CoStar Group, Inc. — Q2 2021 Form 10-Q
Business context and period. Quarterly report for the three and six months ended June 30, 2021. CoStar provides commercial real estate information, analytics and online marketplaces, alongside residential real estate platforms. Revenue is primarily subscription-based. The company reports North America and International segments.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Revenue | $480.3 million | $397.2 million | +21% |
| Gross profit / margin | $390.8 million / 81% | $323.1 million / 81% | Gross profit +21% |
| Operating income | $101.0 million | $81.3 million | +24% |
| Net income | $61.1 million | $60.4 million | +1% |
| Diluted EPS | $0.16 | $0.16 | Flat |
| Segment EBITDA (non-GAAP) | $133.3 million | $109.3 million | +22% |
For the six months, revenue was $938.0 million (+19%), operating income $202.2 million (+29%), net income $135.4 million (+2%), and diluted EPS $0.34 versus $0.36. Gross margin was 81% in both six-month periods. Net income growth lagged operating income growth, with higher interest and income tax expense; Q2 effective tax rate was approximately 35% versus 22%.
Q2 revenue growth by service: CoStar +7%, information services +15%, multifamily +18%, and commercial property and land +73%. Acquisitions were a major contributor to commercial property and land growth. Net new subscription bookings were approximately $51 million versus $35 million; trailing 12-month CoStar contract renewal rates were 92% versus 89%.
Cash flow, debt and liquidity
- Cash, cash equivalents and restricted cash totaled $3.675 billion at June 30, down from $3.756 billion at year-end 2020.
- Six-month operating cash flow was $220.3 million versus $248.6 million. Investing cash use was $284.8 million, including acquisitions and the Richmond office building purchase; financing cash use was $16.1 million.
- Long-term debt, net, was $987.3 million, representing $1.0 billion of 2.8% Senior Notes due 2030. The $750 million revolving facility, due 2025, was undrawn. The company reported covenant compliance.
- Management said cash and operating cash flow should be sufficient to fund operations for at least 12 months.
Material changes, outlook and risks
- Homes.com was acquired in May 2021 for approximately $150 million cash. Ten-X, Homesnap and Homes.com together added $31 million to Q2 revenue, while reducing Q2 net income by $13 million, according to the filing. Acquisition accounting remains preliminary for Homes.com.
- Management expects CoStar revenue growth to increase in the second half of 2021; information services growth to remain consistent with the first half; and commercial property and land revenue to increase. It expects multifamily revenue growth to decline in the second half as customers select lower-priced ad packages. No specific company-wide financial guidance was provided in the supplied filing text.
- COVID-19 had not materially affected reported results through Q2, but the company cited uncertainty about commercial real estate demand, particularly office markets, and possible effects on customer spending and collections. It also noted employee attrition and related hiring and retention costs during the return to offices.
- Other risks include successful acquisition integration and returns on elevated marketing and residential-market investments, foreign currency fluctuations, competition, cybersecurity and data privacy, and potential impairment of goodwill and intangible assets. Management said existing litigation was not expected to materially affect financial position, results or liquidity.
- The ten-for-one stock split was completed in June 2021; prior share and per-share figures were retroactively adjusted. The company also purchased a Richmond office building and land for approximately $131 million.
Investor verification points
- Separate organic growth from acquisition contributions, especially in commercial property and land, and assess integration costs and expected synergies.
- Track multifamily pricing/package mix, renewal rates, and whether higher leads per ad translate into durable revenue growth.
- Reconcile rising operating income with nearly flat net income, including the tax restructuring gain, effective tax rate and increased interest expense.
- Monitor cash conversion and investment spending, including the Richmond property purchase and planned residential, LoopNet and Ten-X investments.
- Review the preliminary Homes.com purchase-price allocation, including goodwill and the recorded tax contingency and indemnification asset.