Good day. Thank you for being here, and welcome to the CoStar Group's financial results for the first quarter of 2022. I will now turn the conference over to Gene Boxer, General Counsel of CoStar Group. Thank you. Please proceed.

Thank you, Blue. Good evening, and thank you all for joining us to discuss CoStar Group's first quarter 2022 results. Before I turn the call over to our CEO and Founder, Andy Florance, and our CFO, Scott Wheeler, I want to review our safe harbor statement. Some parts of today's discussion may include forward-looking statements regarding the company's outlook and expectations for the second quarter and the entire year of 2022, based on our current beliefs and assumptions. These statements involve various risks, uncertainties, assumptions, estimates, and other factors that might cause actual results to differ significantly from what we project. Key factors that could lead to a difference include, but are not limited to, those mentioned in CoStar Group's press release released earlier today, as well as our filings with the SEC, including our most recent annual report on Form 10-Q and 10-K under Risk Factors. All forward-looking statements are based on information available to CoStar at the time of this call, and we assume no obligation to update these statements, whether due to new information, future events, or otherwise. The reconciliation to the most directly comparable GAAP measure for the non-GAAP financial measures discussed today, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per diluted share, and forward-looking non-GAAP guidance, is detailed in our press release issued today, along with definitions for these terms. The press release can be found on our website at costargroup.com in the Press Room. As a reminder, today's conference call is being webcast, with a link available on our website under Investors. Please refer to our press release for information on how to access the replay of this call. Now, I would like to turn the call over to our Founder and CEO, Andy Florance.

Thank you, Gene, for your excellent presentation. Good evening, everyone, and thank you for attending CoStar Group's First Quarter 2022 Earnings Call. We had a strong start to 2022 with our highest quarterly sales bookings ever at $68 million, reflecting a 31% increase year-over-year in the first quarter. Both our revenue and profit exceeded expectations. Our CoStar product achieved its best sales quarter ever, which contributed significantly to our overall performance and is expected to grow at or above 15% year-over-year for the remainder of 2022. Apartments.com also performed well, with net new sales bookings rising 36% compared to the fourth quarter of 2021. Total revenue for the first quarter of 2022 reached $516 million, marking a 13% growth year-over-year. Our profit was robust, with adjusted EBITDA of $178 million in the first quarter, an increase of 12% year-over-year and $18 million above the upper range of our February guidance. Consequently, we are increasing our full-year 2022 revenue, adjusted EBITDA, and EPS guidance, with more details forthcoming from Mr. Wheeler. CoStar's flagship product generated $199 million in revenue in the first quarter. Our sales team achieved an impressive annualized net sales increase of 96% compared to the previous year. This trend makes the last three quarters the top three sales quarters for CoStar on record, and our sales team has never been more productive. We reached the highest net sales output per person in our history during the first quarter. We added 20 new sellers this year and plan to further expand our sales teams in the U.S., Canada, and the United Kingdom. We are also building dedicated industry experts within the CoStar sales group to focus solely on banking and hospitality clients, which offer significant revenue potential. Our upgrade program for the full CoStar product is progressing well, and we have completed around 7,100 customer upgrades, which we project will generate about $22 million in annual revenue. We estimate that the program has the potential to produce over $50 million in revenue and will continue for the next 18 months. Since launching our new CoStar lender product in February, we have seen a highly positive market response, adding over $1 million in annual revenue in a short time, with a rapidly growing operating pipeline. Our clients have referred to this solution as best-in-class and the gold standard. The early success of the lender solution is due to its unique ability to link the client's loan portfolio with CoStar's industry-leading property information, Market Analytics, and to COMPASS, a mature credit default model. The system provides insights into loan concentration risk, expected credit losses, and stress testing capabilities, creating an efficient platform for strategic lending and risk management. Initial banking customers find the product straightforward and easy to use, appreciating the sophisticated stress testing results generated in just a few clicks, saving them considerable time. Customers are enthusiastic about the improved loan concentration charts, which offer superior analytics compared to competitors. While we're still in the early stages of the lender product's introduction, the market reception has been encouraging. We currently have a specialized sales team dedicated to this product and plan to expand our sales and implementation teams shortly. With at least 6,000 potential customers in the U.S., we see a vast market opportunity for CoStar exceeding $300 million. Our strong CoStar results stem from a combination of product innovation, proprietary data, research, and a productive sales team. Customers appreciate the expanded capabilities added to CoStar each year and continue to renew subscriptions at rates above long-term historical averages. We're also focused on growing our international business. Recently, we acquired Business Immo, France's leading real estate news service, known for attracting over 300,000 unique visitors monthly and boasting a strong subscriber and social media follower base. This acquisition strengthens CoStar Group's global news team, enhancing our daily coverage in various countries. The combination of Business Immo and BureauxLocaux allows us to effectively target a significant share of the property market’s advertising spend in France, which is a crucial market with an anticipated $40 billion in annual investment transaction value. With Business Immo and our prior acquisition of BureauxLocaux, we are optimistic about the potential in this market. As we build our premier online marketing and information solutions in Europe, we successfully launched the first international version of LoopNet, loopnet.ca in Canada, which has already seen strong traffic growth since its debut. LoopNet in Canada is just the beginning, as we aim to create a pan-European and pan-American commercial real estate marketplace. Apartments.com also reported robust sales growth, highlighted by a 36% increase in bookings in the first quarter of 2022. Revenue from Apartments.com reached $175 million, reflecting a 6% year-over-year increase. We observed a positive trend in property advertising volume, indicating an improving market environment. Although absorption rates have moderated, we believe the demand for rentals will stabilize, strengthening the advertising opportunities for Apartments.com throughout 2022. In early April, we launched our most comprehensive marketing campaign for Apartments.com, featuring influencer-led content and targeted media strategies aimed at reaching targeted audiences across various platforms. Our advertising efforts have been effective, as evidenced by increased traffic and brand awareness. I am pleased with our overall residential initiatives and anticipate significant progress as we move toward the full launch of the new Homes.com marketplace next year. As for the economic outlook, the commercial real estate market is facing challenges, particularly in the office sector, but our products are well-positioned to assist in navigating these tough conditions. The apartment market is cooling off, while retail leasing is strengthening, and the industrial sector is experiencing rapid growth due to heightened consumer demand. Business travel is on the rise, further supporting recovery in the hospitality sector. Now, I'll turn the call over to our Chief Financial Officer, Scott Wheeler.

Thank you, Andy. Excellent rendition to the script this evening. So another really strong financial quarter. Key metrics, net new bookings, revenue, adjusted EBITDA, all growing double digits, great start, and our outlook is improving. Now that's not bad considering that we're in a volatile economic environment. So it's great to have a high renewing subscription model to rely on when the global economy becomes a little less predictable. So revenue grew 13% in the first quarter versus the first quarter of 2021 with 4 of our 6 service categories growing in the strong double digits. CoStar revenue grew 15% in the first quarter, continuing its growth acceleration and consistent with our guidance. For context, CoStar revenue grew 10% in the third quarter of last year, 13% in the fourth quarter of 2021, 15% in the first quarter of 2022, and we expect CoStar revenue growth of 17% in the second quarter of 2022. This is a trend I really like. We now expect full year 2022 revenue growth of 16% for CoStar, up from our prior expectation of 15%. Multifamily revenue for the first quarter increased 6%, consistent with the fourth quarter last year and in line with our guidance. Revenue growth year-over-year is pretty much all price-driven as advertised property counts have moderated since the middle of last year, and ad level mix is a bit lower from the downgrades over the past few quarters, although in the recent quarter, the net upgrades have passed the net downgrades. So that's a positive sign for our outlook. We expect second quarter revenue growth to remain at 6%, and our full year revenue estimates remain unchanged at 8% to 9% range with double-digit growth expected in the second half of the year for multifamily. LoopNet revenue grew 11% in the first quarter, which was consistent with the guidance we provided in our last call. Second quarter revenue is expected to grow 10%, and our full year 2022 outlook remains unchanged at 10% to 11%. Revenue from Information Services grew 7% in the first quarter, also in line with our guidance. And for the second quarter, we expect revenue growth to approximate 8% as hospitality market conditions are improving. Full year expectation for Information Services has revised up slightly to the high end of our previous range at 9%. Residential revenue increased 63% over the first quarter of last year. Revenue from products that are expected to be part of our long-term strategy, like Pro+ subscriptions, grew 62% in the first quarter on a like-for-like basis. Additionally, first quarter subscription revenue doubled versus the year ago quarter. Very good and positive momentum for our new sales force in the residential sector. Our full year 2022 revenue expectation remains unchanged at $70 million. Other Marketplace revenue grew 31% in the first quarter of 2022, driven by the strong growth from Ten-X, and we expect revenue from these marketplaces to grow 20% in 2022 as we had easier comps in the first quarter of this year. On to profitability. Our net income was $89 million in the first quarter, an increase of 20% from the first quarter of 2021, and our effective tax rate was 26% for the first quarter. Adjusted EBITDA was $178 million, a 12% year-over-year increase, $18 million above the high end of our guidance. Our adjusted EBITDA margin was 34% compared to 35% in last year's first quarter. The outperformance in adjusted EBITDA compared to guidance was driven by lower personnel and marketing costs as well as a bit higher than projected revenue. Roughly 1/3 of the lower operating costs are timing-related with the rest flowing through to our increased guidance for 2022. We saw good productivity in our marketing costs, particularly as we leverage scale across our various platforms that are now marketing as we go into the new season. Our sales force totaled approximately 870 people on March 31, an increase of roughly 45 heads from the end of last year. The largest sales force increases this quarter were in LoopNet, followed by multifamily and Ten-X. We're focused on expanding our sales resources in all of our businesses and have doubled our number of sales recruiters since the beginning of this year. Our contract renewal rate was 91% for the first quarter of 2022, up from the 90% rate in the first quarter of last year and down slightly from the fourth quarter renewal rate of 92%. So this renewal rate fluctuated within this 90% to 92% range over really the last 5 quarters, and it changes slightly due to product mix and whether the growth rates of CoStar or Apartments are moving in different directions. The renewal rate for the first quarter of 2022 for customers who have been subscribers for 5 years or longer was a record 98%. Got to love that. Subscription revenue on annual contracts was 80% for the first quarter of 2022, which is the highest rate since the middle of 2020. The improvement in subscription revenue concentration is primarily from more multifamily customers committing to annual agreements. So for the outlook for 2022, we expect the full year revenue in a range of $2.15 billion to $2.17 billion, an increase of approximately $5 million at the midpoint of the range, implying an annual growth rate of 11%. Organic growth, excluding the revenue runoff from the legacy Homes.com product, is expected to be 12%. Second quarter 2022 revenue is expected to range from $529 million to $534 million, representing revenue growth of 11% year-over-year at the midpoint. Full year adjusted EBITDA for 2022 is expected to range from $585 million to $615 million, which is an increase of $15 million from our prior guidance, with $5 million of the improvement from revenue and the rest from cost efficiencies, primarily from leveraging our scale across the marketing spend, as I mentioned earlier. For the second quarter of 2022, adjusted EBITDA is expected to be in the range of $123 million to $128 million, indicating a margin of 24% at the midpoint during the typical high point of our marketing spend for the quarters. Regarding our longer-term goals, for the great start to 2022 and our new residential investments progressing as planned, we remain confident in our ability to reach both the 2022 as well as the 2027 long-term financial goals that we announced at our last earnings call in February.

Your first question comes from the line of George Tong from Goldman Sachs.

Diving into multifamily, it looks like you're starting to see stabilization in top line growth in the mid-single-digit range. Could you talk a little bit about your latest expectations for growth in the back half of the year and then for 2023 as you approach run rate? And then what apartment market conditions are necessary to achieve these targets?

Sure, George. Thanks for the question. We are optimistic about the direction of multifamily. We anticipate that in the second half, growth rates will reach double digits, ranging from 10% to 14%. For 2023, we haven't established specific rate targets yet, but the upward trend we see quarterly suggests that 2023 will surpass 2022. Notably, more properties began advertising on the platform in March, with a net increase for the first time in the past six or seven months. This trend is promising. Additionally, our sales force is performing well, and their growth indicates positive outcomes for the second half. Pricing execution has improved consistently each month as the sales team gains confidence in the program. Overall, we believe we are on the right path. We have validated this in the first quarter and are looking ahead to the typically strong second quarter, which should provide a clearer picture of what to expect for the remainder of the year.

I would also add that I was in Atlanta last week, and there were 25 people in the sales training class. So we are successfully adding a lot of additional incremental salespeople, and there's plenty for them to do because there are millions of prospects that we have yet to reach out to. I think that there are clear indications in the outlook for the apartment market, and you're going to see the sort of ultra-low vacancy rates moderating, and I would be surprised if that's not what happened.

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

Andy, can you or Scott provide some details on the multifamily side regarding the distribution of the different ad level packages, like platinum versus gold? I'm looking for a general update on our current mix compared to where we would consider normalized levels. I'm trying to understand what we need to do to return to that normalized mix level.

Sure, Pete. I'm happy to assist with that. Historically, our largest segment of ad platforms has been the gold level, which has remained around 40% since early 2020. This percentage has stayed relatively consistent. The diamond level has decreased by a couple of percentage points and is now just below 20%, while the platinum level is around 20% and has also shown little change. The silver platforms have increased by a couple of points. Overall, the distribution of platforms has remained quite stable since the beginning of 2020, with minor shifts between diamond and silver levels. We've addressed these shifts through adjustments to our rate card, meaning that if a large platform player decides to downgrade to a lower level, they will incur significantly higher costs for moving away from diamond platforms. That's the current state of our mix.

I want to highlight that another important aspect is the expansion of our ad sales team, which is effectively engaging with our current customers. We are adding 50 or more salespeople who will focus on reaching out to potential customers who aren't currently purchasing from us. This will help us increase our market share. Additionally, there are many advertisers using smaller platforms where we can provide significant advantages, and I believe we can capture a considerable share from them.

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

I think we're continuing off that last line of thinking. But can you just give us a fuller update on kind of the down market Apartment's initiative? I guess you're kicking it off into the pandemic, and then you had a tough environment for a while, but it seems like we're maybe coming out of that. So just any update on how the down market initiative is performing? Any sort of strategic update since obviously Rent.com is not going to be utilized and you've since lost the Home strategy?

Yes. Prior to the pandemic, we were in the process of developing our mid-market team to target opportunities in down market segments, specifically focusing on properties with 25 or fewer units down to single-unit rentals. We were seeing excellent pricing on a per-unit basis and achieving strong sales. However, the pandemic made it more challenging to build a large inside sales team. Recently, during a sales training event in Atlanta, I noticed 25 people participating, and we are in the process of increasing our recruitment team from 7 to 10. I believe we are on the verge of significant growth in this area. The potential is virtually limitless, and I anticipate that we will soon be able to report positive developments. I spent considerable time with a highly motivated group of salespeople and feel optimistic about our progress.

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

Your next question comes from the line of Andrew Jeffrey from Truist Securities.

It's Gus stepping in for Andrew. Regarding residential, you are able to ramp it up faster than initially planned. Are you willing to invest more in it this year?

I think that it's going to be pretty predictable along the plan, the existing plan. We are engaged in a very ambitious scale software development effort, and that is not likely to go dramatically faster or slower than we anticipate as well as we're engaged in a scale collection of content. So there's well over 1,000 people working on the project right now. So it's going to be pretty predictable in 2022, I think. Where you begin to get optional variability where you would respond to successes in the market and potentially accelerate would be later 2023, and that's where you're just playing with acceleration around number of salespeople or SEM or marketing in response to success. So I think it's going to be very predictable in 2022 and through Q1 of 2023 and possibly Q2 of 2023. But if there's a change in later 2023, it will be done with a lot of communication with our investors as to why we think it's a high IRR.

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

I have a couple of follow-up questions regarding the residential content investments. First, can you discuss the cost efficiency of developing that content compared to your expectations? Secondly, how does your current progress align with your 2022 plans in terms of content breadth?

Yes, that's a great question. As we planned for 2022, we aimed to ramp up quickly, so we developed a robust compensation program for the new team members we are bringing on board. We anticipated some challenges in accelerating our growth efficiently and expected that our efficiency would improve over time. Therefore, we are right where we expected to be. A significant portion of our initial work is focused on establishing the systems needed for efficient content collection, and we’re progressing well in that area. There are no unexpected issues that we know of, and we are simply following our anticipated path. Was there a second part to your question? No? Alright then.

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

Following up on the residential strategy, can you give us your thoughts around the various lawsuits that are going on in the residential market focused on industry practices around commissions and the role of realtors, agents, and the MLS? How do you think that plays out? Does any of that work in your favor? And what's the bigger picture relevance for those lawsuits with respect to CoStar's long-term strategy in residential?

So I think it's an interesting question. And for the first time in 5 years, we brought our General Counsel, and I don't think he's going to even comment. But the thing I would say is that we have not designed this like we are not in the business. We specifically have not designed Homes.com with a dependency on either the sell side or the buy side. There are a number of other U.S. residential real estate portals who work to monetize the buy side aggressively, and they rely on that dictated buyer split that is being attacked with some of these lawsuits. We're taking a completely different approach. We are focusing on selling the house and trying to market the house as effectively as possible. And there are no lawsuits out there saying that people can't sell their homes. So it doesn't really impact us. I also, where we are looking at generating revenue from agents, we are completely agnostic to whether or not it's buy side or sell side. So I think we can sit back and watch these lawsuits develop. It's just an academic interest. It doesn't really impact us.

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

Andy or Scott, I think one of you mentioned that the pricing impact was pretty much all of the multifamily this quarter, but just maybe more broadly your expectations on how much leverage now you have to increase pricing across the different product lines and how we should think about that impact versus growth from volumes or transactions or users. So pricing versus volume growth as we look out over the course of 2022.

We operate in highly competitive markets and have little to no pricing power. However, we are ensuring that our product managers and sales leads recognize that in a highly inflationary environment, failing to increase prices effectively reduces them. We are keeping this in mind and have been able to implement price increases while being aware of inflation and possibly even going beyond that. Scott, you monitor this closely. Would you like to add anything?

Yes. Our main focus this year has been to monitor inflation closely across all of our platforms. As our products renew their contracts, we aim to adjust prices according to the inflation curve, which is a standard practice in the agreements we make with customers. Additionally, each year, we enhance our platforms, such as CoStar, by incorporating new features and data sets while keeping annual renewals at a modest increase outside of inflation. This approach ensures our customers perceive value before any price adjustments on our end. You will notice that pricing will account for a larger portion of revenue growth—approximately half—compared to the usual one-third, with the rest driven by increased volume and expanded product adoption. This is a rough estimate, but it highlights that pricing will play a more significant role, especially in an inflationary landscape.

Your next question comes from the line of Ashish Sabadra from RBC.

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

Thank you for the question. One of the great aspects of being at the early stages of entering the market with less than 1% penetration is that you don't feel market contraction. We're simply moving into the market without any noticeable impact. Regarding Pro+ and Concierge, we believe we have a solid product that agents appreciate. When we acquired Homesnap, a key challenge they faced was the lack of salespeople. By adding salespeople and reaching out to realtors to inform them about our offerings, we successfully increased product sales. The main limiting factor is just the number of salespeople we bring on board. The market is huge, and it could take a decade to fully penetrate it. We are monitoring the balance between Pro+ and Concierge. Personally, I see value in both; Concierge brings in higher revenue, whereas Pro+ offers more strategic benefits. Customers who purchase Pro+ tend to engage with our platform significantly more. It's important for us to keep them engaged, especially as we launch an enhanced version of Homes.com. Regular engagement makes them more likely to use our platform to collaborate with buyers and sellers. Although Pro+ generates less revenue per unit, it presents a tremendous opportunity due to its high potential volume and strategic importance. Concierge is also intriguing because it commands higher prices and focuses on selling marketing opportunities to agents for property promotion, which is our target area moving forward. Ultimately, it's hard to choose between the two; I value them both equally.

Now let me add some from a revenue projection. You may recall in the last call, we talked about the new sellers we're bringing on in the residential world are focused on Pro+, and so we are consciously not trying to grow the Concierge revenue on a dollar basis as we shift more and more sellers into Pro+ because Andy said the stickiness of the Pro+, the agent engagement is higher in the Pro+ product, and we are better off longer term doing that. So that's why you don't see as dramatic a revenue growth in our annual outlook as you'll see a mixing down in Concierge, the higher-priced product as we build the sales force that's bringing in more subscriptions on the Pro+. So more about that as we go forward, but that's what will play out in the financial dynamics.

But John Mazur keeps selling the Concierge.

Your next question comes from the line of Joe Goodwin from JMP.

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

Yes. It's a multistage process. The first stage involves assessing the Homes.com acquisition, which lacked the high-performance environment necessary for scalability up to 100 million unique visitors. Speed, performance, and responsive mobile features are crucial for achieving traffic goals and desired SEO rankings. In Phase 1, we are leveraging the robust Homesnap backend, scaling it from single-serve to multiple instances using the infinitely scalable cloud infrastructure on AWS. We are also utilizing the Apartments.com frontend tools alongside the Homesnap backend, providing us with the quickest route to market with high-performance scalability. After we launch that version, we will migrate the Homesnap backends to our enterprise backends, which support the core CoStar Group systems, including Apartments.com and LoopNet. Once this is accomplished, all data will be consolidated on the platform connected to CoStar. Subject to the licensing agreements with the MLSs and usage provisions, we will then be able to offer the enhanced residential data and some Homesnap features within the CoStar product to properly licensed users. This process is a three-step approach, ensuring our development teams remain consistently engaged.

Your next question comes from the line of John Campbell from Stephens Inc.

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

Sure. So the incremental spend this year was $200 million to $220 million. So we had called about $210 million. $110 million of that was the content generation. About $65 million or so was for the marketing, and the rest was from technology spend as well as product and some other infrastructure that went into that. There wasn't a major amount of that timed in the first quarter, somewhere in the $10 million to $15 million range, probably incremental. Maybe it's a little higher than that. But the ramp-up really starts to come in the second quarter as we're adding the resources to the content collection. There's marketing that will pick up in the last quarter of the year, third and fourth quarter of the year as we get closer to launching. So it's heavily phased into the back half of the year. So really in the first quarter, it was really shifting resources. They're both product and product development resources over from our other businesses and some research folks. So not a whole lot in the first part of the year. Most will be coming in the last 3 quarters.

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

Well, thank you for joining us today, Gene, as a special guest host. And I'd like to thank everyone for joining us for our first quarter '22 earnings call. We've come out of the gates this year with real strong momentum across our commercial property platforms along our exciting, new investment opportunities in the residential market and our European potential. We look forward to speaking to you all again in the second quarter call on July 26 at the same time and the same medium. Until then, stay safe, and thank you very much for participating. And thank you very much for any analyst who said great quarter.

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