CoStar Group, Inc. (CSGP)

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CoStar Group, Inc. (CSGP)

Q4 2008 Earnings Call

February 19, 2009, 11:00 am ET


Tim Trainor - Director, Communications

Andy Florance - President and CEO

Brian Radecki - CFO


John Neff - William Blair

Jonathan Maietta - Needham and Company

James Wilson - JP Morgan Securities

Christopher Mammone - Deutsche Bank

Vance Edelson - Morgan Stanley



Ladies and gentlemen, thank you for standing by and welcome to the CoStar Group's Fourth Quarter and Year End 2008 Conference Call. Today we have CoStar Group's Chief Executive Officer, Andrew Florance; Chief Financial Officer Brian Radecki; and Communication Director, Tim Trainor.

At this time all lines have been placed in to a listen-only mode. Later we will conduct a question-and-answer. (Operator Instructions) And as a reminder, this conference is being recorded.

I would like to turn the conference over to Mr. Trainor. Please go ahead.

Tim Trainor

Thank you, operator and good morning everyone. Welcome to CoStar Group's fourth quarter and year end 2008 conference call. Before I turn the call over to CoStar's Chief Executive, Andrew Florance, let me state for the record that certain portions of this discussion contain forward-looking statements which involve many risks and uncertainties that can cause actual results to differ materially from such statements.

Important factors that can cause actual results to differ included, but are not limited to those stated in CoStar's fourth quarter and year end 2008 press release which we issued yesterday and in CoStar's filings with the SEC, including CoStar's Form 10-K for the period ended December 31, 2007 and CoStar's Form 10-Q for the quarter ended September 30, 2008 under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar on the date of this call and CoStar assumes no obligation to update these statements. You can find a webcast of this conference on our website at www.costar.com/investors. Thank you for joining us.

I would turn the call over to Mr. Florance. Andy.

Andy Florance

Thank you, Tim. Welcome everyone to CoStar Group's fourth quarter and year end 2008 conference call. I am pleased today to report our results for 2008 a year in which CoStar continued to benefit from our core three attributes as a company. The strength of our subscription-based business model, our industry-leading research and the value of our products that our products provide to our subscribers. All of which helped us to strengthen an already strong financial position and achieve the earnings goal we set out two years ago.

Net income for the year increased 145% to $24.6 million or $1.26 per diluted share compared to $10.1 million or $0.52 per diluted share for 2007. And EBITDA for the full year in 2008 was $56.6 million, a 115% increase compared to EBITDA of $26.4 million in 2007. These results exclude the favorable one-time gain associated with the lease assignment on our former London office in 2007 to more clearly show the organic earnings growth we generated in our business.

Being able to again report triple digit year-over-year quarterly net income growth in the middle of a very challenging economy is something all of us here at CoStar Group are very proud of.

The fact that we are successful in executing the plan we laid out to investors to achieve the earnings goals we set clearly demonstrates the absolute strength and resilience of CoStar's business model. The strong profits we generated follow the substantial investments we made to significantly expand our commercial real estate coverage in the US and the UK in 2006.

In 2007, we completed the work of adding hundreds of thousands of new properties to our database, and announced plans to focus on earnings leverage following those substantial investments.

In 2008, we delivered on the aggressive earnings growth we promised and succeeded in raising our then company wide 9% EBITDA earnings margin to a 30% EBITDA margin in our US operations by the end of 2008.

Having met and exceeded that target, an entire quarter ahead of plan, we committed last quarter to achieving a company wide EBITDA margin of 30% by the end of 2008.

Once again, we achieved that very significant company wide margin by continuing to expand our margins in the US and successfully bringing our international operations into the block.

Our focus on growing earnings over the past year has had the additional benefit of significantly strengthening CoStar's balance sheet, which remains one of the company's greatest assets. We increased our cash balance by more than $37 million in 2008 for a total of $225 million in cash, cash equivalents and investments on hand at the end of last year. The majority of these assets are invested in cash, as well as in US Treasury and other US Government money market funds.

As a result of our success in growing earnings, managing costs, and continuing to provide real value to our clients, I am pleased to report that the company is in a very favorable position well into this current downturn. We are solidly profitable, have no debt, and have very large cash reserves.

Brian, will provide more detail on our full year and fourth quarter 2008 financial results and our outlook for the first quarter of this year later in the call. Before he does I want to update you on several other important aspects of our business.

Having demonstrated consistent success in achieving the earnings goals we set, I want to reiterate that we remain focused on despite the current state of the economy the goal we set of reaching $100 million in annualized EBITDA run rate company wide by the end of 2010 or as soon as reasonably practical.

Despite the current conditions we are facing, if positive GDP growth returns before 2010, I believe it is still possible to capture that growth and continue the successful track record of achieving earnings goals we have accomplished as a company.

There is no question that the rest of 2009 will be extremely challenging. Like most companies, we have taken a number of steps to further stabilize our cost structure, minimize new spending and preserve value to help offset the negative impact on sales and revenue.

These steps include temporarily freezing employee salaries company wide at their current levels and reducing the company match on employee contributions to the 401(k) plan in the US with a corresponding reduction in matching pension contributions in our international operations.

We believe we have taken and we will continue to take all necessary measures to address any decline in revenue or renewal rates we may see in the difficult year ahead. We will continue to monitor our position carefully and respond should a recovery fail to appear as expected next year.

However, I believe the last thing we want to do in our position is to harm our business by reducing the quality or scope of our research product.

Those of you who have followed our company for any length of time know that we invest for the long term and have managed our business conservatively over the past two years.

As I have consistently stated over the years, researched and verified information is what sets CoStar apart. It's the basis of everything we do and our ability to deliver trusted and accurate information through up and down economic cycles has won us the business of virtually all the leading commercial real estate firms and thousands of smaller ones throughout the US and UK.

In this environment, our clients are depending on us now more than ever to provide the highest quality information at the lowest possible cost, and that's exactly what we intend to do.

That is why I want to make very clear that the recent cost reduction steps we are taking do not involve the curtailment of our research operations.

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