Good afternoon. My name is JP and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. Now, Cyndi Eakin, Head of Investor Relations, will lead the safe harbor statement. Cyndi, you may begin.

Thank you, JP. Good evening, and thank you all for joining us to discuss the second quarter 2023 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I would like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements, including the company's outlook and expectations for the third quarter and full year 2023 based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's press release issued earlier today and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q under the heading Risk Factors. All forward-looking statements are based on information available to CoStar at the date of this call. CoStar assumes no obligation to update these statements, whether as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measures discussed on this call are shown in detail in our press release issued today, along with definitions for those terms. The press release is available on our website located at costargroup.com under Press Room. As a reminder, today's conference call is being webcast, and the link is also available on our website under Investors. Please refer to today's press release on how to access the replay of this call. And with that, I would like to turn the call over to our Founder and CEO, Andy Florance.

Thank you, Cyndi. Good evening, everyone, and thank you for joining us for CoStar Group's Second Quarter 2023 Earnings Call. Revenue for the second quarter of 2023 was $606 million, reflecting a 13% increase year-over-year. Our Commercial Information and Marketplace business achieved an impressive 15% growth year-over-year. Despite facing one of the toughest property markets in decades, we continue to deliver strong double-digit revenue growth. Our portfolio remains strong across various segments including Apartments.com, CoStar, LoopNet, Real Estate Manager, STR, Lands.com, and businesses for sale, all of which reported double-digit revenue growth. We recorded $82 million in net new bookings in the second quarter, marking our second highest sales quarter ever. In June, our residential portal network became the second most visited residential marketplace in the U.S., with our websites attracting 105 million unique visitors, according to Google Analytics. Earlier this year, we surpassed Redfin in traffic and subsequently moved up to second place, achieving an average of 84 million unique visitors monthly to our residential portal, eclipsing realtor.com's reported 72 million. Homes.com has emerged as the fastest-growing residential portal, with a 130% year-over-year traffic increase in June reaching 38 million unique visitors. Congratulations to the entire Homes.com team for this achievement just one year after its launch. Apartments.com delivered strong results with $224 million in revenue for the second quarter, achieving 23% growth year-over-year. Our sales team reached record net new sales bookings, increasing 84% from last year. June was our highest sales month ever, and we've expanded our paying community base to over 66,000, a 12% increase from last year. Our mid-market strategies contributed to a nearly 40% growth in paid subscribers during the second quarter, and 65% of new communities are now advertising on Apartments.com. The sales team's productivity is up 24% from last year, with quality meetings increasing by 13% compared to the previous quarter. Our Net Promoter Score reached an impressive 95%, the highest since mid-2020. During the National Apartment Association Annual Conference last month, our team's performance almost doubled last year's sales, and we owe special thanks to our sales team for their continued exceptional results. In June, Apartments.com unique visitors grew by 9% year-over-year, significantly outperforming the overall market decline of about 9%. Our marketing campaign is generating tremendous visibility, with unaided awareness for Apartments.com soaring to 49%, the highest ever for online rental marketplaces. The apartment sector is currently faced with rising vacancy rates, which have increased by 220 basis points over the past year. We expect vacancy rates to climb further, peaking around 9% in mid-2024. Given these conditions, we anticipate Apartments.com revenue growth to accelerate to 25% by year-end. At Homes.com, we are making significant progress. Traffic to our homes network reached 38 million unique visitors in June, showing a 130% increase year-over-year, while user engagement has grown significantly. This focus on content, marketing, and product development is laying the groundwork for future growth. CoStar's revenue for the second quarter reached $229 million, marking an 11% rise year-over-year, surpassing our expectations. Our sales to new accounts are increasing, particularly among owners, lenders, and corporate users, where revenue grew 134% from the first quarter. We achieved a 92% renewal rate, up from 91% last quarter, indicating strong customer retention. LoopNet generated $66 million in revenue for the quarter, up 16% year-over-year. It remains the most trafficked commercial real estate marketplace, and our international markets showed robust revenue growth as we continue our expansion into France and Spain. STR saw an 11% revenue growth this quarter, and we've transformed a significant portion of their revenue into subscriptions. Renewal rates are remarkably at 97%. Our new benchmarking product has also been well received, with strong client feedback so far. CoStar Real Estate Manager achieved a 14% growth in subscription revenue this quarter and boasts a high renewal rate. BizBuySell is on track to hit over $30 million in revenue, and our land business is expected to surpass $50 million in revenue soon due to strategic improvements we've made. In summary, despite challenging economic conditions, CoStar has delivered strong revenue growth, exceeding 100 million monthly unique visitors for the first time in June. I am confident in our ability to meet our financial projections for 2023. Now, I’ll turn the call over to our Chief Financial Officer, Scott Wheeler.

Thank you, old CEO, Andy. I appreciate that introduction. I believe I'm one digit younger than you still for another month or two. Great quarter financially, a lot to cover. So let me jump right into the revenue by our service areas. So CoStar revenue grew 11%, as Andy mentioned, slightly above our guidance at 10% with the strength in our net new sales exceeding our forecast. So we saw a stronger new customer sales in the quarter, particularly to owners, investors and lenders. And even our broker sales stabilized in the second quarter. We signed almost 800 new broker agreements this quarter. The vast majority of them are in the one to two broker size category. So that's definitely an improved trend from the last couple of quarters. We expect CoStar revenue growth to be 10% in the third quarter, and now between 10% to 11% for the full year, a modest increase from our previous outlook. Apartments.com's second quarter revenue growth of 23% was in line with our expectations. We had another record sales level for Paige and the team. The new property volumes increased 12% year-over-year and volumes in the mid-market category are growing much more rapidly at 40% growth year-over-year. We are seeing more and more customers now upgrading to the higher tier ads, particularly the 100-unit and above-unit properties are doing that quite a bit more now. Our net add level upgrades are now at or above the levels that we're operating at before the 2021 disruption in the apartments market. We expect that trend to continue. With continued strong sales results, we now expect third and fourth quarter revenue growth of 25% for Apartments.com, which is up from the 24% assumed in our last outlook. So our full-year revenue growth outlook is slightly up in the range of 23% to 24% for apartments. LoopNet revenue grew 16% in the second quarter, consistent with the first quarter of the year, slightly below our guidance of 18%, which is a shortfall of about $1 million. As Andy mentioned, LoopNet sales in the second quarter fell short of our expectations, and we are adjusting our full-year revenue outlook for LoopNet to approximately 15% year-over-year revenue growth. LoopNet's third quarter revenue growth is expected to be around 14%. Revenue from Information Services grew 9% in the second quarter. STR and Real Estate Manager continued to post strong double-digit revenue growth, particularly in their subscription parts of the business, which we expect to continue through the end of the year. It's really impressive to look at the renewal rates and STR at 97% and Real Estate Manager 100%. Those are very critical products for our customers. We're starting to see more and more of our banking customers move to our new CoStar lender product which shifts a small amount of information services revenue up to the CoStar category. Accordingly, we expect revenue growth in the upper single digits for the third quarter and approximately 9% for the full year in Information Services. Our residential revenue came in at $13 million, in line with our expectations. We expect third quarter revenue of around $11 million, in line with our last forecast and full year 2022 fee revenue of $45 million. Other Marketplaces revenue was $32 million in the second quarter, up slightly from the first quarter revenue and effectively flat to the prior year. Ten-X revenue was lower than expected in the second quarter as the low transaction volumes and deal uncertainty weighed on the results. Ten-X aside, our lands and businesses for sale marketplaces revenue was up 11% year-over-year in the second quarter. For the second half of the year, we're moderating our revenue outlook for Ten-X and assuming a continued low transaction level environment. If for some reason, it improves in the later part of the year, we'll take the upside. We now expect full-year revenue for other marketplaces in a range of $130 million to $135 million for the full year, a reduction of approximately $20 million from our prior outlook. Adjusted EBITDA for the second quarter was $127 million, above the high end of our second quarter guidance range of $123 million. Favorable performance relates primarily to the timing of our investment spend. Our adjusted EBITDA margin was 21%, 1 percentage point above guidance. Our sales force totaled approximately 1,160 people on June 30, an increase of 17% from June of last year and approximately 40 sellers from the end of the first quarter. The majority of the increase in the second quarter is in our Marketplace business. Our contract renewal rate was 90% for the second quarter of 2023, with the renewal rate for customers who've been subscribers for five years or longer at 94%. Subscription revenue on annual contracts was 81% for the second quarter compared to 80% in the second quarter of 2022. We have a rock-solid balance sheet with $5.2 billion in cash. We now earn around 4.8% interest on our cash versus paying 2.8% interest on our debt. Positive net interest income was $52 million in the second quarter. 2023 outlook. Our full-year outlook is now in the range of $2.45 billion to $2.46 billion for revenue, reflecting our adjusted transaction revenue forecast for Ten-X in the second half of the year. Our subscription-based businesses are expected to continue to deliver strong sales and double-digit revenue growth in the second half, and we expect full-year revenue growth of 13% at the midpoint of the range for the year. The company expects revenue for the third quarter of 2023 in the range of $622 million to $627 million, representing revenue growth of approximately 12% year-over-year at the midpoint of the range. We're reconfirming our adjusted EBITDA guidance for the year and raising the midpoint of our guidance range. Our revised adjusted EBITDA guidance range is $510 million to $520 million. For the third quarter of 2023, adjusted EBITDA is expected to be in the range of $115 million to $120 million. Well, that does it for me in the financial facts. Let's go back over to our operator, and we can begin the quarterly ritual of question and answers. Back to you, operator.

At this time, I would like to welcome everyone to the question-and-answer session. Your first question comes from the line of George Tong from Goldman Sachs. Your line is now open.

Your residential network grew significantly in the quarter and is now the second largest in the U.S. Can you discuss how the strong performance in residential traffic influences your residential spending intentions in the second half of the year and heading into 2024?

Sure. Thank you for pointing that out, George, that our residential platform is now the second most heavily trafficked platform in the United States. I appreciate that. So I think we have a pretty clear plan or strategy for how we plan to continue to grow that traffic and the value of that platform to consumers. I don't think that the success we're having to date is going to take us off of that plan. So we're largely on track with what we've been intending. We want to continue to grow the traffic even more dramatically in order to make sure that we have the best platform for monetizing at the point that we decide to do that.

Got it. Thank you.

Your next question comes from the line of Heather Balsky from Bank of America. Your line is now open.

Hi, thank you for taking my question. I wanted to ask about LoopNet and the execution challenges, and I hope that wording fits for the business and kind of what you're looking to do to improve the trajectory? And how quickly do you think you can reaccelerate the business and see the results from the investments you've made in the sales force? Thanks.

Sure. I thought you were going to ask about our residential portal being number two and moving quickly from number four or five to number two. But I'll take the question you asked. So I was thinking that we would begin to turn around the execution performance on LoopNet on Wednesday, Thursday, and Friday. If you look at Apartments.com, I think a little about a year or so ago, it was growing at 6% year-over-year. Now it's moving towards 24%, 25% year-over-year growth. These issues, when they emerge, are pretty straightforward to troubleshoot and to put them on track. I don't believe this is an issue of demand; I believe this is a relatively simple problem to solve. We actually have a decent-sized sales force now, but I think we're just incentivizing the wrong activities and I think we can move it back on track. Now keep in mind, big picture, it wasn't that long ago that we acquired LoopNet, and the revenue was less than our land business, and now I think it's about $0.25 billion or something. So it's doing quite well. 16% growth is not bad, but I just think it can do better. And it will do better. So nearly immediately.

That's helpful. Thank you.

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

Good evening. Thank you for the question. I’m not certain if I caught that correctly. You are currently ranked second in that.

That's right. It's shocking that we have moved up that quickly to become a very uncommon player. But yeah, that's actually right, Pete.

Okay. All right. I just wasn't sure. I want to dig a little bit more into LoopNet, like what you're seeing on both the broker ads and the signature ads and whether or not you feel the value proposition for some of the signature ads is really compelling enough. I was just wondering if you can draw that distinction, help us understand the differences between the two price levels and how you see that hopefully improving in the near future?

LoopNet is performing well, with a 16% year-over-year growth, which is impressive given the current challenges in the commercial real estate market. This growth should actually be helping the company more. There's a clear demand, and their selling contracts for premier signature ads are reaching new highs. Consider an owner of a $1 billion building facing significant leasing risks and substantial loans maturing soon; spending a few thousand dollars per month to enhance visibility is an obvious choice, especially since many tenants are searching for commercial properties on LoopNet and CoStar. I am confident in that value proposition. The next step is to aim for growth from 16% to 18% to 20%, while also being content with results in the lower teens.

And Pete, when we look at the growth in the signature ads, the biggest growing category in signature ads is the diamond listings. Those are the biggest, most expensive ones. They're up over 50% year-over-year by ad count. So that tells us that the demand is clearly there. The large owners and property managers really need those higher-performing ads. So it's just a matter of getting our sales force back on track to cover the market more effectively.

And Pete, I toured a building the other day that was distressed, brand-new building, beautiful building, the owner stood to lose perhaps $80 million. The building was completely vacant, and the brokers had not marketed on LoopNet. It just blows your mind that someone, an owner, would potentially lose $80 million for a leasing problem. The vast majority of tenants look for space on LoopNet, and the brokers save themselves a couple of hundred bucks. So I think it's a pretty solid value proposition. It should be doing better than ever, similar to Apartments.com.

Good commentary. Thank you.

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

Hi, everyone. Thanks for taking the questions. I guess, Andy, just reading between the lines and some of your comments around homes, I mean, obviously, the traffic growth continues to come in very strong. I mean, should we now be expecting perhaps a bit longer of a timeline in terms of when you intend to monetize that platform relative to, I think, the year-end commentary you've given in the past? And on the traffic levels, understanding there's some competitive sensitivity there, but any color you can provide around when we can expect these waves of growth to materialize? And then finally, on the content piece, what inning would you say you're in, in that build-out there? Thanks.

From a monetization standpoint, we expect to see significant advancements in traffic during the first quarter of 2024, with further notable progress in the second quarter. We aim to show you, as an investor representative, our ability to monetize effectively. However, it may be more strategic to begin monetization when we anticipate the next phase of growth in 2024, particularly in the first and second quarters. It is crucial to prioritize actions that benefit investors over the short term while also focusing on their long-term interests. Currently, I would describe our progress in content creation as being in the second inning. There is much ongoing, and while there are areas for improvement, the volume of work is substantial. I believe that what we can achieve with our content in the coming year will be impressive and offer significant value to our platform. Did I overlook any questions?

Pretty good. I think you got a lot in there.

Yeah. So you're right, trying not to disclose strategic things. Anyone else? Are there any other questions?

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

Yeah, thank you. I want to ask about Homes.com traffic quality. You gave us a metric on return users. I'm assuming that's including on a re-advertised basis where they're clicking back through on another ad. Can you just give us any other Homes.com traffic quality metrics including things like return rates or time spent on site, etc., thus far in the markets where you've loaded the proprietary content up in June? Thank you.

Certainly. While I don't have detailed metrics at hand, I can share that one key indicator I monitor is return traffic direct to Homes.com, which has increased by about 400% year-over-year. My focus is primarily on this direct return traffic. Additionally, our lead flow appears to be very strong. Though I won't share specific numbers, I believe we are generating twice the lead flow compared to several well-known residential platforms in the U.S. This is significant and noteworthy. The reason for our superior lead flow is straightforward: we feature the name, photo, likeness, and contact details of the actual listing agent on our listings, allowing potential clients to connect with the person best acquainted with the listing. In contrast, competing sites often send leads to call centers and distribute them to multiple unrelated agents who lack familiarity with the listing. Consumers are often discerning, and I believe they recognize this difference, resulting in high-quality traffic and lead flow to our site. We also have a large group of engaged residential agents on our platforms who appreciate our approach of "your listing, your lead." Many agents prefer directing their clients to us over other options, which further enhances the quality of our leads. Overall, I am pleased with the quality and aim to double our overall traffic in the near future.

And what impact are you seeing in the markets where you've loaded the proprietary content thus far, in contrast with those where you haven't?

The content is being loaded to some extent in all markets. It's not a situation where LA is loaded but Boston isn't. Rather, there are varying percentages of content loaded in each market. At this moment, I believe there hasn't been sufficient time to observe any traffic impact from the content that has been loaded; that will likely come later. Regarding the reaction, I can only refer to anecdotal evidence, such as focus groups interviewing consumers, and the feedback has been very positive. I couldn't be happier with that outcome.

Your next question comes from the line of Alexei Gogolev from JPMorgan. Your line is now open.

Hi, everyone. Andy, great to hear from you. Could I ask you to update us on your vision for the core CoStar products? I remember you talking a lot about penetration of brokerages with more than five brokers. How is that progressing? And could you weigh out some other prospects that you see among owners, lenders and corporations?

I was testing my hearing a bit, but one of the most encouraging things happening at CoStar is the pace of delivery. As you hear about what we're doing, we are integrating corporate user aggregation data, fund data, and CoStar Lender. We are continuously introducing new functionalities. Elizabeth Winkle and her brand development team are doing a great job accelerating this process, especially with the STR integration. Each time we add another modular element to our product, we reach a wider audience and enhance our relevance to specific groups we aim to engage with. I am excited about this new phase for CoStar, where we are releasing modules quickly and planning to expand into more international markets. This expansion will generate more demand. I believe our CoStar sales team has effectively adjusted to focusing on lenders, owners, and corporate users, and we are seeing significant growth in this area. While Paige Forrest and her team at Apartments.com are approaching their first milestone of $1 billion, I think Marc Swartz and the CoStar sales team will not be far behind. The fact that we are achieving such growth in what is arguably the toughest commercial real estate market ever speaks volumes about the quality of our products, the value we provide, the strength of our research team, and our sales efforts. It may not be the best office market, but we are performing quite well.

Thank you, Andy.

Your next question comes from the line of Stephanie Moore from Jefferies. Your line is now open.

Hi, good afternoon. Thank you.

Good afternoon.

Just touching on the residential side and again, congrats on the great achievements thus far, particularly related to the traffic on the sites themselves. But I kind of wanted to touch on maybe the level of investment spend expectations as we look out over the next 12 or 18 months? I'm just trying to kind of triangulate comments maybe related to your point on being in the second inning of content creation, plans to continue to spend on whether it's personnel? And then also the idea of kind of monetization more so a 1Q 2024 event. So just wanted to get your thoughts on where we are from an investment standpoint. Thanks.

Sure. You're correct that we have quickly become the second most trafficked site in the United States. Regarding our content strategy, we've added more personnel and have been actively producing content, which we then test with focus groups and consumers using real products and data. The response has been overwhelmingly positive, which reassures us about our investment in differentiating our product through various content strategies. It's important to note that our initiatives are substantial. In focus groups, people express their appreciation for what we're doing and often ask how we can achieve this across the entire United States. Our investment, particularly in original content, helps us create a competitive advantage. Although this investment represents a small percentage of our revenue, it may appear larger during the initial stages. If you're worried about our commitment to content investment, the positive feedback from focus groups indicates that the audience appreciates our direction. As for other investments, nothing has changed significantly. Currently, we’re not engaged in broad consumer marketing for Homes.com, but there will be opportunities to pull that lever in the future, as it is crucial for SEO and SEM effectiveness. Increased brand recognition leads to higher click rates and improved cost efficiency in search engine marketing. Currently, unaided awareness for Apartments.com stands at 49%, and its profitability is excellent. I received initial results for Homes.com awareness, but I won't disclose those numbers as they are quite disappointing. However, I aspire to report a figure over 50% for Homes.com in a few years. At this moment, we are focused on cultivating a loyal base of repeat users, building this one positive user experience at a time.

You're welcome.

There are no further questions at this time. We will turn it back to Andy to wrap up. Thank you.

Well, we really appreciate everyone joining us on the call. I hope you noticed that my script was about three minutes less than normal, so that's an improvement. But thank you very much for joining us for the second quarter 2023 earnings call. We look forward to speaking to you again in the third quarter call on October 24, 2023, at 5 p.m. on the same channel. Thank you very much for participating.

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