CoStar Group, Inc. (CSGP)

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CoStar Group Inc. (CSGP)

Q3 2009 Earnings Call

October 22, 2009 11:00 am ET


Tim Trainor - Communication Director

Andy Florance, Founder, President and Chief Executive Officer

Brian Radecki - Chief Financial Officer


John Neff - William Blair

Jonathan Maietta - Needham & Company

Brett Huff - Stephens Inc

Ian Corydon - B. Riley & Company

Jim Wilson - JMP Securities

Vance Edelson - Morgan Stanley



Ladies and gentlemen, thank you for standing by, and welcome to CoStar Group's Third Quarter 2009 Earnings Call. On the call today, we have CoStar's President and CEO, Andrew Florance; and Chief Financial Officer, Brian Radecki; and Communication Director, Tim Trainor. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Mr. Tim Trainor. Please go ahead.

Tim Trainor

Thank you, operator, and good morning, everyone. I'd like to welcome you to CoStar Group's third quarter 2009 earnings conference call. Before I turn the call over to CoStar's President and CEO, Andrew Florance, let me state 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 include but are not limited to, those stated in CoStar's third quarter 2009 press release and CoStar's filings with the SEC, including CoStar's Form 10-K for the year ended December 31, 2008 and CoStar's Form 10-Q for the quarter ended June 30, 2009.

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.

A webcast of this conference call is available on our website at www.costar.com/investors.aspx. Thank you again for joining us.

I'll now turn the call over to Andy.

Andy Florance

Thank you, Tim. I appreciate it. Welcome, everyone to CoStar Group's third quarter 2009 conference call. I'm very pleased once again to report that CoStar Group completed another profitable quarter with a strong performance of 4.3 million in earnings. Third quarter 2009 EBITDA was 10.6 million. Revenues for the third quarter were 53.6 million, a 7% quarterly increase from 50.1 million in the second quarter of 2009.

As a result of the strong fundamentals of our core business, CoStar continues to generate consistent profits and enjoy a very healthy and secure financial position despite the current weakness in the commercial real estate markets. In fact, we believe that we are seeing a marked improvement in our business fundamentals currently.

As we noted in our press release issued yesterday, we saw fewer cancellations this past quarter, a significant improvement in our organic revenue growth, and our renewal rate increased in the third quarter over the second quarter. Perhaps, more importantly, the company's outlook going into the fourth quarter is for continued improvement in these areas.

Clearly, we are still operating in a down market. However, these positive trends and a number of other positive market indicators that I will discuss later in the call lead us to believe that a potential recovery may be in sight.

The value placed on our information by subscribers has always separated CoStar from competitors, and we believe it remains the chief reason why CoStar Group has continued to enjoy high renewal rates and generate strong earnings and cash flow through the whole recession. And we fully expect the company will continue to do so.

We added 10.2 million to our balance sheet during the third quarter and our cash balances now exceed [$0.25 billion]. Our total cash, cash equivalents and investments on-hand totaled 253.9 million, and the majority of these assets held in cash are invested in U.S. Treasury or other U.S. government money market funds. Also contributing to our strong financial position is the fact that the company has no long-term debt.

I would like to tell you more about the acquisition, we announced earlier this week of Resolve Technology, a leading provider of business intelligence and portfolio management software, primarily serving institutional real estate investors. This is the second company we have acquired in the past 90 days or so. I will also provide an update on our earlier acquisition, Property and Portfolio Research, which CoStar acquired in July.

Last quarter, I announced our intent to expand CoStar Group's platform and create additional growth opportunities by selectively acquiring successful companies that we believe can leverage our extensive data, strong balance sheet, and highly effective sales channel in ways that we - that can enhance the value of our services to subscribers and generate significant future revenue. Since then, we have continued to take advantage of what we see as an excellent opportunity in the current environment to acquire companies at reasonable valuations.

As in the case of PPR, we believe Resolve Technology is a company with exceptional products that we can - with which we can achieve accelerated revenue growth by leveraging CoStar's strategic assets. We couldn't be happier to have an innovative thinker like Resolve's Founder and CEO, Eric Forman, and his very impressive team joined CoStar.

We look forward to working alongside with him and his talented staff of approximately 17 product managers, developers and customer service professionals. The Resolve team is very enthusiastic about our potential as a combined company, and we completely share that enthusiasm.

Based in Needham, Mass., just outside of Boston, Resolve's clients include many of the world's leading real estate advisory and investment management firms, REITs, life insurance companies, pension funds, including such names as Boston Properties, Bentall Capital, Kimco Realty, LaSalle Investment Management, Principal Global Investors, Prudential Financial, and UBS to name just a few.

Many of these firms are CoStar customers already for our data products and a smaller number are customers for PPR currently. These investment managers have large complex real estate portfolios and use Resolve software to integrate data contained in numerous disconnected systems and countless Excel spreadsheets into a useful centralized information dashboard and reporting tool and what a scenario engine.

I just returned last night from Resolve's user conference. It was very informative and really quite motivating. Among some of the presentations, we heard Doug Pritchard, VP of Information Systems from Kennedy Associates, talk to be Resolve customers about how he uses the request platform to collect information from the various accounting systems and property management systems and Argus systems to present their investors with detailed information on how the various commercial real estate assets are performing in their portfolio.

Doug feels that this will give Kennedy Associates a significant advantage in drawing additional capital into their organization and clients because of the transparency they can give their limited partner investors.

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