CoStar Group, Inc. (CSGP)

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CoStar Group, Inc. (CSGP)

Q1 2009 Earnings Call

April 23, 2009 11:00 am ET


Timothy J. Trainor – Communications Director

Andrew C. Florance – Founder, President and Chief Executive Officer

Brian J. Radecki – Chief Financial Officer


John Neff – William Blair

Jonathan Maietta – Needham & Company

Brett Huff – Stephens Incorporated

Jim Wilson – JMP Securities

Vance Edelson – Morgan Stanley



Ladies and gentlemen, thank you for standing by and welcome to the CoStar Group’s First Quarter 2009 Conference Call. Today we have CoStar Group’s Chief Executive Officer, Andrew Florance; Chief Financial Officer, Brian Radecki; and Communications 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) As a reminder, this conference is being recorded.

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

Timothy J. Trainor

Thank you, operator and good morning everyone. Welcome to CoStar Group’s first quarter 2009 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 first quarter 2009 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, 2008 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 on our website at www.costar.com/investors. Thank you for joining us.

I will now turn the call over to Andy.

Andrew C. Florance

Thank you Mr. Trainor and welcome everyone to CoStar Group’s first quarter 2009 conference call. I’m very pleased to once again report that CoStar Group completed another profitable quarter earning $6.1 million in the first three months of 2009. This represents a 21% increase from $5 million in net income in the first quarter of 2008.

First quarter 2009 EBITDA also increased year-over-year to $14.4 million a 25% increase compared to EBITDA of $11.5 million in the first quarter of 2008. Being able to report year-over-year growth in quarterly net income in the middle of a very challenging economy is a testament to the strength of our business model and certainly something that all of us here at CoStar Group are proud of.

I’m pleased to report the company continues to enjoy a very strong financial position. CoStar Group completed the first quarter with no debt and very large cash reserves. Because we identified deteriorating market conditions more than two years ago, we have focused on growing earnings, expanding our EBITDA margin, and significantly strengthening our balance sheet, which remains one of the company’s greatest assets. We increased our cash balance by $8.9 million in the first quarter of 2009 for a total of 20, $233.5 million in cash, cash equivalents and investments on hand.

The majority of these assets are in cash or invested in U.S. Treasury or other U.S. government money market funds, putting CoStar in a very secure and strong financial position. Commercial real estate market conditions have continued to weaken in the face of unprecedented job cuts and deteriorating credit markets. As a result many of our customers have experienced severely declining revenues and slowed their purchasing activity.

Many commercial real estate companies and related companies have failed. Despite the current environment renewal rates for CoStar Group’s services remain relatively high within our core cut client based. Demand for our services is strong and we believe not nearly a cyclical or volatile as real estate markets are overall. In fact search activity in both our subscription based information products and in our lead generation marketing products has been climbing steadily reaching an all time high of activity in March. We believe CoStar is still an essential part of the commercial real estate business providing indispensable research verified information that is integral to our customers’ leasing asset valuation, marketing and sales processes.

Furthermore, we believe we are still in the early phases of penetrating the full potential for commercial real estate information and marketing services in the United States, United Kingdom. Last year for example approximately 56% of our gross sales were derived from new customers. As economic conditions improve we believe we will see a return to higher sequential quarterly revenue growth, given our leading market position, the highly advantaged infrastructure we have in place, and the vast potential market we see for our services we believe we can continue to achieve significant earning goals we have set for the company as we have consistently done over the years.

While this past quarter has been slow for the industry it’s been busy and productive for CoStar’s research operations. In that prior 12-month period CoStar research interviewed 275,000 different industry players. In doing so we conducted more than 2 million telephone interviews in order to verify and collect information. We processed more than 3 million incoming electronic submissions with information coming from brokers, owners and the like, we reviewed nearly a 100,000 SEC filings, CMBS filings, generally over the course of 24 hours after they’re filed.

Our Research Analysts added more than 425 million square feet of new space availability during the first quarter of this year. Together with the more than 500 billion in for sale inventory that was listed in our database this comprehensive aggregation is available for-lease and for-sale listings, represents a unique competitive advantage for our subscribers.

As I stated last call, the last thing I believe we should do in this current situation is to potentially harm our business by reducing the quality or scope of our research. Certainly keeping an eye on cost and minimizing spending are the watchwords of any recession. But even more important I believe is keeping the focus on our customers and ensuring that CoStar continues to provide the quality of information they expect and require in their line of work.

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