CoStar: Year 2012-2013 Quarterly Results - Unaudited

The following excerpt is from the company's SEC filing.

Non-GAAP net income (defined below) in the third quarter of 2013 was $20.2 million or $0.71 per diluted share, which represents an increase of $7.1 million or 54% year-over-year. Net income in the third quarter of 2013 was $11.1 million or $0.39 per diluted share compared to $6.8 million or $0.24 per diluted share in the third quarter of 2012. Adjusted EBITDA (which excludes stock based compensation and other items as defined below) was $37.7 million for the third quarter of 2013 versus $25.6 million in the third quarter of 2012, which is an increase of 47% year-over-year. Adjusted EBITDA margin was 33.6% for the third quarter of 2013 compared to 26.7% for the third quarter of 2012.

As of September 30, 2013, the Company had approximately $244.6 million in cash, cash equivalents, short-term and long-term investments. This represents an increase of $32.8 million from the second quarter of 2013. Short and long-term debt associated with the LoopNet acquisition totaled approximately $157.5 million as of September 30, 2013.

“Based on continued strong revenue, earnings and margin momentum as well as the expectation for continued growth in our core information services and cross-selling initiatives, we are raising both our revenue and earnings guidance for 2013,” stated Brian J. Radecki, Chief Financial Officer of CoStar. “This increased revenue outlook incorporates our strong performance to date while accounting for upcoming expected seasonality in our marketplace business in the fourth quarter.” For the full year 2013, the Company currently expects revenue in the range of approximately $438 million to $440 million, an increase of $3 million at the midpoint compared to the Company’s prior guidance.

For the fourth quarter of 2013, the Company currently expects non-GAAP net income per diluted share (defined below) in the range of approximately $0.72 to $0.75. For the full year of 2013, the Company currently expects non-GAAP net income per diluted share in a range of approximately $2.51 to $2.54, an increase of approximately $0.19 at the midpoint compared to the Company’s prior guidance.

The Company plans to reinvest some of the benefits of its recent strong performance into sales, marketing and branding initiatives totaling $0.10 to $0.12 of non-GAAP net income per diluted share to support the launch of our new product enhancements in order to drive continued revenue growth in 2014 and beyond. We plan to align these initiatives with selling activities beginning in late fourth quarter of 2013 with the majority of the impact occurring in the first quarter of 2014.

The preceding forward-looking statements reflect CoStar’s expectations as of October 23, 2013, including forward-looking non-GAAP financial measures on a consolidated basis. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, restructuring, settlements or impairments will occur in any given quarter. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, the Company does not intend to update its forward-looking statements until its next quarterly results announcement.

Reconciliation of non-GAAP net income, EBITDA, adjusted EBITDA and all of the disclosed non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms.

For information regarding the purpose for which management uses the non-GAAP financial measures disclosed in this release and why management believes they provide useful information to investors regarding the Company’s financial condition and results of operations, please refer to the Company’s latest periodic report.

EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) interest income (expense), (ii) provision for income taxes, and (iii) depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that represents EBITDA before (i) stock-based compensation expense, (ii) acquisition and integration related costs, (iii) restructuring charges and related costs, and (iv) settlements and impairments incurred outside the Company’s normal business operations.

Non-GAAP net income is a non-GAAP financial measure that represents GAAP net income attributable to CoStar Group, Inc. before (i) purchase amortization and other related costs, (ii) stock-based compensation expense, (iii) acquisition and integration related costs, (iv) purchase accounting adjustments, (v) restructuring charges and related costs and (vi) settlements and impairments. From this figure, we then subtract an assumed provision for income taxes to arrive at non-GAAP net income. We assume a 38% tax rate in order to approximate our long-term effective corporate tax rate.

Non-GAAP net income per diluted share (also referred to as non-GAAP EPS) is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

Management will conduct a conference call to discuss earnings results for the third quarter of 2013 and the Company’s outlook for 2013 at 11:00 a.m. EDT on Thursday, October 24, 2013. The audio portion of the conference call will be broadcast live over the Internet at http://www.costar.com/investors.aspx. To join the conference call by telephone, please dial (800) 230-1074 (from the United States and Canada) or (612) 234-9960 (from all other countries) and refer to conference code 304716. An audio recording of the conference call will be available approximately one hour after the live call concludes and remain available for a period of time following the call. To access the recorded call, please dial (800) 475-6701 (from the U.S. and Canada) or (320) 365-3844 (from all other countries) using access code 304716. The webcast replay will also be available in the Investors section of CoStar's web site for a period of time following the call.

CoStar Group, Inc.Condensed Consolidated Statements of Operations-Unaudited(in thousands, except per share data)           For the Three Months For the Nine Months  Ended September 30, Ended September 30,  2013 2012 2013 2012                  Revenues $112,301 $96,001 $325,333 $249,853Cost of revenues 31,724 30,882 97,431 83,388Gross margin 80,577 65,119 227,902 166,465         Operating expenses:          Selling and marketing 23,625 22,010 74,139 57,576  Software development 11,562 9,722 35,152 22,714  General and administrative 21,940 19,617 74,457 59,602  Purchase amortization 3,680 4,824 11,699 9,038  60,807 56,173 195,447 148,930         Income from operations 19,770 8,946 32,455 17,535Interest and other income 52 59 239 440Interest and other expense (1,736) (1,822) (5,249) (3,022)Income before income taxes 18,086 7,183 27,445 14,953Income tax expense, net 7,034 404 10,510 9,752Net income $11,052 $6,779 $16,935 $5,201         Net income per share - basic $0.40 $0.25 $0.61 $0.20Net income per share - diluted $0.39 $0.24 $0.60 $0.19         Weighted average outstanding shares - basic 27,758 27,243 27,607 26,279Weighted average outstanding shares - diluted 28,349 27,673 28,137 26,691

CoStar Group, Inc.Reconciliation of Non-GAAP Financial Measures-Unaudited(in thousands, except per share data)                  Reconciliation of Net Income to Non-GAAP Net Income           For the Three Months For the Nine Months  Ended September 30, Ended September 30,  2013 2012 2013 2012         Net income $11,052 $6,779 $16,935 $5,201Income tax expense, net 7,034 404 10,510 9,752Income before income taxes 18,086 7,183 27,445 14,953Purchase amortization and other related costs 6,634 7,851 20,706 14,645Stock-based compensation expense 7,788 3,739 32,270 8,667Acquisition and integration related costs — 2,275 638 12,917Restructuring and related costs 91 — 362 —Non-GAAP income before income taxes 32,599 21,048 81,421 51,182Assumed rate for income tax expense, net * 38% 38% 38% 38%Assumed provision for income tax expense, net (12,388) (7,998) (30,940) (19,449)Non-GAAP net income $20,211 $13,050 $50,481 $31,733         Net income per share - diluted $0.39 $0.24 $0.60 $0.19Non-GAAP net income per share - diluted $0.71 $0.47 $1.79 $1.19         Weighted average outstanding shares - diluted 28,349 27,673 28,137 26,691         * A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.                  Reconciliation of Net Income to EBITDA and Adjusted EBITDA           For the Three Months For the Nine Months  Ended September 30, Ended September 30,  2013 2012 2013 2012         Net income $11,052 $6,779 $16,935 $5,201Purchase amortization in cost of revenues 2,954 3,027 9,007 5,607Purchase amortization in operating expenses 3,680 4,824 11,699 9,038Depreciation and other amortization 3,388 2,844 9,531 7,554Interest income (52) (59) (239) (440)Interest expense 1,736 1,822 5,249 3,022Income tax expense, net 7,034 404 10,510 9,752EBITDA $29,792 $19,641 $62,692 $39,734Stock-based compensation expense 7,788 3,739 32,270 8,667Acquisition and integration related costs — 2,275 638 12,917Restructuring and related costs 91 — 362 —Adjusted EBITDA $37,671 $25,655 $95,962 $61,318

CoStar Group, Inc.Condensed Consolidated Balance Sheets - Unaudited(in thousands)       September 30, December 31,  2013 2012  (Unaudited)  ASSETS    Current assets:      Cash and cash equivalents $222,938 $156,027  Short-term investments — 37  Accounts receivable, net 22,960 16,392  Deferred income taxes, net 17,115 9,256  Income tax receivable 1,796 5,357  Prepaid and other current assets 10,021 9,560  Debt issuance costs, net 2,740 2,934Total current assets 277,570 199,563     Long-term investments 21,675 21,662Property and equipment, net 55,703 46,308Goodwill 718,039 718,078Intangible and other assets, net 150,800 170,632Deposits and other assets 2,044 2,274Debt issuance costs, net 4,543 6,622Total assets $1,230,374 $1,165,139     LIABILITIES AND STOCKHOLDERS' EQUITY    Current liabilities:      Accounts payable and accrued expenses $50,624 $51,590  Current portion of long-term debt 21,875 17,500  Deferred revenue 34,904 32,548Total current liabilities 107,403 101,638     Long-term debt, less current portion 135,625 153,125Deferred gain on sale of building 26,917 28,809Deferred rent 22,713 17,305Deferred income taxes, net 35,482 34,071Income taxes payable 2,915 2,818Other long-term liabilities — 1,030     Stockholders' equity 899,319 826,343Total liabilities and stockholders' equity $1,230,374 $1,165,139

CoStar Group, Inc.Results of Segments-Unaudited(in thousands)         For the Three Months For the Nine Months Ended September 30, Ended September 30, 2013 2012 2013 2012Revenues       United States$107,230 $91,153 $310,762 $235,606International           External customers5,071 4,848 14,571 14,247    Intersegment revenue *131 388 277 1,154Total international revenue5,202 5,236 14,848 15,401Intersegment eliminations(131) (388) (277) (1,154)Total revenues$112,301 $96,001 $325,333 $249,853        EBITDA       United States**$30,855 $22,688 $66,609 $46,302International ***(1,063) (3,047) (3,917) (6,568)Total EBITDA$29,792 $19,641 $62,692 $39,734        *Intersegment revenue is attributable to services performed for the Company's wholly owned subsidiary, Property and Portfolio Research, Inc ("PPR"), by Property and Portfolio Research Ltd., a wholly owned subsidiary of PPR. Intersegment revenue is recorded at an amount the Company believes approximates fair value. U.S. EBITDA includes a corresponding cost for the services performed by Property and Portfolio Research Ltd. for PPR.        **U.S. EBITDA includes an allocation of approximately $300,000 and $0 for the three months ended September 30, 2013 and 2012, respectively. U.S. EBITDA includes an allocation of approximately $600,000 and $0 for the nine months ended September 30, 2013 and 2012, respectively. The allocation represents costs incurred for International employees involved in development activities of the Company's U.S. operating segment.        ***International EBITDA includes a corporate allocation of approximately $100,000 and $2.3 million for the three months ended September 30, 2013 and 2012, respectively. International EBITDA includes a corporate allocation of approximately $300,000 and $4.5 million for the nine months ended September 30, 2013 and 2012, respectively. The corporate allocation represents costs incurred for U.S. employees involved in management and expansion activities of the Company's International operating segment.

Reconciliation of Non-GAAP Financial Measures with 2012-2013 Quarterly Results - Unaudited(in millions, except per share data)                   Reconciliation of Net Income (Loss) to Non-GAAP Net Income            2012 2013  Q1Q2Q3Q4 Q1Q2Q3          Net income (loss) $5.1$(6.7)$6.8$4.7 $(2.4)$8.3$11.1Income tax expense (benefit), net 3.75.60.43.5 (1.8)5.37.0Income (loss) before income taxes 8.8(1.1)7.28.2 (4.2)13.618.1Purchase amortization and other related costs 1.05.87.97.6 7.16.96.6Stock-based compensation expense 2.22.73.73.6 17.37.27.8Acquisition and integration related costs 1.29.52.31.0 0.50.1—Restructuring and related costs ———— 0.3—0.1Non-GAAP income before income taxes 13.216.921.120.4 21.027.832.6Assumed rate for income tax expense, net * 38%38%38%38% 38%38%38%Assumed provision for income tax expense, net (5.0)(6.4)(8.0)(7.8) (8.0)(10.6)(12.4)Non-GAAP net income $8.2$10.5$13.1$12.6 $13.0$17.2$20.2          Non-GAAP net income per share - diluted $0.32$0.39$0.47$0.46 $0.47$0.61$0.71          Weighted average outstanding shares - diluted** 25.526.927.727.7 27.928.228.3          * A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.** For periods with GAAP net losses, the basic weighted-average outstanding shares are used to calculate the GAAP net loss per share as including the effect of the potentially dilutive securities would have an anti-dilutive effect. For periods with Non-GAAP net income, the diluted weighted-average outstanding shares are used to calculate Non-GAAP net income per share in order to reflect the impact of potentially dilutive securities.                    Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA            2012 2013  Q1Q2Q3Q4 Q1Q2Q3          Net income (loss) $5.1$(6.7)$6.8$4.7 $(2.4)$8.3$11.1Purchase amortization 1.05.87.97.6 7.16.96.6Depreciation and other amortization 2.32.42.83.0 3.03.13.4Interest income (0.2)(0.1)(0.1)(0.1) (0.1)(0.1)—Interest expense —1.21.81.8 1.81.81.7Income tax expense (benefit), net 3.75.60.43.5 (1.8)5.37.0EBITDA $11.9$8.2$19.6$20.5 $7.6$25.3$29.8Stock-based compensation expense 2.22.73.73.6 17.37.27.8Acquisition and integration related costs 1.29.52.31.0 0.50.1—Restructuring and related costs ———— 0.3—0.1Adjusted EBITDA $15.3$20.4$25.6$25.1 $25.7$32.6$37.7

CoStar Group, Inc.Reconciliation of Forward-Looking Guidance-Unaudited(in thousands, except per share data)                  Reconciliation of Forward-Looking Guidance, Net Income to Non-GAAP Net Income           Guidance Range Guidance Range  For the Three Months For the Twelve Months  Ended December 31, 2013 Ended December 31, 2013  Low High Low High         Net income $10,600 $9,800 $27,600 $26,800Income tax expense, net 7,100 6,600 17,700 17,200Income before income taxes 17,700 16,400 45,300 44,000Purchase amortization and other related costs6,500 6,500 27,000 27,000Stock-based compensation expense8,800 11,500 41,000 43,700Acquisition and integration related costs— — 600 600Restructuring and related costs — — 400 400Non-GAAP Income before income taxes33,000 34,400 114,300 115,700Assumed rate for income tax expense, net *38% 38% 38% 38%Assumed provision for income tax expense, net(12,540) (13,072) (43,434) (43,966)Non-GAAP Net Income $20,460 $21,328 $70,866 $71,734         Net Income per share - diluted $0.37 $0.35 $0.98 $0.95Non-GAAP Net Income per share - diluted$0.72 $0.75 $2.51 $2.54         Weighted average outstanding shares - diluted28,400 28,400 28,200 28,200         * A 38% tax rate is assumed in order to approximate the Company's long-term effective corporate tax rate.                           Reconciliation of Forward-Looking Guidance, Net Income to Adjusted EBITDA            Guidance Range Guidance Range  For the Three Months For the Twelve Months  Ended December 31, 2013 Ended December 31, 2013  Low High Low HighNet income $10,600 $9,800 $27,600 $26,800Purchase amortization and other related costs6,500 6,500 27,000 27,000Depreciation and other amortization3,500 3,500 13,100 13,100Interest and other expense (income), net1,700 1,700 6,600 6,600Income tax expense, net 7,100 6,600 17,700 17,200Stock-based compensation expense8,800 11,500 41,000 43,700Acquisition and integration related costs— — 600 600Restructuring and related costs — — 400 400Adjusted EBITDA $38,200 $39,600 $134,000 $135,400

CoStar Group (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and marketing services. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 7.7 million registered members. CoStar operates websites that have approximately 9 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 2,000 worldwide, including the industry's largest professional research organization. For more information, visit www.costar.com.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. CoStar Group next reports earnings on October 23, 2013.

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