________
(1) For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Annual Report on Form 10-K.
$ 1,659,019 100% $ 1,399,719 100% $ 1,191,832 100%
42
Comparison of Year Ended December 31, 2020 and Year Ended December 31, 2019
The following table provides a comparison of our selected consolidated results of operations for the years ended
December 31, 2020 and 2019 (in thousands):
Revenues
CoStar Suite
Information services
Multifamily
Commercial property and land
Total revenues
Cost of revenues
Gross profit
Operating expenses:
Selling and marketing (excluding customer base amortization)
Software development
General and administrative
Customer base amortization
Total operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
__________________________
NM - Not meaningful
2020
2019
Increase
(Decrease)
($)
Increase
(Decrease)
(%)
$ 664,735 $ 617,798 $
130,070
598,555
265,659
1,659,019
308,968
1,350,051
88,446
490,631
202,844
1,399,719
289,239
1,110,480
535,778
162,916
299,698
62,457
1,060,849
289,202
(17,395)
(827)
270,980
43,852
408,596
125,602
178,740
33,995
746,933
363,547
16,742
10,660
390,949
75,986
$ 227,128 $ 314,963 $
46,937
41,624
107,924
62,815
259,300
19,729
239,571
127,182
37,314
120,958
28,462
313,916
(74,345)
(34,137)
(11,487)
(119,969)
(32,134)
(87,835)
8%
47
22
31
19
7
22
31
30
68
84
42
(20)
NM
NM
(31)
(42)
(28)%
Revenues. Revenues increased to $1.7 billion in 2020, from $1.4 billion in 2019. The $259 million increase was primarily
attributable to an $108 million, or 22%, increase in multifamily revenue. The multifamily increase was due to upsells of
existing customer packages to higher value advertising packages, and higher sales volume due to an increase in property listings
as a result of recent investments in marketing. Commercial property and land revenue increased $63 million, or 31%, due to
revenue of $32 million from the acquisition of Ten-X, and growth in our LoopNet online marketplace services of $30 million as
a result of stronger site traffic, driving sales of higher value advertisements. CoStar Suite revenues increased $47 million,
or 8%, primarily due to renewal price increases from prior periods and, to a lesser extent, higher sales volume due to an
increase in subscribers. Information services revenue increased $41 million, or 47%, primarily due to $44 million from the
acquisition of STR, partially offset by a decrease of $2 million in revenue for our CoStar Real Estate Manager service offerings.
Gross Profit. Gross profit increased to $1.4 billion in 2020, from $1.1 billion in 2019. The gross profit percentage was 81%
for 2020 compared to 79% for 2019. The increase in gross profit was due to higher revenues partially impacted by an increase
in cost of revenues of $20 million, or 7%, mostly due to the acquisitions of STR and Ten-X, which were the primary drivers of
higher personnel costs of $12 million, and increased intangible asset amortization of $4 million, and to a lesser extent, increases
in bank and merchant fees of $4 million and IT equipment and office supplies of $4 million related to employees directly
supporting our customers as they transitioned to working from home during the COVID-19 pandemic. These increases were
partially offset by a $4 million decrease in travel and entertainment expenses for research and product support employees.
Selling and Marketing Expenses. Selling and marketing expenses increased to $536 million in 2020, from $409 million in
2019. The increase was primarily attributable to $92 million in additional marketing spend, including $57 million in search
engine marketing, primarily for Apartments.com and LoopNet, a $40 million increase in marketing agency fees, and a $6
million increase in other forms of marketing, led by digital, partially offset by a decrease in event spending of $11 million. In
addition, the increase in expenses was caused by higher personnel costs of $40 million driven by the acquisitions of STR and
Ten-X, as well as, higher sales commissions, in addition to $2 million increases in each of occupancy and supplies. These
increases were partially offset by a $9 million decrease in travel and entertainment expense.
43
Software Development Expenses. Software development expenses increased to $163 million in 2020, from $126 million in
2019, and increased as a percentage of revenues to 10% in 2020, compared to 9% in 2019. The increase in the amount of
software development expense was primarily due to a $33 million increase in personnel costs as a result of increased headcount
and temporary services to enhance our product offerings, including $11 million due to the acquisitions of STR and Ten-X, as
well as a $2 million increase in occupancy costs.
General and Administrative Expenses. General and administrative expenses increased to $300 million in 2020, from $179
million in 2019, and increased as a percentage of revenues to 18% in 2020 from 13% in 2019. The increase in general and
administrative expenses was partially attributable to the $52 million break fee and $8 million in extension payments that we
were contractually obligated to pay under the Asset Purchase Agreement with RentPath, which we terminated in December
2020. In addition, there were increases in personnel costs of $27 million due to increased headcount driven by the acquisitions
of STR and Ten-X, credit loss expense of $14 million primarily due to our expectations that the economic downturn caused by
the COVID-19 pandemic will increase delinquent trade receivables, professional services of $14 million driven by an increase
in other acquisition related costs, and additional software and equipment of $5 million.
Customer Base Amortization Expense. Customer base amortization expense increased to $62 million in 2020, from $34
million in 2019, and increased as a percentage of revenues to 4% in 2020, compared to 2% in 2019. The increase in customer
base amortization expense was primarily due to the STR and Ten-X acquisitions.
Interest (Expense) Income. Interest (expense) income was a net expense of $17 million in 2020, as compared to net income
of $17 million in 2019. The change from the prior year was due to an increase in interest expense of $19 million, of which, $5
million was related to the $745 million draw on the 2017 Credit Agreement in the first quarter of 2020 and $14 million related
to our Senior Notes issued on July 1, 2020, respectively. In addition, there was a decrease of $15 million in interest income
caused by lower rates of return on our cash and cash equivalent balances compared to the prior year.
Other (Expense) Income. Other (expense) income was a net expense of $1 million in 2020, as compared to net income of
$11 million in 2019. The change was primarily due to $11 million in legal settlement proceeds received in 2019.
Income Tax Expense. Income tax expense decreased to $44 million in 2020, from $76 million in 2019. The decrease was
primarily due to lower income before income taxes for 2020, as well as an increase in excess tax benefits. The effective tax rate
for 2020 was 16%, compared to 19% in 2019 and lower than the statutory rates due to research and development credits as well
as excess tax benefits.
For a comparison of our results of operations for the fiscal year ended December 31, 2019 to the year ended December 31,
2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange
Commission on February 26, 2020.
Comparison of Business Segment Results for Year Ended December 31, 2020 and Year Ended December 31, 2019
We manage our 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 primarily includes Europe, Asia-
Pacific and Latin America. Management relies on an internal management reporting process that provides revenue and
operating segment EBITDA, which is our net income before interest (expense) income and other (expense) income, loss on debt
extinguishment, 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 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.
Segment Revenues. North America revenues increased to $1.6 billion for the year ended December 31, 2020, from $1.4
billion for the year ended December 31, 2019. The increase in North America revenues was primarily due to a $108 million
increase in multifamily revenues driven by upsells of existing customer packages to higher value advertising packages and
higher sales volume as a result of recent investments in marketing. Commercial property and land revenues increased $63
million primarily due to the acquisition of Ten-X, as well as growth in our LoopNet service offering. Costar Suite revenues
increased $44 million primarily due to price increases upon renewal of subscriptions in the past year, and to a lesser extent,
higher sales volume. Information services increased $27 million due to the acquisition of STR. International revenues increased
44
to $57 million for the year ended December 31, 2020, from $40 million for the year ended December 31, 2019. The increase in
International revenues was primarily due the acquisition of STR.
Segment EBITDA. North America EBITDA decreased to $411 million for the year ended December 31, 2020, from $452
million for the year ended December 31, 2019. The decrease in North America EBITDA was due primarily to the $52 million
break fee and $8 million in extension payments that we were contractually obligated to pay under the Asset Purchase
Agreement with RentPath, which we terminated in December 2020. Additionally, increases in personnel, general and
administrative, and marketing costs were offset by an increase in revenue. International EBITDA increased to a loss of $5
million for the year ended December 31, 2020 from a loss of $7 million December 31, 2019 primarily as a result of increased
revenue, offset by increases in personnel and general and administrative costs.
For a comparison of our business segment results of operations for the fiscal year ended December 31, 2019 to the year
ended December 31, 2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities
and Exchange Commission on February 26, 2020.
45
Consolidated Quarterly Results of Operations
The following tables present our unaudited 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). These tables should be read in conjunction with
the consolidated financial statements and related notes included in this Annual Report on Form 10-K. The quarterly results of
historical periods are not necessarily indicative of quarterly results for any future period.
Revenues
Cost of revenues
Gross profit
2020
2019
Mar. 31
Jun. 30
Sep. 30
Dec. 31 Mar. 31
Jun. 30
Sep. 30
Dec. 31
$ 391,847 $ 397,159 $ 425,620 $ 444,393 $ 328,425 $ 343,760 $ 352,808 $ 374,726
78,909
74,040
77,865
78,154
71,153
71,918
71,172
74,996
312,938
323,119
347,755
366,239
257,272
271,842
281,636
299,730
Operating expenses
237,074
241,800
270,946
311,029
163,780
197,042
187,367
198,744
Income from operations
75,864
81,319
76,809
55,210
93,492
74,800
94,269
100,986
Interest (expense) income
1,651
(3,596)
(7,537)
(7,913)
4,212
Other (expense) income
841
(474)
(338)
(856)
1
4,677
539
4,414
240
3,439
9,880
Income before income taxes
78,356
77,249
68,934
46,441
97,705
80,016
98,923
114,305
Income tax expense
Net income
5,563
16,889
10,748
10,652
12,536
16,768
20,304
26,378
$ 72,793 $ 60,360 $ 58,186 $ 35,789 $ 85,169 $ 63,248 $ 78,619 $ 87,927
Net income per share — basic
Net income per share — diluted
$
$
2.00 $
1.61 $
1.49 $
0.91 $
2.35 $
1.74 $
2.16 $
1.98 $
1.60 $
1.48 $
0.91 $
2.33 $
1.73 $
2.15 $
2.42
2.39
2020
2019
Mar. 31
100 %
Jun. 30
100 %
Sep. 30
100 %
Dec. 31 Mar. 31
100 %
100 %
Jun. 30
100 %
Sep. 30
100 %
Dec. 31
100 %
20
80
61
19
—
—
19
19
81
61
20
(1)
—
19
18
82
64
18
(2)
—
16
18
82
70
12
(2)
—
10
22
78
50
28
2
—
30
21
79
57
22
1
—
23
20
80
53
27
1
—
28
20
80
53
27
1
3
31
1
18 %
4
15 %
2
14 %
2
8 %
4
26 %
5
18 %
6
22 %
7
24 %
Revenues
Cost of revenues
Gross profit
Operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
Liquidity and Capital Resources
Our principal sources of liquidity are cash from operations and more recently, proceeds from our debt and equity offerings.
Total cash, cash equivalents and restricted cash increased to approximately $3.8 billion as of December 31, 2020, compared to
approximately $1.1 billion as of December 31, 2019. The increase in cash, cash equivalents and restricted cash for the year
ended December 31, 2020 was primarily due to proceeds from our May 2020 equity offering, net of transaction costs, of $1.7
billion, as well as proceeds from the July 2020 issuance of our Senior Notes, net of transaction costs, of $983 million. In
addition, cash generated from operations contributed $486 million, partially offset by cash paid for acquisitions, net of cash
acquired, of $426 million.
In May 2020, we completed a public equity offering of 2.6 million shares of common stock for $655 per share and on July
1, 2020, we issued $1.0 billion aggregate principal amount of Senior Notes, entered into the 2020 Credit Agreement, which
amended and restated in its entirety the 2017 Credit Agreement, and repaid in full the balance on the existing $750 million
revolving credit facility under the 2017 Credit Agreement. For further discussion of our recent equity and Senior Notes
offerings and our 2020 Credit Agreement, see “—Overview—Development, Investments and Expansion” and Notes 11 and 15
to the accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K
for further discussion.
46
Net cash provided by operating activities for the year ended December 31, 2020 was $486 million compared to $458
million for the year ended December 31, 2019. The approximately $29 million increase from December 31, 2019 to
December 31, 2020 was primarily due to changes in working capital, partially offset by a decrease in net income excluding
certain non-cash expenses such as depreciation and amortization and credit loss expense, as well as a decrease in deferred
income taxes.
Net cash used in investing activities for the year ended December 31, 2020 was $464 million compared to $484 million for
the year ended December 31, 2019. The $20 million decrease in cash used in investing activities was primarily due to $438
million net cash paid for acquisitions in 2019, which included the acquisitions of STR and Off Campus Partners, compared to
$426 million net cash paid during 2020, including the acquisitions of Homesnap, Ten-X and Emporis GmbH, as well as, the
sale of our ARS investments of $10 million in 2020. This was partially offset by an increase in capital expenditures to $48
million in 2020 compared to $46 million during 2019.
Net cash provided by financing activities for the year ended December 31, 2020 was $2.7 billion compared to net cash used
in financing activities of $4 million for the year ended December 31, 2019. This $2.7 billion increase is primarily due to
proceeds from our May 2020 equity offering, net of transaction costs, of $1.7 billion, as well as, proceeds from the issuance of
our July 1, 2020 Senior Notes, net of transaction costs, of $983 million. We expect to use the proceeds from these transactions
to fund all or a portion of the costs of any strategic acquisitions we pursue in the future, to finance the growth of our business
and for working capital and other general corporate purposes. The increased cash position allows for greater financial flexibility
in light of ongoing uncertainty in the global markets resulting from the COVID-19 pandemic. See Notes 11 and 15 to the
accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for
further discussion.
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. To date, we have grown in part by
acquiring other companies, and we expect to continue to make acquisitions. On February 11, 2020, our wholly owned
subsidiary entered into a purchase agreement to acquire all of the equity interests of reorganized RentPath, following an internal
restructuring pursuant to a chapter 11 plan of reorganization, for $588 million in cash. The purchase agreement required us to
deposit a $59 million termination fee into an escrow account in the event the purchase agreement is terminated prior to closing
under specified circumstances. In December 2020, the sellers gave notice of termination of the purchase agreement and we
commenced an adversary proceeding against the sellers seeking a declaratory judgment that RentPath was in breach of the
agreement and that we were not obligated to pay the termination fee. In February 2021, we and the sellers settled the adversary
proceeding and agreed that we would pay $52 million of the $59 million contractual termination fee. See Note 13 to the
accompanying Notes to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K for
further discussion.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the
"CARES Act"). The CARES Act, among other things, includes provisions relating to the deferral of taxes, valuation
allowances, and balance sheet classifications, as well as provisions relating to refundable payroll tax credits, deferral of
employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications
to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement
property. As permitted under the CARES Act, we deferred payroll taxes due in 2020 to 2021 and 2022.
As of the filing date of this Annual Report on Form 10-K, we believe that our available cash combined with positive cash
flow provided by operating activities should be sufficient for us to maintain and fund our operations for at least the next twelve
months. Our ability to maintain adequate capital for our operations in the future depends upon numerous rapidly evolving
factors, many of which we cannot accurately predict or assess, including, among others, the length and severity of the economic
downturn associated with the COVID-19 pandemic, related disruption of the international and national economy and credit
markets; actions taken by governments, businesses and individuals in response to the pandemic such as office and other
workplace closures, worker absenteeism, quarantines, mass-transit disruptions or other travel or health-related restrictions; how
quickly economies, including the commercial real estate industry in particular, recover after the pandemic subsidies; sales of
our services; and collection of accounts receivables. We plan to continue to monitor and evaluate the financial impact of the
COVID-19 pandemic as it evolves.
Contractual Obligations. The following table summarizes our principal contractual obligations at December 31, 2020,
excluding the RentPath termination fee and the effect such obligations are expected to have on our liquidity and cash flows in
future periods (in thousands):
47
Total
2021
2022-2023
2024-2025
Long-term debt principal payments
Long-term debt principal interest
Operating leases
Purchase obligations (1)
Total contractual principal cash obligations
__________________________
$ 1,000,000 $
281,089
148,975
65,403
$ 1,495,467 $
— $
— $
29,089
37,013
30,938
97,040 $
56,000
69,726
28,413
154,139 $
Thereafter
— $ 1,000,000
140,000
3,348
—
100,940 $ 1,143,348
56,000
38,888
6,052
(1)
Amounts do not include (i) contracts with terms of twelve months or less, (ii) multi-year contracts that may be terminated by a third-party or us, or (iii)
employment agreements. Amounts do not include income taxes payable due to uncertainty regarding the timing of future cash payments.
48
Critical Accounting Policies
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. We consider policies relating to the following matters to be critical
accounting policies:
•
•
•
•
Long-lived assets, intangible assets and goodwill
Income taxes
Revenue recognition
Business combinations
With respect to our accounting policy for long-lived assets, intangible assets and goodwill, we further supplement in Note 2
of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K with the following:
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 recover the carrying value 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.
Goodwill represents the excess of costs over the fair value of assets of acquired businesses. Goodwill is not amortized, but
instead tested for impairment at least annually by each reporting unit. 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 or elect to bypass such
assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value,
or we elect to bypass such assessment, we then 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. 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 an impairment loss is recognized for the difference. We estimate the fair value of our
reporting units 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, 2020, we assessed the relevant qualitative factors
for our North America reporting unit and concluded that it was not more likely than not that the fair value of this reporting unit
was less than its respective carrying amounts. We elected to bypass performing the qualitative screen and performed the first
49
step quantitative analysis of the goodwill impairment test for our International reporting unit in the current year, which
indicated that the fair value of this unit exceeded its carrying value.
There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1,
2020, that would indicate that the carrying value of each reporting unit may not be recoverable.
For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and
further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying
consolidated financial statements included in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for
information on recent accounting pronouncements, including the expected dates of adoption.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We provide information, analytics and online marketplace services to commercial real estate and related business
communities within the regions where we operate which primarily include, North America, Europe, Asia-Pacific and Latin
America. The functional currency for a majority of our operations is the local currency, with the exception of certain STR
international locations for which the functional currency is the British Pound.
Fluctuations in the British Pound, Canadian dollar and Euro may have an impact on our business, results of operations and
financial position. For the years ended December 31, 2020 and December 31, 2019, revenues denominated in foreign currencies
were approximately 5% and 4%, respectively, of total revenue. For the years ended December 31, 2020 and December 31,
2019, our revenues would have decreased by approximately $8 million and $6 million if the U.S. dollar exchange rate used
strengthened by 10%. For the years ended December 31, 2020 and December 31, 2019, our revenues would have increased by
approximately $8 million and $6 million if the U.S. dollar exchange rate used weakened by 10%. Fluctuations in the exchange
rates of revenues denominated in any other foreign currencies would have had an immaterial impact on our consolidated results.
In addition, we have assets and liabilities denominated in foreign currencies. 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 into 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, 2020, accumulated other comprehensive loss
included a loss from foreign currency translation adjustments of approximately $0.9 million.
We do not believe we have material exposure to market risks associated with changes in interest rates related to cash
equivalent securities held as of December 31, 2020. As of December 31, 2020, we had $3.8 billion of cash, cash equivalents
and restricted cash. 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. We currently diversify our cash and cash equivalents holdings
amongst multiple financial institutions.
We are subject to interest rate market risk in connection with our new revolving credit facility. On July 1, 2020, we entered
into the 2020 Credit Agreement, which provides for variable rate borrowings of up to $750 million. On July 1, 2020, we issued
$1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030. Changes in interest rates would not have a
material impact to our current interest and debt financing expense, as all our borrowings except for our credit facility are fixed
rate, and our credit facility is currently undrawn as of December 31, 2020. See Note 11 of the Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K regarding our 2020 Credit Agreement.
We had approximately $2.7 billion of goodwill and intangible assets as of December 31, 2020. As of December 31, 2020,
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.
50
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.
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 as of the end of the fiscal year. 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 a reasonable assurance level as of
December 31, 2020.
We continue to implement a financial system that is designed to improve the efficiency and effectiveness of our operational
and financial accounting processes. This implementation is expected to continue beyond 2021. Consistent with any process
change that we implement, the design of the internal controls has and will continue to be evaluated for effectiveness as part of
our overall assessment of the effectiveness of our disclosure controls and procedures. We expect that the implementation of this
system will improve our internal controls over financial reporting.
Other than the implementation of a new financial system noted above, there have been no changes in our internal control
over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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,
51
2020 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 has concluded that the Company's internal control over financial reporting was
effective as of December 31, 2020.
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.
On December 22, 2020 and June 24, 2020, we completed the acquisitions of Homesnap and Ten-X, respectively. As
permitted by the Securities and Exchange Commission, we have elected to exclude the internal controls of these acquisitions
that have not been integrated into our existing processes and controls from our assessment of the effectiveness of internal
control over financial reporting as of December 31, 2020. The excluded aggregate financial position of Homesnap and Ten-X
collectively represented less than 1% of our total assets as of December 31, 2020, and less than 2% of our revenues and total
operating costs for the year then ended. We will include the internal controls of Homesnap and Ten-X in our assessment of the
effectiveness of our internal control over financial reporting as of December 31, 2021.
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
www.investors.costargroup.com/leadership. 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 the Security of Exchange ("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 2021 annual
meeting of stockholders under the captions “Nominees for the Board of Directors,” “Nominees’ Business Experience,
Qualifications and Directorships,” “Executive Officers and Key Employees,” “Board Meetings and Committees,” and
"Delinquent Section 16(a) Reports."
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 annual meeting of
stockholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation Tables and Discussion,”
“Narratives to Summary Compensation Table and Grants of Plan-Based Awards Table,” “Director Compensation,”
“Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”
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 2021 annual meeting of
stockholders under the captions “Equity Compensation Plan Information” and “Stock Ownership Information.”
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 2021 annual meeting of
stockholders under the captions “Certain Relationships and Related Transactions” and “Corporate Governance Matters.”
52
Item 14.
Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 annual meeting of
stockholders under the caption “Ratification of the Appointment of Independent Registered Public Accounting Firm.”
53
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
The table below details the activity of the allowance for doubtful accounts and sales credits (1) for the years ended
December 31, 2019 and 2018 (in thousands):
Year ended December 31, 2018
Year ended December 31, 2019(2)
__________________________
Balance at
Beginning
of Year
Charged to
Expense
Reductions
Balance at
End of Year
$
$
6,469 $
6,542 $
7,302 $
5,709 $
10,978 $
11,590 $
5,709
5,097
(1) Additions to the allowance for doubtful accounts are charged to bad debt expense. Additions to the allowance for sales credits are charged against revenues.
(2) On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, using the modified retrospective method. The adoption resulted in a $0.5 million reduction to the December 31, 2019 allowance for credit
losses. See Note 4 for a description of changes in the allowance for credit losses for the year ended December 31, 2020.
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 as follows:
Exhibits
Exhibit No.
Description
3.1
3.2
4.1
4.2
4.3
*10.1
*10.2
*10.3
*10.4
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).
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(Incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K filed with the
Commission on February 26, 2020).
Indenture, dated as of July 1, 2020, by and among CoStar Group, Inc., as issuer, the guarantors named therein and
Wilmington Trust, National Association, as trustee, relating to the 2.800% Senior Notes due 2030, including the
form of 2.800% Senior Notes due 2030 (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report
on Form 8-K filed with the Commission on July 1, 2020).
CoStar Group, Inc. 2016 Stock Incentive Plan (Incorporated by reference to Exhibit 4.4 to the Registration
Statement on Form S-8 of the Registrant (Reg. No. 333-212278) filed with the Commission on June 28, 2016).
First Amendment to the CoStar Group, Inc. 2016 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
to the Registrant’s Quarterly Report on Form 10-Q filed April 25, 2018).
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 filed February 29, 2008).
54
Exhibit No.
*10.5
Description
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement between the Registrant and certain of its
officers, directors and employees (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q filed July 28, 2016).
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
*10.14
*10.15
*10.16
*10.17
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
*10.24
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement for Service Awards between the
Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Unit Grant Agreement between the Registrant and certain
of its officers and employees (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on
Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and certain
of its officers and employees (Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on
Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and
Andrew C. Florance (Incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q
filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and
certain of its officers, directors and employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s
Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and
Andrew C. Florance (Incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q
filed July 28, 2016).
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 filed February 20,
2014).
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 filed February 24,
2009).
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 filed February 24, 2009).
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 filed February
24, 2009).
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 filed February 24, 2009).
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 filed February 24, 2009).
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 filed February 29,
2008).
CoStar Group, Inc. 2016 Cash Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q filed July 28, 2016).
CoStar Group, Inc. Amended and Restated Employee Stock Purchase Plan (Incorporated by reference to Exhibit
4.4 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on September 14, 2015).
CoStar Group, Inc. Management Stock Purchase Plan (Incorporated by reference to Exhibit 10.21 to the
Registrant’s Report on Form 10-K filed February 23, 2018).
Summary of Non-Employee Director Compensation (Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 10-Q filed on October 24, 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).
*10.25
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 filed February 24, 2009).
55
Exhibit No.
10.26
10.27
10.28
10.29
10.30
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
Description
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 filed on May 7, 2004).
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 filed on April 29, 2011).
Asset Purchase Agreement, dated as of the Petition Date (on or about February 12, 2020), among CSGP Holdings,
LLC, CoStar Group, Inc. (solely for the specified purposes), RentPath Holdings, Inc. and the other Sellers named
therein (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
Commission on February 13, 2020).
Agreement and Plan of Merger, dated as of May 13, 2020, by and among Ten-X Holding Company, Inc., CoStar
Realty Information, Inc., Crescendo Sub, Inc., and Thomas H. Lee Equity Fund VII, L.P., solely in its capacity as
representative thereunder (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K filed with the Commission on May 14, 2020)
Second Amended and Restated Credit Agreement, dated as of July 1, 2020, by and among CoStar Group, Inc., as
borrower, CoStar Realty Information, Inc., as co-borrower, the lenders party thereto and Bank of America, N.A., as
administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the Commission on July 1, 2020)
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 (furnished 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 (furnished herewith).
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated
Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash
Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
The cover page from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020,
formatted in Inline XBRL (included as Exhibit 101).
* Management Contract or Compensatory Plan or Arrangement.
56
Item 16. Form 10-K Summary
None.
57
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 24, 2021
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 Scott T. Wheeler, 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.
58
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/ Scott T. Wheeler
Scott T. Wheeler
/s/ Michael J. Glosserman
Michael J. Glosserman
/s/ John W. Hill
John W. Hill
/s/ Laura Cox Kaplan
Laura Cox Kaplan
/s/ Christopher J. Nassetta
Christopher J. Nassetta
/s/ Louise S. Sams
Louise S. Sams
/s/ Robert W. Musslewhite
Robert W. Musslewhite
Chairman of the Board
February 24, 2021
Chief Executive Officer and
President and a Director
(Principal Executive Officer)
February 24, 2021
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
Director
Director
Director
Director
Director
Director
59
COSTAR GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-2
F-6
F-7
F-8
F-9
F-10
F-11
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CoStar Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. (the Company) as of December 31, 2020
and 2019, the related consolidated statements of operations, comprehensive income, change in stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement
schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, 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 24, 2021 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in
2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related
amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
F-2
Description
of the Matter
Valuation of Acquired Intangible Assets
As described in Note 5 to the consolidated financial statements, during the year ended
December 31, 2020, the Company completed the acquisition of Ten-X Holding Company, Inc.
("Ten-X") for $187.7 million in cash. The Company’s accounting for the acquisition included
determining the fair value of the acquired intangible assets, including customer relationships of
$46 million.
Auditing the accounting for the acquired intangible assets of Ten-X involved complex auditor
judgment due to the estimation required in management’s determination of the fair value. The
estimation was significant primarily due to the sensitivity of the fair value to the underlying
assumptions, including customer attrition rates and projected revenue and expense growth rates.
Prospective financial information used in determining the fair value of customer relationship
intangible assets could be affected by changes in economic and market conditions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s process for accounting for acquired intangible assets. For
example, we tested controls over management’s review of the valuation model and significant
assumptions used in the valuation as well as controls over the completeness and accuracy of the
data used in the model and assumptions.
How We
Addressed
the Matter in
Our Audit
To test the fair value of these acquired intangible assets, our audit procedures included, among
others, evaluating the Company's use of valuation methodologies,
evaluating the significant assumptions, evaluating the prospective financial information and
testing the completeness and accuracy of underlying data. We involved our valuation specialists
to assist in testing certain significant assumptions used to value the acquired intangible assets.
For example, we compared the significant assumptions to current industry and market trends,
historical results of the acquired business and to other relevant factors. We also performed
sensitivity analyses of the significant assumptions to evaluate the change in the fair value
resulting from changes in the assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Tysons, Virginia
February 24, 2021
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CoStar Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, 2020, 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). In our opinion, CoStar Group, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Ten-X and Homesnap, which are included in the 2020 consolidated financial statements of CoStar Group, Inc., and
collectively constituted less than 1% of total assets as of December 31, 2020 and less than 2% of total revenues and total
operating costs for the year then ended. Our audit of internal control over financial reporting of CoStar Group, Inc. also did not
include an evaluation of the internal control over financial reporting of Ten-X and Homesnap.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of CoStar Group, Inc. as of December 31, 2020 and 2019, 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, 2020 and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2)
(collectively referred to as the “financial statements”) of CoStar Group, Inc. and our report dated February 24, 2021 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
F-4
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Tysons, Virginia
February 24, 2021
F-5
COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
2019
2020
2018
$ 1,659,019 $ 1,399,719 $ 1,191,832
269,933
921,899
308,968
1,350,051
289,239
1,110,480
535,778
162,916
299,698
62,457
1,060,849
289,202
(17,395)
(827)
270,980
43,852
227,128 $
408,596
125,602
178,740
33,995
746,933
363,547
16,742
10,660
390,949
75,986
314,963 $
359,858
100,937
156,659
30,881
648,335
273,564
10,539
(88)
284,015
45,681
238,334
5.97 $
5.93 $
8.67 $
8.60 $
6.61
6.54
38,073
38,326
36,310
36,630
36,058
36,448
$
$
$
Revenues
Cost of revenues
Gross profit
Operating expenses:
Selling and marketing (excluding customer base amortization)
Software development
General and administrative
Customer base amortization
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
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.
F-6
COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment
Unrealized gain on investments
Reclassification adjustment for realized loss on investments included in net
income
Total other comprehensive income (loss)
Total comprehensive income
See accompanying notes.
Year Ended December 31,
2020
2019
2018
$
227,128 $
314,963 $
238,334
6,966
189
541
7,696
3,103
(2,668)
—
—
—
—
3,103
(2,668)
$
234,824 $
318,066 $
235,666
F-7
COSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash
Accounts receivable
Less: Allowance for credit losses
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Long-term investments
Deferred income taxes, net
Lease right-of-use assets
Property and equipment, net
Goodwill
Intangible assets, net
Deferred commission costs, net
Deposits and other assets
Income tax receivable
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued wages and commissions
Accrued expenses
Income taxes payable
Lease liabilities
Deferred revenue
Total current liabilities
Long-term debt, net
Deferred income taxes, net
Income taxes payable
Lease and other long-term liabilities
Total liabilities
December 31,
2020
2019
$ 3,755,912 $ 1,070,731
119,059
(15,110)
103,949
28,651
3,888,512
96,788
(4,548)
92,240
36,194
1,199,165
—
4,983
108,740
126,325
2,235,999
426,745
93,274
15,856
14,986
10,070
5,408
115,084
107,529
1,882,020
421,196
89,374
9,232
14,908
$ 6,915,420 $ 3,853,986
$
15,732 $
80,998
110,305
16,316
32,648
74,851
330,850
986,715
72,991
25,282
124,223
1,540,061
7,640
53,087
38,680
10,705
29,670
67,274
207,056
—
87,096
20,521
133,720
448,393
Stockholders’ equity:
Preferred stock, $0.01 par value; 2,000 shares authorized; none outstanding
—
—
Common stock, $0.01 par value; 60,000 shares authorized; 39,414 and 36,668 issued and
outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
394
4,208,252
(889)
1,167,602
366
2,473,338
(8,585)
940,474
5,375,359
3,405,593
$ 6,915,420 $ 3,853,986
See accompanying notes.
F-8
COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Shares Amount
36,107 $
Additional
Paid-In
Capital
361 $ 2,339,253 $
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2017
Cumulative effect of adoption of new
accounting standard, net of tax
Balance at January 1, 2018
Net income
Other comprehensive loss
Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock-based compensation expense
Employee stock purchase plan
Stock issued for acquisitions
—
36,107
—
—
177
160
(116)
—
15
103
—
361
—
—
2
1
(1)
—
—
1
—
2,339,253
—
—
21,991
(1)
(24,326)
40,889
5,641
36,365
Retained
Earnings
320,656 $
Total
Stockholders’
Equity
2,651,250
54,464
375,120
238,334
—
—
—
—
—
—
—
54,464
2,705,714
238,334
(2,668)
21,993
—
(24,327)
40,889
5,641
36,366
(9,020) $
—
(9,020)
—
(2,668)
—
—
—
—
—
—
Balance at December 31, 2018
36,446
364
2,419,812
(11,688)
613,454
3,021,942
Cumulative effect of adoption of new
accounting standard, net of tax
Balance at January 1, 2019
Net income
Other comprehensive income
Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock-based compensation expense
Management stock purchase plan
Employee stock purchase plan
Balance at December 31, 2019
Net income
Other comprehensive income
Exercise of stock options
Restricted stock grants
Restricted stock grants surrendered
Stock-based compensation expense
Employee stock purchase plan
Stock issued for equity offerings, net of
transaction costs
—
36,446
—
—
116
168
(76)
—
—
14
36,668
—
—
96
100
(97)
—
13
—
364
—
—
1
2
—
2,419,812
—
—
18,651
(2)
(1)
—
(27,576)
51,818
—
—
366
—
—
1
1
—
—
—
3,491
7,144
2,473,338
—
—
21,870
(1)
(38,867)
52,624
9,343
—
(11,688)
—
3,103
—
—
—
—
—
—
(8,585)
—
7,696
—
—
—
—
—
2,634
26
1,689,945
—
12,057
625,511
314,963
—
—
—
—
—
—
—
940,474
227,128
—
—
—
—
—
—
12,057
3,033,999
314,963
3,103
18,652
—
(27,577)
51,818
3,491
7,144
3,405,593
227,128
7,696
21,871
—
(38,867)
52,624
9,343
1,689,971
Balance at December 31, 2020
39,414 $
394 $ 4,208,252 $
(889) $
1,167,602 $
5,375,359
See accompanying notes.
F-9
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:
Depreciation and amortization
Amortization of deferred commissions costs
Amortization of senior notes discount and issuance costs
Non-cash lease expense
Stock-based compensation expense
Deferred income taxes, net
Credit loss expense
Other operating activities, net
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Prepaid expenses and other current assets
Deferred commissions
Accounts payable and other liabilities
Lease liabilities
Income taxes payable
Deferred revenue
Other assets
Net cash provided by operating activities
Investing activities:
Proceeds from sale and settlement of investments
Purchases of property and equipment and other assets
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Financing activities:
Year Ended December 31,
2020
2019
2018
$
227,128 $
314,963 $
238,334
116,944
60,516
1,658
26,326
53,450
(11,530)
25,212
288
(36,118)
1,936
(64,355)
100,846
(30,497)
10,352
2,188
1,762
486,106
81,165
53,421
876
22,748
52,255
8,220
10,978
105
(5,014)
(14,244)
(66,688)
17,751
(25,442)
(577)
7,911
(648)
457,780
77,743
48,313
876
—
41,214
3,666
6,542
73
(27,819)
(1,651)
(53,497)
(14,132)
—
9,632
7,879
(1,715)
335,458
10,259
(48,347)
(426,075)
(464,163)
—
(46,197)
(437,556)
(483,753)
—
(29,632)
(418,369)
(448,001)
Proceeds from long-term debt
Payments of long-term debt
Payments of debt issuance costs
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
Other financing activities
Net cash provided by (used in) financing activities
1,744,210
(745,000)
(16,647)
(38,867)
1,689,971
30,280
(1,650)
2,662,297
—
—
—
(27,577)
—
25,080
(1,657)
(4,154)
—
—
—
(24,327)
—
27,071
—
2,744
Effect of foreign currency exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental cash flow disclosures:
Interest paid
Income taxes paid
Supplemental non-cash investing and financing activities:
Stock issued in connection with acquisition - ForRent
Consideration owed for acquisitions
See accompanying notes.
F-10
941
2,685,181
1,070,731
(1,248)
(111,047)
1,211,463
$ 3,755,912 $ 1,070,731 $ 1,100,416
442
(29,685)
1,100,416
$
$
$
$
5,948 $
45,783 $
1,998 $
68,935 $
1,421
35,980
— $
793 $
— $
1,650 $
36,366
1,534
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
1.
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. The Company provides online marketplaces for commercial real estate, apartment rentals, lands for-sale and
businesses for-sale, 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 at least one year. The Company operates within two operating
segments, North America, which includes the United States (“U.S.”) and Canada, and International, which primarily includes
Europe, Asia-Pacific and Latin America.
On October 22, 2019, the Company acquired STR, Inc. and STR Global, Ltd. (together with STR, Inc., referred to as
"STR"). STR provides benchmarking and analytics for the hospitality industry. On June 24, 2020, the Company acquired Ten-X
Holding Company, Inc. and its subsidiaries ("Ten-X"), which operate an online auction platform for commercial real estate. On
October 26, 2020, the Company acquired Emporis GmbH, a Germany-based provider of international commercial real estate
data and images. On December 22, 2020, the Company acquired Homesnap, Inc (“Homesnap”), which operates an online
mobile software platform for residential real estate agents and brokers. See Notes 5 and 9 to the accompanying Notes to the
Consolidated Financial Statements for further discussion of these acquisitions.
2.
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. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to
revenue recognition, allowance for doubtful accounts, the useful lives and recoverability of long-lived and intangible assets, and
goodwill; income taxes, accounting for business combinations, stock-based compensation, estimating the Company's
incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical
and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future
events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded
revenues and expenses. Actual results could differ from these estimates.
Revenue Recognition
The Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate
information and (ii) providing online marketplaces for professional property management companies, property owners, brokers
and landlords, in each case, typically through a fixed monthly fee for its subscription-based services. The Company's
subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet
to the commercial real estate industry and related professionals. Subscription contract rates are based on the number of sites,
number of users, organization size, the client’s business focus, geography, the number and types of services to which a client
subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in
the search results. The Company’s subscription-based license agreements typically renew automatically, and a majority have a
term of at least one year.
The Company also provides (i) market research, portfolio and debt analysis, management and reporting capabilities, (ii)
real estate and lease management solutions, including lease administration and abstraction services, to commercial customers,
F-11
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
real estate investors, and lenders, (iii) benchmarking and analytics for the hospitality industry through STR, (iv) an online
auction platform for commercial real estate through Ten-X and its subsidiaries, which were acquired in June 2020, and (v) an
online and mobile software platform that provides applications to optimize residential real estate agent workflow through
Homesnap, which was acquired in December 2020. See Note 5 for details of the acquisitions.
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i)
identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii)
determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations, and (v)
determination of revenue recognition based on timing of satisfaction of the performance obligations.
The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of
promised services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange
for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the
agreement.
In limited circumstances, the Company's contracts with customers include promises to transfer multiple services, such as
contracts for its subscription-based services and professional services. For these contracts, the Company accounts for individual
performance obligations separately if they are distinct, which involves the determination of the standalone selling price for each
distinct performance obligation.
Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of the
Company's fulfillment of its performance obligation(s) and is recognized as those obligations are satisfied.
Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable
when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from revenue
recognition timing.
Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales
commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a
straight-line basis over a period of benefit that the Company has determined to be three years. The three-year amortization
period was determined based on several factors, including the nature of the technology and proprietary data underlying the
services being purchased, customer contract renewal rates and industry competition. Certain commission costs are not
capitalized as they do not represent incremental costs of obtaining a contract.
See Note 3 for further discussion of the Company's revenue recognition.
Cost of Revenues
Cost of revenues principally consists of salaries, benefits, bonuses and stock-based compensation expenses and other
indirect costs 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 and for employees that support these products. Additionally, cost of
revenues includes the cost of data from third-party data sources and costs related to advertising purchased on behalf of
customers, credit card and other transaction fees relating to processing customer transactions, which are expensed as incurred,
and the amortization of acquired trade names, technology and other intangible assets.
Foreign Currency Translation
The Company’s reporting currency is the U.S. dollar. The functional currency for the majority of its operations is the local
currency, with the exception of certain international locations of STR for which the functional currency is the British Pound.
Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using the exchange rates in effect as of
the balance sheet date. Gains and losses resulting from translation are included in accumulated other comprehensive loss.
Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term
investment nature are also included in accumulated other comprehensive loss. Gains and losses resulting from transactions
denominated in a currency other than the functional currency of the entity are included in other (expense) income in the
consolidated statements of operations using the average exchange rates in effect during the period. The Company recognized
net foreign currency losses of $0.2 million, $0.6 million and $0.1 million for the years ended December 31, 2020, 2019 and
2018, respectively, which are included in other (expense) income on the consolidated statement of operations.
F-12
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax were as follows (in thousands):
Foreign currency translation adjustment
Net unrealized loss on investments, net of tax
Total accumulated other comprehensive loss
As of December 31,
2019
2020
$
$
(889) $
—
(889) $
(7,855)
(730)
(8,585)
During the year ended December 31, 2020, the Company sold its long-term variable debt instruments with an auction reset
feature, referred to as auction rate securities ("ARS") and reclassified out of accumulated other comprehensive loss a realized
loss of $0.5 million to earnings which is included in other (expense) income in the consolidated statement of operations. There
were no amounts reclassified out of accumulated other comprehensive loss to the consolidated statements of operations for the
years ended December 31, 2019 and 2018.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs include e-commerce, television, radio, print and
other media advertising. Advertising costs were approximately $270 million, $168 million and $125 million for the years ended
December 31, 2020, 2019 and 2018, 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 Company expects differences to reverse. Valuation allowances are provided against assets, including net operating
losses, if the Company determines it is more likely than not that some portion or all of an asset may not be realized. Interest and
penalties related to income tax matters are recognized in income tax expense.
The Company has elected to record the global intangible low taxed income inclusion ("GILTI") under the current-period
cost method.
See Note 12 for additional information regarding income taxes.
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 weighted-average number of common shares outstanding during the period
used for purposes of calculating basic earnings per share excludes outstanding stock options, and unvested stock-based awards
which include restricted stock awards that vest over a specific service period, restricted stock awards with a performance and
market conditions, restricted stock units and awards of matching restricted stock units ("Matching RSUs") awarded under the
Company's Management Stock Purchase Plan (the “MSPP”). The Company’s potentially dilutive securities include outstanding
stock options and unvested stock-based awards. Shares underlying unvested restricted stock awards that vest based on
performance and market 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. Diluted net income per share considers the impact of potentially dilutive securities except
when the inclusion of the potentially dilutive securities would have an anti-dilutive effect. See Note 16 for additional
information on the Company's calculation of net income per share.
Stock-Based Compensation
Equity instruments issued in exchange for services performed by officers, employees, and directors of the Company 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.
F-13
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For stock-based awards that vest over a specific service period, compensation expense is measured based on the fair value
of the awards at the grant date, and is recognized on a straight-line basis over the vesting period of the awards, net of an
estimated forfeiture rate. For equity instruments that vest based on achievement of a performance condition, stock-based
compensation expense is recognized based on the expected achievement of the related performance conditions at the end of
each reporting period over the vesting period of the awards. If the Company's initial estimates of the achievement of the
performance conditions change, the related stock-based compensation expense and timing 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. For awards with both a performance 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 for stock options, restricted stock awards and restricted stock units issued under equity
incentive plans, stock purchases under the Employee Stock Purchase Plan, Deferred Stock Units ("DSUs") and Matching RSUs
awarded under the MSPP included in the Company’s results of operations were as follows (in thousands):
Year Ended December 31,
2019
2020
2018
Cost of revenues
Selling and marketing (excluding customer base amortization)
Software development
General and administrative
Total stock-based compensation expense (1)
__________________________
$
$
10,879 $
5,194
10,325
27,706
54,104 $
9,273 $
6,809
8,985
27,188
52,255 $
7,688
6,881
7,454
20,695
42,718
(1)
Stock-based compensation expense for the years ended December 31, 2020 and 2018 includes $0.7 million and $1.5 million of expense related to the cash
settlement of stock options in connection with the acquisitions of Ten-X and Cozy Services, Ltd, respectively. See Note 5 for details of the acquisitions.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents. Cash, cash equivalents, and restricted cash consisted of the following as of December 31, 2020 and 2019 (in
thousands):
Cash and cash equivalents
Restricted cash:
As of December 31,
2019
2020
$ 3,693,813 $ 1,070,731
RentPath break fee held in escrow under the terms of the Asset Purchase Agreement
58,750
—
Other restricted cash related to acquisitions
Total restricted cash
Cash, cash equivalents and restricted cash
Investments
3,349
62,099
—
—
$ 3,755,912 $ 1,070,731
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. As of December 31, 2019, the Company's investments consisted of
long-term variable rate debt instruments with an auction reset feature, referred to as auction rate securities. The Company's
auction rate security investments were classified as available-for-sale and carried at fair value, with any changes in unrealized
holding gains and losses, net of the related tax effect excluded from earnings and reported as a separate component of
accumulated other comprehensive loss in stockholders’ equity until realized. A decline in market value of any investment 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.
F-14
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk and Financial Instruments
The Company’s customer base creates a lack of dependence on any individual customer that 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, 2020, 2019, and 2018. The carrying amount of the accounts receivable
approximates the net realizable value.
The Company holds cash at major financial institutions that often exceed Federal Deposit Insurance Corporation insured
limits. The Company manages its credit risk associated with cash concentrations by diversifying cash holdings across AAA
rated Government and Treasury Money Market Funds and multiple high quality financial institutions, and by periodically
evaluating the credit quality of the primary financial institutions holding such deposits. The carrying value of cash approximates
fair value. Historically, the Company has not experienced any losses due to such cash concentrations.
Allowance for Credit Losses
On January 1, 2020, the Company adopted Accounting Standards Updates ("ASU") 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; ASU 2018-19, Codification Improvements
to Topic 326, Financial Instruments - Credit Losses; ASU 2019-04, Codification Improvements to Financial Instruments -
Credit Losses (Topic 326); ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instrument; ASU 2019-11, Codification Improvements to Financial Instruments - Credit Losses (Topic 326) and ASU
2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842), later codified as Accounting Standards
Codification ("ASC") 326 ("ASC 326"), using the modified retrospective transition approach. Refer to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February
26, 2020, for further details of the Company’s policy prior to the adoption of ASC 326.
As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses
("CECL") on its trade receivables and contract assets arising from the failure of customers to make contractual payments. The
Company estimates credit losses expected over the life of its trade receivables and contract assets based on historical
information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable
forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration
of collection pursuits on its delinquent trade receivables. Based on the Company’s experience, the customer's delinquency status
is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly. In most instances,
the Company’s policy is to write-off trade receivables when they are deemed uncollectible. A majority of the Company's trade
receivables are less than 365 days outstanding.
Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade
receivables based on four portfolio segments. The determination of portfolio segments is based primarily on the qualitative
consideration of the nature of the Company’s business operations and the characteristics of the underlying trade receivables, as
follows:
•
•
CoStar Suite Portfolio Segment - The CoStar Suite portfolio segment consists of two classes of trade receivables
based on geographical location: CoStar Suite, North America and CoStar Suite, International.
Information Services Portfolio Segment - The information services portfolio segment consists of four classes of
trade receivables: Real Estate Manager; information services, North America; STR, US; and STR, International.
• Multifamily Portfolio Segment - The multifamily portfolio segment consists of one class of trade receivables.
•
Commercial Property and Land Portfolio Segment - The commercial property and land portfolio segment consists
of two classes of trade receivables: LoopNet; and other commercial property and land online marketplaces.
See Note 4 for further discussion of the Company’s accounting for allowance for credit losses.
F-15
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at the
commencement of the arrangement, at which time the Company also measures and recognizes a right-of-use ("ROU") asset,
representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to
make lease payments under the terms of the arrangement. For the purposes of recognizing ROU assets and lease liabilities
associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease
liability for short-term leases, which are leases with a term of twelve months or less. The lease term is defined as the
noncancelable portion of the lease term, plus any periods covered by an option to extend the lease if it is reasonably certain that
that the option will be exercised.
In determining the amount of lease payments used in measuring ROU assets and lease liabilities, the Company has elected
the practical expedient not to separate non-lease components from lease components for all classes of underlying assets.
Consideration deemed part of the lease payments used to measure ROU assets and lease liabilities generally includes fixed
payments and variable payments based on either an index or a rate, offset by lease incentives. Upon commencement, the initial
ROU asset also includes any lease prepayments. ROU assets and liabilities are recognized at the lease commencement date
based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally
not determinable. Therefore, the Company's incremental borrowing rate is used to determine the present value of lease
payments. The determination of the Company’s incremental borrowing rate requires judgment and is determined at lease
commencement, or as of January 1, 2019 for operating leases in existence upon adoption of ASC 842. The incremental
borrowing rate is subsequently reassessed upon a modification to the lease arrangement.
Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease
term.
See Note 7 for further discussion of the Company’s accounting for leases.
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. Costs related to acquisition of additional aircraft components or the replacement of existing
aircraft components are capitalized and depreciated over the estimated useful life of the aircraft or the added or replaced
component, whichever is less. Depreciation and amortization are calculated on a straight-line basis over the following estimated
useful lives of the assets:
Buildings
Land
Aircrafts
Furniture and office equipment
Vehicles
Computer hardware and software
Leasehold improvements
Twenty to thirty-nine years
Indefinite
Ten to twenty years
Five to ten years
Five years
Three to five years
Shorter of lease terms or useful life
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.
Long-Lived Assets, Intangible Assets and Goodwill
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 the 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 undiscounted 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.
F-16
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired technology and data, customer base assets, trade names and other intangible assets are related to the Company’s
acquisitions (see Notes 5, 9 and 10). Acquired technology and data is amortized on a straight-line basis over periods ranging
from one year to eight years. Acquired intangible assets characterized as customer base assets consist of acquired customer
contracts and the related customer relationships and are amortized over periods ranging from five years to thirteen years.
Acquired customer bases are amortized on an accelerated or straight-line basis depending on the expected economic benefit of
the intangible asset. Acquired trade names and other intangible assets are amortized on a straight-line basis over periods ranging
from one year to fifteen years.
Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of the
purchase consideration paid in a business combination over the fair value of the net identifiable assets acquired. Goodwill is not
amortized, but instead is assigned to each of the Company's reporting units and tested for impairment at least annually on
October 1, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its
carrying amount. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying
value, the Company then determines 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 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 an impairment loss is recognized for the difference.
Debt Issuance Costs
Costs incurred in connection with the issuance of long-term debt are deferred and amortized as interest expense over the
term of the related debt using the effective interest method for term debt and on a straight-line basis for revolving debt. The
Company made a policy election to classify deferred issuance costs on the revolving credit facility as a long-term asset on its
consolidated balance sheets. Upon a refinancing or amendment, 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.
See Note 11 for additional information regarding the Company's 2020 Credit Agreement and Senior Notes issuance.
Business Combinations
The Company allocates the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets
acquired based on their estimated fair values. The purchase price is determined based on the fair value of the assets transferred,
liabilities incurred and equity interests issued, after considering any transactions that are separate from the business
combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill. The Company applies significant assumptions, estimates, and judgments in determining the
fair value of assets acquired and liabilities assumed on the acquisition date, especially with respect to intangible assets and
contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected
cash flows from acquired customer bases, acquired technology and acquired trade names, useful lives, royalty rates and
discount rates. Any adjustments to provisional amounts that are identified during the measurement period are recorded in the
reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may
extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain
sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets
acquired and liabilities assumed and, if so, to determine their estimated amounts.
If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by
the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an
asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been assumed
at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement
period, changes in the Company's estimates of such contingencies will affect earnings and could have a material effect on its
results of operations and financial position.
F-17
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business
combination are initially estimated as of the acquisition date. The Company reevaluates these items based upon facts and
circumstances that existed as of the acquisition date, with any adjustments to its preliminary estimates being recorded to
goodwill provided that the Company is within the measurement period. Subsequent to the measurement period, changes to
these uncertain tax positions and tax related valuation allowances will affect the Company's provision for income taxes in its
consolidated statements of operations and comprehensive income and could have a material impact on its results of operations
and financial position.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
On January 1, 2020, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, on a prospective
basis. The amounts related to the reclassification of franchise taxes from income from operations to income tax expense for the
year ended December 31, 2020 did not have a material impact on the Company's consolidated financial statements and related
disclosures.
On January 1, 2020, the Company adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract, on a prospective basis. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service
contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and
recognize as an asset. The adoption did not have a material impact on the Company's consolidated financial statements and
related disclosures.
On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, using the modified retrospective method. This accounting standard replaced the
prior incurred loss accounting model with a current expected credit loss approach. As of January 1, 2020, no cumulative
transition adjustment was recorded to the beginning balance of retained earnings, as the adoption did not result in a higher
allowance for credit losses under the CECL impairment model. The adoption did not have a material impact on the Company's
consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
On January 16, 2020, the Financial Accounting Standards Board issued ASU 2020-01, Investments-Equity Securities
(Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The new
standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also
clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The ASU is
effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption
is permitted, including adoption in an interim period. The Company will adopt this guidance in the first quarter of 2021 and
does not expect it to have a material impact on its consolidated financial statements.
On March 12, 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (“ASC
848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and
exceptions for applying GAAP to debt, contracts, hedging relationships, and other transactions affected by reference rate
reform. The provisions of ASC 848 must be applied to all contracts that are accounted for under a Topic, Subtopic or Industry
Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. This guidance is
effective for fiscal years beginning after January 1, 2021, including interim periods within those fiscal years. The Company's
2020 Credit Agreement provides for a $750 million revolving credit facility and a letter of credit sublimit of $20 million, with
interest rates benchmarked to LIBOR. As of December 31, 2020, no amounts were issued or drawn under this facility. The
Company's Senior Notes have a fixed interest rate and will not be impacted by this standard. The Company is currently
evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
F-18
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenue
The Company provides information, analytics and online marketplaces to the commercial real estate industry, hospitality
industry, residential industry and related professionals. The revenues by operating segment and type of service consist of the
following (in thousands):
Year Ended December 31,
2020
2019
North
America
International
Total
North
America
International
Total
Information and
analytics
CoStar Suite
$
634,205 $
30,530 $
664,735 $
590,222 $
27,576 $
617,798
Information services
104,117
25,953
130,070
76,950
11,496
88,446
Online marketplaces
Multifamily
Commercial property
and land
598,555
265,225
—
434
598,555
490,631
265,659
202,264
—
580
490,631
202,844
Total revenues
$ 1,602,102 $
56,917 $ 1,659,019 $ 1,360,067 $
39,652 $ 1,399,719
Deferred Revenue
Changes in deferred revenue for the period were as follows (in thousands):
Balance at December 31, 2019
Revenue recognized in the current period from the amounts in the beginning balance
New deferrals, net of amounts recognized in the current period
Effects of foreign currency
Balance at December 31, 2020(1)
__________________________
(1) Deferred revenue was comprised of $74.9 million of current liabilities and $2.5 million of noncurrent liabilities classified within lease and other long-term
liabilities on the Company’s consolidated balance sheet as of December 31, 2020. This balance includes $4 million of net new deferrals recognized in
connection with business acquisitions made in 2020. See Note 5 for details.
70,620
(66,140)
72,328
555
77,363
$
$
Contract Assets
The Company had contract assets of $9 million and $4 million as of December 31, 2020 and December 31, 2019,
respectively; which are generated when contractual billing schedules differ from revenue recognition timing. Contract assets
represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the
conditions are satisfied. Current contract assets are included in prepaid expenses and other current assets and non-current
contract assets are included in deposits and other assets on the Company's consolidated balance sheets. The Company
recognized revenue of $5 million from contract assets for the year ended December 31, 2020.
F-19
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commissions
Commissions expense is included in selling and marketing expense in the Company's consolidated statements of
operations. The Company determined that no deferred commissions were impaired as of December 31, 2020. Commissions
expense activity as of December 31, 2020 and December 31, 2019 was as follows (in thousands):
Commissions incurred
Commissions capitalized in the current period
Amortization of deferred commissions costs
Total commissions expense
Refer to Note 2 for the Company's policy on accounting for commissions.
Unsatisfied Performance Obligations
Year Ended December 31,
2020
2019
$
$
97,183 $
(64,355)
60,516
93,344 $
87,043
(66,688)
53,421
73,776
Remaining contract consideration for which revenue had not been recognized due to unsatisfied performance obligations
was approximately $268 million at December 31, 2020, which the Company expects to recognize over the next five years. This
amount does not include contract consideration for contracts with a duration of one year or less.
F-20
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
ALLOWANCE FOR CREDIT LOSSES
The following table details the activity related to the allowance for credit losses for trade receivables by portfolio segment
(in thousands):
Year Ended December 31, 2020
CoStar
Suite
Information
services
Multifamily
Commercial
property
and land
Total
Beginning balance at December 31, 2019
$
1,264 $
624 $
1,195 $
1,465 $
4,548
Current-period provision for expected credit
losses(1), (2)
Write-offs charged against the allowance, net of
recoveries and other
11,622
2,649
7,644
3,297
25,212
(7,355)
(534)
(4,452)
(2,309)
(14,650)
Ending balance at December 31, 2020
__________________________
(1) Credit loss expense is included in general and administrative expenses on the consolidated statement of operations.
(2) Credit loss expense related to contract assets was not material for the year ended December 31, 2020.
2,739 $
5,531 $
$
4,387 $
2,453 $
15,110
F-21
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
ACQUISITIONS
Homesnap
On December 22, 2020, pursuant to the Agreement and Plan of Merger, dated November 20, 2020, by and among CoStar
Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Snapped Halo Merger
Sub Corp., a Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), and Homesnap, Inc., a Delaware
corporation ("Homesnap"), Merger Sub was merged with and into Homesnap (the “Homesnap Merger”), with Homesnap
surviving the merger as a wholly-owned subsidiary of CRI. In connection with the Homesnap Merger, the Company acquired
all of the issued and outstanding equity interests in Homesnap for a purchase price of $250 million in cash. Homesnap is an
industry-leading online and mobile software platform that provides user-friendly applications to optimize residential real estate
agent workflow and reinforce the agent-client relationship. Homesnap has relationships, data, software, and tools for residential
real estate professionals that are complementary to CoStar’s existing offerings. The acquisition of Homesnap enables CoStar to
enter the residential real estate market and expand the markets in which the Company competes.
The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair
values as of the acquisition date (in thousands):
Preliminary:
December 22, 2020
Cash, cash equivalents and restricted cash
$
Accounts receivable
Lease right-of-use assets
Goodwill
Intangible assets
Deferred tax assets, net
Lease liabilities
Deferred revenue
Other assets and liabilities
10,225
595
3,437
211,114
32,000
7,502
(3,375)
(4,000)
(7,144)
Fair value of identifiable net assets acquired
$
250,354
The net assets of Homesnap were recorded at their estimated fair values. In valuing the acquired assets and assumed
liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual
obligations and appropriate discount rates. The purchase price allocation is preliminary, subject primarily to the Company's
assessment of certain tax matters and intangibles valuation. The estimated fair value of the customer base assets incorporated
significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth
rates, customer attrition rates and profit margins.
The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the
Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization
methods:
Estimated
Fair Value
Estimated
Useful Life
Amortization
Method
Customer base
Trade name
Technology
Total intangible assets
$
$
10,000
7,000
15,000
32,000
6
10
6
Accelerated
Straight-line
Straight-line
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 Homesnap acquisition includes but is not limited to: (i) the expected synergies
and other benefits that the Company believes will result from combining its operations with Homesnap's operations; and (ii) any
F-22
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $211 million of goodwill
recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recorded in
connection with this acquisition is not amortized, but is subject to an annual impairment test. Goodwill recognized is not
deductible for income tax purposes.
As of December 31, 2020, transaction costs associated with the Homesnap acquisition were not material.
Ten-X
On June 24, 2020, pursuant to the Agreement and Plan of Merger, dated May 13, 2020, by and among CoStar Realty
Information, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“CRI”), Crescendo Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of CRI (“Merger Sub”), Ten-X Holding Company, Inc., a Delaware
corporation ("Ten-X Holding"), and Thomas H. Lee Equity Fund VII L.P., a Delaware limited partnership, solely in its capacity
as representative thereunder, Merger Sub was merged with and into Ten-X Holding (the “Merger”), with Ten-X Holding
surviving the Merger as a wholly-owned subsidiary of CRI. In connection with the Merger, the Company acquired all of the
issued and outstanding equity interests in Ten-X Holding and Ten-X Holding's subsidiaries (collectively, "Ten-X") for a
purchase price of $188 million in cash. Ten-X operates an online auction platform for commercial real estate. The Ten-X
acquisition is expected to enable the Company to create an end-to-end commercial real estate platform, combining LoopNet and
the Company's online audience of buyers with Ten-X’s leadership in online auctions for performing and distressed assets.
The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair
values as of the acquisition date (in thousands):
Preliminary:
June 24, 2020
Measurement Period
Adjustments
Preliminary:
June 24, 2020
$
3,290 $
— $
Cash and cash equivalents
Accounts receivable
Lease right-of-use assets
Goodwill
Intangible assets
Lease liabilities
Deferred tax liabilities, net
Other assets and liabilities
131
4,945
135,446
58,000
(4,945)
(4,810)
(4,697)
—
—
254
—
—
(6)
107
355 $
3,290
131
4,945
135,700
58,000
(4,945)
(4,816)
(4,590)
187,715
Fair value of identifiable net assets acquired
$
187,360 $
The net assets of Ten-X were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities,
fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations
and appropriate discount rates. The purchase price allocation is preliminary, primarily subject to the Company's assessment of
certain tax matters. The estimated fair value of the customer base assets incorporated significant assumptions that had a material
impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit
margins.
The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the
Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization
methods:
Customer base
Technology
Other intangible assets
Total intangible assets
Estimated
Fair Value
Estimated
Useful Life
Amortization
Method
6
5
2
Accelerated
Straight-line
Straight-line
$
$
46,000
11,000
1,000
58,000
F-23
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Ten-X acquisition includes but is not limited to: (i) the expected synergies and
other benefits that the Company believes will result from combining its operations with Ten-X's operations; and (ii) any
intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $136 million of goodwill
recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recorded in
connection with this acquisition is not amortized, but is subject to an annual impairment test. Goodwill recognized is not
deductible for income tax purposes.
As of December 31, 2020, transaction costs associated with the Ten-X acquisition were not material. The Company paid
$3 million in incentive compensation to Ten-X employees; this payment was negotiated as part of the acquisition and the
expense was recognized in the post-combination period.
STR, Inc. and STR Global Ltd.
On October 22, 2019, the Company acquired all of the issued and outstanding equity interests of STR for a purchase price
of $436 million. STR is a global provider of benchmarking and analytics for the hospitality industry. The combination of STR's
and CoStar's offerings is expected to allow for the creation of valuable new and improved tools for industry participants. The
Company applied the acquisition method to account for the STR transaction, which requires that assets acquired and liabilities
assumed be recorded at their fair values as of the acquisition date.
The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values
as of the acquisition date (in thousands):
Cash and cash equivalents
Accounts receivable
Lease right-of-use assets
Goodwill
Intangible assets
Lease liabilities
Deferred revenue
Deferred tax liabilities
Other assets and liabilities
Fair value of identifiable net assets acquired
Final:
October 22, 2019
$
$
11,620
8,067
7,306
261,868
178,000
(7,306)
(10,966)
(7,980)
(4,815)
435,794
The net assets of STR were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities,
fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations
and appropriate discount rates. The customer base assets incorporated significant assumptions that had a material impact on the
estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and projected profit
margins. The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in each of
the Company's operating segments, their related estimated useful lives (in years) and their respective amortization methods:
North America
International
Estimated
Fair Value
Estimated
Useful Life
Estimated
Fair Value
Estimated
Useful Life
Amortization
Method
Customer base
Trade name
Other intangible assets
$
97,000
24,000
10,000
13
15
5
Total intangible assets
$
131,000
$
$
42,000
—
5,000
47,000
10
5
Accelerated
Straight-line
Straight-line
F-24
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 STR acquisition includes but is not limited to: (i) the expected synergies and
other benefits that the Company believes will result from combining its operations with STR's operations; and (ii) any
intangible assets that do not qualify for separate recognition, such as the assembled workforce. Goodwill recorded in connection
with this acquisition is not amortized, but is subject to an annual impairment test. Of the $262 million of goodwill recorded as
part of the acquisition, $159 million and $103 million are associated with the Company's North America and International
operating segments, respectively. The goodwill recognized in the North America operating segment is expected to be deductible
for income tax purposes in future periods.
As part of the STR acquisition, the Company incurred $2 million of transaction costs. Additionally, the Company paid $15
million cash into a cash escrow account for deferred compensation for certain STR employees on the acquisition date. In the
event some or all of those employees were not entitled to their retention bonus, the funds were to be remitted to the seller.
During 2020, the retention bonus was paid to active and eligible employees and funds otherwise payable to any employees who
were not entitled to their retention bonus were remitted to the seller.
Off Campus Partners, LLC
On June 12, 2019, the Company acquired Off Campus Partners, LLC ("OCP"), a provider of student housing marketplace
content and technology to U.S. universities for $16 million. The purchase agreement required an initial payment of $14 million,
net of cash acquired, at the time of closing, with the remainder of the purchase price payable one year following the acquisition
date, subject to offset for indemnification claims or adjustments to the purchase price after final determination of closing net
working capital. During 2020, the Company paid the remaining purchase price in full. As part of the acquisition, the Company
recorded goodwill and intangibles assets of $8 million and $9 million, respectively. The net assets of OCP were recorded at
their estimated fair value. Measurement period adjustments recognized in 2019 were not material.
Pro Forma Financial Information (unaudited)
The unaudited pro forma financial information presented below summarizes the combined results of operations for the
Company, the ForRent acquisition which closed during 2018, and the STR, Ten-X and Homesnap acquisitions, in each case, as
though the companies were combined as of January 1, 2017, 2018, 2019 and 2019, respectively. The impact of the October
2020 Emporis GmbH and OCP acquisitions on the pro forma financial information was not material and therefore were not
included. The unaudited pro forma financial information for all periods presented includes amortization charges from acquired
intangible assets, retention compensation, as referenced above, and the related tax effects, along with certain other accounting
effects, but excludes the impacts of any expected operational synergies. The unaudited pro forma financial information as
presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have
been achieved if the acquisitions had taken place on January 1, 2017, 2018, 2019 and 2019, respectively.
The unaudited pro forma financial information for the years ended December 31, 2020, 2019 and 2018 combine the
historical results of the Company for the years ended December 31, 2020, 2019 and 2018, the historical results of the Company,
Homesnap, Ten-X, STR and ForRent for the periods prior to the acquisition dates, and the effects of the pro forma adjustments
listed above.
The unaudited pro forma financial information, in aggregate, was as follows (in thousands, except per share data):
Revenue
Net income
Net income per share - basic
Net income per share - diluted
Year Ended
December 31,
2019
2020
2018
$ 1,719,552 $ 1,534,452 $ 1,264,696
$
$
$
216,245 $
265,843 $ 223,830
5.68 $
5.64 $
7.32 $
7.26 $
6.21
6.14
Revenue and net loss attributable to Homesnap and STR from December 22, 2020 through December 31, 2020 and
October 22, 2019 through December 31, 2019, respectively was not material. Revenue and net loss attributable to Ten-X from
June 24, 2020 through December 31, 2020 was $32 million and $10 million, respectively.
F-25
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6.
INVESTMENTS AND FAIR VALUE MEASUREMENTS
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.
As of December 31, 2020, the Company's financial assets comprise Level 1 cash equivalents with original maturities of
three months or less in the amount of $3,394 million. As of December 31, 2020, the Company had no Level 2 or Level 3
financial assets measured at fair value.
During the year ended December 31, 2020, the Company sold its ARS investments for $10.3 million and recognized a
realized loss of $0.5 million for the year ended December 31, 2020 which was included in other (expense) income on the
Company's consolidated statements of operations.
The following table represents the Company's investments in marketable securities and fair value measurements by
investment category reported as cash equivalents and investments as of December 31, 2019 (in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2019
Level 1
Level 2
Level 3
Cash equivalents
$ 576,761 $
Auction rate securities
10,800
— $
—
— $ 576,761 $ 576,761 $
— $
—
(730)
10,070
—
—
10,070
Total cash equivalents
and long-term
investments
$ 587,561 $
— $
(730) $ 586,831 $ 576,761 $
— $
10,070
The Company’s Level 3 assets consisted of ARS; whose underlying assets were primarily student loan securities supported
by guarantees from the Federal Family Education Loan Program of the U.S. Department of Education. As of December 31,
2019, these investments were in an unrealized loss position for a period of twelve months or greater. The unrealized losses 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 were 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. The Company had no realized gains or losses on its
investments during the year ended December 31, 2019.
In addition to the financial instruments listed above, the Company holds other financial instruments, including cash
equivalents, cash deposits, accounts receivable, accounts payable, accrued expenses and senior notes. The carrying value for
such financial instruments, other than the senior notes, each approximated their fair values as of December 31, 2020 and
December 31, 2019. The estimated fair value of the Company's outstanding senior notes using quoted prices from the over-the-
counter markets, considered Level 2 inputs, was $1.04 billion as of December 31, 2020.
F-26
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
LEASES
The Company has operating leases for its office facilities, data centers and certain vehicles, as well as finance leases for
office equipment. The Company's leases have remaining terms of less than one year to eight years. The leases contain various
renewal and termination options. The period which is subject to an option to extend the lease is included in the lease term if it is
reasonably certain that the option will be exercised. The period which is subject to an option to terminate the lease is included if
it is reasonably certain that the option will not be exercised.
Lease costs related to the Company's operating leases included in the consolidated statements of operations were as follows
(in thousands):
Year Ended December 31,
2019
2018
2020
Operating lease costs:
Cost of revenues
Software development
Selling and marketing (excluding customer base amortization)
General and administrative
Total operating lease costs
$
$
11,632 $
6,020
10,356
4,827
32,835 $
11,407 $
4,209
8,678
3,299
27,593 $
11,926
3,335
9,068
3,789
28,118
The impact of lease costs related to finance leases and short-term leases was not material for the years ended December 31,
2020, 2019 and 2018.
Supplemental balance sheet information related to operating leases was as follows (in thousands):
Balance
Operating lease liabilities
Less: imputed interest
Present value of lease liabilities
Balance Sheet Location
Less: current portion of lease liabilities
Lease liabilities
Year Ended December 31,
$
2020
148,975
(10,998)
137,977
32,648
$
2019
165,542
(15,719)
149,823
29,670
Long-term lease liabilities
Lease and other long-term liabilities
$
105,329
$
120,153
Weighted-average remaining lease term in years
Weighted-average discount rate
4.0
3.6 %
5.0
4.0 %
Balance sheet information related to finance leases was not material as of December 31, 2020.
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Year Ended December 31,
2019
2020
37,006 $
30,287
19,746 $
22,629
$
$
F-27
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
Leasehold improvements
Furniture, office equipment and vehicles
Computer hardware and software
Aircrafts
Land
Buildings
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
$
December 31,
2020
2019
80,963 $
68,587
86,755
28,561
24,642
2,970
292,478
73,918
60,768
80,947
27,657
—
—
243,290
(166,153)
126,325 $
(135,761)
107,529
$
Depreciation expense for property and equipment was approximately $29 million, $26 million and $26 million, for the
years ended December 31, 2020, 2019 and 2018, respectively.
9.
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, 2018
$
1,573,088 $
38,447 $
1,611,535
Acquisitions, including measurement period adjustments(1)
Effect of foreign currency translation
Goodwill, December 31, 2019
Acquisitions, including measurement period adjustments(2)
Effect of foreign currency translation
Goodwill, December 31, 2020
__________________________
165,272
—
1,738,360
347,134
—
102,532
2,681
143,660
1,273
5,572
267,804
2,681
1,882,020
348,407
5,572
$
2,085,494 $
150,505 $
2,235,999
(1)
In connection with the acquisition of Cozy Services, LLC, during 2019 the Company recorded a measurement period adjustment which resulted in a
$1 million reduction to the initial amount of goodwill of approximately $53 million.
(2)
North America goodwill for the year ended December 31, 2020 includes goodwill recorded in connection with the acquisitions of Ten-X and Homesnap, as
well as STR measurement period adjustments to goodwill of $0.3 million. International goodwill for the year ended December 31, 2020 includes goodwill
recorded in connection with the acquisition of Emporis GmbH of $1.2 million and STR measurement period adjustments of $0.1 million.
The Company recorded goodwill of approximately $211 million and $136 million in connection with the December 2020
Homesnap and June 2020 Ten-X acquisitions, respectively. The Company recorded goodwill of approximately $262 million
and $8 million in connection with the October 2019 STR and June 2019 OCP acquisitions, respectively.
Goodwill generated from acquisitions completed in 2020 was not deductible for tax purposes as of December 31, 2020.
No impairments of the Company's goodwill were recognized during the years ended December 31, 2020, 2019 and 2018.
F-28
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.
INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands, except amortization period data):
Acquired technology and data
Accumulated amortization
Acquired technology, net
Acquired customer base
Accumulated amortization
Acquired customer base, net
December 31,
2020
2019
Weighted-
Average
Amortization
Period
(in years)
$
131,551 $
105,168
5
(97,791)
(90,542)
33,760
14,626
545,643
487,532
11
(296,758)
(233,202)
248,885
254,330
Acquired trade names and other intangible assets
249,465
236,358
12
Accumulated amortization
Acquired trade names and other intangible assets, net
(105,365)
(84,118)
144,100
152,240
Intangible assets, net
$
426,745 $
421,196
Amortization expense for intangible assets was approximately $88 million, $55 million and $52 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
In the aggregate, the Company expects the future amortization expense for intangible assets existing as of December 31,
2020 to be approximately $89 million, $70 million, $58 million, $48 million and $39 million for the years ending December 31,
2021, 2022, 2023, 2024 and 2025, respectively.
Intangible assets are reviewed for impairment at least annually and more frequently whenever events or changes in
circumstances indicate that the carrying value of such assets may not be recoverable. No impairments of the Company's
intangible assets were recognized during the years ended December 31, 2020, 2019 and 2018.
F-29
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11.
LONG-TERM DEBT
The table below presents the components of outstanding debt (in thousands):
2.800% Senior Notes due July 15, 2030
2020 Credit Agreement, due July 1, 2025
Total face amount of long-term debt
Senior notes unamortized discount and issuance costs
Long-term debt, net
Senior Notes
December 31,
2020
December 31,
2019
$
1,000,000 $
—
1,000,000
(13,285)
$
986,715 $
—
—
—
—
On July 1, 2020, the Company issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030
(the “Senior Notes”). The Senior Notes were sold to a group of financial institutions as initial purchasers who subsequently
resold the Senior Notes to non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the
“Securities Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the
Securities Act at a purchase price equal to 99.921% of their principal amount. Interest on the Senior Notes is payable semi-
annually in arrears beginning on January 15, 2021. The Senior Notes may be redeemed in whole or in part by the Company (a)
at any time prior to April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus the
Applicable Premium (as calculated in accordance with the indenture governing the Senior Notes) as of, and any accrued and
unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date, and (b)
on or after April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus any accrued
and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date. The
Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the Company’s domestic wholly
owned subsidiaries. The Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the
Company’s domestic wholly owned subsidiaries and contain covenants, events of default and other customary provisions for
which the Company was in compliance with as of December 31, 2020.
In connection with the issuance of the Senior Notes, the Company incurred approximately $13 million in debt issuance
costs.
Revolving Credit Facility
On July 1, 2020, the Company also entered into a second amended and restated credit agreement (the "2020 Credit
Agreement"), which amended and restated in its entirety the then-existing credit agreement originally entered into in April 1,
2014 and amended and restated on October 19, 2017 (the “2017 Credit Agreement”). The 2020 Credit Agreement provides for
a $750 million revolving credit facility with a term of five years (maturing July 1, 2025) and a letter of credit sublimit of
$20 million from a syndicate of financial institutions as lenders and issuing banks. On July 1, 2020, the Company repaid in full
the balance on its existing $750 million revolving credit facility under the 2017 Credit Agreement using the proceeds from the
issuance of the Senior Notes. A commitment fee of 0.25% to 0.30% per annum, depending on the Total Leverage Ratio
(defined in 2020 Credit Agreement), is payable quarterly in arrears based on the unused revolving commitment.
Subject to certain conditions, on no more than five occasions, the Company may request increases in the amount of
revolving commitments and/or the establishment of term commitments under the 2020 Credit Agreement. Borrowings under the
2020 Credit Agreement will bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base
rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a LIBOR or EURIBOR (with a floor of 0.0%) for the specified
interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case depending on the Company's Total Leverage
Ratio (as defined in the 2020 Credit Agreement). As LIBOR may not always be available to the Company as a base interest rate
for borrowings under the credit facility, the 2020 Credit Agreement allows for an amendment to replace LIBOR with one or
more Secured Overnight Financing Rate (“SOFR”) based rates or another alternative benchmark rate. Funds drawn down on the
revolving credit facility pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate
purposes of the Company and its restricted subsidiaries. The obligations under the 2020 Credit Agreement are guaranteed by
each of the Company’s current and future direct or indirect wholly owned restricted domestic subsidiaries, other than certain
excluded subsidiaries, in each case subject to certain exceptions, pursuant to guarantee agreements.
F-30
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 2020 Credit Agreement includes covenants, including ones that, subject to certain exceptions, restrict the ability of the
Company and its subsidiaries to (i) merge and consolidate with other companies, (ii) incur indebtedness, (iii) grant liens or
security interests on assets, (iv) make investments, acquisitions, loans or advances, (v) pay dividends and (vi) sell or otherwise
transfer assets. During any period of time that the Company has obtained and maintained a corporate investment grade rating
from at least two designated rating agencies and no Event of Default is continuing, the Company will not be subject to certain
of these covenants such as restrictions on the ability to incur indebtedness (such period, a “Covenant Suspension Period”). As
of December 31, 2020, the Company is in a Covenant Suspension Period. The 2020 Credit Agreement also requires the
Company to maintain a Total Leverage Ratio (as defined in the 2020 Credit Agreement) not exceeding 4.50 to 1.00. The
Company was in compliance with the covenants in the 2020 Credit Agreement as of December 31, 2020.
In connection with the 2020 Credit Agreement, the Company incurred approximately $3.6 million in debt issuance costs.
As of December 31, 2020, the Company had not drawn any amounts under this facility.
The Company had an irrevocable standby letter of credit outstanding totaling $0.2 million as of December 31, 2020 and
December 31, 2019, which is required to secure its San Francisco office lease. The letter of credit was established in 2014 and
automatically renews annually through January 31, 2025.
For the years ended December 31, 2020, 2019 and 2018 the Company recognized interest expense as follows (in
thousands):
Interest on outstanding borrowings
Amortization of senior notes discount and issuance costs
Commitment fees and other
Total interest expense
Year Ended
December 31,
2020
2019
2018
$
$
18,509 $
— $
1,658
1,627
874
1,741
21,794 $
2,615 $
—
950
1,880
2,830
The Company had $4.9 million and $2.5 million of deferred debt issuance costs as of December 31, 2020 and 2019 in
connection with the 2020 Credit Agreement and 2017 Credit Agreement, respectively. These amounts are included in deposits
and other assets on the Company's consolidated balance sheets.
F-31
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.
INCOME TAXES
The components of the provision for income taxes attributable to operations consist of the following (in thousands):
Year Ended December 31,
2019
2018
2020
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision for income taxes
$
$
43,461 $
11,726
195
55,382
(9,599)
(926)
(1,005)
(11,530)
43,852 $
53,039 $
13,422
1,305
67,766
6,881
2,424
(1,085)
8,220
75,986 $
36,167
5,140
708
42,015
6,576
(2,582)
(328)
3,666
45,681
The components of deferred tax assets and liabilities consist of the following (in thousands):
Deferred tax assets:
Allowance for credit losses
Accrued compensation
Stock compensation
Net operating losses
Accrued reserve and other
Lease liabilities
Research and development credits
Accrued transaction fees
Total deferred tax assets, prior to valuation allowance
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Deferred commission costs, net
Lease right-of-use assets
Prepaid expenses
Property and equipment, net
Intangible assets, net
Total deferred tax liabilities
Net deferred tax assets (liabilities)
$
December 31,
2020
2019
3,698 $
4,934
15,289
38,498
5,900
34,758
6,059
13,334
122,470
1,312
4,297
13,877
20,555
4,177
36,472
6,341
—
87,031
(11,170)
111,300
(13,553)
73,478
(23,691)
(27,168)
(2,384)
(13,078)
(112,987)
(179,308)
(22,612)
(30,830)
(1,548)
(8,891)
(91,285)
(155,166)
$
(68,008) $
(81,688)
For the years ended December 31, 2020 and 2019, the Company has not recognized deferred tax liabilities for temporary
differences related to investments in foreign subsidiaries that were deemed permanent reinvested. Determination of the amount
of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on
certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the
Company no longer plans to permanently reinvest these undistributed earnings.
As of December 31, 2020 and 2019, a valuation allowance has been established for certain deferred tax assets due to the
uncertainty of realization. The valuation allowance as of December 31, 2020 includes an allowance for acquired net operating
F-32
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
losses and foreign deferred tax assets. The valuation allowance as of December 31, 2019 includes an allowance for foreign
deferred tax assets and state net operating losses and tax credits.
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
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. The Company has established a valuation allowance for
certain acquired net operating losses where Section 382 limitations will impact the ability of the Company to utilize the net
operating losses before they expire.
The Company’s change in valuation allowance was a decrease of approximately $2.4 million for the year ended
December 31, 2020 and a decrease of approximately $0.7 million for the year ended December 31, 2019. The decrease for the
year ended December 31, 2020 is primarily due to the removal of the valuation allowance for the D.C. qualified high
technology company tax credits which expired in 2020, partially offset by an increase in the valuation allowance for acquired
net operating losses. The decrease for the year ended December 31, 2019 is due to a decrease in foreign net operating loss
deferred tax assets for which a full valuation allowance had been established, partially offset by an increase in the valuation
allowance for state tax credits related to the D.C. qualified high technology company credit.
The Company had U.S. income before income taxes of approximately $291 million, $403 million and $294 million for the
years ended December 31, 2020, 2019 and 2018, respectively. The Company had foreign losses before income taxes of
approximately $20 million, $12 million, and $10 million for the years ended December 31, 2020, 2019 and 2018, respectively.
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):
Year Ended December 31,
2019
2018
2020
Expected federal income tax provision at statutory rate
State income taxes, net of federal benefit
Increase (decrease) in valuation allowance
Research credits
Excess tax benefit
Tax reserves
Nondeductible compensation
Other adjustments
Income tax expense
$
$
56,906 $
11,409
(4,848)
(14,322)
(21,038)
4,762
5,949
5,034
43,852 $
82,099 $
14,884
(693)
(12,188)
(15,282)
3,135
1,777
2,254
75,986 $
59,643
10,312
1,214
(15,373)
(14,227)
1,870
949
1,293
45,681
Certain of 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 has net operating loss carryforwards for international income tax purposes of approximately $48 million,
which do not expire. The Company has federal net operating loss carryforwards of approximately $111 million that begin to
expire in 2029, state net operating loss carryforwards with a tax value of approximately $6 million that begin to expire in 2029
and state income tax credit carryforwards with a tax value of approximately $6 million primarily relating to state research and
development credits that do not expire. The Company realized a cash benefit relating to the use of its tax loss carryforwards of
approximately $5 million, $6 million and $6 million in December 31, 2020, 2019 and 2018, respectively.
F-33
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):
Unrecognized tax benefit as of December 31, 2017
Increase for current year tax positions
Decrease for prior year tax positions
Expiration of the statute of limitation for assessment of taxes
Unrecognized tax benefit as of December 31, 2018
Increase for current year tax positions
Increase for prior year tax positions
Expiration of the statute of limitation for assessment of taxes
Unrecognized tax benefit as of December 31, 2019
Increase for current year tax positions
Increase for prior year tax positions
Expiration of the statute of limitation for assessment of taxes
Unrecognized tax benefit as of December 31, 2020
$
$
14,363
9,561
(70)
(1,482)
22,372
3,487
440
(832)
25,467
4,213
452
(1,259)
28,873
Approximately $29 million and $25 million of the unrecognized tax benefits as of December 31, 2020 and 2019,
respectively, would favorably affect the annual effective tax rate, if recognized in future periods. The increase for current year
and prior year tax positions of $5 million for the year ended December 31, 2020 is primarily attributable to research credits. The
decrease for expiration of the statute of limitation of $1 million for the year ended December 31, 2020 is primarily attributable
to the reserve for the D.C. qualified high technology company tax credits. The Company recognized $0.4 million, $0.2 million,
and $0.2 million for interest and penalties in its consolidated statement of operations for the years ended December 31, 2020,
2019, 2018 respectively. The Company had liabilities of $1.0 million, $0.6 million, and $0.4 million for interest and penalties
in its consolidated balance sheets as of December 31, 2020, 2019, 2018 respectively. The Company does not anticipate the
amount of the unrecognized tax benefits will change significantly over the next twelve months.
The Company is subject to taxation in the U.S. federal jurisdiction and various states and foreign jurisdictions. The
Company’s federal income tax returns for tax years 2013 through 2019 remain open to examination. The Company is under
Internal Revenue Service examination for tax year 2013 related to the research and development credit. Most of the Company’s
state income tax returns for tax years 2017 through 2019 remain open to examination. For states that have a four-year statute of
limitations, the state income tax returns for tax years 2016 through 2019 remain open to examination. The Company’s U.K.
income tax return for tax year 2019 remains open to examination. The Company believes that an adequate provision has been
made for any adjustments that may result from tax examinations.
13.
COMMITMENTS AND CONTINGENCIES
The following summarizes our significant contractual obligations, including related payments due by period, as of
December 31, 2020 (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Operating
lease
obligations
Long-term
debt principal
payments
Long-term debt
principal
interest
payments
$
37,013 $
— $
35,257
34,470
28,343
10,544
3,348
—
—
—
—
1,000,000
$
148,975 $
1,000,000 $
29,089
28,000
28,000
28,000
28,000
140,000
281,089
The Company leases office facilities under various non-cancelable operating leases. The leases contain various renewal
options. See Note 7 for further discussion of the Company's operating lease commitments.
F-34
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RentPath
On February 11, 2020, the Company and RentPath Holdings, Inc. (“RentPath”) entered into an asset purchase agreement
(the “Asset Purchase Agreement”) dated as of February 12, 2020. Pursuant to the Asset Purchase Agreement, and subject to the
terms and conditions set forth therein, the Company agreed to acquire for $588 million in cash all of the equity interests of
RentPath, upon the completion of reorganization of RentPath under Chapter 11 proceedings in process with the U.S.
Bankruptcy Court for the District of Delaware and other closing conditions. As required by the Asset Purchase Agreement, the
Company paid a $59 million termination fee into a cash escrow account which was payable to the sellers of RentPath in the
event of certain circumstances resulting the Asset Purchase Agreement being terminated. The break fee deposited into escrow
was recorded as restricted cash within cash, cash equivalents and restricted cash on the Company's consolidated balance sheets.
On April 29, 2020, the Company and RentPath each received a request for additional information from the U.S. Federal Trade
Commission (“FTC”) with respect to the acquisition. The FTC’s additional request extended the waiting period imposed by the
Hart-Scott Rodino Antitrust Improvements Act of 1976 until the parties completed the compliance process and the FTC
completed its review of the substance of the parties' submission. Bankruptcy court approval was obtained on June 9, 2020. On
July 29, 2020, the Company exercised its option pursuant to the Asset Purchase Agreement to extend the date after which either
the Sellers or the Company may terminate the Asset Purchase Agreement if the transaction has not closed (the “Outside Date”)
for an additional three months until November 12, 2020 in exchange for payment of $7.5 million which was recorded within
other current assets. On November 30, 2020, the FTC filed an administrative complaint and authorized a suit in federal court
(which was filed on December 2, 2020), to block the Company's proposed acquisition of RentPath. Subsequently, the Sellers
notified the Company of their intent to terminate the Asset Purchase Agreement on December 29, 2020. The Company
terminated the Asset Purchase Agreement on December 31, 2020 as the closing of the transactions contemplated had not
occurred by the Outside Date. The Company commenced an adversary proceeding against Sellers seeking a declaratory
judgment that RentPath was in breach of the Asset Purchase Agreement and that the Company is not obligated to pay the
termination fee. In February 2021, the Company and the Sellers agreed that the Company would pay $52 million of the
$59 million, subject to bankruptcy court approval. The Company recorded $52 million termination fee and $7.5 million
extension payment made to RentPath within selling, general and administrative expenses in consolidated statement of
operations for the year ended December 31, 2020.
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. 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, at this time management has concluded that the resolutions
of these matters are not expected to have a material effect on the Company's consolidated financial position, future results of
operations or liquidity. Legal defense costs are expensed as incurred.
14.
SEGMENT REPORTING
Segment Information
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 primarily includes
Europe, Asia-Pacific and Latin America. Management relies on an internal management reporting process that provides revenue
and operating segment net income before interest and other income (expense), loss on debt extinguishment, income taxes,
depreciation and amortization (“EBITDA”). 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.
F-35
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information by operating segment consists of the following (in thousands):
Year Ended December 31,
2019
2020
2018
EBITDA
North America
International
Total EBITDA
$
$
410,852 $
(4,706)
406,146 $
451,699 $
(6,987)
444,712 $
358,036
(6,729)
351,307
The reconciliation of net income to EBITDA consists of the following (in thousands):
Net income
Amortization of acquired intangible assets in cost of revenues
Amortization of acquired intangible assets in operating expenses
Depreciation and other amortization
Interest (expense) income
Other (expense) income
Income tax expense
EBITDA
$
$
Year Ended December 31,
2019
314,963 $
21,357
33,995
25,813
(16,742)
(10,660)
75,986
444,712 $
2020
227,128 $
25,675
62,457
28,812
17,395
827
43,852
406,146 $
2018
238,334
20,586
30,881
26,276
(10,539)
88
45,681
351,307
Summarized information by operating segment consists of the following (in thousands):
Property and equipment, net
North America
International
Total property and equipment, net
Goodwill
North America
International
Total goodwill
Assets
North America
International
Total assets
Liabilities
North America
International
Total liabilities
F-36
December 31,
2020
2019
$
$
123,634 $
2,691
126,325 $
103,383
4,146
107,529
$ 2,085,494 $ 1,738,360
143,660
$ 2,235,999 $ 1,882,020
150,505
$ 6,674,974 $ 3,615,258
238,728
$ 6,915,420 $ 3,853,986
240,446
$ 1,496,894 $
43,167
$ 1,540,061 $
402,759
45,634
448,393
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.
STOCKHOLDER'S EQUITY
Preferred Stock
The Company has 2 million shares of preferred stock, $0.01 par value, authorized for issuance as of December 31, 2020.
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 million 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
On May 28, 2020, the Company completed a public equity offering of 2.6 million shares of common stock for $655 per
share. Net proceeds from the public equity offering were approximately $1.7 billion, after deducting approximately $35 million
of underwriting fees, commissions and other stock issuance costs. 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 pursues in the future, to finance the growth of its
business and for working capital and other general corporate purposes. General corporate purposes may include additions to
working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries, and the repurchase,
redemption or retirement of securities, including the Company’s common stock.
16.
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):
Year Ended December 31,
2019
2020
2018
Numerator:
Net income
Denominator:
Denominator for basic net income per share — weighted-average
outstanding shares
Effect of dilutive securities:
$
227,128 $
314,963 $
238,334
38,073
36,310
36,058
Stock options, restricted stock awards and restricted stock units
Denominator for diluted net income per share — weighted-average
outstanding shares
253
320
390
38,326
36,630
36,448
Net income per share — basic
Net income per share — diluted
$
$
5.97 $
5.93 $
8.67 $
8.60 $
6.61
6.54
The following table summarizes the shares underlying the unvested performance-based restricted stock and anti-dilutive
securities excluded from the basic and diluted earnings per share calculations (in thousands):
Year Ended December 31,
2019
2020
2018
Performance-based restricted stock awards
Anti-dilutive securities
17.
EMPLOYEE BENEFIT PLANS
Stock Incentive Plans
37
53
54
60
42
53
100
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In April 2016, the Company’s Board of
Directors adopted the CoStar Group, Inc. 2016 Stock Incentive Plan (as amended, the “2016 Plan”), subject to stockholder
approval, which was obtained on June 9, 2016. All shares of common stock that were authorized for issuance under the 2007
Plan that, as of June 9, 2016, remained available for issuance under the 2007 Plan (excluding shares subject to outstanding
awards) were rolled into the 2016 Plan and, as of that date, no shares of common stock were available for new awards under the
2007 Plan. The 2007 Plan continues to govern unexercised and unexpired awards issued under the 2007 Plan prior to June 9,
2016. The 2007 Plan provided for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights
to officers, directors and employees of the Company and its subsidiaries. Stock options granted under the 2007 Plan could be
incentive or non-qualified, and except in limited circumstances related to a merger or other acquisition, the exercise price for a
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, restricted stock and restricted stock unit grants under the 2007 Plan was determined by the Board of
Directors or a committee thereof and was generally three to four years. In some cases, vesting of restricted stock awards under
the 2007 Plan is subject to performance conditions. Upon the occurrence of a Change of Control, as defined in the 2007 Plan,
all outstanding unexercisable options and restricted stock grants under the 2007 Plan immediately become exercisable.
The 2016 Plan provides for the grant of stock options, restricted stock, restricted stock units, and stock appreciation rights
to officers, directors and employees of the Company and its subsidiaries. Stock options granted under the 2016 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 2016 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 2016 Plan may be based on performance conditions. The Company has issued and/or reserved the following shares of
common stock for issuance under the 2016 Plan: (a) 1,450,000 shares of common stock, plus (b) 815,464 shares of common
stock that were authorized for issuance under the 2007 Plan that, as of June 9, 2016, remained available for issuance under the
2007 Plan (not including any Shares that were subject as of such date to outstanding awards under the 2007 Plan), and (c) any
shares of common stock subject to outstanding awards under the 2007 Plan as of June 9, 2016, 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 2016 Plan will terminate in June
2026, but will continue to govern unexercised and unexpired awards issued under the 2016 Plan prior to that
date. Approximately 1.6 million shares were available for future grant under the 2016 Plan as of December 31, 2020.
At December 31, 2020, there was approximately $81 million of unrecognized compensation cost related to stock incentive
plans, net of estimated forfeitures, which the Company expects to recognize over a weighted-average-period of 2.4 years. The
income tax benefit realized from stock-based compensation was $20 million, $17 million and $17 million for the years ended
December 31, 2020, 2019 and 2018, respectively. See Notes 2 and 12 for further discussion of stock-based compensation
expense and income taxes, respectively.
F-38
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
Option activity was as follows:
Number of
Shares
Range of
Exercise Price
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contract
Life (in
years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2017
453,843
$36.73 - $204.91 $
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2018
Granted
Exercised
82,500
$342.13 $
(177,299)
$36.73 - $204.91 $
(14,768) $182.75 - $342.13 $
344,276
48,300
$
$398.15 $
(116,918)
$54.51 - $342.13 $
Outstanding at December 31, 2019
275,658
$54.51 - $398.15 $
Granted
Exercised
Canceled or expired
34,100
$666.52 $
(95,313) $193.69 - $398.15 $
(12,135) $342.13 - $666.52 $
Outstanding at December 31, 2020
202,310
$102.16 - $666.52 $
Exercisable at December 31, 2018
185,405
$54.51 - $204.91 $
Exercisable at December 31, 2019
Exercisable at December 31, 2020
147,620
$102.16 - $342.13 $
122,806
$102.16 - $398.15 $
156.24
342.13
125.16
261.20
212.28
398.15
159.52
267.23
666.52
229.46
443.05
341.78
165.31
210.96
246.76
6.67
$
63,861
7.03
6.98
6.99
5.79
5.84
6.18
$
$
$
$
$
$
43,418
91,262
117,846
31,895
57,180
83,204
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. The aggregate intrinsic value of options exercised,
determined as of the date of option exercise, was approximately $49 million, $40 million and $45 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
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:
Year Ended December 31,
2019
2020
2018
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Weighted-average grant date fair value
0 %
26 %
1.45 %
5
$ 172.05
0 %
27 %
2.46 %
5
$ 115.17
0 %
28 %
2.65 %
5
$ 101.02
The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash
dividend payments. The Company has never declared or paid any dividends on its common stock and does not anticipate paying
any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its
business. Expected volatility is calculated based on historical volatility of the daily closing price of the Company's common
stock over a period consistent with the expected life of the options granted. The risk-free interest rate is based on the U.S.
Treasury rate with terms similar to the expected life of the options granted. The expected life for the options is determined
based on multiple factors, including historical employee behavior patterns of exercising options and post-employment
termination behavior as well as expected future employee option exercise patterns.
The following table summarizes information regarding options outstanding at December 31, 2020:
F-39
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options Outstanding
Options Exercisable
Range of
Exercise Price
Number of
Shares
Weighted-
Average
Remaining
Contractual
Life (in years)
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Exercise
Price
$102.16 - $142.45
$142.46 - $188.22
$188.23 - $199.30
$199.31 - $273.52
$273.53 - $370.14
$370.15 - $532.34
$532.35 - $666.52
Restricted Stock Awards
3,522
36,600
1,032
41,622
46,368
41,966
31,200
202,310
2.19
5.19
4.17
6.16
7.16
8.10
9.10
$
$
$
$
$
$
$
$
102.16
182.75
193.69
204.91
342.13
398.15
666.52
341.78
3,522 $
36,600 $
1,032 $
41,622 $
25,199 $
14,831 $
— $
102.16
182.75
193.69
204.91
342.13
398.15
—
122,806 $
246.76
The Compensation Committee of the Board of Directors of the Company historically approved grants of restricted common
stock to employees and directors of the Company that vest over a specific service period and to executive officers that vest
based on the achievement of certain performance conditions, primarily, the 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
the end of each respective three-year period. These awards support the Company’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 vesting of restricted common stock is subject to continuing employment requirements. Certain performance-based
restricted common stock awards are also subject to a market condition such that 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 performance goals and an established
Company specific TSR factor relative to the Russell 1000 Index over the same 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% and 120%, based on the Company’s
TSR performance relative to that of the Russell 1000 Index over the respective three-year period.
The Company estimates the fair value of its equity awards with both a performance and 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 achieving the market condition to calculate the fair value of the awards. Expense is only recorded for awards that are
expected to vest, net of estimated forfeitures. The assumptions used to estimate the fair value of awards with both a
performance and a market condition were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Year Ended December 31,
2020
2019
2018
0 %
27 %
1.43 %
3
0 %
27 %
2.45 %
3
0 %
28 %
2.38 %
3
Weighted-average grant date fair value
$
726.85
$
429.63
$
380.24
The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash
dividend payments. The Company has never declared or paid any dividends on its common stock and does not anticipate paying
any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its
business. Expected volatility is calculated based on historical volatility of the daily closing price of the common stock of the
companies within the Russell 1000 Index over a period consistent with the expected life of the performance-based restricted
common stock awards with a market condition. The risk-free interest rate is based on the U.S. Treasury rate with terms similar
to the expected life of the performance-based restricted common stock awards with a market condition. The expected life is
F-40
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consistent with the performance measurement period of the performance-based restricted common stock awards with a market
condition.
As of December 31, 2020, the Company determined that it was probable that at least the minimum performance goals
associated with restricted stock awards with performance and market conditions granted during 2020, 2019 and 2018 would be
met by their forfeiture dates. The Company recorded a total of approximately $4 million, $8 million and $5 million of stock-
based compensation expense related to restricted stock awards with a market condition for the years ended December 31, 2020,
2019 and 2018, respectively. As of December 31, 2020, the Company expects to record an aggregate stock-based compensation
expense of approximately $6 million for restricted stock awards with a market condition over the periods 2021, 2022 and 2023.
The following table presents unvested restricted stock awards activity for the year ended December 31, 2020:
Restricted Stock Awards —
without Market Condition
Weighted-
Average
Grant Date
Fair Value
per Share
Number of
Shares
267,219 $
75,634 $
(115,176) $
(24,813) $
202,864 $
365.27
717.86
309.37
420.43
521.71
Restricted Stock Awards —
with Market Condition
Weighted-
Average
Grant Date
Fair Value
per Share
Number of
Shares
89,280 $
24,480 $
(29,280) $
(12,000) $
72,480 $
290.87
726.85
218.59
466.34
438.26
Unvested restricted stock awards at December 31, 2019
Granted
Vested
Canceled
Unvested restricted stock awards at December 31, 2020
Restricted Stock Units
The following table presents unvested restricted stock units activity for the year ended December 31, 2020:
Unvested restricted stock units at December 31, 2019
Granted
Vested
Canceled
Unvested restricted stock units at December 31, 2020
Management Stock Purchase Plan
Weighted-
Average
Grant Date
Fair Value
per Share
Number of
Units
854 $
499 $
(438) $
(51) $
864 $
344.10
764.00
264.75
477.50
618.97
The Board of Directors adopted the Company’s Management Stock Purchase Plan in December 2017 with the intent of
providing selected key employees of the Company and its subsidiaries, including the Company's executive officers, the
opportunity to defer a portion of their cash incentive compensation and to align management and stockholder interests through
awards of Deferred Stock Units (“DSUs”) under the MSPP and awards of Matching RSUs issued under the Company 2016
Plan. Under this plan participants are permitted to elect to defer up to 100% of their annual incentive bonus or commissions
earned during the year by submitting an irrevocable election in accordance with Section 409A of the Internal Revenue Code, as
amended. On the date the incentive bonus or commission would otherwise be paid in cash (typically during the following
calendar year), the Company awards the participant DSUs representing the number of shares of common stock with an
aggregate fair market value on that date equal to the amount of compensation elected to be deferred under the MSPP. On the
same date the DSUs are awarded, the participant receives a grant of Matching RSUs covering the number of shares of common
stock equal up to 100% of the DSUs granted. The expense related to the DSUs is recognized on a straight-line basis during the
period that the related incentive bonus or commission is earned. The Company granted 3,384 and 7441 DSUs during the years
2020 and 2019, respectively. The expense related to the Matching RSUs is recognized over the four years vesting period
following the grant date.
F-41
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables presents the Matching RSU activity for the year ended December 31, 2020:
Unvested MSPP restricted stock units at December 31, 2019
Granted
Vested
Canceled
Unvested MSPP restricted stock units at December 31, 2020
Employee 401(k) Plan
Number of
Matching
RSU
Shares
Weighted-
Average
Grant Date
Fair Value
per Share
7,166 $
3,384 $
— $
(1,233) $
9,317 $
469.13
663.93
—
534.54
531.23
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 addition to the traditional 401(k), effective January 1, 2015, eligible employees have the option of
making an after-tax contribution to a Roth 401(k) plan or a combination of both. In 2020, 2019 and 2018, 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, 2020, 2019 and 2018 were approximately $15
million, $12 million and $12 million, respectively. The Company had no administrative expenses in connection with the 401(k)
plan for the years ended December 31, 2020, 2019 and 2018.
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 2020, 2019 and 2018, 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, 2020, 2019 and 2018, were approximately $0.9 million, $0.6 million and $0.5 million, respectively.
Registered Retirement Savings Plan
As of January 1, 2015, the Company introduced a registered retirement savings plan (“RRSP”) for all eligible employees in
the Company’s Canadian offices. In 2020, 2019 and 2018, the Company matched 100% of employee contributions up to a
maximum of 4% of total compensation. Amounts contributed to the RRSP by the Company to match employee contributions
were approximately $0.1 million for the years ended December 31, 2020, 2019 and 2018.
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. On
June 3, 2015, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares available for
purchase under the ESPP by 100,000 shares. On September 14, 2015, the Company registered the issuance of these additional
shares under the ESPP pursuant to the registration statement filed September 14, 2015. There were 38,591 and 51,584 shares
available for purchase under the ESPP as of December 31, 2020 and 2019, respectively, and approximately 12,993 and 13,590
shares of the Company’s common stock were purchased under the ESPP during 2020 and 2019, respectively.
F-42
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2020 and
2019. Information about prior period acquisitions and the adoption of recent accounting pronouncements that may affect the
comparability of the quarterly financial information presented below are included in Note 2 and Note 5.
Revenues
Cost of revenues
Gross profit
Operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
Net income per share — basic
Net income per share — diluted
Revenues
Cost of revenues
Gross profit
Operating expenses
Income from operations
Interest (expense) income
Other (expense) income
Income before income taxes
Income tax expense
Net income
Net income per share — basic
Net income per share — diluted
19.
SUBSEQUENT EVENTS
2020
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$
391,847 $
397,159 $
425,620 $
444,393
78,909
312,938
237,074
75,864
1,651
841
78,356
5,563
74,040
323,119
241,800
81,319
(3,596)
(474)
77,249
16,889
77,865
347,755
270,946
76,809
(7,537)
(338)
68,934
10,748
$
$
$
72,793 $
60,360 $
58,186 $
2.00 $
1.98 $
1.61 $
1.60 $
1.49 $
1.48 $
78,154
366,239
311,029
55,210
(7,913)
(856)
46,441
10,652
35,789
0.91
0.91
2019
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$
328,425 $
343,760 $
352,808 $
374,726
71,153
257,272
163,780
93,492
4,212
1
97,705
71,918
271,842
197,042
74,800
4,677
539
80,016
71,172
281,636
187,367
94,269
4,414
240
98,923
12,536
85,169 $
2.35 $
2.33 $
16,768
63,248 $
1.74 $
1.73 $
20,304
78,619 $
2.16 $
2.15 $
$
$
$
74,996
299,730
198,744
100,986
3,439
9,880
114,305
26,378
87,927
2.42
2.39
On December 9, 2020, the Company entered into a Purchase and Sale agreement with Sir Properties Trust, a Maryland real
estate investment trust to purchase an office building and the underlying land located in Richmond, Virginia. The agreement
allowed the Company an inspection period from the effective date of the agreement to February 8, 2021. The closing of the
transaction was completed on January 22, 2021 for the amount of $131 million, inclusive of property taxes, titling insurance
and other transaction costs, after satisfying inspection conditions defined therein.
F-43