UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, DCD.C. 20549


FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20172022


OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number 0-24531

csgp-20221231_g1.jpg

CoStar Group, Inc.
(Exact name of registrant as specified in its charter)
CoStar Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware52-2091509
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification No.)
1331 L Street, NW Washington, DC 20005
(Address of principal executive offices) (zip code)
Washington,
(202) 346-6500
(Registrant’s telephone number, including area code)
DC
(877) 739-0486
(Registrant’s facsimile number, including area code)20005

(Address of principal executive offices) (zip code)

(202) 346-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Classeach classTrading SymbolName of Each Exchangeeach exchange on Which Registeredwhich registered
Common Stock $.01($0.01 par valuevalue)NASDAQCSGPNasdaq Global Select Market
Securities registered pursuant to Sectionsection 12(g) of the Act: None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes xNo ¨o


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ¨o No x


Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No ¨o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) files).
Yes x   No ¨o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Act.
Large accelerated filerxAccelerated filero
Non-accelerated filer  oSmaller reporting company
Large accelerated filer  x
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     
Yes ¨   No x


Based onAs of June 30, 2022, the aggregate market value of the common stock (based upon the closing price of the common stock on June 30, 2017 on the Nasdaq Global Select Market,Market) of the aggregate market value of registrant’s common stockregistrant held by non-affiliates of the registrant as of June 30, 2017 was approximately $8$23.7 billion.

As of February 16, 2018, there were 36,094,70117, 2023, 406,772,431 shares of the registrant’s common stock were outstanding.





DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2017,2022 are incorporated by reference into Part III of this Report.


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TABLE OF CONTENTS

PART I
Item 1.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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Glossary of Terms

The following abbreviations or acronyms used in this Annual Report on Form 10-K (this "Report") are defined below:

Abbreviation or AcronymDefinition
2020 Credit AgreementThe second amended and restated credit agreement, which amended and restated in its entirety the then-existing credit agreement originally entered into on April 1, 2014 and amended and restated on July 1, 2020
ACHAutomated Clearing House
ADRAverage daily rate
ARSAuction rate securities
ASCAccounting Standards Codification
ASUAccounting Standards Update
BrexitThe June 23, 2016 U.K. referendum in which British citizens approved an exit from the E.U.
BureauxLocaux
The legal entity, Comreal Info, a French société par actions simplifiée, the owner and operator of BureauxLocaux, a commercial real estate digital marketplace, in France
Item 16.BureauxLocaux AcquisitionCoStar UK's acquisition of BureauxLocaux completed on October 1, 2021 pursuant to a Share Sale and Purchase Agreement dated October 1, 2021 between CoStar UK, M.A.J.E. Marketing & Strategie and an individual
Business Immo
Form 10-K SummaryThe legal entity BIH, a French société par actions simplifiée, the owner and operator of Business Immo, a leading commercial real estate news service provider in France
Business Immo AcquisitionCoStar UK's acquisition of the issued share capital of Business Immo on April 5, 2022
CAN-SPAM ActControlling the Assault of Non-Solicited Pornography and Marketing Act
CCPACalifornia Consumer Privacy Act
CECLCurrent expected credit losses
CMBSCommercial mortgage-based securities
Confidential InformationInformation about customers, employees, contractors, suppliers, vendors, and others such as landlords and tenants, including personal information such as names, addresses, phone numbers, email addresses, credit card information, biometric data, sensitive or confidential transaction and account information, social security numbers, birthdates and financial information (for example, to facilitate the apartment rental application and payment process between a renter and property manager), as well as a broad range of proprietary and confidential business information, collectively
CoStar GroupThe legal entity, CoStar Group, Inc., a Delaware corporation, one or more if its consolidated subsidiaries or operating segments, or the entirety of CoStar Group, Inc. and its consolidated subsidiaries
CoStar UKThe legal entity, CoStar UK Limited, a wholly owned subsidiary CoStar Group
Covenant Suspension PeriodA period of time defined in the 2020 Credit Agreement in which we maintain a corporate investment grade rating from any two of Standard & Poor’s Rating Services, Fitch Ratings, Inc. or Moody’s Investors Services, Inc. and no event of default is continuing
CPAColorado Privacy Act
CPRAThe California Privacy Rights Act
CRICoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of CoStar Group, Inc.
DSUsDeferred Stock Units
E.U.European Union
EBITDANet income before interest and other income (expense), income taxes, depreciation and amortization
ESGEnvironmental, Social and Governance

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Abbreviation or AcronymDefinition
ESPPEmployee Stock Purchase Plan
EURIBOREuro Interbank Offered Rate
FASBFinancial Accounting Standards Board
FCRAFair Credit Reporting Act
FTCFederal Trade Commission
GAAPGenerally accepted accounting principles in the U.S.
GDPRGeneral Data Protection Regulation
GILTIGlobal intangible low taxed income inclusion
GPP PlanA U.K. Group Personal Pension Plan
Homes.comA homes for sale listings site
Homes GroupThe legal entity Homes Group, LLC
Homes.com AcquisitionCRI's acquisition of Homes.com completed on May 24, 2021 pursuant to a securities purchase agreement dated April 14, 2021 between Landmark, Homes Group, LLC and CRI
HomesnapHomesnap is an online and mobile software platform that provides residential real estate professionals access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms acquired in the Homesnap Acquisition
Homesnap, Inc.The legal entity Homesnap, Inc., a Delaware corporation
Homesnap Acquisition
CRI's acquisition of Homesnap completed on December 22, 2020, pursuant to an Agreement and Plan of Merger dated November 20, 2020 between CRI, Snapped Halo Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of CRI,and Homesnap, Inc., a Delaware corporation. Snapped Halo Merger Sub Corp. was merged with and into Homesnap, Inc., with Homesnap, Inc. surviving the merger as a wholly-owned subsidiary of CRI
ILSInternet listings services
IRAThe Inflation Reduction Act of 2022
IT SystemsInformation technology networks, systems and infrastructure to process, transmit and store electronic information and to communicate among our locations around the world and with our clients and vendors, collectively
Land.com NetworkOur network of sites featuring rural lands for sale including: LandsofAmerica, LandAndFarm and LandWatch
LandmarkLandmark Media Enterprises, LLC
LIBORLondon Interbank Offered Rate
Matching RSUsAwards of matching restricted stock units awarded under the Company's Management Stock Purchase Plan
MSPPManagement Stock Purchase Plan
RentPathRentPath Holdings, Inc.
RevPARRevenue per available room
ROURight-of-use
RRSPA Canadian registered retirement savings plan
SECU.S. Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
SEMSearch Engine Marketing
Senior Notes2.800% notes issued by CoStar Group, Inc. due July 15, 2030
SEOSearch Engine Optimization
SOFRSecured Overnight Financing Rate
TCPATelephone Consumer Protection Act (as implemented by the Telemarketing Sales Rule)
Ten-XThe legal entity Ten-X Holding Company, Inc. and its directly and indirectly owned subsidiaries
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Abbreviation or AcronymDefinition
Ten-X AcquisitionCRI's acquisition of Ten-X completed on June 24, 2020, pursuant to an Agreement and Plan of Merger dated May 13, 2020 between CRI, Crescendo Sub, Inc, and Ten-X
TSRTotal shareholder return
U.K.The United Kingdom of Great Britain and Northern Ireland
U.S.The United States of America
UCPAUtah Consumer Privacy Act
VCDPAVirginia Consumer Data Protection Act
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Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Report and make forward-looking statements in our other reports filed with the SEC, press releases and conference calls that are subject to risks and uncertainties. Forward-looking statements include
information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for 2023 and beyond, our possible or assumed future results of operations generally and other statements and information regarding assumptions or expectations about our revenues, revenue growth rates, gross margin percentage, net income, net income per share, fully diluted net income per share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per diluted share, weighted-average outstanding shares, cash flow from operating activities, operating costs, capital and other expenditures, key priorities for 2023, trends in customer behavior, the current and future impacts of COVID-19 on global economic conditions, the real estate industry, or our customers, legal proceedings and claims, legal costs, effective tax rate, product development and release, the anticipated benefits of completed or proposed acquisitions, the anticipated timing of acquisition closings and integrations, the anticipated benefits of cross-selling efforts, geographic and product expansion, planned service enhancements, expansion and development of our sales forces, planned sales and marketing activities and investments, investments in residential marketplace services and our residential marketplace strategy, the impact or results of sales and marketing initiatives, product integrations, elimination and de-emphasizing of services, net new sales, contract renewal rates, use of proceeds from equity and debt offerings, the use of proceeds of any draws under our $750 million credit facility provided in the 2020 Credit Agreement, expectations regarding our compliance with financial and restrictive covenants in the 2020 Credit Agreement, employee relations, management’s plans, goals and objectives for future operations, sources and adequacy of liquidity and growth and markets for our stock. Sections of this Report that contain forward-looking statements include “Business,” “Risk Factors,” “Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures” and the Consolidated Financial Statements and related Notes.

Our forward-looking statements are also identified by words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. You should understand that these forward-looking statements are estimates reflecting our judgment, beliefs and expectations, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. The following important factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

our inability to attract and retain new clients;
our inability to successfully develop and introduce new or updated information, analytics and online marketplace services;
our inability to compete successfully against existing or future competitors in attracting advertisers and in general;
competition;
the effects of fluctuations and market cyclicality;
the effects of global economic uncertainties and downturns or a downturn or consolidation in the real estate industry;
our inability to hire qualified persons for, or retain and continue to develop, our sales force, or unproductivity of our sales force;
our inability to retain and attract highly capable management and operating personnel;
the downward pressure that our internal and external investments may place on our operating margins;
our inability in increasing brand awareness;
our inability to maintain or increase internet traffic to our marketplaces;
our inability to attract new advertisers;
our inability to successfully identify, finance, integrate and/or manage costs related to acquisitions;
the effects of cyberattacks and security vulnerabilities, and technical problems or disruptions;
the risks related to a large infrastructure project to build out our campus in Richmond, Virginia;
our inability to generate increased revenues from our current or future geographic expansion plans;
the effects of and uncertainty surrounding the COVID-19 pandemic and its effect on the global economy and the real estate industry;
the risks related to acceptance of credit cards and debit cards and facilitation of other customer payments;
the effects of climate change and other events beyond our control;
the effects related to increased attention to ESG matters;
our inability to obtain and maintain accurate, comprehensive or reliable data;
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our ability to enforce or defend our ownership and use of intellectual property;
our inability to successfully halt the operation of websites that aggregate our data, data from other companies or “copycat” websites that may misappropriate our data;
our inability to defend against potential legal liability for collecting, displaying or distributing information;
our inability to obtain or retain listings from real estate brokers, agents, property owners and apartment property managers;
the risks related to international operations;
the effects of foreign currency fluctuations;
the effects of Brexit;
our indebtedness;
the effects of a lowering or withdrawal of the ratings assigned to our debt securities by rating agencies;
the effects of any actual or perceived failure to comply with privacy or data protection laws, regulations or standards;
the effects of changes in tax laws, regulations or fiscal and tax policies;
the effects of third-party claims, litigation, regulatory proceedings or government investigations; and
risks related to return on investment.

Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of this Report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

PART I


Item 1.
Item 1.    Business

In this report,Report, the words “we,” “our,” “us,” “CoStar”“CoStar Group” or the “Company” refer to CoStar Group, Inc. and its direct and indirect wholly owned subsidiaries. This reportReport also refers to our websites, but information contained on those sites is not part of this report.Report.


CoStar Group, Inc., a Delaware corporation, founded in 1987, is the number onea leading provider of information, analytics and online marketplaces to the commercial real estate industrymarketplaces, information and analytics in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact that we offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own and operate leading online marketplaces for commercial real estate and apartment listings in the U.S., based on the numbers of unique visitors and site visits per month; provide more information, analytics and marketing services than any of our competitors and believe that we generate more revenues than any of ourcompetitors; offer the most comprehensive commercial real estate informationdatabase available; and online marketplace competitors.have the largest commercial real estate research department in the industry. We have created and compiled oura standardized platform of information, analytics and online marketplace services where industry professionals and consumers of commercial real estate, including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information. Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality. With our acquisitions of Homesnap and Homes.com, we also offer online platforms that manage workflow and marketing for residential real estate agents and brokers and provide a portal for homebuyers to view residential property listings.

Industry Overview

The market for real estate information and analysis is vast, based on the variety, volume and value of transactions related to real estate. Each transaction has multiple participants and multiple information requirements, and in order to facilitate transactions, industry participants must have extensive, accurate and current information and analysis. Members of the real estate and related business community require daily access to current data such as space availability, properties for-sale, rental units available, rental rates, vacancy rates, tenant movements, comparable sales, supply, new construction, absorption rates and other important market developments to carry out their businesses effectively. Market research (including historical and forecast conditions) and applied analytics are instrumental to the success of industry participants. There is a strong need for an efficient marketplace, where real estate professionals can exchange information, evaluate opportunities using standardized data and interpretive analyses and interact with each other on a continuous basis.

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A large number of parties involved in commercial and residential real estate and the related business community make use of the services we provide in order to obtain information they need to conduct their businesses, including:
Sales and leasing brokersGovernment agencies
Property ownersMortgage-backed security issuers
Property managersAppraisers
Design and construction professionalsPension fund managers
Real estate developersReporters
Real estate investment trust managersTenant vendors
Investment and commercial bankersBuilding services vendors
Mortgage bankersCommunications providers
Mortgage brokersInsurance companies’ managers
RetailersInstitutional advisors
Hospitality ownersInvestors and asset managers
Real estate agents
The commercial real estate and related business community historically operated in an inefficient marketplace because of the fragmented approach to gathering and exchanging information within the marketplace. Various organizations, including hundreds of brokerage firms, directory publishers and local research companies, collected data on specific markets and developed software to analyze the information they independently gathered. This highly fragmented methodology resulted in duplication of efforts in the collection and analysis of information, excessive internal cost and the creation of non-standardized data containing varying degrees of accuracy and comprehensiveness, resulting in a formidable information gap.

The creation and maintenance of a standardized information platform for commercial real estate requires infrastructure including a standardized database, accurate and comprehensive research capabilities, experienced analysts, easy-to-use technology and intensive participant interaction. By combining our extensive database, researchers, our experienced team of analysts and economists, technological expertise and broad customer base, we believe that we have created such a platform.

The apartment rental advertising industry serves property managers and owners who are tasked with finding renters to occupy vacant apartments, as well as renters who are searching for their next home. Property managers have several options at their disposal, including their own websites, drive-by and outdoor advertising, traditional classified ads, free online listing services, search engine marketing and ILS, like Apartments.com and the network of apartment listing websites we own and operate. Many apartment ILS websites feature only the rental availabilities that larger property owners pay to advertise, resulting in a poor user experience in which the renter’s search criteria return either limited or no results, irrelevant results or stale results that do not represent actual availabilities.

We believe that consumers expect accurate, actionable and comprehensive apartment rental information. Our apartment ILS websites include renter-focused features like the ability to filter search results according to various criteria (e.g., commute time to work); professional images of the properties, including immersive videos and 3-D interactive models; custom neighborhood profiles; and tenant reviews. Our network of apartment listing websites draws on our multifamily database and includes researched and verified information. We proactively gather information on available rentals to improve the accuracy of the listings on our apartment ILS websites, including real time unit-level availability, current pricing and rent specials. We have continually invested in our network to improve the features and services offered to property managers and website users. Recent additions include: dynamic lead forms that provide more information about prospective residents, making rent trends information publicly available, free digital ad retargeting and integrated online rental solutions, including lease applications with tenant credit and background checks. We believe that we have created and maintain easily searchable apartment ILS websites with a comprehensive selection of rentals, information on actual rental availabilities and rents and in-depth data on neighborhoods, as well as easy to use and actionable tools for the rental process.

We believe that consumers expect accurate, actionable and comprehensive homes for sale information on a platform that allows collaboration between homebuyers and agents. Our residential websites include homebuyer-focused features like the ability to filter search results according to various criteria (e.g., home features, view and lot type), review rankings of nearby schools and tools to educate consumers on the home buying process. We plan to develop original, media-rich content of neighborhoods, schools, parks and condominium buildings' amenities and common areas to supplement information in agent listings. We are designing tools to facilitate collaboration between homebuyers and agents.

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Strategy

Our strategy is to provide real estate industry professionals and consumers with critical knowledge to explore and complete transactions by offering the most comprehensive, timely and standardized information on real estate and the right tools to be able to effectively utilize that information. Over time, we have expanded, and we continue to expand, our services for real estate information, analytics and online marketplaces in an effort to continue to meet the needs of the industry as it grows and evolves.

Our standardized platform includes the most comprehensive proprietary database of commercial real estate information in the industry; the largest research department in the commercial real estate industry; proprietary data collection, information management and quality control systems; a large in-house product development team; a broad suite of web-based information, analytics and online marketplace services; a large team of analysts and economists; risk management tools; and a large, diverse base of clients. Our database has been developed and enhanced for more than 35 years by a research department that makes daily database updates. In addition to our internal efforts to grow the database, we have obtained and assimilated a number of proprietary databases. Our comprehensive commercial real estate database powers our information services, sources data used in our analytic services and provides content for most of our online marketplace services and our auction platform. Our ability to utilize the same commercial real estate information across our standardized platform creates efficiencies in operations and improves data quality for our customers.

We deliver our comprehensive commercial real estate information content to our customers primarily via an integrated solution of online service offerings that includes information about space available for-lease, comparable sales information, information about properties for-sale, tenant information, internet marketing services, risk management tools, analytical capabilities, information for clients’ websites, information about industry professionals and their business relationships, data integration and industry news. We also operate complementary online marketplaces for commercial and residential real estate listings and apartment rentals, as well as a commercial real estate auction platform. We strive to cross-sell our services to our customers in order to best suit their needs.

We manage and report our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes the U.K., Spain, GermanyEurope, Asia-Pacific and France.

Strategy

Our strategy is to provide industry professionals and consumers of commercial real estate and apartments with critical knowledge to explore and complete transactions by offering the most comprehensive, timely and standardized information on commercial real estate and apartments and the right tools to be able to effectively utilize that information. Over time, we have expanded our services for commercial real estate information, analytics and online marketplaces in an effort to continue to meet the needs of the industry as it grows and evolves. We have also extended our offering of comprehensive commercial real estate information geographically to include the U.K., Canada, Spain, Germany and France, through acquisitions and internal growth and development.Latin America. Information about CoStar’sour revenues, from, and long-lived assets and total assets derived from and located in foreign countries is included in Notes 2, 3 and 1114 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Revenues; net income (loss) before interest and other income (expense), income taxes, depreciation and amortization (“EBITDA”);Report. Revenues, EBITDA and total assets and liabilities for each of our segments are set forth in Note 11Notes 3 and 14 of the Notes to our consolidated financial statements.the Consolidated Financial Statements. Information about risks associated with our foreign operations is included in “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”Risk” in this Report.


CoStar’s Comprehensive Database

We deliver ourhave spent more than 35 years building and acquiring databases of commercial real estate information, contentwhich includes information on properties, leasing, sales, comparable sales, tenants and demand statistics, as well as digital images, drone videos and 3-D tours. This highly complex database is comprised of hundreds of data fields, tracking such categories as location, site and zoning information, building characteristics, space and unit characteristics and availability, tax assessments, true ownership, sales and lease comparables, multi-family rents, vacancies and concessions, space requirements, retail locations, mortgage and deed information, for-sale and for-lease listings, fund data, income and expense histories, tenant names, tenant credit scores, view of company locations, lease expirations, contact information, historical trends, forecasts and demographic information. The database also includes building photographs, aerial photographs and videos, 3-D virtual tours, plat maps and floor plans.

CoStar Research

Research Department. Our research professionals undergo an extensive training program so that we can maintain consistent research methods and processes throughout our research department. Our researchers collect and analyze commercial real estate information through phone calls, e-mails and additional research methods including field inspections, public records review, news monitoring, third-party data feeds and user entered content. We have also set up direct feeds from larger apartment sites, owners and brokers, and have put in place an automated system that compiles information sourced from the internet in order to provide the most up-to-date information.

Our researchers are responsible for maintaining the accuracy and reliability of our database information, training our clients to use CoStar Group products and handling their customer service questions, creating a "one touch" approach to customer care. Because of the importance commercial real estate professionals place on our data and our prominent position in the industry, many of these professionals routinely take the initiative and to proactively report available space and transactions through our online tool, which we refer to as our Marketing Center, or directly to our researchers.
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Our field research efforts include physical inspections of properties in order to research new availabilities, find additional property inventory, identify new construction, collect tenant information, verify existing information, photograph properties and create high quality videos of interior spaces (including walk-through videos and 3-D virtual tours), amenities and exterior features of properties. Our field researchers are equipped with high resolution digital cameras and handheld laser instruments to precisely measure buildings and geo-code and position them on digital maps. A typical site inspection of a commercial property consists of photographing the building, capturing interior images, videos and 3-D tours, measuring the building, geo-coding the building, capturing “for-sale” or “for-lease” sign information, counting parking spaces, assessing property condition and construction and gathering tenant information. Field researchers also canvass properties, collecting tenant data suite-by-suite. We also utilize a low-flying airplane and a fleet of drones to conduct aerial research of commercial real estate. We place researchers on the low-flying aircraft to scout new commercial developments and take aerial photographs and videos. Our U.S. drone operators are Federal Aviation Administration certified and trained to capture aerial photographs and videos. Our drone operators in the U.K. and Canada are certified and trained to Civil Aviation Authority and Transport Canada, with a permission for commercial operations pending, respectively.

We are leveraging our capabilities developed from our extensive commercial real estate research efforts to produce original, media rich content of neighborhoods, schools, parks and condominium buildings' amenities and common areas for our residential products using professional photographers and fleets of drones to conduct aerial research of residential real estate.

Data and Image Providers. We license a small portion of our data and images from public record providers and third-party data sources. Licensing agreements with these entities allow us to use a variety of commercial real estate information, including property ownership, tenant information, demographic information, maps, aerial photographs and 3-D virtual apartment tours of apartment communities, all of which enhance our services. These license agreements generally grant us a non-exclusive license to use the data and images in the creation and supplementation of our information, analytics and online marketplaces.

Management and Quality Control Systems. Our research processes include automated and non-automated controls to ensure the integrity of the data collection process. A large number of automated data quality tests check for potential errors, including occupancy date conflicts, available square footage greater than building area, typical floor space greater than building area and expired leases. We also monitor changes to critical fields of information to ensure all information is kept in compliance with our standard definitions and methodology. Our non-automated quality control procedures include:

Calling our information sources on recently updated properties to re-verify information;
Reviewing recorded or live listen phone calls (in states where applicable) to ensure information was properly sourced and correctly captured;
Performing periodic research audits and field checks to determine if we correctly canvassed buildings;
Providing training and retraining to our research professionals to ensure accurate and standardized data compilation; and
Compiling measurable performance metrics for research teams and managers for feedback on data quality.

Finally, one of the most important and effective quality control measures we rely on is feedback provided by the commercial real estate professionals using our data every day.

Services

Our portfolio of information, analytics and online marketplaces is branded and marketed to our customers and marketplace end users under the primary brands of CoStar®, STR®, Apartments.comTM, LoopNet®, Homes.com®, Homesnap®, Ten-X®, BizBuySell® and Land.comTM.Our services are accessible via the internet and through our mobile applications. Our services are primarily via anderived from a database of building-specific information and offer customers specialized tools for accessing, analyzing and using our information. Over time, we have enhanced and expanded, and we expect to continue to enhance and expand, our existing information, analytics and online marketplace services. We have developed and we expect to continue to develop additional services leveraging our database to meet the needs of our existing customers as well as potential new categories of customers.

Our principal information, analytics and online marketplace services are described in the following paragraphs:

CoStar

CoStar is our subscription-based integrated suite of online service offerings thatplatform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily, hospitality and student housing properties, properties for sale, comparable sales,
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tenants, space available for lease, comparable sales information, information about properties for sale, tenant information, Internet marketing services, analytical capabilities, information for clients’ websites, information about industry professionals and their business relationships, data integrationindustry news and industry news. We also operate complementary online marketplaces for commercial real estate listingsmarket status and apartment rentals. We strive to cross-sell our services to our customersprovides lease analysis, risk management, and to upsell services that may best suit their needs.

We have five flagship brands -hospitality benchmarking capabilities. CoStar®, LoopNet®, Apartments.comTM, BizBuySell® and LandsofAmericaTM. Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals. Our subscription-based information services consist primarily of CoStar Suite® services. CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional®and CoStar Tenant® and through our mobile application, CoStar Go®. CoStar Suite is our primarylargest service offering in our North America and International operating segments.segments and contains the following tools and features.


Our LoopNet subscription-based online marketplace enables commercialProperties provides a comprehensive inventory of office, industrial, retail, multifamily, hospitality and student housing properties and land. We also provide for-lease and for-sale listings, historical data, property owners, landlords,analytics, building photographs, demographics, maps and real estate agents working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.floor plans. Commercial real estate agents, buyersprofessionals use this tool to identify available space for-lease, evaluate leasing and sale opportunities, value assets and position properties in the marketplace. Our clients also use this feature to analyze market conditions by calculating current vacancy rates, absorption rates or average rental rates, and forecasting future trends based on user-selected variables with powerful map-based search and reporting capabilities.

Leasing provides subscribers with comprehensive data on CoStar researched lease transactions and a software tool to capture, manage and maintain their own user-entered lease data, and provides subscribers the ability to analyze this combined lease dataset from an aggregate analytic perspective and generate various reports. In addition, subscribers can incorporate their own data to perform in-depth lease analyses and share those analyses with other subscribers or non-subscribers. This tool can be used to produce an understandable cash flow analysis as well as key metrics about any proposed or existing lease. It combines financial modeling with CoStar’s comprehensive property information, enabling the subscriber to compare lease alternatives, either from a landlord or tenant perspective.

Sales is a robust database of commercial real estate sales transactions and is designed for professionals who need to research property comparables, identify market trends, expedite the appraisal process and support property valuations. This feature offers subscribers numerous fields of property information, access to support documents (e.g., deeds of trust) for new comparables, demographics and the ability to view for-sale properties alongside sold properties plotted on a map, aerial image or in a table format.

Tenants is a detailed online business-to-business prospecting and analytics tool providing commercial real estate professionals with the most comprehensive commercial real estate-related tenant information available in our North American markets. CoStar Tenantprofiles tenants use LoopNet extensivelyoccupying space in commercial buildings and provides updates on lease expirations - one of the service’s key features - as well as occupancy levels, growth rates and numerous other facts. This allows users to target prospective clients quickly through a searchable database that identifies only those tenants meeting certain criteria.

Market Analytics provides owners, investors, brokers, property managers, lenders, appraisers and other commercial real estate professionals the ability to view and report on aggregated market and submarket trends, including leasing, vacancy, rental rates, construction, investment sales activity and overall economic conditions that affect commercial real estate markets. Market Analytics covers all major real estate sectors including office, industrial, retail, multifamily, hospitality and student housing, and provides quantitatively driven and economist curated forecasts of supply, demand, vacancy and rent at the submarket level, and job growth and asset pricing at the market level.

Public Record provides access to a searchable database of commercially-zoned parcels in the U.S. Users can search for property attributes and sale transaction, loan, lien and tax assessment information. Information in this module is sourced from numerous counties and jurisdictions that provide this data for ownership, title and property tax assessment purposes.

Lender provides lenders the tools to manage their loan portfolio and risk. These tools automatically connect the user's portfolio to CoStar's research, market analytics and proprietary COMPASS credit default model, as well as their own data sets, to enable portfolio surveillance, concentration risk monitoring, stress testing and expected credit loss modeling and to support loan originations and underwriting.


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Information Services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Risk Analytics® service offerings. We also provide benchmarking and analytics for the hospitality industry both on a subscription basis and an ad hoc basis. We earn revenue on ad hoc transactions as reports or data are delivered to the customer. We provide information services internationally, through our Business Immo, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively.

CoStar Real Estate Manager is a real estate lease administration, portfolio management and lease accounting compliance software solution designed for corporate real estate managers, company executives, financial accounting directors, business unit directors, brokers and project managers. CoStar Real Estate Manager helps users connect real estate initiatives with company strategic goals, streamline portfolio operations, reduce occupancy costs with analytics that track location performance against targets and maximize location performance through proactive portfolio management. Additionally, the software is used to help companies manage their lease accounting compliance and reporting requirements.

CoStar Risk Analytics is a trusted partner to many of the largest commercial real estate lenders and CMBS market participants, providing timely data, advanced analytics, time-proven models and extensive experience to support regulatory examinations, risk management and strategic decision making. CoStar Risk Analytics' COMPASS credit default model has been used by commercial real estate lenders, CMBS participants and regulators for over 15 years to estimate required loss reserves, stress test portfolios, generate risk ratings, calculate capital adequacy, underwrite loans, target lending opportunities and price CMBS bonds. Our clients rely on CoStar Risk Analytics for model validations and reporting to support regulatory examinations. Additionally, CoStar Risk Analytics solutions connect client loan and CMBS loan portfolios to CoStar’s industry-leading commercial real estate data, research, analytics and the COMPASS credit model, updated daily, for more informed decision making, portfolio strategy and surveillance. Clients of CoStar Risk Analytics solutions include many of the largest banks, life insurance companies, asset managers, hedge funds, government agencies and regulators.

STARTMReports provide hospitality benchmarking, measuring a hotel’s performance against a self-selected aggregated competitive set. These confidential data reports enable customers to understand their market position based on trends and indices. Reports are provided on a monthly, weekly or daily basis, and provide insights about key metrics such as occupancy, ADR and RevPAR. STAR Reports are only available property listings that meet their criteria.to industry participants who provide us with data. These participants are typically hotel brands, third-party management companies and owners. We offer ad hoc reports with a customizable data set providing aggregated hotel performance data for a bespoke set of hotels or standardized industry segments (e.g. market or submarket).



Multifamily


Apartments.comTM is partApartments.com™, the flagship brand of our network of apartment marketing sites, provides a variety of ad packages and enhancements that allow property managers and owners to fully showcase their apartment community through increased exposure and interactions that allow renters to view, engage and connect with the community. Apartments.com also provides tools to facilitate the rental process, including online tenant applications with background and credit checks and rental payment processing. The Apartments.com network consists of numerous other apartment marketing sites, including:

ApartmentFinderTMprovides lead generation, advertising and internet marketing solutions to property managers and owners through its main site, ApartmentFinder.com.

ForRent.com®provides digital advertising through a network of four multifamily websites, which also includes ApartmentFinder.comTM, ForRent.com®, ApartmentHomeLiving.comTM, WestsideRentals.comForRent.com, AFTER55.com®, AFTER55.com®, CorporateHousing.comTM, ForRentUniversity.com® and ForRentUniversity.com®.

ApartmentHomeLiving.comTMprovides renters with another national online apartment rental resource that showcases apartments for rent with official prices, pictures, floor plans and detailed information on each apartment.

Apartamentos.comTM, our apartment-listing siteprovides Spanish speaking renters with an online apartment rentals resource offered exclusively in Spanish. Spanish, with the same primary features found on Apartments.com.

WestsideRentals.com®specializes in Southern California real estate rentals.

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Off Campus Partners provides student housing marketplace content and technology to U.S. universities, simplifying the off-campus housing search process for universities, property managers and students.

Our apartment marketing network of subscription-based advertising services offers renters a searchable database of apartment listings and provides property owners, professional property management companies and landlords with ana comprehensive advertising destination.destination for their available rental units and offers renters a platform for searching for available rentals. Our apartment marketing network draws on and leverages CoStar’sour multifamily database, which contains detailed information on apartment properties. Weproperties and is designed the Apartments.com, ApartmentFinder.com and Apartamentos.com websites, which were launched in February 2015, December 2015 and February 2017, respectively, to meet renter preferences and demands, which we believe drivesin order to drive traffic to those sites and attract advertisers who prefer to advertise on heavily trafficked apartment websites. We acquired the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com sites when we completed the acquisition of ForRent, a division of Dominion Enterprises, on February 21, 2018. Our network of apartment marketing sites provideprovides a comprehensive selection of rentals, information on actual availabilities and rents and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other facts important to renters. To help renters find the information that meets their needs, theour sites also offer innovative search tools such as the PolygonTM Search tool, which allowsallow renters to specifically define the area in which they want to find an apartment. Apartments.comapartment and Apartamentos.com also offer Plan Commute tools, which allow renters to search property listings that meet their transportation needs. We also offer complementary services to the rental industry, including the ability for renters to apply for rentals online and for landlords to receive applications, screen tenants and process rental payments and lease renewals.

LoopNet

LoopNetis the flagship brand in our network of commercial real estate marketing sites, which also includes CityFeet.com® and Showcase.com®. Our LoopNet online marketplace enables commercial property owners, landlords and real estate brokers working on their behalf to advertise properties for-sale or for-lease and to submit detailed information about property listings. Commercial real estate brokers, buyers and tenants use LoopNet extensively to search for available property listings that meet their criteria. LoopNet offers unique, subscription-based advertising solutions for different segments within the industry and delivers value across its constituent networks. The Screening ProsTMLoopNet network leverages CoStar Group’s commercial real estate database to provide in-depth and accurate information across all commercial property types, including office, industrial, retail, multifamily, specialty, health-care, hospitality, sports and entertainment, land and residential. Investors and tenants are also able to consume industry news developed by our in-house editorial team.

LoopNet Premium Lister® is designed for commercial real estate professionals and other customers who seek the broadest possible exposure for their listings, access to leads lists and advanced marketing and searching tools. LoopNet Premium Lister provides subscribers with the ability to market their listings to all LoopNet.com visitors, as well as numerous other features. LoopNet Premium Lister is available for a quarterly or annual subscription.

LoopNet Diamond, Platinum and Gold Ads are designed for commercial real estate professionals and other customers who seek the broadest possible exposure for their listings, access to leads lists and advanced marketing and searching tools. These LoopNet Ads provide subscribers with full access to our LoopNet network as well as retargeting across a network of prominent sites including the Wall Street Journal, Forbes and Bloomberg. LoopNet Ads are available for a six-month or annual subscription.

Our international subscription-based online apartment leasingmarketplaces are Loopnet.co.uk in the U.K., BureauxLocaux in France and Belbex.com in Spain. These marketplaces provide listings of commercial properties for rent and for sale ranging from traditional offices, serviced offices, co-working spaces, hot-desks, retail locations, industrial units, leisure, hotels and warehousing.

Residential

The acquisitions of Homes.com and Homesnap enabled us to expand our offerings to the residential for sale market. Homes.com is a homes for sale listings site. Homesnap is an online and mobile software platform that includes tenant screening services, rentalprovides residential real estate professionals subscription-based access to applications that manage residential real estate agent workflow and payments processingmarketing campaigns delivered on third-party platforms. Homesnap also provides a custom version of its platform, branded as Citysnap™, specifically for the five boroughs of New York City in conjunction with the Real Estate Board of New York's Residential Listing Service. Our residential team is creating new and lease renewals.improved tools to help agents promote their residential listings, connect with buyers and sellers and streamline their daily workflow. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms.


Our BizBuySell services, which include BizQuest®, provide
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Other Marketplaces

Ten-X operates an online marketplaceauction platform for businessescommercial real estate. Our platform provides brokers, sellers, and buyers access to data-driven technology and marketing tools to expand market visibility and decrease time to close. The platform allows brokers and sellers to onboard assets, evaluate the results of complimentary marketing campaigns and follow up on pre-qualified leads. Buyers can search for sale. Our LandsofAmerica services, which include LandAndFarmproperties that meet their investment goals and LandWatch®, provide an online marketplaceare given access to market analysis and due diligence documents.
Land.com is the flagship brand in our network of marketplaces for rural lands for-sale sites, which also includes LandsofAmericaTM, LandAndFarmTMand LandWatch®. Sellers pay a fee to list their land for-sale, and interested buyers can search the respective sites' listings.

BizBuySell is the flagship brand in our network of marketplaces for saleoperating businesses and franchises for-sale, which also includes BizQuest and FindaFranchise. Business sellers pay a fee to list their operating businesses for-sale, and interested buyers can search the respective sites' listings for free. The BizBuySell, BizQuest and FindaFranchise Franchise Directories allow interested business buyers to search hundreds of franchise opportunities, and franchisors can list their availabilities in the directory on a cost per lead basis.

We also provide other services that is also accessible viacomplement those offered by our Land.com domain.

We provideprimary brands. These include: real estate and lease management technology solutions, lease administration, transaction and project management and lease accounting, through our CoStar Real Estate Manager service offerings; market research, consulting and analysis, for commercial real estate investors and lenders via our CoStar Portfolio Strategy and CoStar Suite service offerings; portfolio and debt analysis and management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service offerings; and real estatebenchmarking and lease management solutions, including lease administration and abstraction services,analytics for the hospitality industry through our CoStar Real Estate Manager service offerings. We have created and are continually improving our standardized platform of information, analytics and online marketplaces where members of the commercial real estate and related business community can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized commercial real estate information.STR offerings.


Our standardized platform includes the most comprehensive proprietary database in the industry; the largest research department in the industry; proprietary data collection, information management and quality control systems; a large in-house product development team; a broad suite of web-based information, analytics and online marketplace services; a large team of analysts and economists; and a large, diverse base of clients. Our database has been developed and enhanced for more than 30 years by a research department that makes thousands of daily database updates. In addition to our internal efforts to grow the database, we have obtained and assimilated approximately 106 proprietary databases. Our comprehensive commercial real estate database powers our information services, sources data used in our analytic services and provides content for most of our online marketplace services. Our ability to utilize the same commercial real estate information across our standardized platform creates efficiencies in operations and improves data for our customers.

Our subscription-based services consist primarily of information, analytics, and online marketplace services offered over the Internet to commercial real estate industry and related professionals. Our services are typically distributed to our clients under subscription-based license agreements that typically renew automatically, a majority of which have a term of at least one year. Upon renewal, many of the subscription contract rates may change in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based services rather than charging fees based on actual systemplatform usage or number of paid clicks. Depending on the type of service, contract rates are generally based on the number of sites, number of users, organization size, the client's business focus, geography,the client's geographic location, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis. Our transaction-based services primarily consist of auction fees from our Ten-X online auction platform for commercial real estate, which are generally calculated as a percentage of the final sales price for the commercial real estate property sold and recognized as revenue upon the successful closure of an auction. We generally see higher sales of Apartments.com listing services during the peak summer rental season and higher CoStar sales towards the end of the year; however, sales fluctuate from year-to-year and revenue is not generally seasonal because our services are typically sold on a subscription basis.



Clients


We draw clients from across the real estate and related business community, including real estate brokers, agents, owners, developers, landlords, property managers, financial institutions, retailers, vendors, appraisers, investment banks, government agencies and other parties involved in real estate. For the years ended December 31, 2022, 2021 and 2020, no single client accounted for more than 5% of our revenues.

Sales and Marketing

Our overall sales strategy is to provide optimal service to our existing customers, attract new clients and cross-sell the numerous solutions we offer. Our sales teams sell multiple products and are primarily located in field sales offices throughout the U.S., with others in Canada, the U.K., Spain, France and Germany. Our inside sales teams are largely based in Washington, DC and Richmond, Virginia. Our inside sales professionals actively work lead lists, prospect for new customers and perform in-person and virtual product demonstrations to convey the multiple solutions we offer.

Our local offices typically support field sales and field research operations within the markets in which they operate. This enables our clients to benefit from a local presence. Our field sales force has the primary front-line responsibility for customer service, ensuring client satisfaction and building long-term relationships. Our local offices act as hubs for training, sources of market insight, product feedback sessions and connecting industry participants.

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We actively manage client accounts with frequent meetings, product trainings and updates on new enhancements to our solutions. In 2022, we successfully implemented a number of important sales initiatives focused on selling our products to brokers, property owners and lenders in the U.S. This focus will continue in 2023.

Our primary marketing methods include: in person and virtual service demonstrations; targeted paid digital marketing; retargeting and social media marketing; direct marketing, such as email; communication via our corporate website, campaign-specific websites and news services; participation in virtual trade shows and industry events; Company-sponsored events; client referrals; content marketing including webinars, seminars and white papers and other product-specific company newsletters distributed via email to our clients and prospects.

Comprehensive digital marketing and direct marketing are effective means for us to find prospective clients. Our digital marketing efforts include SEO, targeted paid advertising with major search engines, social media and display advertising on commercial real estate industry news and business websites and mobile applications and our direct marketing efforts include television, radio, out-of-home ads, direct mail and email and, when applicable, make extensive use of our unique, proprietary database. Once we have identified a prospective client, our most effective sales method is a service demonstration. We use various forms of integrated marketing and advertising to build brand awareness, brand identity and reinforce the value and benefits of our services.

We also sponsor and attend local in person and virtual association activities and events, including events for commercial real estate brokers, residential real estate agents, property owners, investors and retail and financial services institutions, and attend or exhibit at virtual industry trade shows and conferences to reinforce our relationships with our core user groups.

To generate brand awareness and site traffic for the Apartments.com network of rental websites, we utilize a multi-channel marketing campaign featuring television and radio ads, online and digital advertising impressions, streaming audio and podcasts, social media, email, public relations and news articles, out-of-home and paid search marketing, all of which are reinforced with substantial SEO efforts. We plan to continue to utilize these marketing methods to generate brand awareness and site traffic for the Apartments.com network and have implemented similar marketing strategies for LoopNet and Ten-X. To generate brand awareness and site traffic for our residential products, we utilize digital advertising impressions, social media and paid search marketing, all of which are reinforced with SEO efforts. We will continue to work to determine the optimal level of marketing investment for each of these services for future periods.

To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based information services rather than fees based on actual system usage. Contract rates for subscription-based services are generally based on the number of sites, number of users, organization size, the client’s business focus, geography and the range of subscription services. Our marketing solutions are priced by exposure levels, the number of properties/spaces for-lease, rent or sale and the market in which they are offered. Listings for customers who purchase packages with the highest level of exposure usually appear first in search results and offer the richest media content and engagement opportunities for tenants searching for space, renters looking for an apartment or investors seeking an opportunity. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis.

Expansion and Growth


Acquisitions


We have continually expanded and continue to expand the geographical coverage and depth of our existing information services and developed new information, analytics and online marketplace services. In addition to internalorganic growth, we have grown our business through strategic acquisitions. Our moreWe acquired Homes.com, BureauxLocaux and Business Immo in May 2021, October 2021 and April 2022, respectively. We continue to integrate our recent acquisitions includeand the June 1, 2015 acquisition services they offer into our CoStar network.

See Notes 5 and 9 of Network Communications, Inc. (“NCI”), including its Apartment Finder business (collectively referredthe Notes to as “Apartment Finder”), tothe Consolidated Financial Statements for further support our expansion into the multifamily vertical. Apartment Finder provides lead generation, advertising,discussion of these acquisitions.

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Development, Investments and Internet marketing solutions to property managers and owners through its main service, ApartmentFinder.com. On July 1, 2015, we acquired the assets of Belbex Corporate, S.L. (“Belbex”), a small commercial real estate information provider operating in Madrid, Spain. On May 3, 2016, we acquired Thomas Daily GmbH (“Thomas Daily”), a commercial real estate news and information provider operating in Freiburg, Germany. On January 31, 2017, we acquired Koa Lei, Inc. (doing business as Westside Rentals and now known as Westside Rentals, LLC), an online marketplace specializing in Southern California real estate rentals, and its affiliated entity Westside Credit Services, LLC, a provider of credit checks and tenant screening for landlords in the Southern California real estate rental market. On May 10, 2017, we added LandWatch.com to our network of land-dedicated sites through our acquisition of LandWatch. On July 18, 2017, we acquired The Screening Pros, LLC, an online apartment leasing platform that includes tenant screening services, rental applications and payments processing and lease renewals. Most recently, on February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, ForRent’s primary service is digital advertising through a network of four multifamily websites - which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com. Expansion

We plan to integrate, developcontinue to invest in our business and cross-sell theour services, offered by ForRent. ForRent.com is expectedevaluate strategic growth opportunities and pursue our key priorities as described below in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. We are committed to remain a distinct, complementary brand to Apartments.com, givingsupporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for property owners, property managers, brokers, agents, buyers, commercial tenants and owners more exposure for their listings.

Developmentresidential renters and Expansion

homebuyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell existing services and expand and develop supporting technologies for our research, sales and marketing organizations. We are committedreevaluate our priorities on a regular basis and may reevaluate our priorities as economic conditions continue to supporting and improving our information, news, analytic and online marketplace solutions.evolve.

The launch of the Apartments.com website and the ApartmentFinder.com website in 2015 are examples of our software development efforts to improve existing services, introduce new services, and integrate and cross-sell existing services. We believe the improved sites, enhanced search capabilities, availability of information regarding real-time vacancies and our continued development and introduction of enhancements to our online apartment rental marketplaces have attracted more consumers, making the sites more attractive to property managers, which has also increased our cross-selling opportunities. In 2017, we launched Apartamentos.com, an apartment-listing site offered exclusively in Spanish and built and tailored to meet the needs of Spanish language households in the U.S., which is believed to represent approximately 20 percent of the U.S. renter population. We believe greater functionality makes our services valuable to an even broader audience and helps us increase sales of our services to brokers, banks, owners, institutional investors and other industry participants. We expect technology enhancements to drive continued revenue growth in 2018.



We evaluate potential changes to our service offerings from time to time in order to better align the services we offer with customers’ needs. Further, in some cases, when integrating and coordinating our services and assessing industry and client needs, we may decide to combine, shift focus from, de-emphasize, phase out, or eliminate a service that, among other things, overlaps or is redundant with other services we offer. In the event that we eliminate or phase out particular service offerings, we may experience reduced revenues and earnings. The decision to eliminate or phase out a service offering may also ultimately result in increased revenues and earnings from sales of other services we offer in lieu of the eliminated or phased out services. In 2017, we began to transition the LoopNet marketplace to a pure pay-to-list/free-to-search marketing site for commercial real estate, and to convert LoopNet information customers to higher value CoStar Suite information services.  We completed integrating the backend systems of the LoopNet and CoStar databases during the second half of 2017; the two services now share a unified database of information, creating operating efficiencies and improving the data available to our customers. We also introduced new enhancements on the CoStar homepage, including a Listing Manager feature that we believe will increase the quantity and quality of the listing information available by enabling brokers and other industry participants to load information directly into the integrated system.  In turn, we expect this feature will reduce the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.
 We continue to assess the potential impact of the transition of the LoopNet marketplace to a pure marketing site for commercial real estate where all listings are paid and users can search the site for free. We are currently focused on converting LoopNet information customers to higher value, more profitable annual subscription information services, which should increase revenues and earnings over time. However, we cannot predict with certainty the amount or timing of any reductions in revenues and earnings


or subsequent increases in revenues and earnings, if any, resulting from the elimination or phasing out of the LoopNet information services or any other service offering.


Our revenues have increased as a result of revenues from acquired businesses and from cross-selling opportunities among the customers of CoStar and the acquired companies. We expect to continue to increase revenues as a result of such cross-selling opportunities. We may incur increased expenses in connection with any marketing and sales campaigns involving cross-selling opportunities and initiatives, and in connection with promotion of our new services and brands.


We are expanding the geographic reach of our North America services. In 2014, we began our Canadian research operations in Toronto; in 2015 we expanded into Calgary and Vancouver. In 2016, we began offering services in Ottawa and Edmonton. On July 1, 2015, we expanded our International services into Madrid, Spain through the acquisition of the assets of Belbex, a small commercial real estate information provider operating in Madrid, Spain. Further, on May 3, 2016, we expanded our International services into key markets in Germany, through the acquisition of Thomas Daily, a commercial real estate news and information provider operating in Freiburg, Germany. We believe that our integration efforts and continued investments in our services, including acquisitions and expansion of our existing service offerings, have created a platform for long-term revenue growth. We expect these investments to result in further penetration of our subscription-based services and the successful cross-selling of our services to customers in existing markets.


We have invested in the expansion and development of our field sales force to support the growth and expansion of our company and our service offerings in North Americaoffering, and internationally. We plan to continue to invest in, evaluate and strategically position our sales force as the Company continueswe continue to develop and grow. We alsoIn addition, we continue to invest in marketing our services, as well as in our research operations to support continued growth of our information and analytics offerings to support the Apartments.com network, to expand into additional Canadian markets and to provide services in Madrid, Spain and key markets in Germany. We established our research operations headquarters in Richmond, Virginia, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services. In connection with the opening of the Richmond research headquarters, we expanded our research team to continue to meet the growing content needs of our clients. In addition, we expectWe plan to continue to invest inutilize multi-channel marketing campaigns and to work to determine the optimal level of marketing investments for our International research operations in Madrid, Spain and the U.K.services for future periods. While we believe the investments we make in our business create a platform for growth, those investments may reduce our profitability and adversely affect our near-term financial position.

We intend to continue to assess the need for additional investments in our business, in addition to the investments discussed above, in order to develop and distribute new services within our current platform or expand the reach of our current service offerings. Any future product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to generate losses and negative cash flow from operations in the future. We expect to continue our software development efforts to improve existing services, introduce new services, integrate products and services, cross-sell existing services, and expand and develop supporting technologies for our research and sales and marketing organizations. We are committed to continuing to support and improve our information, analytics and online marketplace solutions.

Industry Overview

The market for commercial real estate information and analysis is vast based on the variety, volume and value of transactions related to commercial real estate. Each transaction has multiple participants and multiple information requirements, and in order to facilitate transactions, industry participants must have extensive, accurate and current information and analysis. Members of the commercial real estate and related business community require daily access to current data such as space availability, properties for sale, rental units available, rental rates, vacancy rates, tenant movements, sales comparables, supply, new construction, absorption rates and other important market developments to carry out their businesses effectively. Market research (including historical and forecast conditions) and applied analytics have also become instrumental to the success of commercial real estate industry participants operating in the current economic environment. There is a strong need for an efficient marketplace, where commercial real estate professionals can exchange information, evaluate opportunities using standardized data and interpretive analyses, and interact with each other on a continuous basis.



A large number of parties involved in the commercial real estate and related business community make use of the services we provide in order to obtain information they need to conduct their businesses, including:
Sales and leasing brokersGovernment agencies
Property ownersMortgage-backed security issuers
Property managersAppraisers
Design and construction professionalsPension fund managers
Real estate developersReporters
Real estate investment trust managersTenant vendors
Investment bankersBuilding services vendors
Commercial bankersCommunications providers
Mortgage bankersInsurance companies’ managers
Mortgage brokersInstitutional advisors
RetailersInvestors and asset managers

The commercial real estate and related business community historically operated in an inefficient marketplace because of the fragmented approach to gathering and exchanging information within the marketplace. Various organizations, including hundreds of brokerage firms, directory publishers and local research companies, collected data on specific markets and developed software to analyze the information they independently gathered. This highly fragmented methodology resulted in duplication of effort in the collection and analysis of information, excessive internal cost and the creation of non-standardized data containing varying degrees of accuracy and comprehensiveness, resulting in a formidable information gap.

The creation and maintenance of a standardized information platform for commercial real estate requires infrastructure including a standardized database, accurate and comprehensive research capabilities, experienced analysts, easy to use technology and intensive participant interaction. By combining our extensive database, researchers , our experienced team of analysts and economists, technological expertise and broad customer base, we believe that we have created such a platform.

Within the apartment rental community, most apartment listing websites primarily supply only the listings that property owners pay to advertise and often return results that are inconsistent with the renter's search criteria. These limited results generally do not provide information about the actual rental availabilities. We believe that consumers expect accurate, actionable and comprehensive apartment rental information. To create the Apartments.com, ApartmentFinder.com, and Apartamentos.com websites, we drew on our multifamily database and undertook a research effort collecting and verifying information and visiting and photographing properties. With the Apartments.com, ApartmentFinder.com and Apartamentos.com websites, we believe that we created easily searchable sites with a comprehensive selection of rentals, information on actual rental availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other important facts.

CoStar’s Comprehensive Database

CoStar has spent more than 30 years building and acquiring a database of commercial real estate information, which includes information on leasing, sales, comparable sales, tenants, and demand statistics, as well as digital images. This highly complex database is comprised of hundreds of data fields, tracking such categories as location, site and zoning information, building characteristics, space and unit availability, tax assessments, ownership, sales and lease comparables, space requirements, number of retail stores, number of listings, mortgage and deed information, for-sale and for-lease listings, income and expense histories, tenant names, lease expirations, contact information, historical trends, demographic information and retail sales per square foot. The database also includes building photographs, aerial photographs, 3D virtual apartment tours, plat maps and floor plans.

CoStar Research

We have developed a sophisticated data collection organization utilizing a multi-faceted research process. In 2017, our full time researchers and contractors conducted millions of interviews of brokers, owners, tenants, apartment community owners and property managers. We recently established our research operations headquarters in Richmond, Virginia, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services.



Research Department. Our research professionals undergo an extensive training program so that we can maintain consistent research methods and processes throughout our research department. Our researchers collect and analyze commercial real estate information through millions of phone calls, e-mails and Internet updates each year, in addition to field inspections, public records review, news monitoring and direct mail. We have also set up direct feeds from larger apartment sites and have put in place an automated system that compiles information sourced from the Internet in order to provide the most up-to-date information on rental availabilities.

Our researchers are responsible for maintaining the accuracy and reliability of our database information. As part of their update process, researchers develop cooperative relationships with industry professionals that allow them to gather useful information. Because of the importance commercial real estate professionals place on our data and our prominent position in the industry, many of these professionals routinely take the initiative and proactively report available space and transactions to our researchers.

CoStar has an extensive field research effort that includes physical inspection of properties in order to research new availabilities, find additional property inventory, photograph properties, collect tenant information, and verify existing information. In 2017, our field researchers drove millions of miles and conducted hundreds of thousands of on-site building inspections. CoStar's field research effort also includes creating high quality videos of interior spaces (including walk-through videos and 3D virtual tours), amenities and exterior features of properties. CoStar utilizes high-tech, field research vehicles across the U.S., Canada, the U.K. and Spain. A significant majority of these vehicles are customized, energy efficient hybrid cars that are equipped with computers, Global Positioning System tracking software, high resolution digital cameras and handheld laser instruments to help precisely measure buildings, geo-code them and position them on digital maps. Each CoStar vehicle uses wireless technology to track and transmit field data. A typical site inspection consists of photographing the building, measuring the building, geo-coding the building, capturing “For Sale” or “For Lease” sign information, counting parking spaces, assessing property condition and construction, and gathering tenant information. Field researchers also canvass properties, collecting tenant data suite by suite. We also utilize a low-flying airplane and a fleet of drones to conduct aerial research of commercial real estate. We place researchers on the low-flying aircraft to scout additional commercial developments and take aerial photographs and videos. Our drone operators are FAA certified and trained to capture aerial photographs and videos of commercial real estate.

Data and Image Providers. We license a small portion of our data and images from public record providers and third-party data sources. Licensing agreements with these entities allow us to use a variety of commercial real estate information, including property ownership, tenant information, demographic information, maps, aerial photographs and 3D virtual apartment tours of apartment communities, all of which enhance various CoStar services. These license agreements generally grant us a non-exclusive license to use the data and images in the creation and supplementation of our information, analytics and online marketplaces and include what we believe are standard terms, such as a contract term ranging from one to five years, automatic renewal of the contract and fixed periodic license fees or a combination of fixed periodic license fees plus additional fees based upon our usage.

Management and Quality Control Systems. Our research processes include automated and non-automated controls to ensure the integrity of the data collection process. A large number of automated data quality tests check for potential errors, including occupancy date conflicts, available square footage greater than building area, typical floor space greater than land area and expired leases. We also monitor changes to critical fields of information to ensure all information is kept in compliance with our standard definitions and methodology. Our non-automated quality control procedures include:

calling our information sources on recently updated properties to re-verify information;
performing periodic research audits and field checks to determine if we correctly canvassed buildings;
providing training and retraining to our research professionals to ensure accurate and standardized data compilation; and
compiling measurable performance metrics for research teams and managers for feedback on data quality.

Finally, one of the most important and effective quality control measures we rely on is feedback provided by the commercial real estate professionals using our data every day.


Proprietary Technology


CoStar��sOur information technology professionals focus on developing new services and features for our customers, improving and maintaining existing services, integrating our current services, securing our comprehensive database of commercial real estate information and delivering research automation tools that improve the quality of our data and increase the efficiency of our research analysts.




Our information technology team is responsible for developing, improving and maintaining CoStar'sour information, analytics and online marketplace services. Our information technology team is also responsible for developing the infrastructure necessary to support CoStar’sour business processes, our comprehensive database of commercial real estate information, analytics and online marketplaces and our extensive image library. The team implements technologies and systems that introduce efficient workflows and controls designed to increase the production capacity of our research teams and improve the quality of our data. Over the years, the team has developed data collection and quality control mechanisms that we believe are unique within the commercial real estate industry. The team continues to develop and modify our enterprise information management system that integrates CoStar'sour sales, research, field research, customer support and accounting information. We use this system to maintain our commercial real estate research information, manage contacts with the commercial real estate community, provide research workflow automation and conduct daily automated quality assurance checks. In addition, our information technology team has also developed fraud-detection technology to detect and prevent unauthorized access to our services. To supplement the measures we take to prevent misuse of our information, we recently added state of the art adaptive authentication technology to the login process of our CoStar Suite product.


Our information technology professionals maintain the servers and network components necessary to support CoStarour services and research systems. CoStar'sOur core services are serveddelivered from multiple data centers and cloud-based computing platforms to support uninterrupted service for our customers. CoStar’s servicescustomers and are continually monitored in an effort to ensure our customers fast and reliable access.customer access, to protect against unauthorized intrusions and to detect vulnerabilities.

CoStar's
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Our comprehensive data protection policy provides for use of secure networks, strong passwords and dual factor authentication systems, encrypted data fields, end-to-end encryption, endpoint detection and response systems and services, security information and event management systems, off-site storage, cloud services, end user and developer security training, multilayered anti-phishing malware and spam protections and other protective measures in an effort to ensure the availability and security of all core systems.

Services

Our suite of information, analytics and online marketplaces is branded and marketed to our customers. Our services are primarily derived from a database of building-specific information and offer customers specialized tools for accessing, analyzing and using our information. Over time, we have enhanced and expect to continue to enhance our existing information, analytics and online marketplaces and we have developed and expect to continue to develop additional services that make use of our comprehensive database to meet the needs of our existing customers as well as potential new categories of customers.

Our principal information, analytics and online marketplace services as of January 31, 2018, are described in the following paragraphs:

CoStar

CoStar Suite® is our platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional®and CoStar Tenant® and is accessible via the Internet or through our mobile application, CoStar Go®.

CoStar Property Professional®  CoStar Property Professional, or “CoStar Property,” is the Company’s flagship service. It provides subscribers a comprehensive inventory of office, industrial, retail and multifamily properties and land in markets throughout the U.S., the U.K. and parts of Canada, including for-lease and for-sale listings, historical data, building photographs, maps and floor plans. Commercial real estate professionals use CoStar Property to identify available space for lease, evaluate leasing and sale opportunities, value assets and position properties in the marketplace. Our clients also use CoStar Property to analyze market conditions by calculating current vacancy rates, absorption rates or average rental rates, and forecasting future trends based on user selected variables. CoStar Property provides subscribers with powerful map-based search capabilities as well as a user controlled, password protected extranet (or electronic “file cabinet”) where brokers may share space surveys and transaction-related documents online, in real time, with team members. When used together with CoStar Connect®, CoStar Property enables subscribers to share space surveys and transaction-related documents with their clients, accessed through their corporate website. CoStar Property, along with all of CoStar’s other core information, analytics and online marketplaces, is delivered solely via the Internet.

CoStar Lease Analysis® CoStar Lease Analysis is an integrated workflow tool that allows subscribers to incorporate CoStar data with their own data to perform in-depth lease analyses. CoStar Lease Analysis can be used to produce an understandable cash flow analysis as well as key metrics about any proposed or existing lease. It combines financial modeling with CoStar’s comprehensive property information, enabling the subscriber to compare lease alternatives.

CoStar COMPS Professional®  CoStar COMPS Professional, or “CoStar COMPS,”provides comprehensive coverage of comparable commercial real estate sales information in the U.S., the U.K. and parts of Canada. It is the industry’s most


comprehensive database of comparable sales transactions and is designed for professionals who need to research property comparables, identify market trends, expedite the appraisal process and support property valuations. CoStar COMPS offers subscribers numerous fields of property information, access to support documents (e.g., deeds of trust) for new comparables, demographics and the ability to view for-sale properties alongside sold properties in three formats – plotted on a map, aerial image or in a table.



CoStar Tenant®CoStar Tenant is a detailed online business-to-business prospecting and analytical tool providing commercial real estate professionals with the most comprehensive commercial real estate-related tenant information available in the U.S., the U.K. and parts of Canada. CoStar Tenantprofiles tenants occupying space in commercial buildings and provides updates on lease expirations - one of the service’s key features - as well as occupancy levels, growth rates and numerous other facts. Delivering this information via the Internet allows users to target prospective clients quickly through a searchable database that identifies only those tenants meeting certain criteria.

CoStar Go®  CoStar Go is an iPad and Android application that integrates and provides subscribers of CoStar Suite mobile access to our comprehensive property, comparable sales and tenant information in our suite of online service offerings – consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant. CoStar Go provides a single, location-centric mobile interface that allows users to access and display comprehensive information on millions of properties and gain instant access to analytic data and demographic information from the field.


CoStar Lease Comps CoStar Lease Comps, included as part of CoStar Suite® services, provides subscribers an integrated solution that captures, manages and maintains their lease data. CoStar Lease Comps also analyzes lease data.

CoStar Advertising®CoStar Advertising offers property owners and brokers a highly targeted and cost effective way to market a space for lease or a property for sale directly to CoStar subscribers looking for that type of space through interactive advertising. Our advertising model is based on varying levels of exposure, enabling the advertiser to target as narrowly or broadly as its budget permits. With the CoStar Advertising program, when the advertiser’s listings appear in a results set, they receive priority positioning and are enhanced to stand out. The advertiser can also purchase exposure in additional submarkets, or the entire market area so that this ad will appear even when this listing would not be returned in a results set.

CoStar Portfolio Strategy®CoStar Portfolio Strategy services are designed to meet the research and risk management needs of commercial real estate owners, investors, lenders and government regulators. CoStar Portfolio Strategy leverages its staff of analysts, economists, and strategists to consult with clients on investment and lending strategies, including custom strategic research and portfolio strategy, target market selection, capital-raising initiatives, relative value and custom scenario analyses, and acquisition and disposition studies. 

CoStar Risk Analytics® COMPASS CoStar Risk Analytics COMPASS is a commercial real estate risk management tool. It allows users to calculate Probability of Default, Loss Given Default, Expected Loss and Unexpected Loss at various confidence levels for a loan or a portfolio. It provides direct comparisons of credit risk and refinance risk across Time, Market, Property Type and Loan Structure for all macroeconomic forecast (including Federal Stress Testing / Comprehensive Capital Analysis and Review (“CCAR”)) scenarios. CoStar Risk AnalyticsCOMPASS is used by lenders, issuers, servicers, ratings agencies and regulators to estimate required loss reserves, economic capital and regulatory capital, target lending opportunities, set pricing strategy, objectively compare/price loans, more effectively allocate capital, manage refinance risk and conduct stress testing. Clients for CoStar Risk Analytics COMPASS services or data include most of the Systemically Important Financial Institutions (“SIFIs”) as well as a large number of other top-500 banks, insurance companies, hedge funds and government financial regulators.
CoStar Investment Analysis® Portfolio Maximizer CoStar Investment Analysis Portfolio Maximizer is an industry leading real estate portfolio management software solution. CoStar Investment Analysis Portfolio Maximizer allows users to model partnership structures, calculate waterfall distributions and fees, model and analyze debt obligations and create multiple “what if” scenarios for alternative investment decisions.
CoStar Investment Analysis® Request  CoStar Investment Analysis Request is the first business intelligence software solution built specifically for managing commercial real estate investments. CoStar Investment Analysis Request helps users eliminate some of the difficulties of consolidating real estate investment data from disparate sources and facilitates standardization of information presentation and reporting across an organization. CoStar Investment Analysis Request also provides a platform for users to develop business intelligence and reporting capabilities. 



CoStar Real Estate Manager® Corporate Edition  CoStar Real Estate Manager Corporate Edition is a real estate management software solution designed for corporate real estate managers, company executives, business unit directors, brokers and project managers. CoStar Real Estate Manager Corporate Edition helps users connect real estate initiatives with company strategic goals, streamline portfolio operations, automate the process for collecting and managing space requests, reduce occupancy costs with analytics that track location performance against targets, and maximize location performance through proactive portfolio management. CoStar Real Estate Manager also provides lease abstraction and data review services in order to facilitate the effective implementation of this software solution.

CoStar Real Estate Manager® Retail Edition  CoStar Real Estate Manager Retail Edition is a real estate management software solution designed for company executives, real estate dealmakers and store planning and construction managers. CoStar Real Estate Manager Retail Edition helps users to utilize comprehensive and real-time data to establish goals and store strategies, manage the execution of real estate strategies, summarize critical portfolio data to drive cost-saving decisions and benchmark prerequisite store-level information and metrics for maximizing location performance through proactive portfolio management. CoStar Real Estate Manager also provides lease abstraction and data review services in order to facilitate the effective implementation of this software solution. 

CoStar Private Sale Network® CoStar Private Sale Network provides clients with custom-designed and branded websites to market their listings directly to investors. CoStar Private Sale Network allows investors to customize a commercial real estate website and build and send email communications to announce listings, calls for offers and bid deadlines.

CoStar Brokerage Applications® CoStar Brokerage Applications provides users with access to the latest tools to effectively manage and optimize business operations. These structured and consistent project management tools allow users to track critical dates, employee or organization-wide results and current and prospective projects.

LoopNet

LoopNetPremium Lister® LoopNet Premium Lister is designed for commercial real estate professionals and other customers who seek the broadest possible exposure for their listings, access to leads lists, and advanced marketing and searching tools. LoopNet Premium Lister provides subscribers with the ability to market their listings to all LoopNet.com visitors, as well as numerous other features. LoopNet Premium Lister is available for a quarterly or annual subscription.

LoopNet Premium SearcherTMLoopNet Premium Searcher is designed for members searching for commercial real estate who need commercial real estate marketplace searching access, reports and other marketing and searching tools. LoopNet Premium Searcher provides subscribers with full access to all LoopNet property listings, including Premium and Basic Listings, as well as numerous other features. LoopNet Premium Searcher is available for a monthly, quarterly or annual subscription.

LoopNet Power ListingsLoopNet Power Listings is designed for commercial real estate professionals and other customers who seek the broadest possible exposure for their listings, access to leads lists, and advanced marketing and searching tools. LoopNet Power Listings provides subscribers with full access to the industry’s top three commercial real estate marketplaces: LoopNet, Cityfeet and Showcase, as well as 200+ online newspaper websites including the Wall Street Journal. LoopNet Power Listings is available for a quarterly or annual subscription.

LoopLink® LoopLink is an online real estate marketing and database services suite that enables commercial real estate firms to showcase their available properties both on the LoopNet marketplace and on the brokerage firm’s own website using hosted search software. Within LoopNet, each LoopLink listing is branded with the client’s logo and is hyperlinked to the client’s website. Additionally, the LoopLink service provides customizable, branded property search and results screens that can be integrated into the client’s website. The LoopNet import service offers the opportunity to simplify the process of submitting listings to LoopNet from the client’s internal databases, and features advanced data matching and data integrity rules and file conversion capabilities. LoopNet charges a monthly subscription fee to commercial real estate firms for the LoopLink service. Key features of LoopLink include comprehensive reporting and listing administration tools, property mapping for geographic and feasibility analysis, thumbnail photos and expanded property descriptions in search results.



Apartments.com

Apartments.comTM  Apartments.com, part of our network of apartment marketing sites, provides a variety of ad packages and enhancements that allow property managers and owners to fully showcase their apartment community through increased exposure and interactions that allow renters to view, engage and connect with the community, including featured community listings, customized flyers and brochures, and special offer coupons.

ApartmentFinder.comTMApartmentFinder.com, part of our network of apartment marketing sites, provides lead generation, advertising and Internet marketing solutions to property managers and owners through its main service, ApartmentFinder.com.

ForRent.com® ForRent.com, part of our network of apartment marketing sites, provides digital advertising through a network of four multifamily websites - which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com

ApartmentHomeLiving.comTM  ApartmentHomeLiving.com, part of our network of apartment marketing sites, provides renters with another national online apartment rentals resource that showcases apartments for rent with official prices, pictures, floor plans and detailed information on each apartment.

Apartamentos.comTM Apartamentos.com, part of our network of apartment marketing sites, provides Spanish speaking renters with a national online apartment rentals resource offered exclusively in Spanish, with the same primary features found on Apartments.com.

WestsideRentals.com® WestsideRentals.com, part of our network of apartment marketing sites, specializes in Southern California real estate rentals.

The Screening ProsTM The Screening Pros, part of our network of apartment marketing sites, provides an online apartment leasing platform that includes tenant screening services, rental applications and payments processing and lease renewals.

LandsofAmerica

LandsofAmericaTM, LandAndFarmTM,and LandWatch®LandsofAmerica.com , LandAndFarm.com, and LandWatch.com are leading online marketplaces for rural land for sale. Sellers pay a fee to list their land for sale, and interested buyers can search the respective sites' listings for free. The LandsofAmerica.com and LandAndFarm.com websites are also accessible via our Land.com domain.

BizBuySell

BizBuySell® and BizQuest® BizBuySell.com and BizQuest.com are leading online marketplaces for operating businesses for sale. Business sellers pay a fee to list their operating businesses for sale, and interested buyers can search the respective sites' listings for free. The BizBuySell and BizQuest Franchise Directories allow interested business buyers to search hundreds of franchise opportunities, and franchisors can list their availabilities in the directory on a cost per lead basis.

Clients

We draw clients from across the commercial real estate and related business community, including commercial real estate brokers, owners, developers, landlords, property managers, financial institutions, retailers, vendors, appraisers, investment banks, government agencies and other parties involved in commercial real estate. For the years ended December 31, 2015, 2016 and 2017, no single client accounted for more than 5% of our revenues.

Sales and Marketing

Our sales teams are primarily located in field sales offices throughout the U.S. and in offices outside of the U.S., including, among others, London, England; Madrid, Spain; and Freiburg, Germany. Our inside sales teams are primarily located in our Washington, DC office. These teams prospect for new clients and perform product and service demonstrations exclusively by telephone and over the Internet to support the direct sales force.

Our local offices typically serve as the platform for our in-market sales, customer support and field research operations for their respective regions. The sales force is responsible for selling to new prospects, training new and existing clients, providing ongoing customer support, renewing existing client contracts and identifying cross-selling opportunities. In addition, the sales


force has primary front line responsibility for customer care. Our customer service and support staff is charged with ensuring high client satisfaction by providing ongoing customer support. In 2016, we formed a customer relationship team consisting of client relationship managers in the sales organization, to drive even greater usage of our products and services. The client relationship managers are responsible for training existing users, sharing market specific research with clients, ensuring accurate and timely listings and ensuring client driven product enhancement ideas are shared with our product development team.



Our sales strategy is to aggressively attract new clients, while providing ongoing incentives for existing clients to subscribe to additional products and services in order to achieve high renewal rates. We actively manage client accounts in order to retain clients by providing frequent service demonstrations as well as company-client contact and communication. In January 2018, we launched a two-week, 30-city road show to showcase CoStar's technologies to customers and prospective users. The presentations focused on how technological change is impacting the commercial real estate industry, including presentations on tools such as 3D cameras, infrared drones and augmented reality. We place a premium on training new and existing client personnel on the use of our services so as to promote maximum client utilization and satisfaction with our services. Our strategy also involves entering into multi-year, multi-market license agreements with our larger clients.

We seek to make our services essential to our clients’ businesses. To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based information services rather than fees based on actual system usage. Contract rates for subscription-based services are generally based on the number of sites, number of users, organization size, the client’s business focus, geography, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis.

Our primary marketing methods include: service demonstrations; face-to-face networking; web-based marketing; direct marketing; communication via our corporate website and news services; participation in trade show and industry events; Company-sponsored events; print advertising in trade magazines and other business publications; client referrals; and CoStar AdvisorTM, LoopNewsTM and other company newsletters distributed via email to our clients and prospects. In 2017, we integrated the CoStar and LoopNet databases in order to enhance CoStar information services as information tools and LoopNet marketplace services as marketing tools. This integration provides clients the ability to enter listings into a new Listing Manager, and to subsequently update their listings in CoStar and LoopNet simultaneously. To generate awareness of the integration, we provided video tutorials and hosted numerous webinars, in addition to web-based marketing and direct marketing efforts.

In 2017, we expanded the Apartments.com network with the launch of Apartamentos.com and acquisition of WestsideRentals.com.  In February 2018, we further expanded the Apartments.com network with the acquisition of ForRent.com. To generate brand awareness and site traffic for the Apartments.com network, we utilize a multi-channel marketing campaign featuring television and radio ads, online and digital advertising impressions, social media, public relations, out-of-home and paid search marketing, all of which are reinforced with Search Engine Marketing efforts. We plan to continue to utilize these marketing methods and will continue to work to determine the optimal level of marketing investment for our services for future periods.

Web-based marketing and direct marketing are effective means for us to find prospective clients. Our web-based marketing efforts include search engine optimization, paid advertising with major search engines, social media and display advertising on commercial real estate news and business websites and mobile applications, and our direct marketing efforts include television, radio, out-of-home ads, direct mail, email and telemarketing, and, when applicable, make extensive use of our unique, proprietary database. Once we have identified a prospective client, our most effective sales method is a service demonstration. We use various forms of advertising to build brand identity and reinforce the value and benefits of our services. We also sponsor and attend local association activities and events, including industry-leading events for commercial real estate brokers, owner/investors and retail and financial services institutions, and attend and/or exhibit at industry trade shows and conferences to reinforce our relationships with our core user groups.

News has always been a valuable part of CoStar's core subscription offering. CoStar's news teams report on the latest deals and developments across our markets, keeping subscribers informed and driving higher usage in our core product. In 2018, we plan to add more options for subscribers to customize the specific topics and types of news they are most interested in. To enhance this aspect of our subscription offering, we redesigned our homepage during the fourth quarter of 2017 to present an engaging and continuously updated interface. This year, we are adding news talent, upgrading technology, and making our service more relevant for subscribers, by delivering specific news based on their individual preferences.

We believe the ability to customize and personalize news for the user's specific interests should make our news service even more relevant and valuable to subscribers. In addition to encouraging more engagement through logins and time on site, we believe a more robust news operation will also provide more options and formats for advertising to the commercial real estate audience.

We currently offer dozens of webinars each year aimed at helping customers learn more about the commercial real estate industry and how to use our services. The webinars are available both as live presentations and as on-demand programs hosted on our website. On a monthly basis, we issue the CoStar Commercial Repeat Sales Index ("CCRSI"), a comprehensive set of benchmarks that investors and other market participants can use to better understand commercial real estate price


movements. CCRSI is produced using our underlying data and is publicly distributed by CoStar through the news media and made available online at http://www.costargroup.com/costar-news/ccrsi.

Our sales and marketing efforts have focused and will continue to focus on cross-selling and marketing our services. Similar to our prior acquisitions, we have been cross-selling, and plan to continue to cross-sell, the services offered by Apartments.com and ApartmentFinder.com and the other services we offer, including, but not limited to CoStar Suite. Now that we have completed the ForRent acquisition, we plan to develop and cross-sell the services offered by ForRent. We will also continue to focus on converting LoopNet information users to CoStar as we phase out the LoopNet information service offerings.




Competition


The market for information, analytics and online marketplaces generally is competitive and rapidly changing.extremely dynamic. In the commercial real estate, and apartment rentals and home for sale industries, we believe the principal competitive factors affecting these services and providers are:


qualityQuality and depth of the underlying databases;
easeQuality and quantity of leads and, for multifamily, leases delivered;
Ease of use, flexibility and functionality of the software;
intuitivenessIntuitiveness and appeal of the user interface;
timelinessTimeliness of the data, including listings;
breadthBreadth of geographic coverage and services offered;
completenessCompleteness and accuracy of content;
clientClient service and support;
perceptionPerception that the service offered is the industry standard;
price;Price;
effectivenessEffectiveness of marketing and sales efforts;
proprietaryProprietary nature of methodologies, databases and technical resources;
vendorVendor reputation;
brandBrand loyalty among customers; and
capitalCapital resources.


We compete directly and indirectly for customers with the following categories of companies:


onlineOnline marketing services, internet listing services, mobile software applications or websitesdata exchanges targeted to commercial real estate brokers, buyers and sellers of commercial real estate properties, insurance companies, mortgage brokers and lenders, such as PropertyLine.com, Reed Business Information Limited and its Estates Gazette and Radius Data Exchange products, SquareFoot, officespace.com, 42floors, MrOfficeSpace.com, TenantWise, www.propertyshark.com,Brevitas, Catylist & Commercial Exchange (part of Moody's), Altus Group & Commercial Property Search (part of Reonomy), Digsy, Quantum Listing, RealNex MarketPlace, Rofo, BuildingSearch.com, CIMLS, CompStak, Rightmove, estatesgazette.com, CommercialCafe,Yardi (CommercialEdge), CREXi, TotalCommercial.com, DebtX, Real Capital Markets, VTS, TenantBase and DebtX;Spacelist;


publishersPublishers and distributors of information, analytics and marketing services, including regional providers and national print publications, such as CBRE Economic Advisors, Marshall & Swift, Yale Robbins, Reis,REIS Network (part of Moody's), Real Capital Analytics, The Smith Guide,Real Capital Markets, Reonomy, Yardi Matrix, RealPage and its Axiometrics business, ReScour, Inc.Altus Insight and RealMassive;Altus RealNet (Canada);


InternetSearch engines, internet listing services and mobile software applications featuring apartments for rent, such as Google, Bing, Facebook Marketplace, ApartmentGuide.com, Rent.com, Rentals.com, Zillow Rentals, Trulia Rent, NakedApartments.com,Rentals, StreetEasy, HotPads.com, MyNewPlace.com, Zumper, Craigslist, ApartmentList.com, Move.com, Realtor.com, RentCafe.com, RentHop, RentBerry, ApartmentRatings, Nooklyn, Home Finder and Doorsteps.com;Rentable;


Search engines, internet listing services and mobile software applications featuring homes for sale, such as Google, Bing, Facebook Marketplace, Zillow, Trulia, Redfin, Realtor.com, Move.com, Craigslist, RealtyTrac, MLS.com, Home Finder, For Sale by Owner and Auction.com, as well as agent marketing platforms and workflow providers;

Hospitality benchmarking and analytics services, such as Lodging Econometrics, Kalibri Labs, Amadeus, HotStats, Shiji Group (SnapShot) and Benchmarking Alliance, Lodging Analytics Research & Consulting (LARC);

Online and mobile software application providers in the residential real estate industry, including Zillow, Redfin, Realtor.com and Rocket Mortgage, as well as agent marketing platforms and workflow providers;

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In the commercial real estate market, locally controlled real estate boards, exchanges or associations sponsoring commercial property listing services and the companies with whom they partner, such as Catylist, the National Association of Realtors, CCIM Institute, Society of Industrial and Office Realtors, the Commercial Association of Realtors Data Services and the Association of Industrial Realtors;AIR CRE;


realReal estate portfolio management software solutions, such as Cougar Software, MRI Software, Altus, RealPage, AppFolio and Intuit;SiteCompli;


realReal estate lease management and administration software solutions, such as Accruent, Tririga, Manhattan Software, LucemexTango Analytics, Lease Accelerator, Visual Lease, Sequnetra, Lease Harbor and AMT;AMT Direct;

Commercial real estate auction platforms such as CREXi, Marketplace, by RealINSIGHT and RCM Lightbox;
in-house
In-house research departments operated by commercial real estate brokers; and


publicPublic record providers.


As the marketmarkets for information, analytics and online marketplaces develops,develop, additional competitors (including companies whichthat could have greater access to data, financial, product development, technical, analytic or marketing resources than we do) may enter thea market and competition may intensify. For example, a company like Bloomberg L.P. has the resources, and has previously announced an intention, to move into the commercial real estate information business. Further, a company like Google, which has a far-reaching web presence and substantial data aggregation capabilities, could enter the commercial real estate marketing arena. A company like Zillow, which already has a presence in residential real estate and the apartment rentals industry, could use its resources to further expand in the online apartment rentals industry creating greater competition among Internetinternet listing services for the marketing budgets of property managers and property owners. While we believe that we have successfully differentiated ourselves from existing competitors, current or future competitors could materially harm our business. We may also enter markets where incumbent players have greater name recognition and resources, creating challenges as we work to expand.




Proprietary Rights


To protect our proprietary rights in our methodologies, database, software, trademarks and other intellectual property, we depend upon a combination of:


tradeTrade secret, misappropriation, unfair competition, copyright, trademark, computer fraud, database protection and other laws;
registrationRegistration of copyrights and trademarks;
nondisclosure, noncompetitionNondisclosure, and other contractual provisions with employees and consultants;
licenseLicense agreements with customers;
patentPatent protection; and
technicalTechnical measures.

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We seek to protect our software’s source code, our database and our photography as trade secrets and under copyright law. Although copyright registration is not a prerequisite for copyright protection, we have filed for copyright registration for many of our databases, photographs, software and other materials. Under current U.S. copyright law, the arrangement and selection of data may be protected, but the actual data itself may not be. Certain U.K. database protection laws provide additional protections for our U.K. databases. We license our services under license agreements that grant our clients non-exclusive, non-transferable rights. These agreements restrict the disclosure and use of our information and prohibit the unauthorized reproduction or transfer of any of our proprietary information, methodologies or analytics.


We also attempt to protect our proprietary databases, our trade secrets and our proprietary information through confidentiality and noncompetition agreements with our employees and consultants. Our services also include technical measures designed to detect, discourage and prevent unauthorized access to and/or copying of our intellectual property. We have established an internal antipiracy team that uses fraud-detection technology to continually monitor use of our services to detect and prevent unauthorized access, and we actively prosecute individuals and firms that engage in this unlawful activity.


We maintain U.S. and international trademark registrations for CoStar’sCoStar Group’s core service names and proactively file U.S. and international trademark applications covering our new and planned service names. OurWe own U.S. federally registered trademarks include CoStar®for our brands and services including CoStar®, CoStar Property®Property®, CoStar COMPS Professional®, CoStar Tenant®, CoStar Go®®, CoStar Lease Analysis®Analysis®, CoStar Showcase®LoopNet®, Showcase.com®, CityFeet.com®, Apartments.com®, Land.com®, Ten-X®, Homesnap®and LoopNet®Homes.com®, among many others. In the U.S., trademarks are generally valid asso long as they are in use and have not been found to be generic.are capable of indicating CoStar Group as the source of services. We consider our trademarks in the aggregate to constitute a valuable asset.

In addition, we maintain a patent portfolio that protects certain of our systems and methodologies. We currently have one granted patentsix patents in the U.K.Canada, which expire in 2033 (1 patent), which expires in 2021,2035 (2 patents) and 2036 (3 patents), covering, among other things, certain features of our field research methodologies and sevenuser interface features, and 12 patents in the U.S. which expire in, 2020, 20212025 (1 patent), 2032 (2 patents), 2022 (22036 (4 patents), 20252037 (4 patents) and 2032, respectively,2038 (1 patent), covering, among other things, critical elementscertain features of CoStar’s proprietaryour field research technologymethodologies and mapping tools.user interface feature. We regard the rights protected by our patents as valuable to our business, but do not believe that our business is materially dependent on any single patent or on our portfolio of patents as a whole.


EmployeesHuman Capital Resources


As of January 31, 2018,2023, we employed 3,7115,653 employees. U.S.-based employees represent approximately 89% of the overall employee population, followed by 9% in European, Asia-Pacific and Latin American countries and 2% in Canadian provinces. None of our employees are represented by a labor union. We have experienced no work stoppages. We believe that our employee relations are excellent. InAs is common with many German companies, employees in our German subsidiary, Thomas Daily GmbH, have elected threefive fellow employees to form a Works Council, which represents our employees at the location andlocation. The Works Council has certain co-determination rights and rights to receive information from us and engage us in discussions under applicable law. BureauxLocaux, in France, has a Social and Economic Committee, which is an employee representative body.


Our human resources and recruiting team works in partnership with business leaders, using a robust process to attract a diverse slate of candidates to fill vacancies and contribute to our growth, including our Careers page on our corporate website, employee referral program, social media and digital platforms, direct outreach, partnerships with commercial real estate industry groups and universities and specific partnerships and programs. The development and retention of our employees is critical to our success. To support career development, we offer on-demand and in-person training programs to new hires, managers and leaders. We also offer a mentoring program, which pairs employees seeking mentorship with more experienced colleagues.

To assess employee engagement, we partner with a survey vendor to survey employees annually. Insights and results gathered from the survey are shared with our leadership, managers and employees and help to inform our human resources program strategy each year. We believe that diverse teams deliver better and more innovative solutions. The diversity of thought that comes from different perspectives and backgrounds allows us to deliver cutting edge research and technology solutions that best serve our customers. We have a dedicated Diversity, Equity and Inclusion team that is tasked with developing topical programming, communications and training including, but not limited to, celebrations of various heritage months and oversight of our employee resource groups, which create avenues for mentoring and professional development within these groups as well as education and awareness across the organization.

We provide competitive pay and benefits to attract and retain high-quality talent. In addition to base salaries, compensation may include annual bonuses, commissions and equity awards. Employees may also participate in an Employee Stock Purchase Plan and a 401(k) Plan with a company match. Our comprehensive set of health and wellness benefits are affordable, high quality and valuable to employees and their families. Employees have multiple choices for health plans, access to vision and
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dental benefits and may participate in our employee wellness program as well as our employee assistance program. Additional benefits include paid time off, parental bonding leave, college savings benefits, tuition reimbursement, company-subsidized commuter benefits and access to mental health, tax and legal services.

Available Information


Our investor relations Internetinternet website is http://www.costargroup.com/investors. The reports we file with or furnish to the Securities and Exchange Commission,SEC, including our annual report, quarterly reports and current reports, as well as amendments to those reports, are available free of charge on our Internetinternet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. You may review and copy any of the information we file with the Securities and Exchange Commission at the Commission's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.SEC. The Securities and Exchange CommissionSEC maintains an Internetinternet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the CommissionSEC at http://www.sec.gov.




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Item 1A.
Item 1A.    Risk Factors

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Report and make forward-looking statements in our press releases and conference calls that are subject to risks and uncertainties. Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for 2018 and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions about our revenues, , revenue growth rates, gross margin percentage, net income, net income per share, fully diluted net income per share, EBITDA, adjusted EBITDA, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per share, weighted-average outstanding shares, taxable income (loss), cash flow from operating activities, available cash, operating costs, amortization expense, intangible asset recovery, capital and other expenditures, legal proceedings and claims, legal costs, effective tax rate, equity compensation charges, future taxable income, pending acquisitions, the anticipated benefits of completed or proposed acquisitions, the anticipated timing of acquisition closings, the anticipated benefits of cross-selling efforts, product development and release, planned product enhancements, sales and marketing campaigns, product integrations, elimination and de-emphasizing of services, contract renewal rate, the timing of future payments of principal under our $750 million credit facility available to us under the amended and restated credit agreement dated October 19, 2017 (the “2017 Credit Agreement”), expectations regarding our compliance with financial and restrictive covenants in the 2017 Credit Agreement, financing plans, geographic expansion, capital structure, contractual obligations, our database, database growth, services and facilities, employee relations, future economic performance, our ability to liquidate or realize our long-term investments, management’s plans, goals and objectives for future operations, and growth and markets for our stock. Sections of this Report which contain forward-looking statements include “Business,” “Risk Factors,” “Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures” and the Financial Statements andRisks related Notes.

Our forward-looking statements are also identified by words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. You should understand that these forward-looking statements are estimates reflecting our judgment, beliefs and expectations, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. The following important factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: commercial real estate market conditions; general economic conditions, both domestic and international; our ability to identify, acquire and integrate acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including ForRent, on a timely basis or at all; our ability to combine acquired businesses successfully or in a timely and cost-efficient manner; business disruption relating to integration of acquired businesses or other business initiatives; the businesses of CoStar, Apartments.com and ForRent may not be combined successfully or in a timely and cost-efficient manner; business disruption relating to the ForRent acquisition may be greater than expected; our ability to transition acquired service platforms to our model in a timely manner or at all; changes and developments in business plans; theft of any personally identifiable information we maintain or process; any actual or perceived failure to comply with privacy or data protection laws, regulations or standards; the amount of investment for sales and marketing and our ability to realize a return on investments in sales and marketing; our ability to effectively and strategically combine, eliminate or de-emphasize service offerings; reductions in revenues as a result of service changes; the time and resources required to develop upgraded or new services and to expand service offerings; changes or consolidations within the commercial real estate industry; customer retention; our ability to attract new clients; our ability to sell additional services to existing clients; our ability to integrate our North America and International product offerings; our ability to successfully transition LoopNet to a pure marketing site, where all listings are paid and searches are free, in a timely manner and minimize the impact of that transition on revenue; our ability to successfully introduce and cross-sell new products or upgraded services in U.S. and foreign markets; our ability to attract consumers to our online marketplaces; our ability to increase traffic on our network of sites; the success of our marketing campaigns in generating brand awareness and site traffic; competition; foreign currency fluctuations; global credit market conditions affecting investments; our ability to continue to expand successfully, timely and in a cost-efficient manner, including internationally; our ability to effectively penetrate and gain acceptance in new sectors and geographies; our ability to control costs; our ability to establish our research operations headquarters in Richmond, Virginia as a technology innovation hub; litigation litigation or government investigations in which we become involved; changes in accounting policies or practices; release of new and upgraded services or entry into new markets by us or our competitors; data quality; expansion, growth, development or reorganization of our sales force; employee retention; technical problems with our services; managerial execution; changes in relationships with real estate brokers, property managers and other strategic partners; legal and regulatory issues; and successful adoption of and training on our services.




Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information available to us on, the date of this Report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to update any such statements or release publicly any revisions to these forward-looking statements to reflect new information or events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

Risk Factors

Our revenues and financial position will be adversely affected if we are not able to attract and retain clients. Our success and revenues depend on attracting and retaining subscribers to our information, analytics and online marketplaces.marketplace services. Our subscription-based information, analytics and online marketplacesservices generate the largest portion of our revenues. However,Our revenue may not grow, or could decrease, if we may be unable to attract new clients, and our existing clients may decide not to add, not to renew or to cancel subscription services. In addition, in order to increase our revenue, we must continue tocannot attract new customers, continue to keep our cancellation rate low and continue to sell new services to our existing customers. We may not be able to continue to grow our customer base, keep the cancellation rate for customers and services low or sell new services to existing customers as a result of several factors, including, without limitation:continuing global economic pressures;and geopolitical volatility, economic pressures and the impact of inflation on our costs and on customer spending; the business failure of a current clientclients; customer decisions that they do not need our services or clients; a decision that customers have no need for our services; a decision to use alternative services; customers’ and potential customers’ pricing and budgetary constraints; consolidation in the real estate and/or financial services industries; data quality; technical problems; competitive pressures; or competitive pressures.devaluation of the local currencies of international customers relative to the U.S. dollar which impairs the purchasing power of such customers. We compete against many other commercial real estate information, analytics and marketing service providers for business, including competitors that offer their services through rapidly changing methods of delivering real estate information.business. If clients cancel services or decide not to renew their subscription agreements and we do not sell new services to our existing clients or attract new clients, then our renewal rate, net new sales and revenues may decline.decline or fail to meet expectations.

We may not be able to successfully develop and introduce new or upgraded information, analytics and online marketplace services that are attractive to our users and advertisers or successfully combine or shift focus from current services with less demand, which could decrease our revenues and our profitability. profitability. Our future business and financial success will depend on our ability to continue to anticipate the needs of customers and potential customers and to successfully introduce new and upgraded services, into the marketplace.including services that make our marketplaces useful for users and attractive to advertisers. To be successful, we must be able to quickly adapt to changes in the industry, as well as rapid technological changes, by continually enhancing our information, analytics and online marketplace services. As a result, we must continually invest resources in research and development to improve the appeal and comprehensiveness of our services and effectively incorporate new technologies.

Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes heavy burdens on our systems department, product development team, management and researchers. The processes are costly, and our efforts to develop, integrate and enhance our services may not be successful. As we continue to combine our operations with those that we have acquired, we must continue to assess the purposes for which various services may be used alone or together, and how we can best address those uses through stand-alone services or combinations of coordinating applications thereof. In addition, successfully launching and selling a new or upgraded service puts pressureadditional strain on our sales and marketing resources. In 2015, we launched the current Apartments.com and the ApartmentFinder.com websites, both after completing extensive product development. To generate brand awareness and site traffic for Apartments.com, we utilize a multi-channel marketing campaign. The launch of the sites and/or the marketing campaign may not continue to increase brand awareness, site traffic and/or revenues. If we are unsuccessful in obtaining greater market share or in obtaining widespread adoption of new or upgraded services, we may not be able to offset the expenses associated with the development, launch and marketing campaign,of the new or upgraded service, which could have a material adverse effect on our financial results. For example, to generate brand awareness and site traffic for our marketplaces, we have and will continue to invest significant resources in multi-channel marketing campaigns. If these marketing campaigns do not increase brand awareness, site traffic and/or revenues, the cost of these campaigns could have an adverse effect on our financial results.


In addition, as we integrate acquired businesses, we continue to assess which services we believe will best meet the needs of our customers. If we are unable to develop new or upgraded services or decide to combine, shift focus from,eliminate or phase out a service that overlaps or is redundant with other services weand are not able to offer then our customers may choose a competitiveand successfully market and sell an alternative service, over ours and our revenues may decline and our profitability may be reduced. For example, we continue to assess the impact of transitioning the LoopNet marketplace to a pure marketing site for commercial real estate where all listings are paid and users can search the site for free. We expect to see a short-term reduction in revenues and earnings, as well as reduced search engine optimization. We are working to convert customers to higher value, more profitable annual subscription information services,decrease, which should increase revenues and earnings over time, however we cannot predict with certainty whether we will be successful in shifting customers to higher value, more profitable subscriptions and, consequently, in offsetting any reduction in revenues and earnings. Therefore, our revenues and earnings may ultimately decline as a result of the LoopNet conversion to a pure marketing site. In addition, if we incur significant costs in developing new or upgraded services or combining and coordinating existing services, if we are not successful in marketing and selling these new services or upgrades, or if our customers fail to accept these new or combined and coordinating services, then there could behave a material adverse effect on our results of operations.

We may not be able to compete successfully against existing or future competitors in attracting advertisers, which could harm our business, results of operations and financial condition. We compete to attract advertisers. Our competitors may have greater brand recognition or more direct sales personnel than we have and may generate more web traffic than we do, which may provide them with competitive advantages. To compete successfully for advertisers, we must continue to invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricing and margins, lower our revenue and increase our research and development and marketing expenses. If we are unable to compete successfully against our existing or future competitors, our business, results of operations or financial condition could be adversely affected.

Competition could render our services uncompetitive and reduce our profitability. The markets for information systems and services and for online marketplaces in general are highly competitive and rapidly changing. Competition in these markets may increase further if economic conditions or other circumstances cause customer bases and customer spending to decrease and service providers to compete for fewer customer resources. Our existing or future competitors may have greater name recognition, larger customer bases, better technology or data, lower prices, easier access to data, greater user traffic or greater financial, technical or marketing resources than we have to provide services that users might view as superior to our offerings. Competitors may introduce different solutions that attract users away from our services or provide solutions similar to ours that have the advantage of better branding or marketing resources. Our competitors may be able to undertake more effective
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marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscribers, advertisers, distribution partners and content providers or may be able to respond more quickly to new or emerging technologies or changes in user requirements. Increased competition could result in lower revenues and higher expenses, which would reduce our profitability.

Our operating results and revenues are subject to fluctuations and our quarterly financial results may be subject to market cyclicality, each of which could negatively affect our stock price. The real estate market may be influenced by general economic conditions, economic cycles, changes in interest rates, seasonality and many other factors, which in turn may impact our financial results. The different sectors of the large and fragmented industry, such as office, industrial, retail, multifamily, single family and others, are influenced differently by different factors, and have historically moved through economic cycles with different timing. As such, it is difficult to estimate the potential impact of economic cycles and conditions or seasonality from year-to-year on our overall operating results. We generally see higher sales of Apartments.com listing services during the peak summer rental season and higher CoStar sales towards the end of the year; however, sales fluctuate from year-to-year and may fluctuate more widely when there are changes in general economic conditions or the industry, such as changes resulting from the COVID-19 pandemic and due to a decreaseother macroeconomic factors. In addition, we generally incur greater marketing expenses during the second quarter, which coincides with the peak season for apartment rentals. The timing of widely observed holidays and vacation periods, particularly slowdowns during the end-of-year holiday period, and availability of real estate agents and related service providers during these periods, could significantly affect our quarterly operating results during that period. If we are unable to adequately respond to economic, seasonal or cyclical conditions, our revenues, expenses and operating results may fluctuate from quarter to quarter. Our operating results, revenues and expenses may fluctuate for many reasons, including those described in this paragraph and below:

Rates of subscriber adoption and retention;
Timing of our annual sales conference or significant marketing events;
Changes in our pricing strategy and timing of changes;
The timing and success of new service introductions and enhancements;
The shift of focus from certain services we offer or the phase out of services that overlap or are redundant with other services we offer;
The amount and timing of our expenses and capital expenditures;
The amount and timing of non-cash stock-based charges;
Acquisition-related costs or impairment charges associated with investments and acquisitions;
Competition;
Changes or consolidation in the real estate industry;
Interest rate fluctuations;
Execution of our expansion and integration plans;
The development of our sales force;
Foreign currency exchange rate fluctuations;
Inflation; and
Changes in client budgets.

These fluctuations could negatively affect our results of operations during the period in question and/or future periods or cause our stock price to decline. In addition, changes in accounting policies or practices may affect our level of net income. Fluctuations in our financial results, revenues and a reductionexpenses may cause the market price of our profitability.common stock to decline.




AGlobal economic uncertainties and downturns or a downturn or consolidation in the commercial real estate industry may decrease customer demand for our services. and adversely affect our business and results of operations. Global economic uncertainties or downturns could adversely affect our business and results of operations, including financial and credit market fluctuations, changes in economic policy, increased inflation and responsive actions, rising interest rates, labor shortages, supply chain disruptions, trade uncertainty, political unrest, geographical instability or other impacts from the macroeconomic environment. These macroeconomic conditions could cause a decrease in customer spending and negatively affect the rate of growth of our business. The commercial real estate market may be adversely impacted by many different factors, including lower than expected job growth or job losses resulting in reduced real estate demand; reduced real estate demand due to continued remote work policies; rising interest rates and slowing transaction volumes due to the impact of the COVID-19 pandemic or other macroeconomic events that negatively impact investment returns; excessive speculative new construction in localized markets resulting in increased vacancy rates and diminished rent growth; and unanticipated disastersdisasters; and other adverse events such as slowing of thedecreased growth in the working age population resulting in reduced demand for all types of real estate. In response to concerns over inflation, the U.S. Federal Reserve raised interest rates in each quarter of 2022 and the first quarter of 2023, and has signaled that it expects additional interest rate increases, which could negatively impact the real estate market. A reversal of improvementsdownturn in the commercial real estate industry’smarket, including as a result of increased interest rates or a decline in leasing activity and absorption rates or a renewed downturn in the commercial real estate market may affect our ability to generate revenues and may lead to more cancellations by our current or future customers, either of which could cause our revenues or our revenue growth rate to decline and reduce our profitability. A depressed commercial real estate market has a negative
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impact on our core customer base, which could decrease demand for our information, analytics and online marketplaces. Also, companies in this industry may consolidate, often in order to reduce expenses. Consolidation, or other cost-cutting measures by our customers, may lead to cancellations of our information, analytics and online marketplace services by our customers, reduce the number of our existing clients, reduce the size of our target market or increase our clients’ bargaining power, all of which could cause our revenues to decline and reduce our profitability. If cancellations, reductions of services and failures to pay increase, and we are unable to offset the resulting decrease in revenues by increasing sales to new or existing customers, our revenues may decline or grow at lower rates.


Negative general economic conditions could increase our expenses and reduce our revenues. Our business and the commercial real estate industry are particularly affected by negative trends in the general economy. The success of our business depends on a number of factors relating to general global, national, regional and local economic conditions, including perceived and actual economic conditions, recessions, inflation, deflation, exchange rates, interest rates, taxation policies, availability of credit, employment levels, and wage and salary levels. Negative general economic conditions could adversely affect our business by reducing our revenues and profitability. If we experience greater cancellations or reductions of services and failures to timely pay, and we do not acquire new clients or sell new services to our existing clients, our revenues may decline and our financial position would be adversely affected.  Adverse national and global economic events, as well as any significant terrorist attack, are likely to have a dampening effect on the economy in general, which could negatively affect our financial performance and our stock price. Further actions or inactions of the U.S. or other major national governments may also impact economic conditions, which could result in financial market disruptions or an economic downtown. Market disruptions may also contribute to extreme price and volume fluctuations in the stock market that may affect our stock price for reasons unrelated to our operating performance. In addition, a significant increase in inflation could increase our expenses more rapidly than expected, the effect of which may not be offset by corresponding increases in revenue. Conversely, deflation resulting in a decline of prices could reduce our revenues. In the current economic environment, it is difficult to predict whether we will experience significant inflation or deflation in the near future. A significant increase in either could have an adverse effect on our results of operations.

If we are unable to hire qualified persons for, or retain and continue to develop, our sales force, or if our sales force is unproductive, our revenues could be adversely affected. In order to support revenues and future revenue growth, we need to continue to develop, train and retain our sales force. Our ability to build and develop a strong sales force may be affected by a number of factors, including: our ability to attract, integrate and motivate sales personnel; our ability to effectively train our sales force; the ability of our sales force to sell an increased number and different types of services; our ability to manage effectively an outbound telesales group; the length of time it takes new sales personnel to become productive; the competition we face from other companies in hiring and retaining sales personnel; our ability to effectively structure our sales force; and our ability to effectively manage a multi-location sales organization, including field sales personnel. If we are unable to hire qualified sales personnel and develop and retain the members of our sales force, including sales force management, or if our sales force is unproductive, our revenues or growth rate could decline and our expenses could increase. We may face additional challenges in hiring employees in an increasingly competitive job market.


WeOur business depends on retaining and attracting highly capable management and operating personnel. Our success depends in large part on our ability to retain and attract management and operating personnel, including our President and Chief Executive Officer, Andrew Florance, and our other officers and key employees. Our business requires highly skilled technical, sales, management, web product and development, marketing and research personnel, who are in high demand and are often subject to competing offers. The measures we use to attract and retain key personnel may not be ableenough to compete successfully against existingattract and retain the personnel we need or future competitors in attracting advertisers, which could harmto offset the impact on our business results of operationsthe loss of the services of Mr. Florance or other key officers or employees.

Our internal and financial condition. We compete to attract advertisers. Our competition for advertisersexternal investments may have significant brand recognition as well as greater numbers of direct sales personnel thanplace downward pressure on our operating margins. To increase our revenue growth, we have and may generate more web traffic than we do, which may provide a competitive advantage. To compete successfully for advertisers against future and existing competitors, we must continue to invest resources in developing our advertising platformbusiness, including internal investments in product and provingcontent development to expand the effectivenessbreadth and relevancedepth of services we provide to our advertising services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricingcustomers and margins, lower our revenue, and increase our research and developmentexternal investments in sales and marketing expenses.to generate brand awareness. Our operating margins may experience downward pressure in the short term as a result of these investments. Furthermore, our investments may not produce the expected results. If we are unable to compete successfully againstexecute our existinginvestment strategy, we may experience decreases in our revenues or future competitors, our business, results of operations or financial condition could be adversely affected.revenue growth rate and operating margins.




We may be unable to increase awareness of our brands, including CoStar, LoopNet, Apartments.com, BizBuySell, Land.com, STR, Ten-X, Homes.com and LandsofAmerica,Homesnap, which could adversely affect our business. We rely heavily on our brands, which we believe are key assets of our company. Awareness and differentiation of our brands are important for attracting and expanding the number of users of, and subscribers to, our online marketplaces, such as LoopNet, the Apartments.com network of rental websites, our Homes.com and Homesnap residential marketplaces, CoStar Showcase and the Land.com network of rural lands for sale.Network. We expect to continue to invest significantly in sales and marketing including sales and marketing for our other brands as we seek to grow the numbers of users of, subscribers to and advertisers on, our marketplaces. Our methods of advertising may not be successful in increasing brand awareness or, ultimately, be cost-effective. If we are unable to maintain or enhance user and advertiser awareness of our brands, or if we are unable to recover our marketing and advertising costs through increased usage of our services and increased advertising on the Apartments.com network of rentalour websites, our business, results of operations and financial condition could be adversely affected.


We rely on InternetIf internet search engines to drive traffic to our websites. If search results do not prominently feature our websites prominently,on the search engine results page, traffic to our websites would decrease and, if we are unable to maintain or increase traffic to our marketplaces, our business and operating results could be adversely affected. affected. Our ability to generate revenues from our marketplace business depends, in part, on our ability to attract users to our websites. Google, Bing, Yahoo!DuckDuckGo and other Internetinternet search websitesengines drive traffic to our websites, including CoStar.com, the Apartments.com network of rental websites, the LoopNet.com network of commercial real estate websites, Ten-X.com, our Homes.com and Homesnap residential marketplaces, the BizBuySell.com network of business for-sale websites and LandsofAmerica.com.the Land.com Network. For example, when a user typesenters in a search query for an apartment building name or address into an Internetinternet search engine, organicthe internet search engine’s ranking of our Apartments.com webpages will determine how prominently such webpages are displayed inon the search results. However, ourengine results page. Our ability to maintain high organicprominent search result rankings and positioning is not entirely within our control. Our competitors’ search engine optimization, or SEO and SEM efforts may result in webpages from their websites receiving a higher search result page rankingrankings than the rankingswebpages from our websites receive, orwebsites. Internet search engines could revise their algorithms and methodologies in a wayways that would adversely affect our search result rankings.Internet search engine providers could form partnerships or enter into other business relationships with our competitors resulting in competitors’sites
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receiving higher search result rankings. Internet search engines are increasingly placing alternative search features (such as featured snippets, local map results and other immersive experiences) on the search engine results page above or more prominently than search engine results. If our search result rankings each ofare not prominently displayed, traffic to our websites may decline which could slow the growth of our user base. Further, search engine providers could align with our competitors, which could adversely affect traffic to our websites. Our websites haveexperienced fluctuations in search result rankings in the past and we anticipate similar fluctuations will occur in the future. If we experience a material reduction in the number of users directed to our websites through Internetinternet search engines our business, results of operations and financial condition could be adversely affected.

If we are unable to maintain or increase traffic to our marketplaces, our business and operating results could be adversely affected. Our ability to generate revenues from our marketplace businesses depends, in part, on our ability to attract users to our websites. If weotherwise fail to maintain or increase traffic to our marketplaces, our ability to acquire additional subscribers or advertisers and deliver leads to and retain existing subscribers and advertisers could be adversely affected. As a result, our business, results of operations and financial condition could be adversely affected. Our marketing expenses may increase in connection with our efforts to maintain or increase traffic to our websites. Our efforts to maintain or generate additional traffic to our marketplaces may not be successful. Even if we are able to attract additional users, increasesIncreases in our operating expenses could negatively impact our operating results if we are unable to generate more revenues through increased sales of subscriptions to our marketplace products. We face competition to attract users to our marketplace websites. Our existing and potential competitors include companies that could devote greater technical and other resources than we have available to provide services that users might view as superior to our offerings. Any of our future or existing competitors may introduce different solutions that attract users away from our services or provide solutions similar to our own that have the advantage of better branding or marketing resources. If we are unable to increase traffic to our marketplaces, or if we are unable to generate enough additional revenues to offset increases in expenses related to increasing traffic to our marketplaces, our business and operating results could be adversely affected.


If real estate professionals or other advertisers reduce or cancel their advertising spending with us and we are unable to attract new advertisers, our operating results would be harmed. Our marketplace businesses, including LoopNet, the Apartments.com network of rental websites, CoStar Showcase,our residential brands including Homes.com and Homesnap and the Land.com network of rural lands for sale,Network, depend on advertising revenues generated primarily through sales to persons in the real estate industry, including property managers and owners and other advertisers. Our ability to attract and retain advertisers, and ultimately to generate advertising revenue, depends on a number of factors, including:


increasingIncreasing the number of unique visitors to, and users of, our websites and mobile applications;
theThe quantity and quality of the leads that we provide to our advertisers;
theThe success of any marketing and product development efforts directed at attracting additional users and advertisers to our marketplaces;
keepingKeeping pace with changes in technology and with our competitors; and
offeringOffering an attractive return on investment to our advertisers for their advertising dollars spent with us.


Further, with respect to the Apartments.com network of rental websites, our ability to attract and retain advertisers also depends on the current apartment rental market and apartment vacancy rates. If vacancy rates are too high or too low, advertisers may not need to utilize our marketplace services.




Many of the advertisers who advertise on our marketplaces do not have long-term contracts. These advertisers could choose to modify or discontinue their relationships with us with little or no advance notice. In addition, asAs existing subscriptions for advertising expire, we may not be successful in renewing these subscriptions or securing new subscriptions. We may not succeed in retaining existing advertisers’ spending or capturing a greater share of such spending if we are unable to convince advertisers of the effectiveness of our services as compared to alternatives. In addition, future changes to our pricing methodology for advertising services may cause advertisers to reduce or discontinue their advertising with us. If current advertisers reduce or end their advertising spending with us and we are unable to attract new advertisers, our advertising revenues and business, results of operations and financial condition could be adversely affected.


If we do not invest in product development and provide services that are attractive to our users and to our advertisers, our business could be adversely affected. Our success depends on our continued improvements to provide services that make our marketplaces useful for users, and attractive to our advertisers. As a result, we must continually invest resources in research and development to improve the appeal and comprehensiveness of our services and effectively incorporate new technologies. If we are unable to provide services that users want to use, then users may become dissatisfied and use competitors’ websites. If we are unable to continue offering innovative services, we may be unable to attract additional users and advertisers or retain our current users and advertisers, which could harm our business, results of operations and financial condition.

If we are not able to successfully identify, finance, integrate and/or integratemanage costs related to acquisitions, our business operations and financial position could be adversely affected. affected. We have expanded our markets and services in part through acquisitions of complementary businesses, services, databases and technologies, and expect to continue to do so in the future. Our acquisition strategy to acquire complementary companies or assets depends on our ability to identify, and the availability of, suitable acquisition candidates. We mayare likely to incur costs in the preliminary stages of an acquisition,connection with proposed acquisitions, but may ultimately be unable or unwilling to consummate theany particular proposed transaction for various reasons. For example, in 2021, the FTC withheld approval for our proposed acquisition of RentPath, the purchase agreement was subsequently terminated and we incurred a termination fee of $52 million. We are also likely to incur severance costs and other integration costs post-acquisition. Costs in connection with acquisitions and integrations may be higher than expected and could adversely affect our financial condition, results of operation or prospects of the combined business. In addition, acquisitions involve numerous risks, including the abilityrisks that we will not be able to realize or capitalize on synergies created through combinations; managingmanage the integration of personnel and products or services; managingmanage the integration of acquired infrastructure and controls; control potential increases in operating costs; managingmanage geographically remote operations; the diversion ofmaintain management’s attention fromon other business concerns and avoid potential disruptions in ongoing operations during integration; the inherent risks in enteringan acquisition process or integration efforts; successfully enter markets and sectors in which we have either limited or no direct experience;experience, including foreign markets whose practices, regulations or laws may pose increased risk; and the potential loss ofretain key employees, clients or vendors and other business partners of the acquired companies. We may not successfully integrate acquired businesses or assets and may not achieve anticipated benefits of an acquisition, including expected synergies. For example, we may be unable to fully integrate Homesnap, Homes.com, BureauxLocaux and Business Immo with CoStar Group when and as expected.
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We were previously subject to a consent order agreed to among the FTC staff, CoStar Group and LoopNet on April 17, 2012 in connection with the LoopNet merger. This consent order expired in August 2022, but if we become subject to similar orders in the future, compliance with such orders could prevent us from closing certain acquisitions or add significant time and cost to such acquisitions, ultimately making an acquisition prohibitive or preventing us from realizing its anticipated benefits.

External factors, such as compliance with laws and regulations and shifting market preferences, may also impact the successful integration of an acquired business. An acquired business could strain our system of internal controls and diminish its effectiveness. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt one-time write-offs of goodwill and substantial amortization expenses of other intangible assets. We may be unable to obtain financing on favorable terms, or at all, if necessary to finance future acquisitions, making it impossible or more costly to acquire complementary businesses.complete future acquisitions. If we are able to obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be time consumingtime-consuming and costly to obtain or may be denied, and ifas in the case of RentPath. If regulatory approval is obtained, the terms of any such regulatory approvalsapproval may impose limitations on our ongoing operations or require us to divest assets or lines of business. If regulatory approval is denied, we may incur significant, additional costs payable to an acquisition target as a result of failure to close the transaction. For example, we incurred a termination fee of $52 million in connection with termination of the RentPath purchase agreement. Significant break-up fees incurred in the future may adversely affect our results of operation and financial condition.


Market volatilityAs a result of our acquisitions, we had approximately $2.6 billion of goodwill and intangibles as of December 31, 2022. Future acquisitions may increase this amount. If we are required to recognize goodwill and intangibles impairment charges in the future, this would negatively affect our financial results in the periods of such charges, which may reduce our profitability.

Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business and financial condition. As stated above, our business relies on IT Systems and involves the generation, collection, storage, processing and transmission of Confidential Information, including personal information and proprietary business information. We own and manage IT Systems but also rely on third-party managed IT Systems and a broad array of third-party products and services to support our business operations. An increasing number of organizations, including large merchants, businesses, technology companies and financial institutions, as well as government institutions, have disclosed security incidents, disruptions to, and breaches of their or third-party providers’ IT Systems, some of which have involved sophisticated and highly targeted attacks, including on websites, mobile applications and infrastructure.

We have expended resources to implement and maintain security measures designed to protect IT Systems and Confidential Information, including engaging a third-party vendor to conduct an annual audit of our information security systems in accordance with NIST CSF benchmarks. Despite these measures and similar measures implemented by many third-party providers, our IT Systems, or those of third parties on which we rely, may be disrupted or damaged and our Confidential Information may be compromised, corrupted, lost or stolen. The techniques used to obtain unauthorized, improper or illegal access to a target’s systems, data or customers’ data, disable or degrade services, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly and often are not recognized or detected until after they have been launched against a target. We expect that unauthorized parties will continue to attempt to gain access to or disrupt our IT systems or facilities through various means, including hacking into IT Systems or facilities or those of our customers or vendors, or attempting to fraudulently induce (for example, through spear phishing attacks or social engineering) our employees, customers, vendors or other users of IT Systems into disclosing user names, passwords, or other sensitive information, which may in turn be used to access our IT Systems.

Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, phishing and social engineering schemes, could compromise the confidentiality, availability and integrity of the data such as Confidential Information and our IT systems. Our efforts to prevent, detect and respond to data security incidents, may not be effective due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. Further, the security measures and procedures our customers, vendors and other users of our systems have in place to protect IT Systems and Confidential Information may not be successful or sufficient to counter all data breaches, cyberattacks or system failures. In addition, the COVID-19 pandemic has increased cybersecurity risk as a result of global remote working dynamics that may continue into the future and present additional opportunities for threat actors to engage in social engineering (for example, phishing) and to exploit vulnerabilities in non-corporate networks.

Our IT Systems may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our, our customers’ or our employees’ Confidential Information, including personal or proprietary information, that is stored on or accessible through those systems. We have experienced and expect to continue to experience in the future, cyberattacks as well as breaches of our security measures due to human error, malfeasance, system errors or vulnerabilities or other irregularities. In the past three years, we have not experienced a materially disruptive information security breach, but any actual or perceived
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breaches of our security could result in any or all of the following, among other things, any of which could adversely affect our business and results of operations:

Interrupt our operations;
Result in our systems or services being unavailable;
Result in improper disclosures of data;
Result in improper payments;
Materially harm our reputation and brands;
Result in significant regulatory scrutiny and legal and financial exposure;
Cause us to incur significant remediation and compliance costs;
Lead to loss of customer confidence in, or decreased use of, our products and services;
Divert the attention of management from the operation of our business; and
Result in significant contractual penalties or other payments as a result of third-party losses or claims.

In addition, any cyberattacks or data security breaches affecting companies that we acquire or our customers or vendors (including data center and cloud computing providers) could have similar negative effects on our business. For example, in December 2020, we became aware that one of our vendors providing IT infrastructure management software, SolarWinds Corporation, had been compromised by cyberattacks. As of December 22, 2020, we had implemented the fully patched versions of the SolarWinds software and we took additional measures to block internet connectivity to and from all SolarWinds’ Orion servers. Although we have not identified any compromise of our IT Systems due to the use of SolarWinds software to date, we continue to monitor our network for any potential impact related to the SolarWinds cyberattack. Similarly, we are regularly exposed to vulnerabilities in widely deployed third-party software that we use in the ordinary course of business, such as the recently identified Log4J vulnerability. While this vulnerability did not have a material adverse effect on our stock price. The trading priceoperations, it and similar incidents require us to devote time and resources to remediation on a regular basis. Further, we may not be able to recover any or all damages suffered as a result of such security breach or other security incident from such third-party providers. Notwithstanding our efforts, there can be no assurance that vulnerabilities in widely deployed software will not materially harm our business. Any breach of our common stock has fluctuated widely insecurity measures or the past, and we expect that it will continue to fluctuate in the future. The price could fluctuate widely based on numerous factors, including: economic factorsloss, inadvertent disclosure or conditions; quarter-to-quarter variations in our operating results; changes in analysts’ estimatesunapproved dissemination of our earnings; announcements byConfidential Information about us or our competitorscustomers, including the potential loss or disclosure of technological innovations, newsuch information or data, could result in litigation, regulatory enforcement and potential liability for us, damage our brand and reputation or otherwise materially harm our business, financial condition or competitive position.

The coverage under our insurance policies for cybersecurity and related issues may not be adequate to reimburse us for losses caused by cyberattacks or other security incidents.

Technical problems or disruptions that affect either our customers’ ability to access our services, or other significant or strategic information; general conditions in the commercial real estate industry; general conditions of local, national or global economies; developments or disputes concerning copyrights or proprietary rights or other legal proceedings;software, internal applications, database and regulatory developments. In addition, the stock market in general,network systems underlying our services, could damage our reputation and the shares of Internet-related and other technology companies in particular, have historically experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelatedlead to the operating performance of the specific companies and may have the same effect on the market price of our common stock.

If we are not able to obtain and maintain accurate, comprehensive or reliable data, we could experience reduced demand for our information, analytics and online marketplace services,. lower revenues and increased costs. Our success dependsbusiness, brands and reputation depend upon the satisfactory performance, reliability and availability of our websites, the internet and our service providers. Interruptions in these systems, whether due to system failures, computer viruses, software errors, physical or electronic break-ins, or malicious hacks or attacks on our clients’ confidencesystems (such as denial of service attacks or use of malware such as ransomware) could affect the security and availability of our services on our mobile applications and our websites and prevent or inhibit users’ access to our services. Our operations also depend on our ability to protect our databases, computers and software, telecommunications equipment and facilities against damage from potential dangers such as fire, flood, power loss, security breaches, computer viruses, telecommunications failures, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events.

In addition, the software, internal applications and systems underlying our services are complex and may not be error-free. We may encounter technical problems when we attempt to enhance our software, internal applications and systems. Our users rely on our services for the conduct of their own businesses. Disruptions in, the comprehensiveness, accuracy and reliability of the data and analysis we provide. The task of establishing and maintaining accurate and reliable data and analysis is challenging. Iftechnical problems with, or reductions in ability to access our data, including the data we obtain from third partiesservices for any reason could damage our users’ businesses, harm our reputation, result in additional costs or directly from brokers through the Listing Manager feature on CoStar, or analysis is not current, accurate, comprehensive or reliable, we could experience reducedreduce demand for our information, analytics and online marketplace services, or legal claims by our customers,any of which could result in lower revenues and higher expenses.





Competition could render our services uncompetitive. The markets for information systems and services and for online marketplaces in general is highly competitive and rapidly changing. Competition in these markets may increase further if economic conditions or other circumstances cause customer bases and customer spending to decrease and service providers to compete for fewer customer resources. Our existing competitors, or future competitors, may have greater name recognition, larger customer bases, better technology or data, lower prices, easier access to data, greater user traffic or greater financial, technical or marketing resources than we have. Our competitors may be able to undertake more effective marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscribers, advertisers, distribution partners and content providers or may be able to respond more quickly to new or emerging technologies or changes in user requirements. If we are unable to retain customers or obtain new customers, our revenues could decline. Increased competition could result in lower revenues and higher expenses, which would reduce our profitability.

Our focus on internal and external investments may place downward pressure on our operating margins. Over the past few years, we have increased the rate of investments in our business, including internal investments in product development to expand the breadth and depth of services we provide to our customers and investments in sales and marketing to generate brand awareness. Our investment strategy is intended to increase our revenue growth in the future. Our operating margins may experience downward pressure in the short term as a result of investments. Furthermore, our investments may not have their intended effect. In addition, our external investments may lose value and we may incur impairment charges with respect to such investments. Such impairment charges may negatively impact our profitability. If we are unable to successfully execute our investment strategy or if we fail to adequately anticipate and address potential problems, we may experience decreases in our revenues and operating margins.

If we are unable to enforce or defend our ownership and use of intellectual property, our business, brands, competitive position and operating results could be harmed. The success of our business depends in large part on our intellectual property, including intellectual property involved in our methodologies, database, services and software. We rely on a combination of trademark, trade secret, patent, copyright and other laws, nondisclosure and noncompetition provisions, license agreements and other contractual provisions and technical measures to protect our intellectual property rights. However, current law may not provide for adequate protection of our databases and the actual data. In addition, legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and evolving, and changes in these standards may adversely impact the viability or value of our proprietary rights. If we are not successful in protecting our intellectual property, including our content, our brands andharm our business, results of operations and financial conditioncondition.

The majority of the communications, network and computer hardware used to operate our mobile applications and websites are located at facilities in Virginia and California. We do not own or control the operation of certain of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, security breaches, computer viruses, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, earthquakes and similar events. These risks may be increased with respect to operations housed at facilities we do not own or control. The occurrence of any of the foregoing events could result in damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur.
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A failure of our systems at any site could result in reduced functionality for our users, and a total failure of our systems could cause our mobile applications or websites to be inaccessible. Problems faced or caused by our information technology service providers, including content distribution service providers, private network providers, internet providers and third-party web-hosting providers, or with the systems by which they allocate capacity among their customers (as applicable), could adversely affect the experience of our users. Any financial difficulties, such as bankruptcy reorganization, faced by these third-party service providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party service providers are unable to keep up with our growing needs for capacity, our business could be harmed. The same would be true if a court found that our services infringe other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and money and distract management’s attention from operating our business. In addition, if we do not prevail on an intellectual property claim, thisdistribution channels for our mobile applications experience disruptions, such disruptions could result in a changeadversely affect the ability of users and potential users to access or update our methodology or information, analytics and online marketplace services and could reduce our profitability.

Effective trademark, trade secret, patent, and copyright protection may not be available in every country in which our services may be provided. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our intellectual property and our proprietary technology adequately against unauthorized third-party copying or use,mobile applications, which could harm our competitive position.business.


We seek to enforce our rights against people and entities that infringe our intellectual property, including through legal action. Taking such actionOur business interruption insurance may not cover certain events or may be costly, and we cannot ensure that such actions will be successful. Any increase ininsufficient to compensate us for the unauthorized usepotentially significant losses, including the potential harm to the future growth of our intellectual propertybusiness, which may result from interruptions in our service as a result of system failures or malicious attacks. Any errors, defects, disruptions or other performance problems with our services could make it more expensive for us to do business and harm our reputation, business, results of operations orand financial condition.


We are planning to undertake a large infrastructure project to build out our campus in Richmond, Virginia, the costs of which could impact our financial condition and results of operations. In December 2021, we announced our plans to expand our research and technology center in Richmond, Virginia. These plans will require significant capital expenditures over the next several years and our business plans may change. Future changes in growth or fluctuations in cash flow may also negatively impact our ability to finance this project. Additionally, actual capital expenditures could vary materially from our projected capital expenditures, which could negatively impact our business, operating results and financial condition. If we are provided with any grants, tax credits, abatements or other incentives related to this expansion effort and do not meet requirements associated with those incentives, we may not be able to successfully haltbenefit from those incentives, which could cause the operation of websites that aggregate our data, as well as data from other companies, such as copycat websites that may misappropriate our data. Third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies. In addition, “copycat” websites may misappropriate data on our website and attempt to imitate our brands or the functionality of our website. We may not be able to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to stop their operations. In some cases, particularly in the case of websites operating outsidecost of the U.S., our available remedies may notproject to be adequate to protect us against the misappropriation of our data. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financialsignificantly more than anticipated or other resources.



Third party claims, litigation or government investigations to which we are subject or in which we become involved may significantly increase our expensestaxes above what we currently expect. We currently plan to finance construction with cash on hand. Use of cash on hand to finance construction would reduce the amount of cash available for other corporate uses and could also reduce our ability to meet our scheduled debt service obligations or to meet the covenants required to borrow additional funds under our 2020 Credit Agreement. Any of the foregoing may adversely affect our stock price. Currentlyfinancial position and from time to time,results of operations.

Our current or future geographic expansion plans may not result in increased revenues, which may negatively impact our business, results of operations and financial position. Expanding into new markets and increasing the depth of our coverage in existing markets imposes additional burdens on our research, systems development, sales, marketing and general managerial resources. If we are a partyunable to various third party claims, lawsuits,manage our expansion efforts effectively, if our expansion efforts take longer or government investigations. Any lawsuits, threatened lawsuitsare more expensive than planned or government investigations in which we are involved, whether as plaintiffnot successful in marketing and selling our services in existing or defendant, could cost usnew markets, our expansion may have a significant amountmaterial adverse effect on our financial position by increasing our expenses without increasing our revenues.

Our business and results of time and money, could distract management’s attention away from operating our business, could result in negative publicity and could adversely affect our stock price. In addition, if any claims are determined against us or if a settlement requires us to pay a large monetary amount or take other action that materially restricts or impedes our operations our profitability couldmay be, significantly reduced and our financial positioncondition may be, impacted by the COVID-19 pandemic and its effects on the global economy, the real estate industry, and our customers,, and such impact could be adversely affected. Our insurancematerially adverse and continue for an unknown period of time. The COVID-19 pandemic has created significant economic volatility, uncertainty and disruption around the world, including in the real estate industry.

The demand for office space could decrease significantly as businesses implement hybrid or all work-from-home arrangements in response to employee desire for more flexibility, which may not be sufficientlead to cover any lossesa downturn in the commercial real estate market. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability. As a result of COVID-19 and its impact on global economic conditions, including the real estate industry, towards the end of the first quarter and in the first two months of the second quarter of 2020, we incursaw an increase in connection with litigation claims.

customer requests for cancellations or suspensions, a reduction in new customer sales, failures to pay and delays in payments of amounts owed to us. We may see additional requests as ongoing economic uncertainty causes customers to reduce expenses and prolong the decision-making time before purchasing third-party services, which may lead to fewer of our services being purchased or service cancellations. The extent and duration of any future continued weakening of the economy is unknown, and there can be subjectno assurance that any of the governmental or private sector initiatives designed to legal liability for collecting, displayingstrengthen the economy will be successful or distributing information. Becauseavailable to us and our customers and, if successful, when the contentbenefits will be seen.

COVID-19, and the disruption in our database is collectedglobal economic conditions stemming from various sources and distributed to others, we may be subject to claims for breach of contract, defamation, negligence, unfair competition or copyright or trademark infringement or claims based on other theories. Wethe pandemic, could also be subject to claims based uponprecipitate or aggravate the content that is accessible from our website through links to other websites or information on our website supplied by third parties. Werisk factors discussed herein, which could also be subject to claims that the collection or provision of certain information breached laws and regulations relating to privacy and data protection. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against any claims and we could be subject to public notice requirements that may affect our reputation in the marketplace. Our potential liability for information distributed by us to others could require us to implement measures to reduce our exposure to such liability, which may require us to expend substantial resources and limit the attractiveness of our information, analytics and online marketplaces to users.

Our actual or perceived failure to comply with privacy laws and standards couldmaterially adversely affect our business, financial condition and results of operations. We are dependent on information technology networks and systems to process, transmit and store electronic information and to communicate between our locations around the world and with our clients. We collect, use and disclose personally identifiable information, including among other things names, addresses, phone numbers and email addresses. We collect, store and use biometric data, sensitive or confidential transaction information and, in certain circumstances, credit card information. In addition, we collect personal information from tenants and landlords, including social security numbers, dates of birth, financial information, tax returns, employment information, background checks and credit scores, which is used in the apartment rental application process and for the verification of landlords. As a result, we are subject to a variety of state, national, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data, including the Fair Credit Reporting Act. Laws and regulations related to privacy and data protection are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. For example, in 2016, the EU formally adopted the General Data Protection Regulation, or GDPR, which will apply in all EU member states effective May 25, 2018 and will replace the current EU Data Protection Directive effective on that date. The GDPR introduces new data protection requirements in the EU and substantial fines for breaches of the data protection rules. The GDPR will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection rules. Any failure to comply with the rules arising from the EU Data Protection Directive, the GDPR, and related national laws of EU member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and
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results of operations. Compliance with any ofFurther, the foregoing laws and regulations can be costly and can delay or impede the development of new products. A violation of any laws or regulations relating to the collection or use of personal information could result in the imposition of fines against us.

We have undertaken efforts to conform transfers of personal data from the EEA based on current regulatory obligations, the guidance of data protection authorities and evolving best practices. We continue to review our business practices and the evolving regulations andCOVID-19 pandemic may find it necessary or desirable to make further changes to our personal data handling or engage in additional efforts to cause our transfer and receipt of EEA residents’ personal data to be legitimized under applicable law. As a result of the adoption of GDPR, we may find it necessary to establish systems to maintain EU-origin data in the European Economic Area, or EEA, which may involve substantial expense and distraction from other aspects of our business. Despite our efforts, we may be unsuccessful in establishing legitimate means of transferring certain data from the EEA, which may vary the current data protection landscape.

Our actual or alleged failure to comply with applicable privacy or data security laws, regulations and policies, or to protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, increasealso affect our operating costs, subject us to claims or other remedies and have a material adverse effect on our business, financial condition and results of operations.

Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practicesnot presently known to us or the features


of our products. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could harm our business.



We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. Our policies concerning the collection, use and disclosure of personally identifiable information are described on our websites. While we believe that our policies are appropriate and that we are in compliance with our policies, we could be subjectcurrently do not consider to legal claims, government action, harm to our reputation or experiencepresent significant remediation costs if we experience a security breach or our practices fail, or are seen as failing, to comply with our policies or with applicable laws concerning personally identifiable information.risks.


Concern of prospective customers regarding our use of the personal information collected on our websites or collected when performing our services could keep prospective customers from subscribing to our services. Industry-wide incidents or incidents with respect to our websites, including misappropriation of third-party information, security breaches or changes in industry standards, regulations or laws, could deter people from using the Internet or our websites to conduct transactions that involve the transmission of confidential information, which could harm our business.

We are subject to a number of risks related to acceptance of credit cards and debit cards forand facilitation of other customer payments. We accept payments for our services through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our cost of revenues, either of which could harm our business, financial condition or results of operations.


We depend on processing vendors to complete credit and debit card transactions. If we or our processing vendors fail to maintain adequate systems to authorize and process credit card transactions, one or more of the major credit card companies could disallow our continued use of their payment products. If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendors may increase our transaction fees or terminate their relationships with us. We could lose customers if we are not able to continue to use payment products of the major credit card companies. In addition, if the systems to authorize and process credit card transactions fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.

We depend on processing vendors to complete credit and debit card transactions and ACH payments, both for thepayments made to us directly for our services and for payments made by renters to landlords using our online leasing services. If we or any one or more of these service providers fail to maintain adequate systems for authorization and processing of credit card transactions,payments, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. We could lose customersFurther, if we are not ableor any one or more of these service providers fail to continuemaintain adequate systems for authorization and processing of credit, debit, ACH or similar payments or if any such service provider were to use payment products of the major credit card companies.terminate or modify its relationship with us unexpectedly, our ability to process those customer transactions would be adversely affected, which could decrease sales, discourage customers away from our marketplace services, result in potential legal liability, and harm our business and reputation. In addition, if the systems for the authorization and processing of credit card transactions fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.


We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted in ways that make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations and the terms of our contracts with payment processors. Any failure to comply also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss, or misuse of data pertaining to credit and debit cards, cardholders and transactions.

The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit cardpayment transactions, we may face civil liability, diminished public perception of our security measures and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.


If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendors may increase our transaction fees or terminate their relationships with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our services to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.


Climate change and other events beyond our control could harm our business. Natural disasters, disease outbreaks and pandemics, power shortages, terrorism, political unrest, telecommunications failure, vandalism, geopolitical instability, war, climate change, and other events beyond our control could negatively impact our operations or otherwise harm our business. Such events may result in damage or loss of service to our data centers or other infrastructure that our operations rely on, potentially reduce the attractiveness of real estate in areas we provide services, cause delays in product development or availability, or result in losses of critical data, any of which may adversely impact our operations.

In addition, the impacts of climate change on the global economy and our industry are rapidly evolving. Physical impacts of climate change (including, but not limited to, floods, droughts, more frequent and/or intense storms, and wildfires) may disrupt our operations, as well as the operations of our suppliers and customers. Longer-term physical impacts may also result
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in changing consumer preferences, which may adversely impact demand for certain of our products. Transition impacts of climate change may subject us to increased regulations, reporting requirements (such as the SEC’s proposed climate change disclosure rule), standards, or expectations regarding the environmental impacts of our business. Failure to disclose accurate information in a timely manner may also adversely affect our reputation, business, or financial performance.

Increased attention to ESG matters may require us to incur additional costs or otherwise adversely impact our business. Increased attention to climate change; diversity, equity, and inclusion; and other ESG issues, as well as societal expectations regarding voluntary ESG initiatives and disclosures, may result in increased costs (including, but not limited to, increased costs related to compliance, stakeholder engagement, and contracting), impact our reputation, or otherwise affect our business performance. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on ESG matters. Such ratings are used by some investors to inform their investment or voting decisions. Unfavorable ESG ratings could lead to negative investor sentiment toward us and/or our industry, which could have a negative impact on our access to and costs of capital. To the extent ESG matters negatively impact our reputation, we may also notbe able to compete as effectively to recruit or retain employees. We may take certain actions, including the establishment of ESG-related goals ortargets, to improve the ESG profile of our Company and/or offerings and/or to respond to stakeholder demand; however, such actions may be costly or be subject to numerous conditions that are outside our control, and we cannot guarantee that such actions will have the desired effect.

Moreover, while we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Such disclosures may also be at least partially reliant on third-party information that we have not independently verified or cannot be independently verified. In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters, and increased regulation will likely lead to increased compliance costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Such ESG matters may also impact our suppliers or customers, which may adversely impact our business, financial condition, or results of operations.

Risks related to our data, intellectual property and listings

If we are not able to obtain and maintain accurate, comprehensive or reliable data, we could experience reduced demand for our information, analytics and online marketplace services. Our businesssuccess depends on retainingour clients’ confidence in the comprehensiveness, accuracy and attracting highly capable managementreliability of the data and analysis we provide.

Establishing and maintaining accurate and reliable data and analysis is challenging. If our data, including the data we obtain from third parties or directly from brokers through the Marketing Center feature on CoStar and LoopNet, or analysis is not current, accurate, comprehensive or reliable, we could experience reduced demand for our services or be subject to legal claims by our customers, either of which could result in lower revenues and higher expenses.

If we are unable to enforce or defend our ownership and use of intellectual property, our business, brands, competitive position and operating personnel. Ourresults could be harmed. The success of our business depends in large part on our abilityintellectual property, including intellectual property involved in our methodologies, databases, services and software. We rely on a combination of trademark, trade secret, patent, copyright and other laws, nondisclosure and noncompetition provisions, license agreements and other contractual provisions and technical measures to retainprotect our intellectual property rights. However, current law may not provide for adequate protection of our databases and attract managementthe actual data. In addition, legal standards relating to the validity, enforceability and operating personnel,scope of protection of proprietary rights in internet-related businesses are uncertain and evolving, and changes in these standards may adversely impact the viability or value of our proprietary rights. We find our proprietary content on competitors’ sites. If we are not successful in protecting our intellectual property, including our President and Chief Executive Officer, Andrew Florance,content, our brands and our other officers and key employees. Our business, requires highly skilled technical, sales, management, web product and development, marketing and research personnel, who are in high demand and are often subject to competing offers. To retain and attract key personnel, we use various measures, including employment agreements, awards under a stock incentive plan and incentive bonuses for key employees. These measures may not be enough to retain and attract the personnel we need or to offset the impact on our business of the loss of the services of Mr. Florance or other key officers or employees. 


An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth. Goodwillfinancial condition could be harmed. The same would be true if a court found that our services infringe other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, have cost us and identifiable intangible assetscould continue to cost us a significant amount of time and money and distract management’s attention from operating our business. In addition, if we do not prevail on an intellectual property claim, this could result in a change to our methodology or information, analytics and online marketplace services and could reduce our profitability.

Effective trademark, trade secret, patent and copyright protection may not be available in every country in which we provide our services. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the U.S. and, therefore, in certain jurisdictions, we may be unable to protect our intellectual property and our proprietary technology
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adequately against unauthorized third-party copying or use, which could harm our competitive position. This risk will increase as we continue to expand our business into new international jurisdictions.

We may not be able to successfully halt the operation of websites that aggregate our data, as well as data from other companies, or "copycat" websites that may misappropriate our data. Third parties may misappropriate our data through website scraping, robots or other means and aggregate and display this data on their websites. In addition, “copycat” websites may misappropriate data on our website and attempt to imitate our brands or the functionality of our website. We may not be able to detect all such websites in a timely manner and, even if we could, technological and legal measures available to us may be insufficient to stop their operations and the misappropriation of our data. Any measures that we may take to enforce our rights could require us to expend significant financial or other resources.

We may be subject to amortization are tested annually by each reporting unitlegal liability for collecting, displaying or distributing information. Because the content in our database is collected from various sources and distributed to others, we may be subject to claims for breach of contract, defamation, negligence, unfair competition or copyright or trademark infringement or claims based on October 1other theories, such as breach of each year for impairmentlaws related to privacy and are tested for impairment more frequentlydata protection. We could also be subject to claims based upon the existencecontent that is accessible from our website through links to other websites or information on our website supplied by third parties. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against any claims, and we could be subject to public notice requirements that may affect our reputation. Our potential liability for information distributed by us to others could require us to implement measures to reduce our exposure to such liability, which may require us to expend substantial resources and limit the attractiveness of one or more indicators. We assess the impairment of long-lived assets, identifiable intangiblesour information, analytics and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relateonline marketplaces to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows of the carrying amounts of such assets. The accuracy of these judgmentsusers. These risks may be adversely affected by several factors, including the factors listed below:

Significant underperformance relativeexacerbated from impacts, or perceived impacts, of emerging technologies (including, but not limited to, historicalmachine learning) on human rights, privacy, or projected future operating results;
Significant changes in the manner of our use of acquired assets or the strategy for our overall business;
Significant negative industry or economic trends; or
Significant decline in our market capitalization relative to net book value for a sustained period.

These types of events or indicators and the resulting impairment analysis couldother social considerations, which may result in goodwill impairment charges in the future, which would reducereputational harm, compliance costs for any new rules or interpretations, or other adverse impacts on our profitability. Impairment charges could negatively affect ouroperations and financial results in the periods of such charges, which may reduce our profitability. As of December 31, 2017, we had approximately $1.3 billion of goodwill, including $1 billion in our North America operating segment and $30 million in our International operating segment.  performance.


If we are unable to obtain or retain listings from commercial real estate brokers, agents, property owners and apartment property managers, our commercial real estate ("CRE") marketplace services including but not limited to LoopNet, the Apartments.com network of rental websites, CoStar Showcase, LandandFarm.com and LandsofAmerica.com, could be less attractive to current or potential customers, which could reduce our revenues. The value of our CREreal estate marketplace services to our customers depends on our ability to increase the number of property listings provided and searches conducted. The success of our CRE marketplace services depends substantially onAs the number of property listings submitted byincreases, so does the utility of a marketplace’s search, listing and marketing services. We depend substantially on brokers, agents, property owners and, in the case of apartment rentals, property managers. This is because an increase in the number ofmanagers to submit listings increases the utility of the online service and of its associated search, listing and marketing services.to our marketplaces. If agents marketing large numbers of property listings, such as large brokers in key real estate markets,these parties choose not to continue their listings with us, or choose to list them with a competitor, our CRE marketplace services could be less attractive to other real estate industry transaction participants, resulting in reduced revenue. Similarly, the value and utility of

Risks related to our other marketplaces, including BizBuySell and BizQuest, are also dependent on attracting and retaining listings.international operations


If we are unable to convince commercial real estate professionals that our CRE marketplace services are superior to traditional methods of listing, searching and marketing commercial real estate, they could choose not to use those services, which could reduce our revenues or increase our expenses. The primary source of new customers for our CRE marketplace services is participants in the commercial real estate community. Many commercial real estate professionals are used to listing, searching and marketing real estate in traditional and off-line ways, such as by distributing print brochures, sharing written lists, placing signs on properties, word-of-mouth and newspaper advertisements. Commercial real estate and investment professionals may prefer to continue to use traditional methods or may be slow to adopt and accept our online products and services. If we are not able to persuade commercial real estate participants of the efficacy of our online products and services, they may choose not to use our CRE marketplace services, which could negatively impact our business. Similarly, if we are unable to convince the business and investment community to utilize our online business for sale marketplaces rather than traditional methods of listing and marketing businesses for sale, our revenues could be negatively affected.



If we are unable to increase our revenues or our operating costs are higher than expected, our profitability may decline and our operating results may fluctuate significantly. We may not be able to accurately forecast our revenues or future revenue growth rate. Many of our expenses, particularly personnel costs and occupancy costs, are relatively fixed. As a result, we may not be able to adjust spending quickly enough to offset any unexpected increase in expenses or revenue shortfall. We may experience higher than expected operating costs, including increased personnel costs, occupancy costs, selling and marketing costs, investments in geographic expansion, acquisition costs, communications costs, travel costs, software development costs, professional fees and other costs. If operating costs exceed our expectations and cannot be adjusted accordingly, our profitability may be reduced and our results of operations and financial position will be adversely affected. Additionally, we may not be able to sustain our revenue growth rates, and our percentage revenue growth rates may decline. Our ability to increase our revenues and operating profit will depend on increased demand for our services. Our sales are affected by, among other things, general economic and commercial real estate conditions. Reduced demand, whether due to changes in customer preference, a weakening of the U.S. or global economy, competition or other reasons, may result in decreased revenues and growth, adversely affecting our operating results.

Our current or future geographic expansion plans may not result in increased revenues, which may negatively impact our business, results of operations and financial position. Expanding into new markets and investing resources towards increasing the depth of our coverage within existing markets imposes additional burdens on our research, systems development, sales, marketing and general managerial resources. If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer than planned or if our costs for these efforts exceed our expectations, our financial position could be adversely affected. In addition, if we incur significant costs to improve data quality within existing markets, or are not successful in marketing and selling our services in these markets or in new markets, our expansion may have a material adverse effect on our financial position by increasing our expenses without increasing our revenues, adversely affecting our profitability.

International operations expose us to additional business risks, which may reduce our profitability. profitability. Our international operations and expansion subject us to additional business risks, including: currency exchange rate fluctuations; difficulty in adapting to the differing business practices and laws in foreign countries;countries, including differing laws regarding privacy and data protection; difficultiesdifficulty in managing foreign operations; limited protection for intellectual property rights in some countries; difficulty in collecting accounts receivable and longer collection periods; costs of enforcing contractual obligations; impact of recessions in economies outside the U.S.; geopolitical instability, terrorism and war, including the conflict between Ukraine and Russia; and potentially adverse tax consequences. In addition, international expansion imposes additional burdens on our executive and administrative personnel, systems development, research and sales departments and general managerial resources. If we are not able to manage our international operations successfully, we may incur higher expenses and our profitability may be reduced. Finally, the investment required for additional international expansion could exceedsometimes exceeds the profit generated from such expansion, which would reducereduces our profitability and may adversely affect our financial position.


Fluctuating foreign currenciescurrency exchange rates may negatively impact our business, results of operations and financial position. Due to our acquisitions of CoStar U.K. Limited (formerly FOCUS Information Limited), Property and Portfolio Research Ltd., Grecam S.A.S., the assets of Belbex Corporate, S.L., Thomas Daily, as well as our expansion into Canada, aA portion of our business is denominated in the British Pound, Euroforeign currencies. We translate sales and Canadian dollar. Asother results denominated in foreign currency into U.S. dollars for our financial statements. During periods of a result, fluctuations instrengthening U.S. dollar, our reported international sales and earnings could be reduced because foreign currencies may have an impact on our business, results of operations and financial position.translate into fewer U.S. dollars. Foreign currency exchange rates have fluctuated and may continue to fluctuate.

Significant foreign currency exchange rate fluctuations may negatively impact our international revenue, which in turn affects our consolidated revenue. Currencies may be affected by internal factors, general economic conditions and external developments in other countries, all of which can have an adverse impact on a country’s currency. Currently, we are not party to any hedging transactions intended to reduce our exposure to exchange rate fluctuations. We may seek to enter into hedging transactions in the future, but we may be unable to enter into these transactions successfully, on acceptable terms or at all. We cannot predict whether we will incur foreign exchange losses in the future. Further, significant foreign exchange rate fluctuations resulting in a decline in the respective local currency may
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decrease the value of our foreign assets, as well as decrease our revenues and earnings from our foreign subsidiaries, which would reduce our profitability and adversely affect our financial position.


The economic effects of “Brexit”Brexit may affect relationships with existing and future customers and could have an adverse impact on our business and operating results.On June 23, 2016, the U.KU.K. held a referendum in which British citizens approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” On March 29, 2017,January 31, 2020, the United Kingdom providedU.K. officially withdrew from the E.U., and later ratified a trade and cooperation agreement governing its official notice tofuture relationship with the European Council that it intends to leaveE.U. The agreement, which became effective May 1, 2021, addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework, including procedures for dispute resolution, among other things. Because the European Union, commencingagreement merely sets forth a period of up to two years forframework in many respects and will require complex additional bilateral negotiations between the U.K. and the other E.U. member statesas both parties continue to negotiatework on the terms of the withdrawal. Uncertainty over the terms of the U.K.’s withdrawal from the E.U. could causerules for implementation, significant political and economic uncertainty inremains about how the U.K. andprecise terms of the rest of Europe, whichrelationship between the parties will differ from the terms before withdrawal. Such uncertainty could harmhave an adverse effect on our business and financial results. In particular,results of operations. Brexit could result in significant volatility in global equity markets, currency exchange rates and other asset prices, including those related to real property. The impact to us from Brexit will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. This impact may affect not only our U.K. operations but operations in other parts of the E.U. Any transitional or permanent agreements resulting from such negotiations could potentially disrupt the markets we serve and the tax jurisdictions in which we operate.



A potential devaluation of the local currencies of our international customers relative to the U.S. dollar may impair the purchasing power of our international customers and could cause international customers to decrease or cancel orders, or terminate or fail to renew subscriptions for our services.


We translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international sales and earnings could be reduced because foreign currencies may translate into fewer U.S. dollars. Resulting asset price volatility that could follow the withdrawal of the U.K. from the E.U. may create global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their spending budgets on our products and services. In addition, Brexit couldalso lead to legal uncertainty and potentially divergent national laws and regulations as the U.K determinesU.K. continues to consider which E.U. laws to replace or replicate, and compliance with those laws and regulations may be cumbersome, difficult or costly in terms of compliance. Further, Brexit may lead other E.U. member countries to consider referendums regarding their E.U. membership. Any of these effectscostly. We cannot yet predict the full implications of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.

Changes in laws, regulations or fiscal and tax policies or the manner of their interpretation or enforcement could adversely impact our financial performance. New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, couldincluding whether it will further increase our cost of doing business. In particular, therebusiness or otherwise adversely affect our financial condition or results of operations. The ongoing impact to us from Brexit may be significant changes in U.S. laws and regulations by the current U.S. presidential administration that could affect a wide variety of industries and businesses, includingnot only our business. The current U.S. presidential administration has called for substantial change to fiscal and tax policies, and recently adopted tax reform legislation. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for additional discussion of the impact of tax reform on the business. We cannot predict the impact, if any of potential future additional changesU.K. operations but also our E.U. operations.

Risks related to our business. If the current U.S. presidential administration materially modifies U.S. lawsindebtedness

We have a significant amount of indebtedness, which could decrease our flexibility and regulations or fiscal and other tax policies,adversely affect our business, financial condition and results of operationsoperations. As of December 31, 2022, we had $1 billion of Senior Notes outstanding and an additional approximately $750 million available to be drawn under the 2020 Credit Agreement. There can be no assurance that our future cash flows will be sufficient to make payments of interest or principal on the Senior Notes or any amounts due and payable under the 2020 Credit Agreement. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be adversely affected.

In December 2017, the United States enacted The Tax Cutsforced to reduce or delay investments and Jobs Act (the "Tax Act"), and various provisionscapital expenditures or to dispose of the new law may adversely affect us. Certain aspects of Tax Reform are unclear andmaterial assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be clarified for some time. As required by Securitiesable to effect any such alternative measures on commercially reasonable terms or at all, and, Exchange Commission Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we have provided a provisional estimate on the effect of the Tax Act ineven if successful, those alternative actions may not allow us to meet our consolidated financial statements. However,scheduled debt service obligations. Furthermore, we may be required to change our provisional estimates as a result of new accounting guidance, regulatory guidance, judicial interpretationsincur substantial additional indebtedness, including secured indebtedness, and if we incur additional indebtedness or our continued analysis ofother liabilities, the application of the law, whichrelated risks that we face could materially affect our tax obligations and effective tax rate. In addition, if federal, state or foreign tax authorities change applicable tax laws or issue new guidance, our overall taxes could increase, and our business, financial condition or results of operations may be adversely impacted.intensify.


Our indebtedness could adversely affect us, including by decreasing our business flexibility and increasing our costs. On October 19, 2017, we entered into an amended and restated credit agreement (the ‘‘2017 Credit Agreement’’), which amended and restated in its entirety the existing credit agreement dated April 1, 2014 (the "2014 Credit Agreement"), by and among CoStar, as borrower, CoStar Realty Information, Inc., as co-borrower, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The 2017 Credit Agreement provides for a $750 million revolving credit facility with a term of five years from a syndicate of financial institutions as lenders and issuing banks. The 20172020 Credit Agreement contains customary restrictive covenants imposing operating and financial restrictions on us, including restrictions that may limit our ability to engage in acts that we believe may be in our long-term best interests. These covenants restrict our ability and the ability of our domestic subsidiaries to, among other things, (i) incur additional indebtedness, (ii) create, incur assume or permit to exist any liens, (iii) enter into mergers, consolidationspay dividends or similar transactions, (iv) make investments and acquisitions, (v) make certain dispositionsother restricted payments, investments or acquisitions, (iv) merge or consolidate with another person, and (v) sell, assign, lease or otherwise dispose of assets, (vi) make dividends, distributionsall or substantially all of our assets. In addition, the 2020 Credit Agreement requires us to comply with a maintenance covenant that we will not exceed a total net leverage ratio, calculated as total consolidated debt, net of up to $1.0 billion of unrestricted cash and prepaymentscash equivalents, to consolidated EBITDA, of certain indebtedness, and (vii) enter into certain transactions with affiliates.

4.50 to 1.00. The operating restrictions and financial covenants in the 20172020 Credit Agreement and any future financing agreements may limit our ability to finance future operations or capital needs, to engage in other business activities or to respond to changes in market conditions. Our ability to comply with any financial covenants could be affected materially by events beyond our control, and we may be unable to satisfy any such requirements. If we fail to comply with these covenants, we may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce our expenditures. We may be unable to obtain such waivers, amendments or alternative or additional financing on a timely basis or at all, or on favorable terms.


We are required to make periodic principal and interest payments pursuant to the termsA breach of the 2017covenants under the 2020 Credit Agreement. IfAgreement or the indenture that governs the Senior Notes could result in an event of default occurs,under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration provision applies. In the event the holders of the Senior Notes or our other debt accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Our borrowings under the 2020 Credit Agreement will carry a variable interest rate based on overdue amountsthe EURIBOR or the LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. The U.K. authority that regulates LIBOR announced that it will increasenot compel banks to submit rates for the calculation of LIBOR after June 2023. The full impact of any transition away from LIBOR remains unclear. The 2020 Credit Agreement allows us and the lendersadministrative agent under the 20172020 Credit Agreement may declare all outstanding borrowings, togetherto amend the 2020 Credit Agreement to replace LIBOR with accrued interest and other fees, to be immediately due and payable and may exercise remedies in respect of the collateral.one or more SOFR-based rates or another alternative benchmark rate. We may not be able to repay all amounts due
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agree with the administrative agent on a replacement reference rate that is as favorable as LIBOR, which may increase the cost of our borrowings under the 20172020 Credit Agreement in the event these amounts are declared due upon an event of default.Agreement.


Negative conditions in the global credit markets may affect the liquidity ofOur indebtedness increases our vulnerability to general adverse economic and industry conditions; requires us to dedicate a portion of our long-term investments.  Currently,cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund capital expenditures, marketing and other general corporate activities; limits our long-term investments include mostly AAA-rated auction rate securities (“ARS”), which are primarily student loan securities supported by guarantees fromability to borrow additional funds; and may limit our flexibility in planning for, or reacting to, changes in our business and the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education. Continuing negative conditions in the global credit markets have prevented some investors from liquidating their holdings of


auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. As of December 31, 2017, we held $11 million par value of ARS, all of which failed to settle at auctions. When an auction fails for ARSindustries in which we have invested, weoperate.

A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may be unable to liquidate some or all of these securities at par. In the event we need or desire to immediately access these funds, we will not be able to do so until aincrease our future auction on these investments is successful, a buyer is found outside the auction process or an alternative action is determined. If a buyer is found but is unwilling to purchase the investments at par, we may incur a loss, which wouldborrowing costs, reduce our profitabilityaccess to capital or result in the loss of certain covenant suspensions. Our debt rating could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.

In addition, during a Covenant Suspension Period, certain customary negative and affirmative covenants contained in the 2020 Credit Agreement are suspended, including the covenants restricting affiliate transactions, incurrence of indebtedness, investments, asset sales and restricted payments. A lowering of one or both of our investment grade ratings would result in increased compliance costs and would impose certain operating restrictions, either of which could be materially adverse to our operations and financial results.

Risks related to regulatory compliance and legal matters

Our actual or perceived failure to comply with privacy laws and standards could adversely affect our business, financial position.condition and results of operations. We depend on IT Systems. We own and manage some IT Systems but also rely on third-party service providers and vendors for a range of products and services, including cloud products/services, that are critical to internal and/or external customer-facing operations. In the course of our business, we and certain of our third-party providers collect, use, transmit and disclose Confidential Information.



Our ARS investmentsAs a result, we are subject to a variety of state, national and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal information, including, but not currently actively tradinglimited to, the GDPR and therefore do not currently have a readily determinable market value. The estimated fair valueCCPA. These laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. For example, the GDPR introduced new data protection requirements in the EU and imposes substantial fines for breaches of the ARS no longer approximates par value. Wedata protection rules. The GDPR increased our responsibility and liability in relation to personal data that we process. The CCPA expands the rights of California residents to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Many states have usedadopted, or are considering enacting, similar laws. For example, the CPRA went into effect in January 2023 (with a discounted cash flow modellookback period until January 2022). The CPRA builds on the CCPA and imposes additional obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses and disclosure of sensitive personal information. The CPRA also created a new California data protection agency authorized to determineissue substantive regulations and could result in increased privacy, cybersecurity, and data protection enforcement. Similar laws are in motion in other states across the estimated fair valueU S. For example, in 2021, Virginia enacted the VCDPA, which went into effect in January 2023, and Colorado enacted the CPA,which will go into effect in July 2023, both of our investmentwhich laws are comprehensive statutes that share similarities with the CCPA and CPRA. Recently, Utah enacted the UCPA, which goes into effect in ARS as of December 31, 2017. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit spreads, timing2023. Similar laws have been proposed, and amount of cash flows, liquidity risk premiums, expected holding periods and default risk of the ARS. We update the discounted cash flow model on a quarterly basis to reflect any changes in the assumptions used in the model and settlements of ARS investments that occurred during the period. Based on this assessment of fair value, as of December 31, 2017, we determined there was a decline in the fair value of our ARS investments of approximately $730,000. The decline was deemedlikely will continue to be proposed, in other states and at the federal level, and if passed, may have potentially conflicting requirements that would make compliance challenging.

In addition to risks we face under privacy laws, we are subject to evolving consumer protection and marketing laws and increased litigation and government enforcement by the Federal Trade Commission and state Attorneys General. These agencies are aggressively interpreting and enforcing federal and state consumer protection laws in relation to very broad sales and marketing and advertising contexts. There are also federal laws covering our activities that are a temporary impairmentsource of potential liability for our business, including the CAN-SPAM Act, the TCPA, and was recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. If the issuers of these ARS are unableFCRA. In particular, any claims that we have violated the TCPA could be costly to successfully close future auctions and/litigate and could expose us to substantial statutory damages or their credit ratings deteriorate, we may be requiredsettlement costs.

Any failure or alleged failure to record additional unrealized losses in accumulated other comprehensive losscomply with privacy, data protection or an other-than-temporary impairment chargeconsumer protection laws could lead to earnings on these investments, which would reduce our profitabilitygovernment enforcement actions and litigation and significant penalties against us, and could materially adversely affect our reputation, business, financial position.

We have not made any material changes in the accounting methodology used to determine the fair value of the ARS. We do not expect any material changes in the near term to the underlying assumptions used to determine the unobservable inputs used to calculate the fair value of the ARS as of December 31, 2017. However, if changes in these assumptions occur,condition, cash flows and should those changes be significant, we may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments.

Technical problems or disruptions that affect either our customers’ ability to access our services, or the software, internal applications, database and network systems underlying our services, could damage our reputation and brands and lead to reduced demand for our information, analytics and online marketplace services, lower revenues and increased costs. Our business, brands and reputation depend upon the satisfactory performance, reliability and availability of our websites, the Internet and our service providers. Interruptions in these systems, whether due to system failures, computer viruses, software errors, physical or electronic break-ins, or malicious hacks or attacks on our systems (such as denial of service attacks), could affect the security and availability of our services on our mobile applications and our websites and prevent or inhibit the ability of users to access our services. Our operations also depend on our ability to protect our databases, computers and software, telecommunications equipment and facilities against damage from potential dangers such as fire, flood, power loss, security breaches, computer viruses, telecommunications failures, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. Our users rely on our services when conducting their own businesses. Disruptions in, or reductions in ability to access, our services for whatever reason could damage our users’ businesses, harm our reputation, result in additional costs or result in reduced demand for our information, analytics and online marketplace services, any of which could harm our business, results of operations and financial condition.

In addition, the software, internal applications and systems underlying our services are complex and may not be error-free. Our careful development and testing may not be sufficient to ensure that we will not encounter technical problems when we attempt to enhance our software, internal applications and systems. Any inefficiencies, errors or technical problemsoperations. Compliance with our software, internal applications and systems could reduce the quality of our services or interfere with our customers’ access to our information, analytics and online marketplaces, which could reduce the demand for our services, lower our revenues and increase our costs.

The majority of the communications, network and computer hardware used to operate our mobile applications and websites are located at facilities in Virginia and California. We do not own or control the operation of certain of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, security breaches, computer viruses, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, earthquakes and similar events. These risks may be increased with respect to operations housed at facilities we do not own or control. The occurrence of any of the foregoing events could result in damagelaws and regulations can be costly, can delay or impede the development of new products, and may require us to our systemschange the way we operate.
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The interpretation and hardware or could cause them to fail completely,application of many privacy and our insurance may not cover such events ordata protection laws are uncertain. These laws may be insufficient to compensate us for lossesinterpreted and applied in a manner that may occur.

A failureis inconsistent with our existing data management practices or the features of our systems at any siteproducts. If so, in addition to the possibility of negative publicity, fines, lawsuits and other claims and penalties, we could result in reduced functionality for our users, and a total failure of our systems could cause our mobile applications or websitesbe required to be inaccessible. Problems faced or caused by our information technology service providers, including content distribution service providers, private network providers, Internet providers and third-party web-hosting providers, or with the systems by which they allocate capacity among their customers (as applicable), could adversely affect the experience of our users. Any financial difficulties, such as bankruptcy reorganization, faced by these third-party service providers or any of the service providers with whom they contract may have negative effects onfundamentally change our business the natureactivities and extent of which are difficult to predict. Ifpractices or modify our third-party service providers are unable to keep up with our growing needs for capacity, our business could be harmed. In addition, if distribution channels for our mobile applications experience disruptions, such disruptions could adversely affect the ability of users and potential users to access or update our mobile applications,products, which could harm our business.




Our business interruption insurance may not cover certain eventsChanges in tax laws, regulations or may be insufficientfiscal and tax policies or the manner of their interpretation or enforcement could adversely impact our financial performance. New tax laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could increase our cost of doing business. In addition, from time to compensate ustime, U.S. and foreign tax authorities, including state and local governments, consider legislation that could increase our effective tax rate. For example, on August 16, 2022, President Biden signed into law the IRA, which includes a 15% book-income alternative minimum tax on corporations with average annual adjusted financial statement income over $1 billion for any three-year period ending with 2022 or later and a 1% excise tax on the potentially significant losses, includingfair market value of stock that is repurchased by publicly traded U.S. corporations. The alternative minimum tax and the potential harm toexcise tax are effective in taxable years beginning after December 31, 2022. While we are still awaiting further guidance, the future growth ofIRA could have a material effect on our business and effective tax rate.Additionally, the U.S. Congress has advanced a variety of tax legislation proposals, and while the final form of any legislation is uncertain, the current proposals, if enacted, could have a material effect on our effective tax rate.

Third-party claims, litigation, regulatory proceedings or government investigations to which may result from interruptions in our service as a result of system failures or malicious attacks. Any errors, defects, disruptions or other performance problems with our services could harm our reputation, business, results of operations and financial condition.

Our operating results and revenueswe are subject or in which we become involved, regardless of their merit, may significantly increase our expenses and adversely affect our stock price. From time to fluctuations and our quarterly financial resultstime we may be subject to seasonalitythird-party claims, lawsuits, regulatory proceedings or government investigations into whether our business practices comport with applicable law, which may include claims with respect to intellectual property, cybersecurity, privacy, data protection, antitrust, breach of contract, employment, mergers and market cyclicality, eachacquisitions and other matters. Regardless of whichthe merit of such claims, proceedings or investigations, defending against them could causecost us a significant amount of time and money, result in negative publicity, and/or adversely affect our stock priceprice. In addition, if any claims or proceedings are decided against us or if a settlement requires us to pay a large monetary amount or take other action that materially restricts or impedes our operations, our profitability could be negatively affected. The commercial real estate market may be influenced by general economic conditions, economic cycles, annual seasonality factorssignificantly reduced and many other factors, which in turn may impact our financial results. The market is large and fragmented. The different sectors of the industry, such as office, industrial, retail, multifamily, and others, are influenced differently by different factors, and have historically moved through economic cycles with different timing. As such, it is difficultposition could be adversely affected.

We do not currently intend to estimate the potential impact of economic cycles and conditions or seasonality from year-to-yearpay dividends on our overall operating results. In addition, our results may be impacted by seasonality. The timing of widely observed holidayscommon stock and, vacation periods, particularly slowdowns during the end-of-year holiday period, and availability of real estate agents and related service providers during these periods, could significantly affect our quarterly operating results during that period. If we are unable to adequately respond to economic, seasonal or cyclical conditions, our revenues, expenses and operating results may fluctuate from quarter to quarter. Our operating results, revenues and expenses may fluctuate for many reasons, including those described below and elsewhere in this Annual Report on Form 10-K:
Rates of subscriber adoption and retention;
Timing of our sales conference or significant marketing events;
A slow-down during the end-of-year holiday period;
Changes in our pricing strategy and timing of changes;
The timing and success of new service introductions and enhancements;
The shift of focus from, or phase out of services that overlap or are redundant with other services we offer;
The amount and timing of our operating expenses and capital expenditures;
Ourconsequently, your ability to control expenses;
The amount and timing of non-cash stock-based charges;
Costs related to acquisitions of businesses or technologies or impairment charges associated with such investments and acquisitions;
Competition;
Changes or consolidationachieve a return on your investment will depend on appreciation in the real estate industry;
Our investments in geographic expansion and to increase coverage in existing markets;
Interest rate fluctuations;
Successful execution of our expansion and integration plans;
The development of our sales force;
Foreign currency and exchange rate fluctuations;
Inflation; and
Changes in client budgets.

These fluctuations or seasonality effects could negatively affect our results of operations during the period in question and/or future periods or cause our stock price to decline. In addition, changes in accounting policies or practices may affect our level of net income. Fluctuations in our financial results, revenues and expenses may cause the market price of our common stock. We have never declared or paid any cash dividends on our common stock and do not intend to decline.

The consent order approved bydo so for the Federal Trade Commission in connection with the LoopNet merger imposes conditions that could have an adverse effect on us andforeseeable future. We currently intend to invest our business, and failurefuture earnings, if any, to comply with the termsfinance our growth or share repurchases. In addition, provisions of the consent order may result in adverse consequences2020 Credit Agreement governing our credit facilities limit our ability to pay cash dividends. Therefore, you are not likely to receive any dividends on your common stock for the combined company.On April 26, 2012,foreseeable future and the FTC accepted the consent order in connection with the LoopNet merger that was previously agreed to among the FTC staff, CoStar, and LoopNet on April 17, 2012. The consent order was subject to a 30-day public comment period, and on August 29, 2012, the FTC issued its final acceptance of the consent order.



The consent order, which is publicly available on the FTC's website at http://www.ftc.gov/, requires CoStar to maintain certain business practices that the FTC believes are pro-competitive.  For example, the consent order requires CoStar to license its products to customers who have bought its competitors' products on a non-discriminatory basis. In addition, CoStar is required to provide the FTC with advance written notification of certain acquisitions for which notification would not otherwise be required under the Hart-Scott-Rodino Premerger Notification Act. This provision of the consent order requiring CoStar to provide the FTC with advance written notification of certain acquisitions could prevent us from closing certain acquisitions or add significant time and cost to these potential acquisitions, ultimately making an acquisition prohibitive or preventing CoStar from realizing anticipated benefitssuccess of an acquisition. Ininvestment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the event that CoStar fails or is unable to comply with the terms of the consent order, CoStar could be subject to an enforcement proceeding that could result in substantial fines and/or injunctive relief.price at which our stockholders have purchased their shares.


We have incurred and will continue to incur acquisition-related costs.We have incurred severance costs and expect to incur additional costs to integrate prior acquisitions, such as IT integration expenses and costs related to the renegotiation of redundant vendor agreements. Costs in connection with acquisitions and integrations may be higher than expected, and we may also incur unanticipated acquisition-related costs. These costs could adversely affect our financial condition, results of operation or prospects of the combined business.

Changes in accounting and reporting policies or practices may affect our financial results or presentation of results, which may affect our stock price. Changes in accounting and reporting policies or practices could reduce our net income, which reductions may be independent of changes in our operations. These reductions in reported net income could cause our stock price to decline.

Item 1B.Unresolved Staff Comments

Item 1B.    Unresolved Staff Comments

None.


Item 2.Properties

Item 2.    Properties

Our headquarters is located at 1331 L Street, NW, in downtown Washington, DC, where we occupy approximately 157,480169,093 square feet of which 7,980 square feet is a sublease expiring January 31, 2019, and the remaining 149,500 square feet isoffice space, with a lease that expires on May 31, 2025 (with two 5-yearfive-year renewal options). Our headquarters is used primarily by our North America operating segment. Our principal facility in the U.K. is located in London, where we occupy approximately 15,90023,064 square feet of office space. Our lease for this facility has a term ending August 31, 2025. This facility is used by our International operating segment.


In addition to our downtown Washington, DC leased facility and our London facility, we established our research operations headquartersOur staff in Richmond, Virginia in 2016, in whichoccupy an owned building located at 501 S 5th Street, where we occupy 132,987276,695 square feet and lease out 33,912 square feet to another tenant through March of office space. In addition to the Richmond2023; an owned building located at 901 Semmes Avenue, where we own and occupy 117,448 square feet; and leased space at 951 E Byrd St where we occupy 97,171 square feet. These locations house research, facility, weproduct development and sales functions. All of our owned properties are held under fee simple ownership and are not materially encumbered.

We also operate certain of our research, development and sales functions out of additional leased office spaces in Irvine, California; San Diego, California; Columbia, Maryland;and Atlanta, Georgia; and Glasgow, Scotland.Georgia. Additionally, we lease office space in a variety of other metropolitan areas. These locations include, among others, the following: Austin, Texas;Hendersonville, Tennessee; Norfolk, Virginia; Boston, Massachusetts; Chicago, Illinois; Irvine,New York, New York; San Francisco, California; and Los Angeles, California; and San Francisco, California. 


33


We believe these facilities are suitable and appropriately support our business needs.


Item 3.Legal Proceedings

Item 3.    Legal Proceedings

Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. We are not a partybusiness, including, among others, the legal actions discussed under “Contingencies” in Note 13 “Commitments and Contingencies” of the Notes to any lawsuit or proceedingour Consolidated Financial Statements. While our management presently believes that the ultimate outcome of these proceedings, individually and in the opinionaggregate, will not materially harm our business, financial position, future results of our management based on consultations withoperations or liquidity, legal counsel, is likely toproceedings are inherently uncertain, and unfavorable rulings could, individually or in the aggregate, have a material adverse effect on our business, financial position, orfuture results of operations.operations or liquidity.


Item 4.Mine Safety Disclosures

Item 4.    Mine Safety Disclosures

Not Applicable.




34


PART II


Item 5.Market for the Registrant’s Common Stock,
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock.
Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSGP.” The following table sets forth, for the periods indicated, the high and low daily closing prices per share of our common stock, as reported by the Nasdaq Global Select Market.
 High Low
Year Ended December 31, 2016   
First Quarter$199.73
 $148.90
Second Quarter$218.66
 $176.85
Third Quarter$224.10
 $204.82
Fourth Quarter$215.75
 $180.29
    
Year Ended December 31, 2017 
  
First Quarter$211.37
 $186.15
Second Quarter$266.93
 $204.52
Third Quarter$287.02
 $263.60
Fourth Quarter$310.19
 $271.63

As of February 1, 2018,January 31, 2023, there were 1,3421,731 holders of record of our common stock.


Dividend Policy. We have never declared or paid any dividends on our common stock. The 2017 Credit Agreement includes covenants that, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to pay dividends or distributions. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable limitations under Delaware law, and will be dependent upon our results of operations, financial position and other factors deemed relevant by our Board of Directors. We do not anticipate paying any dividends on our common stock during the foreseeable future, but intend to retain any earnings for future growth of our business.


Recent Issues of Unregistered Securities. We did not issue any unregistered securities during the yearsyear ended December 31, 2016 and 2017.2022.


Issuer Purchases of Equity Securities. The following table is a summary of our repurchases of common stock during each of the three months infor the quarter ended December 31, 2017:2022:


ISSUER PURCHASES OF EQUITY SECURITIES

Month, 2022
Total Number of
Shares
Purchased (1)
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
October 1 through 3113,854$70.67 
November 1 through 3017,15182.68 
December 1 through 314,02681.26 
Total35,031$77.77 
_____________________
 Month, 2017 
Total Number of
Shares
Purchased
  
Average Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
October 1 through 31 388  $269.67  
November 1 through 30     
December 1 through 31 1,645  297.27  
Total 2,033
(1) 
 $292.00  

(1)The number of shares purchased consists of shares of common stock tendered by employees to the Company to satisfy the employees’employees' minimum tax withholding obligations arising as a result of vesting of restricted stock grants under the Company’s 2016 Stock Incentive Plan, as amended, which shares were purchased by the Company based on their fair market value on the trading day immediately preceding the vesting date. None of these share purchases were part of a publicly announced program to purchase common stock of the Company.



35



Stock Price Performance Graph


The stock performance graph below shows how an initial investment of $100 in our common stock would have compared to:

An equal investment in the Standards & Poor's StockS&P 500 (“S&P 500”) Index; and


An equal investment in the S&P 500 Internet SoftwareServices & ServicesInfrastructure Index.


The comparison covers the period beginning December 31, 2012,2017 and ending on December 31, 2017,2022, and assumes the reinvestment of any dividends. Note that this performance is historical and is not necessarily indicative of future price performance.


csgp-20221231_g2.jpg



Company / Index12/31/1712/31/1812/31/1912/31/2012/31/2112/31/22
CoStar Group, Inc.$100.00 $113.60 $201.48 $311.26 $266.14 $260.25 
S&P 500 Index100.00 95.62 125.72 148.85 191.58 156.88 
S&P 500 Internet Services & Infrastructure Index100.00 91.54 123.09 142.89 163.81 126.13 

36
Company / Index 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17
CoStar Group, Inc. $100.00
 $206.53
 $205.47
 $231.27
 $210.91
 $332.27
S&P 500 Index 100.00
 132.39
 150.51
 152.59
 170.84
 208.14
S&P 500 Internet Software & Services Index 100.00
 148.79
 158.60
 211.44
 222.39
 313.02




Item 6.Selected Consolidated Financial and Operating Data

Item 6.    Reserved
Selected Consolidated Financial and Operating Data
(in thousands, except per share data)

The following table provides selected consolidated financial and other operating data for the five years ended December 31, 2017. The consolidated statements of operations data shown below for each of the three years ended December 31, 2017, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 are derived from audited consolidated financial statements that are included in this report. The consolidated statements of operations data for each of the years ended 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015, 2014 and 2013 shown below are derived from audited consolidated financial statements for those years that are not included in this report. Information about prior period acquisitions that may affect the comparability of the selected financial information presented below is included in "Item 1. Business." The total assets and total long-term liabilities reported in the consolidated balance sheet data have been reclassified to conform to our current presentation as a result of the retrospective application of the authoritative guidance to simplify the presentation of debt issuance costs.


37
 Year Ended December 31,
Consolidated Statements of Operations Data:2013 2014 2015 2016 2017
Revenues$440,943
 $575,936
 $711,764
 $837,630
 $965,230
Cost of revenues129,185
 156,979
 188,885
 173,814
 220,403
Gross profit                                                                          311,758
 418,957
 522,879
 663,816
 744,827
Operating expenses257,604
 338,079
 511,424
 518,911
 571,011
Income from operations54,154
 80,878
 11,455
 144,905
 173,816
Interest and other income326
 516
 537
 1,773
 4,044
Interest and other expense(6,943) (10,481) (9,411) (10,016) (9,014)
Loss on debt extinguishment
 
 
 
 (3,788)
Income before income taxes47,537
 70,913
 2,581
 136,662
 165,058
Income tax expense17,803
 26,044
 6,046
 51,591
 42,363
Net income (loss)$29,734
 $44,869
 $(3,465) $85,071
 $122,695
Net income (loss) per share — basic $1.07
 $1.48
 $(0.11) $2.64
 $3.70
Net income (loss) per share — diluted$1.05
 $1.46
 $(0.11) $2.62
 $3.66
Weighted average shares outstanding — basic27,670
 30,215
 31,950
 32,167
 33,200
Weighted average shares outstanding — diluted28,212
 30,641
 31,950
 32,436
 33,559



 As of December 31,
Consolidated Balance Sheet Data:2013 2014 2015 2016 2017
Cash, cash equivalents and long-term investments$277,943
 $544,163
 $437,325
 $577,175
 $1,221,533
Working capital196,913
 480,521
 337,452
 472,545
 1,141,269
Total assets1,250,440
 2,070,483
 2,079,571
 2,185,063
 2,873,441
Total long-term liabilities213,674
 440,982
 400,510
 375,904
 75,525
Stockholders’ equity927,862
 1,513,546
 1,543,780
 1,654,213
 2,651,250



Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those stated above in Item 1A. under the headings “Risk Factors - Cautionaryheading “Cautionary Statement Concerning Forward-Looking Statements” and “ Riskin Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the Securities and Exchange Commission.SEC.


All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update such statements, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange CommissionSEC and the consolidated financial statements and related notes included in this Annual Report on Form 10-K.Report.


Overview


CoStar Group, Inc. (the “Company” or “CoStar”) is the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the United States (“U.S.”) and the United Kingdom (“U.K.”) based on the fact that we offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own and operate leading online marketplaces for commercial real estate and apartment listings in the U.S. based on the numbers of unique visitors and site visits per month; provide more information, analytics and marketing services than any of our competitors and believe that we generate more revenues than any of our commercial real estate information and online marketplace competitors. We created and compiled our standardized platform ofOur principal information, analytics and online marketplace services where industry professionals and consumersare described in the following paragraphs by type of service:

CoStar

CoStar is our subscription-based integrated platform for commercial real estate including apartments, and the related business communities, can continuously interact and facilitate transactions by efficiently accessing and exchanging accurate and standardized real estate-related information.

We have five flagship brands - CoStar®, LoopNet®, Apartments.comTM, BizBuySell® and LandsofAmericaTM. Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals. Our subscription-based information services consist primarily of CoStar Suite® services. CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional®and CoStar Tenant® and through our mobile application, CoStar Go®. Our integrated suite of online service offeringsintelligence, which includes information about office, industrial, retail, multifamily, hospitality and student housing properties, properties for sale, comparable sales, tenants, space available for lease, comparable sales information, information about properties for sale, tenant information, Internet marketing services, analytical capabilities, information for clients' websites, information about industry professionals and their business relationships, data integrationindustry news and industry news. market status and provides lease analytical, risk management, and hospitality benchmarking capabilities. CoStar's year-over-year revenue growth rate for 2022 accelerated compared to 2021. The number of subscribers has increased year-over-year and we have also realized the impact of price increases and existing customers upgrading to our global service offering. We expect CoStar's revenue growth rate for 2023 to slow compared to the revenue growth rate for 2022 as a result of less benefit from customer upgrades as the global product upgrade campaign is substantially complete and lower inflation-based price adjustments.

Information services

We provide market research, consulting and analysis for commercial real estate investors and lenders vialease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Portfolio Strategy and CoStar SuiteReal Estate Manager service offerings;offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service offerings;offerings. We also provide benchmarking and real estateanalytics for the hospitality industry both on a subscription basis and lease management solutions, including lease administrationan ad hoc basis. We earn revenue on ad hoc transactions as reports or data are delivered to customers. We provide information services internationally, through our Business Immo, Belbex and abstraction services, through ourThomas Daily businesses in France, Spain and Germany, respectively. Information Services' year-over-year revenue growth rate for 2022 accelerated compared to 2021 as a result of increased revenue from CoStar Real Estate Manager service offerings.services and the results of the Business Immo acquisition. We expect Information Services' revenue growth rate for 2023 to slow compared to the revenue growth rate for 2022 as a result of lower price adjustments.


Multifamily

Apartments.com is the flagship brand of our apartment marketing network of subscription-based advertising services and provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. This network also earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. Multifamily's year-over-year revenue growth rate for 2022 slowed compared to 2021 due to customers selecting lower-priced ad packages in the second half of 2021 while rental vacancy rates declined relative to historical averages reducing demand for top-level packages. Quarterly sales of multifamily products increased over 2022 due to new properties being added to the network and the impact of a new pricing strategy implemented to align prices at each product level with the value of the leads delivered. We expect Multifamily's year-over-year revenue growth rate for 2023 to accelerate compared to the revenue growth rate for 2022 due to expected increases in sales levels from bringing additional properties on the network.




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LoopNet

Our LoopNet network of commercial real estate websites offer subscription-based, online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to listadvertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants also use LoopNet'sthe LoopNet network of online marketplace services to search for available property listings that meet their criteria. LoopNet's revenue growth rates slowed in 2022 when compared to 2021 as growth in the average price per listing declined in 2022 when compared to 2021. We expect LoopNet's year-over-year revenue growth rate for 2023 to accelerate compared to the revenue growth rate for 2022 due to expected increases in sales levels from increasing the number of listings in the network.


Apartments.comResidential

The acquisitions of Homes.com and Homesnap enabled us to expand our offerings to the residential for sale market. Homes.com is part of our network of apartment marketing sites, which also includes ApartmentFinder.comTM, ForRent.com®, ApartmentHomeLiving.comTM, WestsideRentals.com®, AFTER55.com®, CorporateHousing.comTM, ForRentUniversity.com® and Apartamentos.comTM, our apartment-listing site offered exclusively in Spanish. Our apartment marketing network of subscription-based services offers renters a searchable database of over one millionhomes for sale listings and provides professional property management companies and landlords with an advertising destination. Our apartment marketing network draws on and leverages CoStar’s multifamily database, which contains detailed information on apartment properties. We designed the Apartments.com, ApartmentFinder.com and Apartamentos.com websites to meet renter preferences and demands, creating qualified renter prospects for our advertisers. We acquired the ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com sites when we completed the acquisition of ForRent, a division of Dominion Enterprises, on February 21, 2018. Our network of apartment marketing sites provide a comprehensive selection of rentals, information on actual availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other facts important to renters. To help renters find the information that meets their needs, the sites also offer innovative search tools such as the PolygonTM Search tool, which allows renters to specifically define the area in which they want to find an apartment. The Screening ProsTM site. Homesnap is an


online apartment leasingand mobile software platform that includes tenant screening services, rentalprovides residential real estate professionals access to applications and payments processing and lease renewals. On February 21 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, for a purchase price of approximately $385 million, payable approximately $350 million in cash and approximately $35 million in shares of CoStar Group common stock, subject to a customary working capital adjustment and other post-closing adjustments. Approximately $11 million of the cash consideration was placed in escrow to be used for potential employee stay bonuses.



Similar to our other past acquisitions, we have been, and plan to continue, integrating, further developing and cross-selling the services offered by Apartments.com, ApartmentFinder.com and Westside Rentals and the other services we offer, including but not limited to CoStar Suite. Now that we have completed the ForRent acquisition, we plan to develop and cross-sell the services offered by ForRent. We have incurred and plan to continue to incur product development costs to improve the online Apartments.com and ApartmentFinder.com platforms and Apartamentos.com. We have incurred and plan to continue to incur salesmanage residential real estate agent workflow and marketing expenses in ordercampaigns delivered on third-party platforms. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms. Residential revenue was consistent between 2022 and 2021. We expect residential revenue for 2023 to supportdecrease when compared to 2022 due to the Apartments.com networkdiscontinuation of certain non-strategic products and to increase brand awareness. To generate brand awareness and site traffic for the Apartments.com network, we utilize a multi-channel marketing campaign featuring television and radio advertising, online/digital advertising, social media and out-of-home ads and reinforced that advertising with Search Engine Marketing. We plan to continue to utilize these marketing methods and will continue to work to determine the optimal level of marketing investment for our services for future periods.services.


Other Marketplaces

Our BizBuySell services, whichother marketplaces include BizQuest®, provideTen-X, an online marketplaceauction platform for commercial real estate that was acquired on June 24, 2020. Also included is our BizBuySell network, which includes BizQuest® and FindaFranchise and our Land.com Network of sites. The BizBuySell network provides online marketplaces for businesses and franchises for sale. Oursale and our Land.com network of sites, which provideNetwork provides online marketplaces for rural lands for sale, includes LandsofAmerica, LandAndFarm and LandWatch®.sale. Overall, other marketplaces' revenue growth rate slowed in 2022 compared to 2021 primarily due to the impact of the Ten-X acquisition closing in June 2020.We expect other marketplaces revenue growth rate for 2023 to slow compared to the growth rate for 2022 due to lower Ten-X transaction revenue.


OurSubscription-based Services

The majority of our revenue is generated from service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use and hospitality.
Subscription-Based Services

Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals. Our servicesthat are typically distributed to our clients under subscription-based license agreements that typically renew automatically a majority of whichand have a term of at least one year. Upon renewal, manyWe recognize subscription revenues on a straight-line basis over the life of the subscription contract rates may change in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based services rather than charging fees based on actual system usage or number of paid clicks. Depending oncontract.

For the type of service, contract rates are generally based on the number of sites, number of users, organization size, the client's business focus, geography, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. Our subscription clients generally pay contract fees in advance on a monthly basis, but in some cases may pay us in advance on a quarterly or annual basis.

As ofyears ended December 31, 20172022, 2021 and 2016,2020, our annualized net new bookings of subscription-based services on all contracts were approximately $43$305 million, $217 million and $29$184 million, respectively, calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upsalesupgrades on all existing subscription-based contracts, less write downswrite-downs and cancellations, for the period reported. Our net bookings is a quantitative measurement that is typically closely correlated with our subscription revenue results. Net new bookings is considered a key indicator of future subscription revenue growth and is also used as a metric of salesforcesales force productivity by managementus and investors. We recognize subscriptionHowever, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues onover time. Revenue from our subscription-based contracts was approximately 93%, 93% and 95% of total revenue for the years ended December 31, 2022, 2021 and 2020, respectively. The declines in the percentage of our revenue from subscription-based contracts from 2020 to 2021 was primarily due to the acquisitions of companies that contained a straight-line basis overhigher percentage of transaction-based revenue than our legacy businesses.

For the life of the contract.



For each of the twelvetrailing 12 months ended December 31, 20172022, 2021 and 2016,2020, our contract renewal raterates for existing CoStar Group company-wide subscription-based services on annualfor contracts waswith a term of at least one year were approximately 91%90%, 92% and 90%89%, respectively,respectively; and, therefore, our cancellation raterates for those services was approximately 9% and 10%, respectively, for the same time periods.periods were approximately 10%, 8% and 11%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenuerevenue results. As a result, management also believeswe believe that the rate may be a reliable indicator of short-term and long-term performance.performance absent extraordinary circumstances. Our trailing twelve-month12-month contract renewal rate may decline if, among other reasons,as a result of negative economic conditions, lead to greater business failures and/or consolidations among our clients, reductions in customer spending or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year was approximately 80%, 77% and 80% of total revenue for the trailing 12 months ended December 31, 2022, 2021 and 2020, respectively. The increase in the percentage of our revenue from subscription-based contracts for contracts with a term of at least one year from 2021 to 2022 was due to increases in sales of longer term advertising products. The decrease in the percentage of our revenue from subscription-based contracts with a term of at least one year from 2020 to 2021 was primarily due to the acquisitions of companies that contained a higher percentage of transaction-based revenue than our legacy businesses, as well as increases in sales of shorter term advertising products.


39


Impacts of Current Economic Conditions

In response to the concerns over inflation risk, the U.S. Federal Reserve has raised interest rates in the first, second, third and fourth quarters of 2022 and the first quarter of 2023 and signaled it expects additional rate increases. Further, the COVID-19 pandemic has created significant economic volatility, uncertainty and disruption around the world. While the impacts of the COVID-19 pandemic and current economic conditions continue to evolve, they have not materially affected our consolidated financial statements during 2022, 2021 and 2020. It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements – allowing work from the office or home, or switch to all work from home, or by the current economic conditions. These activities may result in reduced demand for office space and rising interest rates may reduce demand for all types of real estate. If the demand for office space or other real estate decreases significantly, there could be a downturn in the commercial real estate market that may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

Development, Investments and Expansion


We plan to continue to invest in our business and our services, evaluate strategic growth opportunities and pursue our key priorities as described below. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our information, news, analyticofferings for our client base and online marketplace solutions.site users, including property owners, property managers, buyers, commercial tenants and residential renters and buyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. To generate brand awareness and site traffic forWe may reevaluate our listing sites, we utilize a variety of marketing campaigns, including television and radio advertising, online/digital advertising, social media and out-of-home ads, and Search Engine Marketing. We expect topriorities as economic conditions continue to invest in sales and marketing in 2018. As we continue to assess the success and effectiveness of our marketing campaign, we will continue to work to determine the optimal level of marketing investment for our services for future periods.evolve.


Our key priorities for 20182023 currently include:

Continuing to develop and recent developments include:invest in the Homes.com residential marketplace. Our residential strategy involves creating new and improved tools for residential agents and brokers and to help homebuyers find a new home and connect with the agents of their choosing. We plan to increase our residential marketing investment over the course of the year to build traffic on the website.


Continuing to invest in our LoopNet marketplace and international business. We plan to invest in additional sales capabilities and increase marketing investment to accelerate revenue growth in LoopNet. This includes expansion of our LoopNet brand in the U.K., France and Spain.

Continuing to invest in CoStar, including:

Enhancing benchmarking capabilities. We continue to integrate the STR products into our core platform. We plan to apply STR's benchmarking expertise within CoStar by making STAR reports available in the CoStar environment and provide users with tools to perform ad hoc analysis.

Enhancing analytics capabilities. We are migrating all of ouradding information on commercial real estate information capabilitiesproperty investment funds and linking property data to our flagship CoStar Suite product and winding down the legacy LoopNet Information products.  This process beganallow fund investors to perform detailed analysis on their property portfolios directly in the fall of 2017 withCoStar platform.

We expect our investment in these priorities, and the integration of the CoStar and Loopnet databases.  In addition, we are transitioning the LoopNet marketplace to a pure pay-to-list marketing site for commercial real estate. We completed integrating the backend systems of the LoopNet and CoStar databases duringfull-year impact realized in 2023 from an increase in our sales force which occurred primarily in the second half of 2017; the two services now share a unified database of information, creating operating efficiencies and improving the data available to our customers.  We also introduced new enhancements on the CoStar homepage, including a Listing Manager feature that we believe2022, will increase our selling and marketing expense and reduce our income from operations for the quantity and quality of the listing information available by enabling brokers and other industry participants to load information directly into the integrated system.  This in turn is expected to reduce the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.

On February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, ForRent’s primary service is digital advertising through a network of four multifamily websites - which includes ForRent.com, AFTER55.com, CorporateHousing.com and ForRentUniversity.com. We plan to integrate, develop and cross-sell the services offered by ForRent. ForRent.com is expected to remain a distinct, complementary brand to Apartments.com, giving property managers and owners more exposure for their listings.

We plan to continue developing new, and improve existing, product and service offeringsyear ended December 31, 2023 compared to the apartments industry. In particular, we expect to implement the ability for renters to apply for leases online, for landlords to run tenant credit and background checks and, eventually, for landlords and tenants to generate leases and process payments online.

We continue to invest in our research operations to support continued growth of our information and analytics offerings. We established our research operations headquarters in Richmond, Virginia, in December 2016, which is developing into a technology innovation hub, powering the software development necessary to support the content within our information, analytics and marketing services. In connection with the opening of the Richmond research headquarters, we have expanded our research team to continue to meet the growing content needs of our clients. In addition, we expect to continue to invest in our International research operations in Madrid, Spain and the U.K.

In support of our continued expansion and development, in October 2017, we completed a public equity offering of 3,317,308 shares of common stock for $260.00 per share. Net proceeds from the public equity offering were approximately $834 million, after deducting approximately $29 million of underwriting discounts and fees. We expect to use the net proceeds from the public equity offering to fund all or a portion of the costs of any strategic acquisitions we determine to pursue in the future, to finance the growth of our business and for working capital and other general corporate purposes. General corporate purposes may include additions to working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries, possible acquisitions and the repurchase, redemption or retirement of securities, including the Company’s common stock.

On October 19, 2017, the Company entered into an amended and restated credit agreement (the ‘‘2017 Credit Agreement’’), which amended and restated in its entirety the existing 2014 Credit Agreement. The 2017 Credit Agreement provides for a $750


million revolving credit facility with a term of five years from a syndicate of financial institutions as lenders and issuing banks. The Company also paid off the remaining balance of $310 million and interest on its existing $400 million term loan under the 2014 Credit Agreement on October 19, 2017 from existing cash balances. The 2017 revolving credit facility may be used for working capital and other general corporate purposes of the Company and its subsidiaries. The Company had no outstanding long-term debt atyear ended December 31, 2017 as it had not drawn any amounts under its 2017 Credit Agreement. The restructured credit facility, along with the proceeds from the October equity offering and cash generated by the Company’s business are expected to support the Company’s continued growth and give the Company flexibility to act on strategic acquisition opportunities that may arise.

2022. We intend to continue to assess the need for additional investments in our business in addition to the investments discussed above, in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.



40



Property Developments

As we have done in the past, we expect to continue to identify new facilities and consolidate existing facilities to better accommodate the changing demandsFor further discussion of our Company, strategy and products, see our business operations and employees. As a result, we may incur additional lease restructuring charges for the abandonment of certain lease space and the impairment of leasehold improvements.overview set forth in "Item 1. Business" in this Report.


Non-GAAP Financial Measures


We prepare and publicly release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles ("GAAP").GAAP. We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the Securities and Exchange Commission.SEC. The non-GAAP financial measures that we may disclose include net income before interest and other income (expense), income taxes, depreciation and amortization (“EBITDA”),EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share (also referred to as “non-GAAP EPS”).share. EBITDA is our net income before interest (expense) income, other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission.SEC. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense acquisition, acquisition- and integration relatedintegration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income and non-GAAPis determined by adjusting our net income per diluted share are similarly adjusted for stock-based compensation expense, acquisitionacquisition- and integration relatedintegration-related costs, restructuring costs, settlement and impairment costs and loss on debt extinguishment incurred outside our ordinary course of business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs. costs, and then subtracting an assumed provision for income taxes. Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission.SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.


We view EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures and as such wemeasures. We believe that the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income (loss) the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income (loss) or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income.income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission,SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.




EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and the accompanying reconciliation,reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business.business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to the expansion of our information, analytics and online marketplace services, which has includedthese acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisitionacquisition- and integration relatedintegration-related costs, restructuring costs and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisitionacquisition- and integration relatedintegration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully
41


evaluate and compare our performance from quarter to quarterquarter-to-quarter and from year to year.year-to-year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest (expense) income, other (expense) income, income taxes, stock-based compensation expenses, acquisitionacquisition- and integration relatedintegration-related costs, restructuring costs;costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.


Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income :income:


Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired database technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.


Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.


Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.


The amount of interest (expense) income and other (expense) income we generate may be useful for investors to consider and may result in current cash inflows. However, we do not consider the amount of interest and other income to be a representative component of the day-to-day operating performance of our business.

The amount of interest and other expense we incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest (expense) income and other expense(expense) income to be a representative component of the day-to-day operating performance of our business.


The amount of loss on our debt extinguishment may be useful for investors to consider and may result in current cash outflows. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.


The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:


Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a


high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.




The amount of acquisitionacquisition- and integration relatedintegration-related costs incurred may be useful for investors to consider because theysuch costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisitionacquisition- and integration relatedintegration-related costs to be a representative component of the day-to-day operating performance of our business.


The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters, charges
42


related to terminations of contracts or impairments of acquired intangible assets or other long lived assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. We do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters or impairments on acquired intangible assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

The amount of loss on our debt extinguishment may be useful for investors to consider because they generally represent gains or losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.


The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisitionacquisition- and integration relatedintegration-related costs, restructuring and related costs and settlement and impairment costs and loss on debt extinguishment incurred outside our ordinary course of business. These items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated with using this non-GAAP financial measure as compared to net income. In addition to these exclusions from net income, (loss). Wewe subtract an assumed provision for income taxes to calculate non-GAAP net income. In 2017, 2016,2022 and 2015,2021, we assumed a 38%26% and 25% tax rate, respectively, which approximatesapproximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.


Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.


The following table shows our net income reconciled to our EBITDA and our net cash flows from operating, investing and financing activities for the indicated periods (in thousands):

 Year Ended December 31,
 202220212020
Net income$369,453 $292,564 $227,128 
Amortization of acquired intangible assets in cost of revenues29,019 28,809 25,675 
Amortization of acquired intangible assets in operating expenses73,560 74,817 62,457 
Depreciation and other amortization29,127 29,018 28,812 
Interest (income) expense, net(32,125)31,621 17,395 
Other (income) expense, net(3,383)(3,252)827 
Income tax expense117,004 111,404 43,852 
EBITDA$582,655 $564,981 $406,146 
Net cash provided by (used in) 
Operating activities$478,620 $469,731 $486,106 
Investing activities$(69,055)$(381,343)$(464,163)
Financing activities$733,977 $(15,679)$2,662,297 
43
 Year Ended December 31,
 2017 2016 2015
Net income (loss)$122,695
 $85,071
 $(3,465)
Amortization of acquired intangible assets in cost of revenues19,707
 22,819
 30,077
Amortization of acquired intangible assets in operating expenses17,684
 22,731
 27,931
Depreciation and other amortization26,252
 24,615
 20,524
Interest and other income(4,044) (1,773) (537)
Interest and other expense9,014
 10,016
 9,411
Loss on debt extinguishment3,788
 
 
Income tax expense42,363
 51,591
 6,046
EBITDA$237,459
 $215,070
 $89,987
      
Net cash flows provided by (used in)     
Operating activities$234,703
 $200,642
 $139,773
Investing activities$(72,267) $(23,259) $(215,502)
Financing activities$480,430
 $(30,563) $(29,032)





Consolidated Results of Operations


The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars and as a percentage of total revenue):

 Year Ended December 31,
 202220212020
Revenues$2,182,399 100 %$1,944,135 100 %$1,659,019 100 %
Cost of revenues414,008 19 357,241 18 308,968 19 
Gross profit1,768,391 81 1,586,894 82 1,350,051 81 
Operating expenses:      
Selling and marketing (excluding customer base amortization)684,222 31 622,007 32 535,778 32 
Software development220,923 10 201,022 10 162,916 10 
General and administrative338,737 16 256,711 13 299,698 18 
Customer base amortization73,560 74,817 62,457 
Total operating expenses1,317,442 60 1,154,557 59 1,060,849 64 
Income from operations450,949 21 432,337 22 289,202 17 
Interest income (expense), net32,125 (31,621)(2)(17,395)(1)
Other income (expense), net3,383 — 3,252 — (827)— 
Income before income taxes486,457 22 403,968 21 270,980 16 
Income tax expense117,004 111,404 43,852 
Net income$369,453 17 %$292,564 15 %$227,128 14 %
 Year Ended December 31,
 2017 2016 2015
Revenues                                                 $965,230
 100 % $837,630
 100 % $711,764
 100 %
Cost of revenues                                                 220,403
 23
 173,814
 21
 188,885
 27
Gross profit                                                                          744,827
 77
 663,816
 79
 522,879
 73
Operating expenses: 
  
  
  
  
  
Selling and marketing (excluding customer base amortization)318,362
 33
 296,483
 35
 302,226
 42
Software development                                              88,850
 9
 76,400
 9
 65,760
 9
General and administrative                                              146,128
 15
 123,297
 15
 115,507
 16
Customer base amortization                                              17,671
 2
 22,731
 3
 27,931
 4
Total operating expenses                                                 571,011
 59
 518,911
 62
 511,424
 72
Income from operations                                                 173,816
 18
 144,905
 17
 11,455
 1
Interest and other income                                  4,044
 
 1,773
 
 537
 
Interest and other expense(9,014) (1) (10,016) (1) (9,411) (1)
Loss on debt extinguishment(3,788) (2) 
 
 
 
Income before income taxes                                                 165,058
 16
 136,662
 16
 2,581
 
Income tax expense42,363
 4
 51,591
 6
 6,046
 1
Net income (loss)                                                 $122,695
 12 % $85,071
 10 % $(3,465) (1)%


The following table provides our revenues by type of service (in thousands of dollars and as a percentage of total revenue):
Year Ended December 31,
202220212020
CoStar$836,980 38 %$722,821 37 %$664,735 40 %
Information services157,382 141,655 130,070 
Multifamily745,388 34 678,680 35 598,555 36 
LoopNet(1)
230,941 11 207,511 11 179,805 11 
Residential(1)
73,747 74,583 — — 
Other Marketplaces(1)
137,961 118,885 85,854 
Total revenues(2)
$2,182,399 100%$1,944,135 100%$1,659,019 100%
__________________________
(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.
(2) For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Report.

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 Year Ended December 31,
 2017 2016 2015
Information and analytics           
CoStar Suite(1)
$463,185
 48% $408,456
 49% $360,440
 50%
Information services(2)
72,618
 8
 77,178
 9
 75,790
 11
Online marketplaces           
Multifamily(3)
279,855
 29
 224,835
 27
 160,630
 23
Commercial property and land(4)
149,572
 15
 127,161
 15
 114,904
 16
Total revenues$965,230
 100% $837,630
 100% $711,764
 100%



(1) CoStar Suite is comprised of CoStar Property Professional, CoStar COMPS Professional, CoStar Tenant; and CoStar Portfolio Strategy.

(2) Information services is comprised of LoopNet Premium Searcher; CoStar Real Estate Manager; CoStar Risk Analytics COMPASS; CoStar Investment Analysis Portfolio Maximizer; CoStar Investment Analysis Request; CoStar Brokerage Applications; PROPEX; Grecam; Belbex and Thomas Daily.

(3) Multifamily is comprised of Apartments.com, ApartmentFinder.com, ApartmentHomeLiving.com, WestsideRentals.com; Apartamentos.com; and The Screening Pros.

(4) Commercial property and land is comprised of LoopNet Premium Lister; LoopLink; CoStar Advertising; BizBuySell and BizQuest; LandsofAmerica, LandAndFarm and LandWatch; and CoStar Private Sale Network.



Comparison of Year Ended December 31, 20172022 and Year Ended December 31, 20162021


The following table provides a comparison of our selected consolidated results of operations for the yearyears ended December 31, 20172022 and 20162021 (in thousands of dollars)thousands):

 20222021Increase (Decrease)Increase (Decrease)
Revenues:
CoStar$836,980 $722,821 $114,159 16%
Information services157,382 141,655 15,727 11
Multifamily745,388 678,680 66,708 10
LoopNet230,941 207,511 23,430 11
Residential73,747 74,583 (836)(1)
Other Marketplaces137,961 118,885 19,076 16
Total revenues2,182,399 1,944,135 238,264 12
Cost of revenues414,008 357,241 56,767 16
Gross profit1,768,391 1,586,894 181,497 11
Operating expenses:  
Selling and marketing (excluding customer base amortization)684,222 622,007 62,215 10
Software development220,923 201,022 19,901 10
General and administrative338,737 256,711 82,026 32
Customer base amortization73,560 74,817 (1,257)(2)
Total operating expenses1,317,442 1,154,557 162,885 14
Income from operations450,949 432,337 18,612 4
Interest income (expense), net32,125 (31,621)(63,746)NM
Other income, net3,383 3,252 131 4
Income before income taxes486,457 403,968 82,489 20
Income tax expense117,004 111,404 5,600 5
Net income$369,453 $292,564 $76,889 26%
__________________________
NM - Not meaningful

 2017 2016 Increase (Decrease) ($) Increase (Decrease) (%)
Revenues       
CoStar Suite$463,185
 $408,456
 $54,729
 13 %
Information services72,618
 77,178
 (4,560) (6)
Multifamily279,855
 224,835
 55,020
 24
Commercial property and land149,572
 127,161
 22,411
 18
Total revenues                                                 965,230
 837,630
 127,600
 15
Cost of revenues                                                 220,403
 173,814
 46,589
 27
Gross profit                                                                          744,827
 663,816
 81,011
 12
Operating expenses: 
  
   

Selling and marketing (excluding customer base amortization)318,362
 296,483
 21,879
 7
Software development                                              88,850
 76,400
 12,450
 16
General and administrative                                              146,128
 123,297
 22,831
 19
Customer base amortization                                              17,671
 22,731
 (5,060) (22)
Total operating expenses                                                 571,011
 518,911
 52,100
 10
Income from operations                                                 173,816
 144,905
 28,911
 20
Interest and other income                                  4,044
 1,773
 2,271
 128
Interest and other expense(9,014) (10,016) (1,002) (10)
Loss on extinguishment(3,788) 
 3,788
 NM
Income before income taxes                                                 165,058
 136,662
 28,396
 21
Income tax expense42,363
 51,591
 (9,228) (18)
Net income$122,695
 $85,071
 $37,624
 44 %
__________________________       
NM - Not meaningful       

Revenues. Revenues increased to $965 million$2.2 billion in 2017,2022, from $838 million$1.9 billion in 2016.2021. The $127$238 million increase was primarily attributable to increased revenuesincreases across nearly all of approximately $55our primary service offerings, led by a $114 million, or 13% from continued organic growth16%, increase in CoStar Suite as well as a movement of our Loopnet customers onto ourrevenue. The CoStar platform as a result of the Loopnet integration. Information Services decreased $5M or 6% primarilyrevenue increase was due to continued wind downhigher sales volume driven by the impact of Loopnet Information products including Premium Searcher partially offset byannual price increases in our Real Estate Manager offering. Multifamily year over year increases of $55 million or 24% was primarily attributable to organic growth as well as some smaller increases for several acquisitions. Commercial Property and Land revenue increased $22 million or 18% over 2016 primarily due to organic growthcustomer upgrades on contract renewals, as well as, an increase in subscribers. Multifamily revenues increased $67 million, or 10%, primarily due to increases in pricing on renewals and, to a lesser extent, an increase in properties listed. LoopNet revenues increased $23 million, or 11%, primarily as a result of an increase in average prices and, to a lesser extent, due to the Landwatch acquisition. Overall,acquisition of BureauxLocaux. Other marketplaces revenue growth rates are expectedincreased $19 million, or 16%, primarily driven by increases in Ten-X and Land for Sale revenue and, to bea lesser extent, an increase in linerevenue for BizBuySell. Information services revenue increased $16 million, or slightly higher than 2017.11%, primarily due to increased revenues from our CoStar Real Estate Manager and STR service offerings.


Gross Profit. Gross profit increased to $745 million$1.8 billion in 2017,2022, from $664 million$1.6 billion in 2016.2021. The gross marginprofit percentage decreasedwas 81% for 2022 compared to 77%82% for 2021. The increase in 2017, from 79%gross profit was due to higher revenue, partially offset by an increase in 2016. Revenue growth ledcost of revenues of $57 million, or 16%, mostly due to an increase of $28 million related to our investment and further development of our residential marketplaces, including personnel, research equipment, software and equipment, and data and content costs. There were also increases in costs of revenues of $38supporting our other service offerings, including $19 million for additional researchin personnel costs, $5driven by an increase in salaries, $6 million in occupancy related costs fromsoftware and equipment to support our new research officeresearchers, $3 million in Richmond offset by a decreaseprofessional services and $2 million in the amortization of intangible assets of$4 million. Gross margins are impacted by the amortization of certain intangible assets acquired through acquisitions.travel expenses.


Selling and Marketing Expenses. Selling and marketing expenses increased to $318$684 million in 2017,2022, from $296$622 million in 2016, and decreased as a percentage2021. The $62 million increase was mostly attributable to an increase of revenues to 33% from 35%. The increase$40 million in the amount of selling and marketing expenses was primarilypersonnel costs, due to a $25$21 million increase in sales personnel costs related to increasedsalaries, driven by an increase in headcount, and an increase in commission expense from higher salesof $13 million. There were also
45


increases of $17 million in 2017 partially offset by aconferences and travel costs and $2 million decrease in digital marketing costs.each for occupancy, and computer equipment and other office supplies.





Software Development Expenses. Software development expenses increased to $89$221 million in 2017,2022, from $76$201 million in 2016,2021, and remained relatively consistent as a percentage of revenues at 9% for both 201710% in 2022 and 2016.2021. The $20 million increase in the amount of software development expense was primarily due to a $14an increase of $16 million increase in personnel costs, driven by increased headcount to support enhancementsthe development of our products, and upgrades to our servicesa lesser extent, to increases of $2 million in occupancy costs, and integration of the backend systems of the LoopNet$1 million in computer equipment and CoStar databases.other office supplies.


General and Administrative Expenses. General and administrative expenses increased 19% to $146$339 million in 2017,2022, from $123$257 million in 2016,2021, and remained relatively consistentincreased as a percentage of revenues at 15%to 16% in 2017 and 2016.2022 from 13% in 2021. The $82 million increase in the amount of general and administrative expensesexpense was driven by an increase of $22 million in personnel costs, primarily due to legal costs relatedincreases in salaries and stock-based compensation expense, and to litigationa lesser extent, increases of approximately $13$16 million in professional services, driven by an increase in legal costs, $10 million in travel and conferences costs, driven partially by an increase in the average cost of air travel, $8 million in software and equipment, and $7 million in bad debt expense, and $2 million each in property taxes and charitable donations. Other non-recurring charges incurred in 2022 included, $9 million due to impairments of right-of-use assets and property and equipment related to abandoned leases, and $4 million for a fee paid to counterparty to terminate a contract. The increase in general and administrative personnel costs of $5 million to support the ongoing growth of the business, andexpense was partially offset by a $3 million increase in charitable donations.gain recognized for the sale of a corporate aircraft.


Customer Base Amortization Expense. Customer base amortization expense decreased to approximately $18$74 million in 2017,2022, from $23$75 million in 2016,2021, and decreased as a percentage of revenues to 2% in 2017, compared toat 3% in 2016.2022 from 4% in 2021. The decrease in the amount and percentage of customer base amortization expense was primarily dueattributable to decreases in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent, Ten-X, STR and LoopNet, which had been amortizing on an accelerated basis since their acquisitions, partially offset by an increase of $13 million in amortization of acquiredexpense driven by intangible assets related to a Homesnap product for which we decided to eliminate usage fees related to a specific customer basesclass.

Interest Income (Expense), net. Interest income, net was $32 million in 20162022, as compared to 2017.

Interest and Other Income. Interest and other income increased to approximately $4interest expense, net of $32 million in 2017 compared to approximately $22021. The increase of $64 million in 2016. The increase2022 was primarily due to an increased short term investmentsrate of return on cash and cash equivalents.

Other Income, net. Other income, net was a larger cash balance in 2017 than in 2016 mainly due to net proceedsincome of $834 million from the equity offering in October 2017.

Interest and Other Expense. Interest and other expense remained relatively consistent at $9$3 million in 2017 compared to $102022, consistent with net income of $3 million in 2016. The decrease was primarily due to the repayment of outstanding debt in October 2017 in conjunction with the 2017 Credit Agreement offset by higher interest rates on outstanding debt in 2017 compared to 2016.2021.


Loss on Extinguishment. The loss on extinguishment was due to the restatement and amendment of the 2014 Credit Agreement as the 2017 Credit Agreement, which resulted in a loss on debt extinguishment of approximately $4 million.

Income Tax Expense. Income tax expense decreasedincreased to $42$117 million in 2017 compared to $522022, from $111 million in 2016. Without2021, as a result of higher income before income taxes, the effectrelease of discrete items, income tax expense would have increased by approximately $12 million. Discrete items resultedreserves due to recent audit settlements which were recorded in a reduction in tax expense of approximately $22 million including the revaluation of the deferred tax liability at the2021, and lower federal statutory tax rate resulting in a $7 million benefit. We also recognized approximately $8 million benefit in net research and development tax benefits related to the periods 2013-2017. Finally, we recognized $7 million benefit from the impact of the accounting rule change in ASU 2016-09 that provided for recognizing excess tax benefits on option exercises for the year ended December 31, 2022, partially offset by a decrease due to a gain recognized for the year ended December 31, 2021 related to an international restructuring.

For a comparison of our results of operations for the fiscal year ended December 31, 2021 to the year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in income tax expense as compared to additional paid in capital,our Report for the year ended December 31, 2021, which was filed with the treatment prior to 2017.SEC on February 23, 2022.


Comparison of Business Segment Results for Year Ended December 31, 20172022 and Year Ended December 31, 20162021


We manage our business geographically in two operating segments, with ourthe primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes the U.K., Spain, GermanyEurope, Asia-Pacific and France.Latin America. Management relies on an internal management reporting process that provides revenuesrevenue and operating segment EBITDA, which is our net income (loss) before interest income (expense) and other income (expense), loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of ourthe business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.


SegmentRevenues. North America revenues increased to $934$2.1 billion for the year ended December 31, 2022, from $1.9 billion for the year ended December 31, 2021. The $138 million increase in North America revenues was attributable to increases in revenues for several of our services. CoStar revenues increased $113 million due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as an increase in subscribers.
46


Multifamily revenues increased $67 million, primarily due to increases in pricing on renewals and, to a lesser extent, an increase in properties listed. Other marketplaces revenue increased $19 million primarily driven by increases in Ten-X and Land for Sale revenue and, to a lesser extent, an increase in revenue for BizBuySell. LoopNet revenues increased $19 million, primarily as a result of stronger site traffic, which drove an increase in the price per advertisement as compared to the prior year. Information services revenue increased $11 million primarily due to increases of $7 million and $4 million in revenue for our CoStar Real Estate Manager and STR service offerings, respectively. International revenues increased to $76 million in 2022, from $67 million in 2021. The $10 million increase in International revenues was driven by increases in sales of LoopNet products, including the acquisition of BureauxLocaux, and, to a lesser extent, increased revenue from the acquisition of Business Immo.

Segment EBITDA. North America EBITDA increased to $577 million for the year ended December 31, 2017, compared to $8092022, from $557 million for the year ended December 31, 2016. This increase in North America revenues was primarily due to increased revenues of approximately $55 million from our Multifamily products, and an increase of $55 million in CoStar Suite from the continued growth of our subscription-based services due to successful cross-selling of our services to our customers in existing markets, combined with continued high renewal rates. International revenues increased to $31 million for the year ended December 31, 2017, compared to $28 million for the year ended December 31, 2016. This increase was primarily due to continued growth of our subscription-based information services resulting from sales of CoStar Suite. 

Segment EBITDA. North America EBITDA increased to $237 million for the year ended December 31, 2017, compared to $211 million for the year ended December 31, 2016.2021. The increase in North America EBITDA was due primarily to an increase in revenues of $125 million primarily offset by increased personnel costs from additional investments in our research operations and the opening of our Richmond research headquarters as well as increased legal costs. International EBITDA decreased to $1 million


for the year ended December 31, 2017, compared to $4 million for the year ended December 31, 2016. This decrease in International EBITDA was primarily due to an increase in personnel costs from the relocation of our European research headquarters from Glasgow, Scotland to London, Englandrevenue and as a result of increased headcount from investments in our International research operations in Madrid, Spain and the U.K.





Comparison of Year Ended December 31, 2016 and Year Ended December 31, 2015

The following table provides a comparison of our selected consolidated results of operations for the year ended December 31, 2016 and 2015 (in thousands of dollars):

 2016 2015 Increase (Decrease) ($) Increase (Decrease) (%)
Revenues       
CoStar Suite$408,456
 $360,440
 $48,016
 13 %
Information services77,178
 75,790
 1,388
 2
Multifamily224,835
 160,630
 64,205
 40
Commercial property and land127,161
 114,904
 12,257
 11
Total revenues                                                 837,630
 711,764
 125,866
 18
Cost of revenues                                                 173,814
 188,885
 (15,071) (8)
Gross profit                                                                          663,816
 522,879
 140,937
 27
Operating expenses: 
      
Selling and marketing (excluding customer base amortization)296,483
 302,226
 (5,743) (2)
Software development                                              76,400
 65,760
 10,640
 16
General and administrative                                              123,297
 115,507
 7,790
 7
Customer base amortization                                              22,731
 27,931
 (5,200) (19)
Total operating expenses                                                 518,911
 511,424
 7,487
 1
Income from operations                                                 144,905
 11,455
 133,450
 NM
Interest and other income                                  1,773
 537
 1,236
 NM
Interest and other expense(10,016) (9,411) 605
 6
Income before income taxes                                                 136,662
 2,581
 134,081
 NM
Income tax expense51,591
 6,046
 45,545
 NM
Net income (loss)                                                 $85,071
 $(3,465) $88,536
 NM

Revenues. Revenues increased to $838 million in 2016, from $712 million in 2015. The $126 million increase was primarily attributable to increased revenues of approximately $64 million from our Apartments Network primarily related to the acquisition of Apartment Finder on June 1, 2015 as well as continued organic growth in CoStar Suite and Multifamily revenues.

Gross Profit. Gross profit increased to $664 million in 2016, from $523 million in 2015. The gross margin percentage increased to 79% in 2016, from 73% in 2015. The increase in the gross profit amount and percentage was principally due to an increase in revenues as well as a decrease in cost of revenues of $15 million. The decrease inmarketing costs, of revenues is primarily due to a $7 million decrease in the amortization of intangible assets and a $6 million decrease in research personnel costs.

Selling and Marketing Expenses. Selling and marketing expenses decreased to $296 million in 2016, from $302 million in 2015, and decreased as a percentage of revenues to 35% in 2016, from 42% in 2015. The decrease in the amount and percentage of selling and marketing expenses was primarily due to a $19 million decrease in marketing expense for the wide-scale marketing campaign to generate brand awareness and site traffic for Apartments.com, partially offset by a $14 million increaseincreases in sales personnel costs.



Software Development Expenses. Software development expenses increased to $76 million in 2016, from $66 million in 2015, and remained relatively consistent as a percentage of revenues at 9% in 2016 and 2015. The increase in the amount of software development expense was primarily due to an increase in personnel costs to support enhancements and upgrades to our services and continued work to integrate the backend systems of the LoopNet and CoStar databases.

General and Administrative Expenses. General and administrative expenses increased to $123 million in 2016, from $116 million in 2015, and decreased as a percentage of revenues to 15% in 2016 from 16% in 2015. The increase in the amount of general and administrative expenses was primarily due to legal costs related to litigation of approximately $6 million incurred during 2016 that did not occur during 2015, as well as an increase in lease restructuring charges of $2 million for the abandonment of certain lease space and the impairment of leasehold improvements in 2016 compared to 2015.

Customer Base Amortization Expense. Customer base amortization expensepersonnel costs. International EBITDA decreased to approximately $23 million in 2016, from $28 million in 2015, and decreased as a percentage of revenues to 3% in 2016, compared to 4% in 2015. The decrease in the amount and percentage of customer base amortization expense was primarily due to the accelerated amortization of acquired customer bases in 2015 as compared to 2016.

Interest and Other Income. Interest and other income increased to approximately $2 million in 2016 compared to approximately $537,000 in 2015. The increase was primarily due to a realized gain of approximately $808,000 on investments in auction rate securities (“ARS”) in 2016 that did not occur in 2015.

Interest and Other Expense. Interest and other expense remained relatively consistent at $10 million in 2016 compared to $9 million in 2015.

Income Tax Expense. Income tax expense increased to $52 million in 2016 compared to $6 million in 2015. This increase was primarily due to higher income before income taxes in 2016 as compared to 2015 as a result of our increased revenues.


Comparison of Business Segment Results for Year Ended December 31, 2016 and Year Ended December 31, 2015

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which includes the U.K., Spain, Germany and France. Management relies on an internal management reporting process that provides revenues and operating segment EBITDA, which is our net income (loss) before interest, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure our operating and management performance and to evaluate the performance of our business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

SegmentRevenues. North America revenues increased to $809$5 million for the year ended December 31, 2016, compared to $6872022 from $8 million for the year ended December 31, 2015. This increase in North America revenues2021. The decrease was primarily due to increased revenues of approximately $64 million from our Apartments Network, as well as the further penetrationpersonnel, general and administrative, and marketing costs, partially offset by, an increase in revenue.

For a comparison of our subscription-based servicesbusiness segment results of operations for the fiscal year ended December 31, 2021 to the year ended December 31, 2020, see Item 7, Management’s Discussion and successful cross-sellingAnalysis of Financial Condition and Results of Operations in our services to our customers in existing markets, combined with continued high renewal rates. International revenues increased to $28 millionReport for the year ended December 31, 2016, compared to $25 million for the year ended December 31, 2015. This increase2021, which was primarily due to further penetration of our subscription-based information services resulting from sales of CoStar Suite. 

Segment EBITDA. North America EBITDA increased to $211 million for the year ended December 31, 2016, compared to $87 million for the year ended December 31, 2015. The increase in North America EBITDA was due primarily to an increase in revenues. International EBITDA increased to $4 million for the year ended December 31, 2016, compared to $3 million for the year ended December 31, 2015. This increase in International EBITDA was primarily due to an increase in revenues.



Consolidated Quarterly Results of Operations

The following tables present our unaudited consolidated results of operations on a quarterly basis for the indicated periods (in thousands, except per share amounts, and as a percentage of total revenues). These tables should be read in conjunctionfiled with the consolidated financial statements and related notes included in this Annual ReportSEC on Form 10-K. The quarterly results of historical periods are not necessarily indicative of quarterly results for any future period.February 23, 2022.


 2017 2016
 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues$226,553
 $237,153
 $247,533
 $253,991
 $199,739
 $206,869
 $212,711
 $218,311
Cost of revenues51,346
 55,273
 55,483
 58,301
 42,900
 42,679
 42,222
 46,013
Gross profit                                                                          175,207
 181,880
 192,050
 195,690
 156,839
 164,190
 170,489
 172,298
Operating expenses137,545
 153,997
 134,537
 144,932
 126,538
 136,071
 130,893
 125,409
Income from operations37,662
 27,883
 57,513
 50,758
 30,301
 28,119
 39,596
 46,889
Interest and other income429
 605
 555
 2,455
 84
 159
 344
 1,186
Interest and other expense(2,686) (2,693) (2,901) (734) (2,509) (2,455) (2,498) (2,554)
Loss on debt extinguishment
 
 
 (3,788) 
 
 
 
Income (loss) before income taxes35,405
 25,795
 55,167
 48,691
 27,876
 25,823
 37,442
 45,521
Income tax expense13,275
 3,611
 20,990
 4,487
 11,155
 10,247
 14,241
 15,948
Net income$22,130
 $22,184
 $34,177
 $44,204
 $16,721
 $15,576
 $23,201
 $29,573
Net income per share — basic$0.69
 $0.68
 $1.05
 $1.24
 $0.52
 $0.48
 $0.72
 $0.92
Net income per share — diluted$0.68
 $0.68
 $1.04
 $1.22
 $0.52
 $0.48
 $0.72
 $0.91

 2017 2016
 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenues23
 23
 22
 23
 21
 21
 20
 21
Gross profit                                                                          77
 77
 78
 77
 79
 79
 80
 79
Operating expenses60
 65
 55
 58
 64
 65
 61
 58
Income from operations17
 12
 23
 19
 15
 14
 19
 21
Interest and other income
 
 
 1
 
 
 
 1
Interest and other expense(1) (1) (1) 
 (1) (1) (1) (1)
Loss on debt extinguishment
 
 
 (1) 
 
 
 
Income before income taxes16
 11
 22
 19
 14
 13
 18
 21
Income tax expense6
 2
 8
 2
 6
 5
 7
 7
Net income                                                      10 % 9 % 14 % 17 % 8 % 8 % 11 % 14 %

Liquidity and Capital Resources


Our principal sourcesWe believe the balance of liquidity are cash and cash equivalents, and cash from operations. Total cash and cash equivalents increased to $1which was $5.0 billion atas of December 31, 2017 compared2022, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our material cash equivalentsrequirements include the following contractual and other obligations.

Debt. As of $567 million at December 31, 2016. The increase in cash2022, we had outstanding an aggregate principal amount of $1.0 billion of Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $224 million, with $28 million payable within 12 months.

Leases. We have lease arrangements for office facilities, data centers and cash equivalents for the year endedcertain vehicles. As of December 31, 2017 was2022, we had fixed lease payment obligations of $118 million, with $39 million payable within 12 months.

Purchase Obligations. Our purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily duerelate to $834web hosting, third-party data or listings and software subscriptions. As of December 31, 2022, we had purchase obligations of $85 million, with $45 million payable within 12 months.

Construction Commitments. We plan to expand our Richmond, Virginia campus which is expected to result in net proceeds from our public equity offeringa material cash requirement in October 20172023 and beyond. We broke ground on the expansion in November 2022 and expect construction to be completed in 2025. We negotiated various tax incentives with the Commonwealth of 3,317,308 sharesVirginia and the City of common stockRichmond including the allowance to use market-based income apportionment for $260.00 per share after deducting underwriting discountsincome taxes and fees of $29 million. In addition, the Company generated net cash provided by operating activities of approximately $235 million, partially offset by debt payments of $345 million, purchasepartial reimbursements of property equipment and other assets of approximately $24 million, and payments made for acquisitions including LandWatch, Westside Rentals and The Screening Pros totaling approximately $48 million.



Changes in cash and cash equivalents are dependent upon changes in, among other things, working capital items such as accounts receivable, accounts payable, accrued expenses and deferred revenues, as well as proceeds from the exercise of stock options offset by issuance of shares to cover taxes.

Net cash provided by operating activities for the year ended December 31, 2017 was $235 million compared to $201 million for the year ended December 31, 2016 and $140 million for the year ended December 31, 2015. The $34 million and $61 million increase from December 31, 2016 to December 31, 2017 and from December 31, 2015 to December 31, 2016, respectively, is primarily due to higher income from operations in both periods. Income from operations was partially offset fluctuations in working capital.

Net cash used in investing activities for the year ended December 31, 2017 was $72 million compared to $23 million for the year ended December 31, 2016 and $216 million for the year ended December 31, 2015. The $49 million increase in investing activities in 2017 compared to 2016 was primarily due to the increase in cash used for acquisitions from 2016 to 2017. 2017 included cash payments for the acquisitions of Westside Rentals for $14 million, a $31 million payment for LandWatch and a $3 million payment for the acquisition of The Screening Pros. During 2017, we incurred capital expenditures of approximately $24 million primarily related to computer equipment and leasehold improvements for build out of sales office space. We expect capital expenditures to increase in 2018tax assessments related to the build out of leased office space, including the Richmond research headquarters, as well as investments in technology.

The $192 million decrease in investing activities in 2016 compared to 2015 was primarily due to the decrease in cash used for acquisitions from 2015 to 2016. The $182 million of net cash used for acquisitions in 2015 included $179 million for the acquisition of Apartment Finder and certain assets related to the business operations of Apartment Finder's independent distributors as well as $3 million for the acquisitionvalue of the assetscampus expansion. These incentives are conditional upon achieving job creation and capital expenditure targets from 2022 to 2029. Failure to meet these targets, could result in a reduction of Belbex Corporate, S.L. In 2016, we spent $10 million for the acquisitionsvalue of Thomas Dailythe tax incentives and certain assets relatedrepayment of previous tax reductions. The value of the incentives is dependent on our expected taxable income.

We expect the total cost of construction, net of the estimated value of the tax incentives from 2023 to 2032, to be in the business operationsrange of Apartment Finder's independent distributors. During 2016, we incurred capital expenditures$450 – $550 million. We have engaged a project manager, architects and a general contractor on terms that generally require payments as services are provided or construction is performed. As of approximately $19 million primarily related to computer equipment and leasehold improvements for build out of sales office space.

Net cash provided by financing activities for the year ended December 31, 2017 was $4802022, we have paid $17 million comparedand we have committed to netspend an additional $148 million as further work is performed under these contracts. We plan to amend these contracts to include additional commitments as construction progresses. Total cash used in financing activities of $31 millionexpenditures for 2023 are expected to be approximately $200 million. We expect to fund the year ended December 31, 2016 and $29 million in December 31, 2015. This $511 million increase from 2016 to 2017 was primarily due to $834 million in net proceeds from our equity offering offset by an increase in debt repayments in 2017 of $325 million.expansion with cash on hand.


Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions. On January 31, 2017, we acquired Westside Rentals; on May 10, 2017, we acquired LandWatch;

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Cash and on July 18, 2017, we acquired The Screening Pros. On February 21, 2018, we completed the acquisition of ForRent, a division of Dominion Enterprises, for approximately $350 million in cash and approximately $35 million in CoStar Group stock, subjectequivalents increased to customary working capital and other post-closing adjustments. Our future acquisitions may vary in size and could be material to our current operations. We may use cash, stock, debt or other means of funding to make these acquisitions.  

On October 19, 2017, the Company entered into the ‘‘2017 Credit Agreement’’, which amended and restated in its entirety the existing 2014 Credit Agreement. The 2017 Credit Agreement provides for a $750 million revolving credit facility with a term of five years from a syndicate of financial institutions as lenders and issuing banks. The Company had not drawn on the 2017 Credit Agreement$5.0 billion as of December 31, 2017.

Based on current plans, we believe that2022, compared to cash and cash equivalents of $3.8 billion as of December 31, 2021. The increase in cash and cash equivalents for the year ended December 31, 2022 was primarily due to $746 million of net proceeds from our available cash combined with positiveSeptember 2022 equity offering and cash flow from operations of $479 million.

Net cash provided by operating activities should be sufficient to fund our operations for at least the next 12 months.

Contractual Obligations. The following table summarizes our principal contractual obligations at year ended December 31, 20172022 was $479 million compared to $470 million for the year ended December 31, 2021. The $9 million increase was due to an increase in net income, excluding certain non-cash expenses such as amortization of deferred commission costs and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

 Total 2018 2019-2020 2021-2022 Thereafter
Operating leases$178,402
 $30,853
 $54,061
 $47,427
 $46,061
Purchase obligations(1) 
11,953
 4,408
 4,615
 2,284
 646
Total contractual principal cash obligations$190,355
 $35,261
 $58,676
 $49,711
 $46,707




(1)Amounts do not include (i) contracts with terms of twelve months or less, (ii) multi-year contracts that may be terminatedstock-based compensation expense, partially offset by, a third-party or us, or (iii) employment agreements. Amounts do not include unrecognized tax benefitsincrease in working capital, excluding cash, of $13.4$51 million driven by an increase in capitalized commissions and decreases in income taxes payable, accounts receivable, and deferred revenue, partially offset by an increase in accounts payable and other accrued liabilities driven by payment of the $52 million termination fee pursuant to the Asset Purchase Agreement with RentPath in the first quarter of 2021.

Net cash used in investing activities for the year ended December 31, 2022 was $69 million compared to $381 million for the year ended December 31, 2021. The $312 million decrease in cash used in investing activities was primarily due to uncertainty regardinga decrease in cash paid for acquisitions of $187 million and for purchases of property, equipment and other assets including Richmond assets of $95 million, as well as, an increase in proceeds from sale of property and equipment and other assets of $29 million

Net cash provided by financing activities for the timingyear ended December 31, 2022 was $734 million compared to net cash used in financing activities of future$16 million for the year ended December 31, 2021. The increase in cash payments.

provided by financing activities was primarily due to $746 million of net proceeds from our September 2022 equity offering.


As permitted under the Coronavirus Aid, Relief and Economic Security Act, we deferred payroll taxes due in 2020; all amounts deferred were paid during the year ended December 31, 2021.

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Critical Accounting Policies and Estimates


The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider policies relating to the following matters to be critical accounting policies:


Long-lived assets, intangible assets and goodwill;
ValuationIncome taxes;
Revenue recognition; and
Business combinations.

With respect to our accounting policy for long-lived assets, intangible assets and goodwill, we further supplement in Note 2 of Long-Lived and Intangible Assets and Goodwillthe Notes to the Consolidated Financial Statements included in this Report with the following:


We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of long-lived assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:


Significant underperformance relative to historical or projected future operating results;
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
Significant negative industry or economic trends; or
Significant decline in our market capitalization relative to net book value for a sustained period.


When we determine that the carrying value of long-lived and identifiable intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.


Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.


Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of costspurchase consideration paid in a business combination over the fair value of assets of acquired businesses.the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit. The Companyunit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or elect to bypass suchthe qualitative assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company electswe elect to bypass suchthe qualitative assessment, the Companywe then determinesperform a quantitative assessment by determining the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies.companies and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections and anticipated future cash flows. These assumptions are subject to change from period to periodperiod-to-period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations.

The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference. We estimate

As of October 1, 2022, we performed an assessment of the relevant qualitative factors for our North America and International reporting units and concluded that it was not more likely than not that the fair value of oureach reporting units based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk in our current business model. As of October 1, 2017, the date of our most recent impairment analysis, the estimated fair value of each of our reporting units substantially exceeded theunit was less
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than its respective carrying value of our reporting units.amounts. There have been no events or changes in circumstances since the dateas a result of our qualitative impairment analysis on October 1, 2017,2022, that would indicate that the carrying value of each reporting unit may not be recoverable.








Revenue Recognition

We recognize revenues when (1) there is persuasive evidenceFor an in-depth discussion of an arrangement, (2) the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned and (4) collectability is reasonably assured. Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. We evaluate our allowance for doubtful accounts and estimate collectability of accounts receivable based on our analysis of historical collection experience, changes in customer payment profiles and the aging of receivable balances, as well as current economic conditions, all of which may affect a customer’s ability to pay. A credit reserve has also been established based on historical experience of credits issued to customers to ensure that revenue is recognized appropriately in the current period. Deferred revenue results from advance cash receipts from customers or amounts billed in advance to customers from the sale of subscription services and is recognized over the term of the service agreement.

We derive revenues by providing access to our proprietary database of commercial real estate information. We generally charge a fixed monthly amount for our subscription-based services. Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the internet to commercial real estate industry and related professionals. Subscription contract rates are based on the number of sites, number of users, organization size, the client’s business focus, geography, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results, as applicable. A majority of the subscription-based service agreements have a term of one year and renew automatically.

We analyze contracts with multiple elements under the accounting guidance for multiple-element arrangements. Our multiple-element arrangements include information, analytics and/or online marketplace services that are generally provided to the customer over the same term. When identifying multiple-element arrangements, we consider multiple purchases made by the same customer within a short time frame and assess whether the purchases were negotiated together as one overall arrangement. If a multiple-element arrangement is identified, then the arrangement consideration is allocated among the separate units of accounting based on their relative selling prices, which is estimated considering factors such as historical pricing, pricing strategy, market conditions and other factors. We account for each deliverable in the transaction separately. If the deliverables cannot be separated into multiple units of accounting, then the arrangement consideration is combined and recognition of revenues is determined for the combined unit of accounting. Multiple-element transactions require judgment to determine the selling price or fair value of the different elements. The judgments impact the amount of revenues recognized over the term of the contract, as well as the period in which they are recognized.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires us to estimate our current tax exposuresignificant accounting policies, including our critical accounting policies and assess the temporary differences resulting from differing treatment of items, such as deductibility of certain intangible assets, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that it is more-likely-than not that some portion or all of our deferred tax assets will not be realized, we must establish a valuation allowance. To the extent we establish a valuation allowance or change the allowance in a period, we must reflect the corresponding increase or decrease within the tax provision in the consolidated statements of operations.

We generally recognize the effect of the tax law changes in the period of enactment. Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of our deferred tax liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates. In accordance with SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we report provisional amounts if we are able to determine a reasonable estimate but do not have the necessaryfurther information available, prepared, and analyzed in reasonable detail to complete the accounting for Tax Reform. We may revise our estimates as we finalize our accounting during a measurement period of up to one year from the enactment of Tax Reform.



Stock-Based Compensation

We account for equity instruments issued in exchange for employee services using a fair-value based method and we recognize the fair value of such equity instruments as an expense in the consolidated statements of operations. We estimate the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model, which requires us to estimate the dividend yield, expected volatility, risk-free interest rate and expected life of the stock option. For equity instruments that vest based on a market condition, we estimate the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model, which also requires us to estimate the dividend yield, expected volatility, risk-free interest rate and expected life of the equity instruments. These assumptions and the estimation of expected forfeitures are based on multiple factors, including historical employee behavior patterns of exercising options and post-employment termination behavior, expected future employee option exercise patterns, and the historical volatility of our stock price. For equity instruments that vest based on performance, we assess the probability of the achievement of the performance conditions at the end of each reporting period, or more frequently based upon the occurrence of events that may change the probability of whether the performance conditions would be met. If our initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing of recognition may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed.

We do not expect any material changes in the near term to the underlying assumptions used to calculate stock-based compensation expense for the year ended December 31, 2017. However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our stock-based compensation expense.

Business Combinations

We allocate the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significantregarding estimates and assumptions especially with respect to intangible assets. Significant estimatesinvolved in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired database technology, and acquired trade names from a market participant's perspective, useful lives and discount rates. Duringtheir application, see Note 2 of the measurement period, we may record adjustmentsNotes to the assets acquired and liabilities assumed. Any adjustments to provisional amounts that are identified during the measurement period are recordedConsolidated Financial Statements included in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.this Report.


Fair Value of Auction Rate Securities

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy, which categorizes assets and liabilities by the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. Our Level 3 assets consist of auction rate securities ("ARS"), whose underlying assets are primarily student loan securities supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education.

Our ARS investments are not currently actively trading and therefore do not currently have a readily determinable market value. The estimated fair value of the ARS no longer approximates par value. We have used a discounted cash flow model to determine the estimated fair value of our investment in ARS as of December 31, 2017. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit spreads, timing and amount of contractual cash flows, liquidity risk premiums, expected holding periods and default risk of the ARS. We update the discounted cash flow model on a quarterly basis to reflect any changes in the assumptions used in the model and settlements of ARS investments that occurred during the period.

The only significant unobservable input in the discounted cash flow model is the discount rate. The discount rate used represents our estimate of the yield expected by a market participant from the ARS investments. The weighted average discount rate used in the discounted cash flow model as of December 31, 2017 and 2016 was approximately 6% and 5%, respectively. Selecting another discount rate within the range used in the discounted cash flow model would not result in a significant change to the fair value of the ARS.



Based on this assessment of fair value, as of December 31, 2017, we determined there was a net decline in the fair value of our ARS investments of approximately $730,000. The decline was deemed to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. If the issuers of these ARS are unable to successfully close future auctions and/or their credit ratings deteriorate, we may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments, which would reduce our profitability and adversely affect our financial position.

We have not made any material changes in the accounting methodology used to determine the fair value of the ARS. We do not expect any material changes in the near term to the underlying assumptions used to determine the unobservable inputs used to calculate the fair value of the ARS as of December 31, 2017. However, if changes in these assumptions occur, and, should those changes be significant, we may be exposed to additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments.

Recent Accounting Pronouncements


In March 2016, the FASB issued authoritative guidance to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of share-based payment transactions on the statement of cash flows. Effective the first quarter of 2017, the Company adopted the standard, which impacted our 2017 net income because excess tax benefits, which were previously reflected in additional paid in capital, are now reflected in income tax expense. The significance of the impact will depend on the intrinsic value at the time of vesting or exercise of equity instruments.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350: Simplifying the Test for Goodwill Impairment, which is designed to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The guidance indicates that an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective on a prospective basis for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted this guidance during the first quarter of 2017 and the early adoption did not have a material impact on the Company's consolidated financial statements and related disclosures.




See Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information onfurther discussion of recent accounting pronouncements, including the expected dates of adoption.


Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

We provide information, analytics and online marketplace services to the commercial real estate and related business community incommunities within the U.S., the U.K.,regions where we operate which primarily include, North America, Europe, Asia-Pacific and parts of Canada, Spain, Germany and France. OurLatin America. The functional currency for a majority of our operations in the U.K., Canada, Spain, Germany and France is the local currency. As such, fluctuationscurrency, with the exception of certain international locations for which the functional currency is the British Pound.

Fluctuations in the British Pound, Canadian dollar and Euro may have an impact on our business, results of operations and financial position. For the yearyears ended December 31, 2017,2022 and December 31, 2021, revenues denominated in foreign currencies waswere approximately 3%4% and 4%, respectively, of total revenue. For the yearyears ended December 31, 2017,2022 and December 31, 2021, our revenues would have decreased by approximately $3$8 million and $7 million, respectively, if the U.S. dollar exchange rate used strengthened by 10%. For the yearyears ended December 31, 2017,2022 and December 31, 2021, our revenues would have increased by approximately $3$8 million and $7 million, respectively, if the U.S. dollar exchange rate used weakened by 10%. Fluctuations in the exchange rates of revenues denominated in any other foreign currencies would have had an immaterial impact on our consolidated results. In addition, we have assets and liabilities denominated in foreign currencies. We currently do not use financial instruments to hedge our exposure to exchange rate fluctuations with respect to our foreign subsidiaries. We may seek to enter into hedging transactions in the future to reduce our exposure to exchange rate fluctuations, but we may be unable to enter into hedging transactions successfully, on acceptable terms or at all. As of December 31, 2017,2022, accumulated other comprehensive loss included a loss from foreign currency translation adjustments of approximately $8$29.1 million.


We do not believe we have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of December 31, 2017.2022. As of December 31, 2017,2022, we had $1$5.0 billion of cash and cash equivalents and short-term investments.equivalents. If there is an increase or decrease in interest rates, there will be a corresponding increase or decrease in the amount of interest earned on our cash and cash equivalents.

Included within our short-term and long-term investments are investments in mostly AAA-rated student loan ARS. These securities are primarily securities supported by guarantees from the FFELP of the U.S. Department of Education. As of December 31, 2017, $11 million of our investments in ARS failed to settle at auction. As a result, we may not be able to sell these investments at par value until a future auction on these investments is successful. In the event we need to immediately liquidate these investments, we may have to locate a buyer outside the auction process, who may be unwilling to purchase the investments at par, resulting in a loss. Based on an assessment of fair value of these investments in ARS as of December 31, 2017, we determined that there was a decline in the fair value of our ARS investments of approximately $730,000, which was deemed to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. If the issuers are unable to successfully close future auctions and/or their credit ratings deteriorate, we may be required to adjust the carrying value of these investments as a temporary impairment and recognize a greater unrealized loss in accumulated other comprehensive loss or as an other-than-temporary impairment charge to earnings. Based on our ability to access We currently diversify our cash and cash equivalents holdings amongst multiple financial institutions.

We are subject to interest rate market risk in connection with our revolving credit facility. On July 1, 2020, we entered into the 2020 Credit Agreement, which provides for variable rate borrowings of up to $750 million. On July 1, 2020, we issued $1.0 billion aggregate principal amount of Senior Notes. Changes in interest rates would not have a material impact to our current interest and debt financing expense, as all of our expected operating cash flows, we do not anticipate having to sell these securities below par value in order to operateborrowings except for our business in the foreseeable future.credit facility are fixed rate, and no amounts were outstanding under our credit facility as of December 31, 2022. See Notes 3 and 4 toNote 11 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.additional information regarding our 2020 Credit Agreement.


We had approximately $1.5$2.6 billion inof goodwill and intangible assets as of December 31, 2017.2022. As of December 31, 2017,2022, we believe our intangible assets will be recoverable,recoverable; however, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. In the event that we determine that an asset has been impaired, we would recognize an impairment charge equal to the amount by which the carrying amount of the assets exceeds the fair value of the asset. We continue to monitor these assumptions and their effect on the estimated recoverability of our intangible assets.




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Item 8.Financial Statements and Supplementary Data

Item 8.    Financial Statements and Supplementary Data

Financial Statements meeting the requirements of Regulation S-X, including reports of independent registered public accounting firm Ernst & Young LLP, are set forth beginning at page F-1. Supplementary data is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Consolidated Results of Operations” and “Consolidated Quarterly Results of Operations.”


Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.Controls and Procedures

Item 9A.    Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.


As of December 31, 2017,2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.procedures as of the end of the fiscal year. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 and were operating at a reasonable assurance level.


During the fourth quarter of 2017, we commenced the implementation ofWe continue to implement a new financial system that is designed to improve the efficiency and effectiveness of the Company’sour operational and financial accounting processes. This implementation is expected to continue through 2019.be a multi-year project. Consistent with any process change that we implement, the design of the internal controls has and will continue to be evaluated for effectiveness as part of our overall assessment of the effectiveness of our disclosure controls and procedures. We expect that the implementation of this system will improve our internal controlscontrol over financial reporting.

Other than the implementation of a new financial system noted above, there have been no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting


Management of CoStar Group is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission,SEC, internal control over financial reporting is a process designed by, or supervised by, the Company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.


The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


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In connection with the preparation of the Company's annual financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172022 based on criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”).Commission. Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of the Company's internal control over financial reporting.




Based on this assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2017.2022.


Ernst & Young LLP, the independent registered public accounting firm that audited the Company's financial statements included in this report, has issued an attestation report on the effectiveness of internal control over financial reporting, a copy of which is included in this Annual Report on Form 10-K.Report.


On January 31, 2017, we completed the acquisition of Westside Rentals. On May 10, 2017, we completed the acquisition of LandWatch. On July 18, 2017, we completed the acquisition of The Screening Pros. As permitted by the Securities and Exchange Commission, we have elected to exclude the accounts receivable and revenue of Westside Rentals, LandWatch, and The Screening Pros from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. The excluded aggregate financial position of Westside Rentals, LandWatch, and The Screening Pros represented less than 1% of our total assets as of December 31, 2017, and less than 2% of our revenues for the year then ended. We will include the internal controls of Westside Rentals, LandWatch, and The Screening Pros accounts receivable and revenue in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018.




During the fourth quarter of 2017, we commenced the implementation of a new financial system that is designed to improve the efficiency and effectiveness of the Company’s operational and financial accounting processes. This implementation is expected to continue through 2019. Consistent with any process change that we implement, the design of the internal controls has and will continue to be evaluated for effectiveness as part of our overall assessment of the effectiveness of our disclosure controls and procedures.

Other than the implementation of a new financial system noted previously, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information.

Item 9B.    Other Information.

None.


Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART III


Item 10.Directors, Executive Officers and Corporate Governance

Item 10.    Directors, Executive Officers and Corporate Governance

CoStar Group has adopted a Code of Conduct for its directors. In addition, CoStar Group has adopted a separate Code of Business Conduct and Ethics for its officers and employees, including its principal executive, financial and accounting officers, or persons performing similar functions. Copies of each of these codes may be found in the “Investors” section of the Company’s website at http:https://www.costargroup.com/investors/governance.investors.costargroup.com/leadership. We intend to disclose future amendments to certain provisions of our Codes, or waivers of such provisions granted to executive officers and directors, as required by the SEC rules on the Company's website within four business days following the date of such amendment or waiver.


The remaining information required by this Item is incorporated by reference to our Proxy Statement for our 20182023 annual meeting of stockholders.stockholders under the captions “Nominees for the Board of Directors,” “Nominees’ Business Experience, Qualifications and Directorships,” “Executive Officers,” “Board Meetings and Committees,” and, if applicable, “Delinquent Section 16(a) Reports.”


Item 11.
Item 11.    Executive Compensation


The information required by this Item is incorporated by reference to our Proxy Statement for our 20182023 annual meeting of stockholders.stockholders under the captions “Compensation Discussion and Analysis,” “Executive Compensation Tables and Discussion,” “Narratives to Summary Compensation Table and Grants of Plan-Based Awards Table,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”


Item 12.
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The information required by this Item is incorporated by reference to our Proxy Statement for our 20182023 annual meeting of stockholders.stockholders under the captions “Equity Compensation Plan Information” and “Stock Ownership Information.”


Item 13.
Item 13.    Certain Relationships and Related Transactions, and Director Independence


The information required by this Item is incorporated by reference to our Proxy Statement for our 20182023 annual meeting of stockholders.stockholders under the captions “Certain Relationships and Related Transactions” and “Corporate Governance Matters.”


Item 14.
Item 14.    Principal Accountant Fees and Services


The information required by this Item is incorporated by reference to our Proxy Statement for our 20182023 annual meeting of stockholders.stockholders under the caption “Ratification of the Appointment of Independent Registered Public Accounting Firm.”

52




PART IV


Item 15.Exhibits and Financial Statement Schedules

Item 15.    Exhibits and Financial Statement Schedules

(a)(1) The following financial statements are filed as a part of this report:Report: CoStar Group, Inc. Consolidated Financial Statements.


(a)(2) Financial statement schedules:

Schedule II – Valuation and Qualifying Accounts
Years Ended December 31, 2017, 2016, and 2015 (in thousands):

Allowance for Doubtful Accounts and Billing Adjustments (1)
 
Balance at
Beginning
of Year
 
Charged to
Expense
 
Charged to
Other
Accounts (2)
 
Write-offs,
Net of
Recoveries
 
Balance at
End of Year
Year ended December 31, 2015 $4,815
 $7,002
 $1,470
 $5,809
 $7,478
Year ended December 31, 2016 $7,478
 $7,358
 $
 $8,492
 $6,344
Year ended December 31, 2017 $6,344
 $5,690
 $
 $5,565
 $6,469

(1)
Additions to the allowance for doubtful accounts are charged to bad debt expense.

(2)
Amounts represent opening balances from acquired businesses.

Additional financial statement schedules are omitted because they are not applicable or not required or because the required information is incorporated herein by reference or included in the financial statements or related notes included elsewhere in this report.


(a)(3) The documents required to be filed as exhibits to this Report under Item 601 of Regulation S-K are listed as follows:


Exhibits
Exhibit No.Description
Exhibit No.Description
ThirdFourth Amended and Restated Certificate of Incorporation of CoStar Group, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the CommissionSEC on June 6, 2013)7, 2021).
ThirdFourth Amended and Restated By-Laws of CoStar Group, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the CommissionSEC on September 24, 2013)May 9, 2022).
Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of the Registrant (Reg. No. 333-174214) filed with the CommissionSEC on June 3, 2011).
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K filed with the SEC on February 23, 2022).
Indenture, dated as of July 1, 2020, by and among CoStar Group, Inc., as issuer, the guarantors named therein and Wilmington Trust, National Association, as trustee, relating to the 2.800% Senior Notes due 2030, including the form of 2.800% Senior Notes due 2030 (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 1, 2020).
CoStar Group, Inc. 2016 Stock Incentive Plan (Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 of the Registrant (Reg. No. 333-212278) filed with the CommissionSEC on June 28, 2016).
First Amendment to the CoStar Group, Inc. 2016 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed April 25, 2018).
CoStar Group, Inc. 2007 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 8, 2012).
CoStar Group, Inc. 2007 Stock Incentive Plan French Sub-Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Report on Form 10-K filed February 29, 2008).
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Grant Agreement for Service Awards between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Restricted Stock Unit Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).


Exhibit No.Description
Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
53


Exhibit No.Description
Form of CoStar Group, Inc. 2016 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
Form of 2007 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed June 22, 2007).
Form of 2007 Plan Restricted Stock Unit Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.8 to the Registrant's Report on Form 10-K filed February 20, 2014).
Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.8 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.9 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers and employees (Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its directors (Incorporated by reference to Exhibit 10.11 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.12 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of 2007 Plan French Sub-Plan Restricted Stock Agreement between the Registrant and certain of its employees (Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K filed February 29, 2008).
CoStar Group, Inc. 2016 Cash Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2016).
CoStar Group, Inc.Second Amended and Restated Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 filed with the CommissionSEC on September 14, 2015)July 28, 2021).
CoStar Group, Inc. Management Stock Purchase Plan (filed herewith)(Incorporated by reference to Exhibit 10.21 to the Registrant’s Report on Form 10-K filed February 23, 2018).
Summary of Non-Employee Director Compensation (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q filed on October 24, 2013).
Employment Agreement for Andrew C. Florance (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-1 of the Registrant (Reg. No. 333-47953) filed with the CommissionSEC on April 27, 1998).
First Amendment to Andrew C. Florance Employment Agreement, effective January 1, 2009 (Incorporated by reference to Exhibit 10.16 to the Registrant’s Report on Form 10-K filed February 24, 2009).
Form of Indemnification Agreement between the Registrant and each of its officers and directors (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q filed on May 7, 2004).
Deed of Office Lease by and between GLL L-Street 1331, LLC and CoStar Realty Information, Inc., dated February 18, 2011, and made effective as of June 1, 2010 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on form 10-Q filed on April 29, 2011).
Securities PurchaseSecond Amended and Restated Credit Agreement, dated as of September 11, 2017,July 1, 2020, by and among CoStar Group, Inc., as borrower, CoStar Realty Information, Inc., CoStar Group, Inc.as co-borrower, the lenders party thereto and Bank of America, N.A., LTM Company Dominion, LLC, Dominion Enterprises, and Landmark Media Enterprises, LLCas administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the CommissionSEC on September 13, 2017).


Exhibit No.DescriptionJuly 1, 2020)
Amendment and Restatement Agreement, dated as of October 19, 2017, by and among CoStar Group, Inc., CoStar Realty Information, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by referenced to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 25, 2017).
Subsidiaries of the Registrant (filed herewith).
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed(furnished herewith).
54


Exhibit No.Description
Certification of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed(furnished herewith).
101101.INSThe following materialsfinancial statements from CoStar Group, Inc.’sthe Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2022, formatted in XBRL (eXtensible Business Reporting Language):Inline XBRL: (i) Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, respectively;Operations; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015, respectively;Income; (iii) Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, respectively;Sheets; (iv) Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015, respectively; (v) Consolidated Statements of Cash FlowsFlows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104The cover page from the Registrant's Annual Report on Form 10-K for the yearsyear ended December 31, 2017, 2016 and 2015, respectively; (vi) Notes to the Consolidated Financial Statements that have been detail tagged; and (vii) Schedule II – Valuation and Qualifying Accounts (submitted electronically with this report)2022, formatted in Inline XBRL (included as Exhibit 101).

* Management Contract or Compensatory Plan or Arrangement.












55



Item 16.Form 10-K Summary

Item 16.Form 10-K Summary
Not applicable.
None.
56


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on the 22nd day of February 2018.authorized.
 
COSTAR GROUP, INC.
By:/s/ Andrew C. Florance
February 22, 2023Andrew C. Florance
President and Chief Executive Officer


KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Andrew C. Florance and Scott T. Wheeler, and each of them individually, as their true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto and to all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herein by ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.



57



Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
SignatureCapacityDate
/s/ Michael R. KleinChairman of the BoardFebruary 22, 2023
Michael R. Klein
/s/ Andrew C. FloranceChief Executive Officer andFebruary 22, 2023
Andrew C. FlorancePresident and a Director
(Principal Executive Officer)
/s/ Scott T. WheelerChief Financial OfficerFebruary 22, 2023
Scott T. Wheeler(Principal Financial and Accounting Officer)
/s/ Michael J. GlossermanDirectorFebruary 22, 2023
Michael J. Glosserman
/s/ John W. HillDirectorFebruary 22, 2023
John W. Hill
/s/ Laura Cox KaplanDirectorFebruary 22, 2023
Laura Cox Kaplan
/s/ Christopher J. NassettaDirectorFebruary 22, 2023
Christopher J. Nassetta
Signature/s/ Louise S. SamsCapacityDirectorDateFebruary 22, 2023
Louise S. Sams
/s/ Michael R. KleinRobert W. MusslewhiteChairman of the BoardDirectorFebruary 22, 20182023
Michael R. KleinRobert W. Musslewhite
/s/ Andrew C. FloranceChief Executive Officer andFebruary 22, 2018
Andrew C. FlorancePresident and a Director
(Principal Executive Officer)
/s/ Scott T. WheelerChief Financial OfficerFebruary 22, 2018
Scott T. Wheeler(Principal Financial and Accounting Officer)
/s/ Michael J. GlossermanDirectorFebruary 22, 2018
Michael J. Glosserman
/s/ Warren H. HaberDirectorFebruary 22, 2018
Warren H. Haber
/s/ John W. HillDirectorFebruary 19, 2018
John W. Hill
/s/ Laura Cox KaplanDirectorFebruary 22, 2018
Laura Cox Kaplan
/s/ Christopher J. NassettaDirectorFebruary 20, 2018
Christopher J. Nassetta
/s/ David J. SteinbergDirectorFebruary 21, 2018
David J. Steinberg

58




COSTAR GROUP, INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 42)
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets 
StatementConsolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

F-1



Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of CoStar Group, Inc.


Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. (the Company) as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive income, (loss), stockholders'changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2022 and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172022 and 2016,2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report datedFebruary 22, 20182023 expressed an unqualified opinion thereon.

Basis for Opinion


These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter


The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2


Highly Automated Revenue Systems related to Subscription Revenue
Description of the MatterAs described in Note 2 to the consolidated financial statements, the Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate information and (ii) providing online marketplaces for professional property management companies, property owners, real estate agents and brokers and landlords, in each case, typically through a fixed fee for its subscription-based services. Revenues from subscription-based contracts are approximately 93% of total revenues for the current year and are recognized on a straight-line basis over the term of the agreement. The Company’s revenue recognition process involves several applications responsible for the initiation, processing, and recording of transactions. These applications interface with the Company’s enterprise resource planning system through automated and manual journal entries to accurately reflect revenue.
The process to calculate, aggregate, and record revenue relies on multiple internally developed and external tools and systems and involves interfacing significant volumes of data across the systems. Auditing the Company's accounting for revenue from subscription-based contracts was challenging and complex due to the high volume of individually-low-monetary-value transactions, dependency on the effective design and operation of multiple applications, some of which are specifically designed for the Company's business, and the use of multiple data sources in the revenue recognition process. Given the complexity of the information technology (IT) environment, the required involvement of professionals with expertise in IT to identify, test, and evaluate the revenue data flows, systems, and automated controls, we considered the audit of the Company’s subscription revenue-generating transactions to be a critical audit matter.
How We Addressed the Matter in Our AuditWe performed procedures related to the Company’s internal controls that included, among others, obtaining an understanding, evaluating the design, and testing the operating effectiveness of internal controls over the Company’s accounting for subscription revenue. We tested the controls over the initiation and billing of new and recurring subscriptions, the provisioning of customers, and the Company’s cash to billings reconciliation process. We tested the controls related to the key application interfaces between the provisioning, billing, and accounting systems and tested IT general controls related to access to the relevant applications and data, and changes made to the relevant systems, configurations and interfaces.
We performed substantive audit procedures that included, among others, testing the Company’s accounting for revenue from contracts with customers, by testing, on a sample basis, the completeness and accuracy of the underlying data within the Company’s billing system. We performed data analytics by extracting data from the general ledger to evaluate the completeness and accuracy of recorded revenue and deferred revenue amounts, tracing a sample of sales transactions to source data, and testing a sample of cash to billings reconciliations.

/s/ Ernst & Young LLP




We have served as the Company’s auditor since 1994.


Tysons, Virginia
February 22, 20182023





F-3



Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of CoStar Group, Inc.


Opinion on Internal Control over Financial Reporting

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, CoStar Group, Inc.(the (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Westside Rentals, LandWatch and The Screening Pros related to accounts receivable and revenues, which are included in the 2017 consolidated financial statements of CoStar Group, Inc. and constituted less than 1% of total assets as of December 31, 2017 and less than 2% of revenues for the year then ended. Our audit of internal control over financial reporting of CoStar Group, Inc. did not include an evaluation of the internal control over financial reporting of Westside Rentals, LandWatch and The Screening Pros.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of CoStar Group, Inc. as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive income, (loss),changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 20172022 and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (Collectively referred to as the “financial statements”) of CoStar Group, Inc. and our report dated February 22, 20182023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP




Tysons, Virginia
February 22, 20182023


F-4

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

 Year Ended December 31,
202220212020
Revenues$2,182,399 $1,944,135 $1,659,019 
Cost of revenues414,008 357,241 308,968 
Gross profit1,768,391 1,586,894 1,350,051 
Operating expenses:   
Selling and marketing (excluding customer base amortization)684,222 622,007 535,778 
Software development220,923 201,022 162,916 
General and administrative338,737 256,711 299,698 
Customer base amortization73,560 74,817 62,457 
 1,317,442 1,154,557 1,060,849 
Income from operations450,949 432,337 289,202 
Interest income (expense), net32,125 (31,621)(17,395)
Other income (expense), net3,383 3,252 (827)
Income before income taxes486,457 403,968 270,980 
Income tax expense117,004 111,404 43,852 
Net income$369,453 $292,564 $227,128 
Net income per share — basic(1) 
$0.93 $0.75 $0.60 
Net income per share — diluted(1) 
$0.93 $0.74 $0.59 
Weighted-average outstanding shares — basic(1) 
396,284 392,210 380,726 
Weighted-average outstanding shares — diluted(1) 
397,752 394,160 383,266 

(1)Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.
 Year Ended December 31,
 2017 2016 2015
      
Revenues$965,230
 $837,630
 $711,764
Cost of revenues220,403
 173,814
 188,885
Gross profit744,827
 663,816
 522,879
      
Operating expenses: 
  
  
Selling and marketing (excluding customer base amortization)318,362
 296,483
 302,226
Software development88,850
 76,400
 65,760
General and administrative146,128
 123,297
 115,507
Customer base amortization17,671
 22,731
 27,931
 571,011
 518,911
 511,424
Income from operations173,816
 144,905
 11,455
Interest and other income4,044
 1,773
 537
Interest and other expense(9,014) (10,016) (9,411)
Loss on debt extinguishment(3,788) 
 
Income before income taxes165,058
 136,662
 2,581
Income tax expense42,363
 51,591
 6,046
Net income (loss)$122,695
 $85,071
 $(3,465)
      
Net income (loss) per share — basic $3.70
 $2.64
 $(0.11)
Net income (loss) per share — diluted $3.66
 $2.62
 $(0.11)
      
Weighted average outstanding shares — basic 33,200
 32,167
 31,950
Weighted average outstanding shares — diluted 33,559
 32,436
 31,950


See accompanying notes.
F-5

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

Year Ended December 31,
202220212020
Net income$369,453 $292,564 $227,128 
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment(23,317)(4,869)6,966 
Unrealized gain on investments— — 189 
Reclassification adjustment for realized loss on investments included in net income— — 541 
Total other comprehensive (loss) income, net of tax(23,317)(4,869)7,696 
Total comprehensive income$346,136 $287,695 $234,824 

  Year Ended December 31,
  2017 2016 2015
Net income (loss) $122,695
 $85,071
 $(3,465)
Other comprehensive loss, net of tax      
Foreign currency translation adjustment 3,901
 (5,032) (1,466)
Net decrease in unrealized loss on investments 118
 395
 256
Reclassification adjustment for realized gains on investments included in net income 
 (808) 
Total other comprehensive income (loss) 4,019
 (5,445) (1,210)
Total comprehensive income (loss) $126,714
 $79,626
 $(4,675)


See accompanying notes.


F-6

COSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

 December 31,
 20222021
ASSETS  
Current assets:  
Cash and cash equivalents$4,967,970 $3,827,126 
Accounts receivable166,140 138,191 
Less: Allowance for credit losses(12,195)(13,374)
Accounts receivable, net153,945 124,817 
Prepaid expenses and other current assets63,952 36,182 
Total current assets5,185,867 3,988,125 
Deferred income taxes, net9,722 5,034 
Lease right-of-use assets80,392 100,680 
Property and equipment, net321,250 271,431 
Goodwill2,314,759 2,321,015 
Intangible assets, net329,306 435,662 
Deferred commission costs, net142,482 101,879 
Deposits and other assets16,687 21,762 
Income tax receivable2,005 11,283 
Total assets$8,402,470 $7,256,871 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$28,460 $22,244 
Accrued wages and commissions104,988 81,794 
Accrued expenses89,113 81,676 
Income taxes payable10,438 31,236 
Lease liabilities36,049 26,268 
Deferred revenue103,567 95,471 
Total current liabilities372,615 338,689 
Long-term debt, net989,210 987,944 
Deferred income taxes, net76,202 98,656 
Income taxes payable14,001 12,496 
Lease and other long-term liabilities80,321 107,414 
Total liabilities1,532,349 1,545,199 
Stockholders’ equity:  
Preferred stock, $0.01 par value; 2 million shares authorized; zero outstanding— — 
Common stock, $0.01 par value; 1.2 billion shares authorized; 406,671 and 394,936 issued and outstanding as of December 31, 2022 and 2021, respectively4,066 3,946 
Additional paid-in capital5,065,511 4,253,318 
Accumulated other comprehensive loss(29,075)(5,758)
Retained earnings1,829,619 1,460,166 
Total stockholders’ equity6,870,121 5,711,672 
Total liabilities and stockholders’ equity$8,402,470 $7,256,871 
 December 31,
 2017 2016
ASSETS   
Current assets:   
Cash and cash equivalents$1,211,463
 $567,223
Accounts receivable, net of allowance for doubtful accounts of approximately $6,469 and $6,344 as of December 31, 2017 and 2016, respectively60,900
 48,537
Income tax receivable
 129
Prepaid expenses and other current assets15,572
 11,602
Total current assets1,287,935
 627,491
    
Long-term investments10,070
 9,952
Deferred income taxes, net5,431
 7,273
Property and equipment, net84,496
 87,568
Goodwill1,283,457
 1,254,866
Intangible assets, net182,892
 195,965
Deposits and other assets6,179
 1,948
Income tax receivable12,981
 
Total assets$2,873,441
 $2,185,063
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
Current liabilities: 
  
Current portion of long-term debt$
 $31,866
Accounts payable9,262
 11,478
Accrued wages and commissions54,104
 33,803
Accrued expenses22,193
 31,092
Deferred gain on the sale of building2,523
 2,523
Income taxes payable8,166
 3,814
Deferred rent4,732
 1,206
Deferred revenue45,686
 39,164
Total current liabilities146,666
 154,946
    
Long-term debt, less current portion
 306,473
Deferred gain on the sale of building16,192
 18,715
Deferred rent33,909
 31,589
Deferred income taxes, net12,070
 18,386
Income taxes payable13,354
 741
Total liabilities                                                                                                    222,191
 530,850
    
Commitments and contingencies (Note 10)                                                                                                   

 

    
Stockholders’ equity: 
  
Preferred stock, $0.01 par value; 2,000 shares authorized; none outstanding
 
Common stock, $0.01 par value; 60,000 shares authorized; 36,107 and 32,606 issued and outstanding as of December 31, 2017 and 2016, respectively361
 326
Additional paid-in capital2,339,253
 1,471,127
Accumulated other comprehensive loss(9,020) (13,039)
Retained earnings320,656
 195,799
Total stockholders’ equity2,651,250
 1,654,213
Total liabilities and stockholders’ equity$2,873,441
 $2,185,063
F-7
See accompanying notes.


COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)



Common Stock(1)
Additional
Paid-In Capital(1)
Accumulated
Other
Comprehensive Loss
Retained
Earnings
Total
Stockholders’
Equity
 SharesAmount
Balance at December 31, 2019366,806 $3,668 $2,470,036 $(8,585)$940,474 $3,405,593 
Net income— — — — 227,128 227,128 
Other comprehensive income— — — 7,696 — 7,696 
Exercise of stock options953 10 21,861 — — 21,871 
Restricted stock issued1,012 10 (10)— — — 
Restricted stock grants surrendered(952)(9)(38,857)— — (38,866)
Stock-based compensation expense— — 52,624 — — 52,624 
Employee stock purchase plan130 9,342 — — 9,343 
Stock issued for equity offerings, net of transaction costs26,336 263 1,689,707 — — 1,689,970 
Balance at December 31, 2020394,285 3,943 4,204,703 (889)1,167,602 5,375,359 
Net income— — — — 292,564 292,564 
Other comprehensive loss— — — (4,869)— (4,869)
Exercise of stock options206 6,339 — — 6,341 
Restricted stock issued862 (7)— — 
Restricted stock grants surrendered(569)(7)(33,307)— — (33,314)
Stock-based compensation expense— — 62,585 — — 62,585 
Employee stock purchase plan152 — 13,005 — — 13,005 
Balance at December 31, 2021394,936 $3,946 $4,253,318 $(5,758)$1,460,166 $5,711,672 
Net income— — — — 369,453 369,453 
Other comprehensive loss— — — (23,317)— (23,317)
Restricted stock issued1,512 16 (16)— — — 
Restricted stock grants surrendered(657)(7)(23,101)— — (23,108)
Stock-based compensation expense— — 74,677 — — 74,677 
Employee stock purchase plan224 15,040 — — 15,044 
Stock issued for equity offerings, net of transaction costs10,656 107 745,593 — — 745,700 
Balance at December 31, 2022406,671 $4,066 $5,065,511 $(29,075)$1,829,619 $6,870,121 
 Common Stock 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Loss
 
Retained
Earnings
 
Total
Stockholders’
Equity
 Shares Amount    
Balance at December 31, 201432,318
 $323
 $1,405,414
 $(6,384) $114,193
 $1,513,546
Net loss
 
 
 
 (3,465) (3,465)
Other comprehensive loss
 
 
 (1,210) 
 (1,210)
Exercise of stock options60
 1
 5,068
 
 
 5,069
Restricted stock grants239
 2
 (2) 
 
 
Restricted stock grants surrendered(121) (1) (16,435) 
 
 (16,436)
Stock compensation expense, net of forfeitures
 
 35,153
 
 
 35,153
Employee stock purchase plan13
 
 2,595
 
 
 2,595
Excess tax benefit from stock-based compensation
 
 8,528
 
 
 8,528
Balance at December 31, 201532,509
 325
 1,440,321
 (7,594) 110,728
 1,543,780
Net income
 
 
 
 85,071
 85,071
Other comprehensive loss
 
 
 (5,445) 
 (5,445)
Exercise of stock options29
 
 3,303
 
 
 3,303
Restricted stock grants195
 2
 (2) 
 
 
Restricted stock grants surrendered(142) (1) (16,423) 
 
 (16,424)
Stock compensation expense, net of forfeitures
 
 36,388
 
 
 36,388
Employee stock purchase plan15
 
 2,842
 
 
 2,842
Excess tax benefit from stock-based compensation
 
 4,698
 
 
 4,698
Balance at December 31, 201632,606
 326
 1,471,127
 (13,039) 195,799
 1,654,213
Cumulative effect of adoption of new accounting standard
 
 
 
 2,162
 2,162
Net income
 
 
 
 122,695
 122,695
Other comprehensive income
 
 
 4,019
 
 4,019
Exercise of stock options82
 1
 6,796
 
 
 6,797
Restricted stock grants187
 2
 (2) 
 
 
Restricted stock grants surrendered(99) (1) (14,901) 
 
 (14,902)
Stock compensation expense, net of forfeitures
 
 38,921
 
 
 38,921
Stock issued for equity offering3,317
 33
 833,878
 
 
 833,911
Employee stock purchase plan14
 
 3,434
 
 
 3,434
Balance at December 31, 201736,107
 $361
 $2,339,253
 $(9,020) $320,656
 $2,651,250
(1)Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.


See accompanying notes.
F-8

COSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Year Ended December 31,
 202220212020
Operating activities:   
Net income$369,453 $292,564 $227,128 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization137,885 139,558 116,944 
Amortization of deferred commissions costs76,082 63,391 60,516 
Amortization of Senior Notes discount and issuance costs2,365 2,327 1,658 
Non-cash lease expense38,489 28,485 26,326 
Stock-based compensation expense75,207 63,709 53,450 
Deferred income taxes, net(31,203)24,165 (11,530)
Credit loss expense18,309 10,928 25,212 
Other operating activities, net(2,439)(654)288 
Changes in operating assets and liabilities, net of acquisitions: 
Accounts receivable(46,403)(29,630)(36,118)
Prepaid expenses and other current assets(17,910)(14,873)1,936 
Deferred commissions(116,796)(72,038)(64,355)
Accounts payable and other liabilities23,234 (30,051)100,846 
Lease liabilities(37,396)(30,904)(30,497)
Income taxes payable(19,259)5,860 10,352 
Deferred revenue6,785 17,396 2,188 
Other assets2,217 (502)1,762 
Net cash provided by operating activities478,620 469,731 486,106 
Investing activities:  
Proceeds from sale and settlement of investments864 — 10,259 
Proceeds from sale of property and equipment and other assets30,097 612 — 
Purchase of Richmond assets(35,169)(123,764)— 
Purchases of property and equipment and other assets(58,574)(65,220)(48,347)
Cash paid for acquisitions, net of cash acquired(6,273)(192,971)(426,075)
Net cash used in investing activities(69,055)(381,343)(464,163)
Financing activities:  
Proceeds from long-term debt— — 1,744,210 
Payments of long-term debt(2,155)— (745,000)
Payments of debt issuance costs— — (16,647)
Repurchase of restricted stock to satisfy tax withholding obligations(23,108)(33,314)(38,867)
Proceeds from equity offering, net of transaction costs745,700 — 1,689,971 
Proceeds from exercise of stock options and employee stock purchase plan13,540 18,046 30,280 
Other financing activities— (411)(1,650)
Net cash provided by (used in) financing activities733,977 (15,679)2,662,297 
Effect of foreign currency exchange rates on cash and cash equivalents(2,698)(1,495)941 
Net increase in cash and cash equivalents1,140,844 71,214 2,685,181 
Cash and cash equivalents at beginning of year3,827,126 3,755,912 1,070,731 
Cash and cash equivalents at end of year$4,967,970 $3,827,126 $3,755,912 
Supplemental cash flow disclosures:
Interest paid$29,947 $31,510 $5,948 
Income taxes paid$169,176 $82,117 $45,783 
Supplemental non-cash investing and financing activities:
Consideration owed for acquisitions$— $60 $793 
Accrued capital expenditures and non-cash landlord incentives$14,739 $2,117 $2,364 
 Year Ended December 31,
 2017 2016 2015
Operating activities:     
Net income (loss)$122,695
 $85,071
 $(3,465)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
  
Depreciation and amortization63,643
 70,165
 78,532
Amortization of debt issuance costs2,303
 3,227
 3,311
Loss on extinguishment of debt3,788
 
 
Impairment loss
 23
 2,778
Loss on disposal of property and equipment129
 839
 681
Realized gain on investments
 (808) 
Stock-based compensation expense39,030
 36,349
 34,537
Deferred income tax (benefit) expense, net(2,903) 15,635
 (5,792)
Bad debt expense5,690
 7,358
 7,002
Changes in operating assets and liabilities, net of acquisitions:   
  
Accounts receivable(17,524) (16,044) (3,999)
Prepaid expenses and other current assets(3,672) (1,157) 367
Income tax receivable(12,981) 
 
Accounts payable and other liabilities11,525
 (1,520) 9,938
Income taxes payable16,937
 2,816
 11,380
Deferred revenue6,004
 (2,070) 3,817
Deposits and other assets39
 758
 686
Net cash provided by operating activities234,703
 200,642
 139,773
      
Investing activities:   
  
Proceeds from sale and settlement of investments
 5,950
 1,900
Purchases of property and equipment and other assets(24,499) (18,766) (35,061)
Acquisitions, net of cash acquired(47,768) (10,443) (182,341)
Net cash used in investing activities(72,267) (23,259) (215,502)
      
Financing activities:   
  
Payments of long-term debt(345,000) (20,000) (20,000)
Payments of debt issuance costs(3,467) 
 
Repurchase of restricted stock to satisfy tax withholding obligations(14,902) (16,424) (16,436)
Proceeds from equity offering, net of transaction costs833,911
 
 
Proceeds from exercise of stock options and employee stock purchase plan9,888
 5,861
 7,404
Net cash provided by (used in) financing activities480,430
 (30,563) (29,032)
      
Effect of foreign currency exchange rates on cash and cash equivalents1,374
 (1,415) (433)
Net increase (decrease) in cash and cash equivalents644,240
 145,405
 (105,194)
Cash and cash equivalents at beginning of year567,223
 421,818
 527,012
Cash and cash equivalents at end of year$1,211,463
 $567,223
 $421,818


See accompanying notes.

F-9



COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 20172022


1.ORGANIZATION

1.ORGANIZATION

CoStar Group Inc. (the “Company” or “CoStar”) provides information, analytics, online marketplaces and online marketplaceauction services to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate information covering the United States (“U.S.”), the United Kingdom (“U.K.”), and parts of Canada, Spain, Germany and France.related tools. The Company provides online marketplaces for commercial real estate, apartment rentals, landsresidential real estate, land for sale and businesses for sale. The Company operates within two operating segments, North America and International,sale, and its services are typically distributed to its clients under subscription-based license agreements that typically renew automatically, a majority of which have a term of at least one year.year. The Company operates within two operating segments, North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America.


2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company acquired Homes.com, BureauxLocaux and Business Immo in May 2021, October 2021 and April 2022, respectively.

See Note 5 for further discussion of these acquisitions.


2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation


The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating segment.


Use of Estimates


The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts,credit losses, the useful lives and recoverability of property and equipmentlong-lived and intangible assets, recoverability of long-lived assets and intangible assets with definite lives, goodwill, income taxes, fair value of equity instruments, fair value of auction rate securities (“ARS”), accounting for business combinations, stock-based compensation, estimating the Company's incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ from these estimates.


Revenue Recognition


The Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate information and (ii) providing online marketplaces for professional property management companies, property owners, real estate agents and brokers and landlords, in each case, typically through a fixed monthly fee for its subscription-based services. The Company'sOther subscription-based services consist primarily of information, analyticsinclude (i) real estate and online marketplace services offered over the Internetlease management solutions to commercial customers, real estate investors and lenders, (ii) access to applications to manage workflow and advertising and marketing services for residential real estate agents through our acquisitions of Homes.com and Homesnap, (iii) benchmarking and analytics for the hospitality industry and related professionals. (iv) market research, portfolio and debt analysis, management and reporting capabilities.

Subscription contract rates are generally based on the number of sites, number of users, organization size, the client’s business focus, geography, the number of properties reported on or analyzed, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. A majority of theThe Company’s subscription-based license agreements typically renew automatically, and a majority have a term of at least one yearyear. Revenue from our subscription-based contracts was approximately 93%, 93% and renew automatically.95% of total revenue for the years ended December 31, 2022, 2021 and 2020, respectively.


Revenues are recognized when (1) there is persuasive evidence
F-10

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also derives revenues from transaction-based services including: (i) an online auction platform for commercial real estate through Ten-X, (ii) providing online tenant applications, including background and credit checks, and rental payment processing and (iii) ancillary products and services that sold on an ad hoc basis.

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligations.

The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised services to its customers) in an arrangement, (2)amount that reflects the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned and (4) collectability is reasonably assured.

consideration to which it expects to be entitled to in exchange for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. Revenues from transaction-based services are recognized when the promised product or services are delivered, which, in the case of Ten-X auctions, is at the time of a successful closing for the sale of the property.

In limited circumstances, the Company's contracts with customers include promises to transfer multiple services, such as contracts for its subscription-based services and professional services. For these contracts, the Company accounts for individual performance obligations separately if they are distinct, which involves the determination of the standalone selling price for each distinct performance obligation.

Deferred revenue results from advance cash receipts from customers or amounts billed in advance to customers or cash received from customers in advance of the saleCompany's fulfillment of subscription licensesits performance obligation(s) and is recognized as those obligations are satisfied.

Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from revenue recognition timing.

Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a straight-line basis over a period of benefit that the termCompany has determined to be three years. The three-year amortization period was determined based on several factors, including the nature of the license agreement.technology and proprietary data underlying the services being purchased, customer contract renewal rates and industry competition. Certain commission costs are not capitalized as they do not represent incremental costs of obtaining a contract.


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

The Company analyzes contracts with multiple elements under the accounting guidanceSee Note 3 for multiple-element arrangements. The Company's multiple-element arrangements include information, analytics and/or online marketplace services that are generally provided to the customer over the same term. When identifying multiple-element arrangements, the Company considers multiple purchases made by the same customer within a short time frame and assesses whether the purchases were negotiated together as one overall arrangement. If a multiple-element arrangement is identified, then the arrangement consideration is allocated among the separate units of accounting based on their relative selling prices, which are estimated considering factors such as historical pricing, pricing strategy, market conditions and other factors. The Company accounts for each deliverable in the transaction separately. If the deliverables cannot be separated into multiple units of accounting, then the arrangement consideration is combined and recognition of revenue is determined for the combined unit of accounting. Multiple-element transactions require judgment to determine the selling price or fair valuefurther discussion of the different elements. These judgments impact the amount ofCompany's revenue recognized over the term of the contract, as well as the period in which they are recognized.recognition.


Cost of Revenues


Cost of revenues principally consists of salaries, benefits, bonuses, and stock-based compensation expenses and other indirect costs for the Company’sCompany's researchers who collect and analyze the commercial real estate data that is the basis for the Company’sCompany's information, analytics and online marketplaces.marketplaces and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources and costs related to advertising purchased on behalf of customers, credit card and other transaction fees relating to processing customer transactions, which are expensed as incurred, and the amortization of acquired trade names, technology and certain other intangible assets and database technology.assets.


Foreign Currency Translation


The Company’s reporting currency is the U.S. dollar. The functional currency infor the majority of its foreign locationsoperations is the local currency.currency, with the exception of certain international locations for which the functional currency is the British Pound. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using the exchange rates in effect as of the balance sheet dates. Revenues, expenses, gains and losses are translated at the average exchange rates in effect during each period.date. Gains and losses resulting from translation are included in accumulated other comprehensive loss. Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included in accumulated other comprehensive loss. Net gains orGains and losses resulting from foreigntransactions denominated in a currency exchange transactionsother than the functional currency of the entity are included in other income (expense), net in the consolidated statements of operations. There were no material gains or losses fromoperations using the average exchange rates in effect during the period. The Company recognized net foreign currency exchange transactionsgains of $1.4 million and $0.3 million, and losses of $0.2 million for the years ended December 31, 2017, 2016,2022, 2021 and 2015.2020, respectively, which are included in other income (expense), net on the consolidated statements of operations.

F-11

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss


The components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):

 As of December 31,
 20222021
Foreign currency translation adjustment$(29,075)$(5,758)
     Total accumulated other comprehensive loss$(29,075)$(5,758)

 As of December 31,
 2017 2016
Foreign currency translation adjustment$(8,290) $(12,191)
Net unrealized loss on investments, net of tax(730) (848)
Total accumulated other comprehensive loss$(9,020) $(13,039)

There were no amountsDuring the year ended December 31, 2020, the Company sold its long-term variable debt instruments with an auction reset feature, referred to ARS, and reclassified out of accumulated other comprehensive loss a realized loss of $0.5 million to earnings that is included in other income (expense), net in the consolidated statementstatements of operations for the year ended December 31, 2017. The amount of realized gain from the redemption of available-for-sale securities reclassified out of accumulated other comprehensive loss to the consolidated statement of operations for the year ended December 31, 2016 was approximately $808,000.operations. There were no amounts reclassified out of accumulated other comprehensive loss to the consolidated statements of operations for the yearyears ended December 31, 2015.2022 and December 31, 2021.


Advertising Costs


The Company expenses advertising costs as incurred. Advertising costs include e-commerce,digital marketing, television, radio, print and other media advertising. Advertising costs were approximately $104$305.7 million, $109$312.0 million and $132$270.5 million for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, respectively.


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes


Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported in the Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted rates in effect during the year in which the Company expects differences to reverse. Valuation allowances are provided against assets, including net operating losses, if the Company anticipatesdetermines it is more likely than not that some portion or all of an asset may not be realized through future taxable earnings or implementation of tax planning strategies.realized. Interest and penalties related to income tax matters are recognized in income tax expense.

The Company has elected to record the GILTI under the current-period cost method.

See Note 912 for additional information regardingfurther discussion of income taxes.


Net Income (Loss) Per Share


Net income (loss) per share is computed by dividing net income (loss) by the weighted averageweighted-average number of common shares outstanding during the period on a basic and diluted basis. The Company’sCompany's potentially dilutive securities include outstanding stock options, unvested stock-based awards, which include restricted stock awards that vest over a specific service period, restricted stock awards with a performance and market condition, restricted stock.stock units and Matching RSUs awarded under the MSPP. Shares underlying unvested restricted stock awards that vest based on a performance and market condition that have not been achieved as of the end of the period are not included in the computation of basic or diluted earnings per share. Diluted net income (loss) per share considers the impact of potentially dilutive securities except in periods in which there is a net loss, aswhen the inclusion of the potentially dilutive common sharessecurities would have an anti-dilutive effect.


See Note 16 for further discussion of the Company's calculation of net income per share.

Stock-Based Compensation


Equity instruments issued in exchange for services performed by officers, employees and directors of the Company are accounted for using a fair-value based method and the fair value of such equity instruments is recognized as expense in the consolidated statements of operations.


Stock-based compensation expense is measured at the grant date of theFor stock-based awards that vest over set time periodsa specific service period, compensation expense is measured based on theirthe fair values,value of the awards at the grant date and is recognized on a straight-line basis as expense over the vesting periodsservice period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of both a performance and market condition,
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COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

stock-based compensation expense is recognized over the Company assesses the probabilityservice period of the awards based on the expected achievement of the related performance conditions at the end of each reporting period, or more frequently based upon the occurrence of events that may change the probability of whether the performance conditions would be met.period. If the Company's initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing of recognition may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized and any previously recognized stock-based compensation expense will be reversed. For equity instruments that vest based onawards with both a performance condition and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards. Stock-based compensation expense is updated based onawards which includes the expected achievementrecent market price and volatility of the related performance conditions at the end of each reporting period. If the performance conditions are not met, no stock-based compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed.

In March 2017, March 2016 and March 2015, the Compensation Committee of the Board of Directors of the Company approved grants of restricted common stock to the executive officers that vest based on the Company’s achievement of a three-year cumulative revenue goal established atCompany's shares. When determining the grant date and are subject to forfeiture in the event the foregoing performance condition is not met by the endfair value of each respective three-year period. These grants of restricted common stock are also subject to continuing employment requirements and a market condition based on total shareholder return (“TSR”). The actual number of shares that vest at the end of each respective three-year period is determined based on the Company’s achievement of the three-year performance goals described above, as well as its TSR relative to the Russell 1000 Index over the same three-year performance period. Each reporting period,all stock-based awards, the Company reassesses the probability of achieving the performance and market conditions and determinesconsiders whether it is probablein possession of any material, non-public information that upon its release would have a material affect on its share price, and if so, whether the performance and market conditions forobservable share price or expected volatility assumptions used in determining the fair value of the awards wouldshould be met. The Company recorded a total of approximately $5 million, $3 million and $3 million of stock-based compensation expense related to the performance-based restricted common stock awards with a market condition for the years ended December 31, 2017, 2016, and 2015, respectively. The Company expects to record estimated stock-based compensation expense related to the performance-based restricted common stock awards of approximately $6 million in aggregate over the periods 2018, 2019 and 2020.adjusted.

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)


Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, and stock purchases under the ESPP, DSUs and Matching RSUs awarded under the MSPP included in the Company’s resultsconsolidated statements of operations were as follows (in thousands):

 Year Ended December 31,
 202220212020
Cost of revenues$12,579 $11,165 $10,879 
Selling and marketing (excluding customer base amortization)7,797 6,314 5,194 
Software development12,987 12,544 10,325 
General and administrative41,844 33,686 27,706 
Total stock-based compensation expense(1)
$75,207 $63,709 $54,104 
__________________________
(1) Stock-based compensation expense for the year ended December 31, 2020 includes $0.7 million of expense related to the cash settlement of stock options in connection with the acquisition of Ten-X.
 Year Ended December 31,
 2017 2016 2015
Cost of revenues                                                                                              $4,971
 $5,495
 $5,815
Selling and marketing (excluding customer base amortization)7,086
 6,634
 5,114
Software development                                                                                              7,071
 6,546
 5,712
General and administrative                                                                                              19,902
 17,674
 17,896
Total stock-based compensation$39,030
 $36,349
 $34,537


Cash and Cash Equivalents


The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consistwere $5.0 billion and $3.8 billion as of money marketsDecember 31, 2022 and commercial paper.

Investments

2021, respectively. The Company determines the appropriate classification of debt and equity investments at the time of purchase and re-evaluates such designationhad no restricted cash as of each balance sheet date. The Company considers all of its investments to be available-for-sale. The Company's investments consist of long-term variable rate debt instruments with an auction reset feature, referred to as auction rate securities. Investments are carried at fair value. Changes in unrealized holding gainsDecember 31, 2022 and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive loss in stockholders’ equity until realized. A decline in market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend and interest income are recognized when earned.2021.



Concentration of Credit Risk and Financial Instruments


The Company performs ongoing assessments of its customers’ financial conditions and generally does not require that its customers’ obligations to the Company be secured. The Company maintains reserves for estimated inherent credit losses, and such losses have been within management’s expectations. The large size and widespread nature of the Company’s customer base and the Company’screates a lack of dependence on any individual customer that mitigates the risk of nonpayment of the Company’s accounts receivable. No single customer accounted for more than 5% of the Company’s revenues for each of the years ended December 31, 2017, 2016,2022, 2021 and 2015.2020. The carrying amount of the accounts receivable approximates the net realizable value.


The Company holds cash at major financial institutions that often exceed Federal Deposit Insurance Corporation insured limits. The Company manages its credit risk associated with cash concentrations by concentrating itsdiversifying cash deposits inholdings across AAA rated Government and Treasury Money Market Funds and multiple high quality financial institutions, and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The carrying value of cash approximates fair value. Historically, the Company has not experienced any losses due to such cash concentrations.


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COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable, Net of Allowance for Doubtful AccountsCredit Losses


Accounts receivable are recorded at the invoiced amount net of credits due. Accounts receivable payment terms vary and amounts due from customers are stated in the financial statements net ofThe Company maintains an allowance for doubtful accounts. When evaluatingcredit losses to cover its current expected credit losses on its trade receivables and contract assets arising from the adequacyfailure of customers to make contractual payments. The Company estimates credit losses expected over the allowance for doubtful accounts, the Company analyzeslife of its trade receivables and contract assets based on historical collection experience, changes in customer payment profiles and the aging of receivable balances, as well asinformation combined with current economic conditions all of whichthat may affect a customer’s ability to pay. pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables and historical write-off trends. Based on the Company’s experience, the customer's delinquency status, which is analyzed periodically, is the strongest indicator of the credit quality of the underlying trade receivables. The Company’s policy is to write-off trade receivables when they are deemed uncollectible. A majority of the Company's trade receivables are less than 365 days outstanding.


Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on five portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of the Company’s business operations and the characteristics of the underlying trade receivables, as follows:

CoStar Portfolio Segment - The CoStar portfolio segment consists of two classes of trade receivables based on geographical location: North America and International.

Information Services Portfolio Segment - The Information Services portfolio segment consists of four classes of trade receivables: CoStar Real Estate Manager; Information Services, North America; STR, North America; and STR, International.

Multifamily Portfolio Segment - The Multifamily portfolio segment consists of one class of trade receivables.

LoopNet Portfolio Segment - The LoopNet portfolio segment consists of one class of trade receivables.

Other Marketplaces Portfolio Segment - The Other Marketplaces portfolio segment consists of two classes of trade receivables: Ten-X and other marketplaces.

The majority of Residential revenue is e-commerce based and does not result in accounts receivable. Residential accounts receivable and the related allowance for credit losses are not material.

See Note 4 for further discussion of the Company’s accounting for allowance for credit losses.

Leases

The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at the commencement of the arrangement, at which time the Company also measures and recognizes an ROU asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. For the purposes of recognizing ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less. The lease term is defined as the noncancelable portion of the lease term, plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised.

In determining the amount of lease payments used in measuring ROU assets and lease liabilities, the Company has elected the practical expedient not to separate non-lease components from lease components for all classes of underlying assets. Consideration deemed part of the lease payments used to measure ROU assets and lease liabilities generally includes fixed payments and variable payments based on either an index or a rate, offset by lease incentives. Upon commencement, the initial ROU asset also includes any lease prepayments. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally not determinable. Therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment and is determined at lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.
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COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

See Note 7 for further discussion of the Company’s accounting for leases.

Property and Equipment, Net


Property and equipment are stated at cost, net of accumulated depreciation and amortization. All repairs and maintenance costs are expensed as incurred. Costs related to acquisition of additional aircraft components or the replacement of existing aircraft components are capitalized and depreciated over the estimated useful life of the aircraft or the added or replaced component, whichever is less. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives of the assets:


Leasehold improvementsBuildingsShorter of lease term or useful life
Twenty to thirty-nine years
LandIndefinite
Aircrafts
Ten to twenty years
Furniture and office equipment
Five to ten years
VehiclesFive to ten years
VehiclesFive to ten years
Computer hardware and softwareTwo
Three to five years
Leasehold improvementsShorter of lease terms or useful life

Qualifying internal-use software costs incurred during the application development stage, which consist primarily of internal product development costs, outside services and purchased software license costs are capitalized and amortized over the estimated useful life of the asset. All other costs are expensed as incurred. In the fourth quarter of 2021, the Company began removing fully depreciated property and equipment from the cost and accumulated depreciation amounts disclosed.


GoodwillIn January 2021, the Company purchased an office building located in Richmond, Virginia, together with the land and assumed an existing lease for a purchase price of $131 million, inclusive of property taxes, title insurance and other transaction costs. The purchase of the Richmond building was accounted for as an asset acquisition, including an intangible asset for the assumed lease. The net impact from the lease arrangement is recorded in other income (expense), net on the consolidated statements of operations and was not material. The Company has broken ground on an expansion of its campus in Richmond, Virginia and acquired a small office building near the campus to facilitate employee staging while the expansion is being constructed. The capitalized spending associated with these efforts is recorded in the purchase of Richmond assets line of the consolidated statements of cash flows.

Long-Lived Assets, Intangible Assets and Goodwill


Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

During 2022, the Company ceased using leased properties in California and Maryland as part of efforts to centralize our workforce which resulted in an impairment charge of $9 million for lease ROU assets and property and equipment related to abandoned leases. The impairment was recorded in the general and administrative expense line of the consolidated statements of operations. The leases related to the North America segment.

Acquired technology and data, customer base assets, trade names and other intangible assets are related to the Company’s acquisitions. Acquired technology and data is amortized on a straight-line basis over periods ranging from 2 years to 7 years. Acquired intangible assets characterized as customer base assets consist of acquired customer contracts and the related customer relationships and are amortized over periods ranging from 3 years to 13 years. Acquired customer bases are amortized on an accelerated or straight-line basis depending on the expected economic benefit of the intangible asset. Acquired trade names and other intangible assets are amortized on a straight-line basis over periods ranging from 3 years to 15 years. In the fourth quarter of 2021, the Company began removing fully amortized intangible assets from the cost and accumulated amortization amounts disclosed.
F-15

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of coststhe purchase consideration paid in a business combination over the fair value of the net identifiable assets of acquired businesses.acquired. Goodwill is not amortized, but instead is assigned to each of the Company's reporting units and tested for impairment at least annually, by eachon October 1, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit. The Companyunit may be below its carrying amount. We may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or elect to bypass suchthe qualitative assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company electswe elect to bypass suchthe qualitative assessment, the Companywe then determinesperform a quantitative assessment by determining the fair value of each reporting unit. The estimate of the fair value of each reporting unit is based on a projected discounted cash flow model that includes significant assumptions and estimates including the Company's discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies. Assumptions about the growth rate and future financial performance of a reporting unit are based on the Company's forecasts, business plans, economic projections and anticipated future cash flows. The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference.


Acquired database technology, customer baseSee Notes 5, 9 and trade names10 for further discussion of acquisitions, goodwill and other intangible assets, are related to the Company’s acquisitions (see Notes 6 and 7). Acquired database technology is amortized on a straight-line basis over periods ranging from three years to eight years. Acquired trade names and other intangible assets are amortized on a straight-line basis over periods ranging from three years to fifteen years. See Note 7 for further details on the reclassification of the acquired trade names recorded in connection with the LoopNet acquisition from an indefinite-lived intangible asset to a definite-lived intangible asset. Acquired intangible assets characterized as customer base consists of acquired customer contracts and the related customer relationships and are amortized over periods ranging from ten years to thirteen years. Acquired customer bases are typically amortized on an accelerated basis related to the expected economic benefit of the intangible asset. The cost of capitalized building photography is amortized on a straight-line basis over periods ranging from three years to five years. Intangible assets are reviewed for impairment at least annually, and more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable.respectively. 


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Debt Issuance Costs


Costs incurred in connection with the issuance of long-term debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method for term debt and on a straight-line basis for revolving debt. These amounts are reflected inThe Company made a policy election to classify deferred issuance costs on the revolving credit facility as a long-term asset on its consolidated balance sheets as direct deductions from a combination of the current and long-term portions of debt for term debt and as current and long-term assets for costs related to revolving debt.sheets. Upon a refinancing or amendment, previously capitalized debt issuance costs are expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification of the related debt. If the Company determines that there has not been a substantial modification of the related debt, any previously capitalized debt issuance costs are amortized as interest expense over the term of the new debt instrument. The Company had capitalized debt issuance costs, net of amortization, of approximately $4 million and $7 million as of December 31, 2017 and 2016, respectively. The debt issuance costs are associated with our various previous credit agreements, and the current amended and restated 2017 Credit Agreement (the "2017 Credit Agreement").

See Note 811 for additional information regardingfurther discussion of the term loan andCompany's accounting for its outstanding debt, revolving credit facility. The Company recognized debtfacility and related issuance costs of approximately $2 million, $3 million, and $3 million and included in interest expense for each of the years ended December 31, 2017, 2016, and 2015.costs.


Business Combinations


The Company generally allocates the purchase consideration to the tangible assets acquired and liabilities assumed and intangible assets acquired based on their estimated fair values. The purchase price is generally determined based on the fair value of the assets transferred, liabilities assumed and equity interests issued, after considering any transactions that are separate from the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to makeThe Company applies significant assumptions, estimates and assumptions,judgments in determining the fair value of assets acquired and liabilities assumed on the acquisition date, especially with respect to intangible assets.assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired database technology and acquired trade names, from a market participant's perspective, useful lives, royalty rates and discount rates. During the measurement period, the Company may record adjustments to the assets acquired and liabilities assumed. Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.


For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been assumed at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in the Company's estimates of such contingencies will affect earnings and could have a material effect on its results of operations and financial position.

F-16

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items based upon facts and circumstances that existed as of the acquisition date with any adjustments to its preliminary estimates being recorded to goodwill, provided that the Company is within the measurement period. Subsequent to the measurement period, changes to these uncertain tax positions and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of operations and comprehensive income and could have a material impact on its results of operations and financial position.
2.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements


Recently Adopted Accounting Pronouncements


In March 2016,2021, the FASB issuedCompany adopted ASU 2016-09, Compensation - Stock Compensation2021-08, Business Combinations (Topic 718): Improvements to Employee Share-Based Payment805), Accounting, which simplifies several aspects of for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance requires contract assets and liabilities acquired or assumed in an acquisition be measured in accordance with the accounting framework for share-based payment transactions, includingrevenue from contracts with customers as if the income tax consequences, classification of awards as either equity orCompany had originated the acquired contract. This is an exception to the general requirement to measure assets acquired and liabilities and classification of share-based payment transactionsassumed at their fair value on the statement of cash flows.acquisition date. The Company applied this revised guidance requires a company to (i) recognize all excess tax benefits and tax deficiencies as income tax expense or benefitacquisitions in the statement of operations using a prospective transition method, (ii) recognize excess tax benefits in the current period regardless of whether the benefit reduces taxes payable using a modified retrospective transition method, and (iii) classify all excess tax benefits as operating activities within the statement of cash flows using either a prospective transition method or a retrospective transition method. The guidance also allows a company to (i) elect whether to estimate the number of share-based awards expected to vest or account for forfeitures when they occur, and (ii) withhold up to the maximum statutory tax rate in the applicable jurisdiction for awards, both of which should be applied using a modified retrospective transition method. Finally, the guidance requires a company to classify the cash paid by an employer when directly withholding shares for tax withholding purposes as a financing activity within the statement of cash flows using a retrospective transition method. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.

The Company adopted the new guidance on January 1, 2017. The adoption of the new standard resulted in a $2 million cumulative-effect adjustment as of January 1, 2017 to record a deferred tax asset with the offset to retained earnings on the balance sheet, representing the amount of the Company's net operating loss carryforwards attributable to excess tax benefits that it was not able to record under the prior guidance. The Company elected to continue to estimate the number of awards expected to be forfeited and adjust the estimate when it is no longer probable that the service or performance conditions will be met.

Additionally, the Company elected to apply the presentation requirements for statement of cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of approximately $5 million and $9 million for the twelve monthsyear ended December 31, 20162021. The application of this guidance to contract assets and 2015, respectively. The presentation requirements related to employee taxes paid by withholding shares had no impact on any of the periods presentedcontract liabilities acquired or assumed in connection with the Company's consolidated cash flows statements since such cash flows have historically been presented as a financing activity.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350: Simplifying the Test for Goodwill Impairment, which is designed to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The guidance indicates that an entity should recognize an impairment chargeacquisitions for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective on a prospective basis for annual reporting periods beginning afteryear ended December 15, 2019, including interim periods within that reporting period. Early application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted this guidance during the first quarter of 2017 and the early adoption31, 2021 did not have a material impact on the Company's consolidated financial statements and related disclosures.


Recent Accounting Pronouncements Not Yet Adopted


In May 2014,On March 12, 2020, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) jointlyFASB issued a new revenue recognition standard, Accounting Standards Update (“ASU) 2014-09, Revenue from Contracts with CustomersASU 2020-04, Reference Rate Reform (Topic 606) that is designed to improve financial reporting by creating common recognition guidance for GAAP and International Financial Reporting Standards (“IFRS”). This guidance provides a robust framework for addressing revenue issues, improves the comparability of revenue recognition practices across industries, provides useful information to users of financial statements through improved disclosure requirements and simplifies the presentation of financial statements. The core principle848): Facilitation of the guidance is that an entity should recognize revenueEffects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to depict the transferdebt, contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequently, amendments to the new revenue recognition standard were issued to clarify numerous accounting topics, including, but not limited to (i) the implementation guidance on principal versus agent considerations, (ii) the identification of performance obligations, (iii) the licensing implementation guidance, (iv) the objective of the collectability criterion, (v) the application of the variable consideration guidance and modified retrospective transition method, (vi) the way in which impairment testing is performed and
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(vii) the disclosure requirements for revenue recognized from performance obligations. This guidance permits the use of either a full retrospective method or a modified retrospective approach. The modified retrospective approach wouldASC 848 must be applied only to all contracts that are accounted for under a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. Originally, the most current period presented along with a cumulative-effect adjustment at the date of adoption. This guidance will be was effective for annual reporting periods beginning after December 15, 2017, although companies may adopt the standard as early as annual reporting periodsfiscal years beginning after December 15, 2016,January 1, 2021, including interim periods within that reporting period.

The Company currently intends to adopt the new guidance using the modified retrospective approach. Under this adoption method, the Company will recognize a cumulative effect adjustment to retained earnings as of January 1, 2018 and will account for its contracts with customers under the new guidance prospectively beginning on January 1, 2018. The Company used several available practical expedients providedthose fiscal years. However, in the new guidance, including assessing contracts with similar terms and conditions on a “portfolio” basis. Based on the Company’s preliminary analysis, the Company believes that the potential impact of adopting this guidance on reported revenue in any period will not be material. The primary impact of adopting the new guidance relatesresponse to the deferral of incremental costs of obtaining customer contracts which is primarily commission costs on new sales. Under existing guidance, the Company expensed all commission costs in the periods they were earned, whereas under the new guidance the Company will defer commission costs on new sales and amortize them on a straight-line basis over three years. The three-year amortization period was determined based on several factors, including the nature of the technology and proprietary data underlying the services being purchased; customer contract renewals rates; and industry competition. The Company currently estimates that the cumulative effect of adoption will result in the recognition of deferred commission cost asset between $48 million to $58 million, net of appropriate taxes, as of January 1, 2018.

Beginning in 2018, the Company expects significant changes to its disclosed revenue recognition policies and practices, as well as to other related financial statement disclosures. These revised disclosures will be made in the Company’s first quarterly report in 2018.

In February 2016,cessation date for certain overnight LIBOR measures, the FASB issued ASU 2016-02, Leases (Topic 842),2022-06 on December 21, 2022, which extends the sunset date of Topic 848 to increase transparencyDecember 31, 2024. The Company's 2020 Credit Agreement provides for a $750 million revolving credit facility and comparability among organizations’ accounting for leases. The guidance requires a companyletter of credit sublimit of $20 million, with interest rates benchmarked to recognize lease assets and lease liabilities on the balance sheet, as well as disclose key information about leasing arrangements. This guidance is effective on a modified retrospective basis for annual reporting periods beginning afterLIBOR. As of December 15, 2018, including interim periods within that reporting period. Early application is permitted.31, 2022, no amounts were issued or drawn under this facility. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures, but expects that the adoption of this standard may result in a material increase in assets and liabilities on its consolidated balance sheets.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective on a modified retrospective basis for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Companies may adopt the standard as early as annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is designed to reduce the existing diversity in how certain cash receipts and cash payments are presented and classified in the consolidated statements of cash flows. This guidance is effective on a retrospective basis for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will adopt this guidance in the first quarter of 2018. This guidance is not expected to have a material impact on the Company's consolidated statements of cash flows and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which is designed to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance indicates that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. This guidance is effective on a prospective basis for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will adopt this guidance in the first quarter of 2018 and this guidance is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2017,March 2022, the FASB issued ASU 2017-09, Compensation- Stock Compensation2022-02, Financial Instruments-Credit Losses (Topic 718)326): ScopeTroubled Debt Restructurings and Vintage Disclosures. This ASU eliminates prior guidance on troubled debt restructurings for creditors that have adopted ASU 2016-13, Measurement of Modification Accounting, which is designedCredit Losses in Financial Statements, and adds enhanced disclosures for creditors with respect to reduceloan refinancings and restructurings for borrowers experiencing financial difficulty. In addition, the existing diversity and complexity inASU amends guidance on "vintage disclosures" to require the accounting for changes to terms or conditionsdisclosure of a share-based payment award. This guidance clarifies that an entity will not apply modification accounting to a share-based payment award if allcurrent period gross write offs by year of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as an equity instrument or liability instrument.origination. This guidance is effective on a prospective basis for annual reporting periodsfiscal years beginning after December 15, 2017, including interim periods within that reporting period.2022. The Company will adopt this guidance in the first quarter of 2018. This guidance is not expectedexpects there to have abe no material impact on the Company'sits consolidated financial statements and related disclosures.disclosures from the adoption of this ASU.




F-17
3.INVESTMENTS

The Company determines the appropriate classification of debt and equity investments at the time of purchase and re-evaluates such designation as of each balance sheet date. The Company considers all of its investments to be available-for-sale. The Company's investments consist of long-term variable rate debt instruments with an auction reset feature, referred to as ARS. Investments are carried at fair value.


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

The Company provides information, analytics and online marketplaces to the commercial real estate industry, hospitality industry, residential industry and related professionals. The revenues by operating segment and type of service consist of the following (in thousands):
Year Ended December 31,
202220212020
North AmericaInternationalTotalNorth AmericaInternationalTotalNorth AmericaInternationalTotal
CoStar$800,183 $36,797 $836,980 $686,948 $35,873 $722,821 $634,205 $30,530 $664,735 
Information services124,951 32,431 157,382 113,723 27,932 141,655 104,117 25,953 130,070 
Multifamily745,388 — 745,388 678,680 — 678,680 598,555 — 598,555 
LoopNet(1)
223,758 7,183 230,941204,8162,695207,511179,371 434 179,805 
Residential(1)
73,747 — 73,74774,58374,583— — — 
Other Marketplaces(1)
137,961 — 137,961 118,885 — 118,885 85,854 — 85,854 
Total revenues$2,105,988 $76,411 $2,182,399 $1,877,635 $66,500 $1,944,135 $1,602,102 $56,917 $1,659,019 
(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

Deferred Revenue

Changes in deferred revenue for the period were as follows (in thousands):
Balance at December 31, 2021(1)
$96,724 
Revenue recognized in the current period from the amounts in the beginning balance(93,816)
New deferrals, net of amounts recognized in the current period102,410 
Effects of foreign currency(1,536)
3.
Balance at December 31, 2022(2)
INVESTMENTS — (CONTINUED)$103,782 
__________________________

Scheduled maturities(1) Deferred revenue was comprised of investments$95.5 million of current liabilities and $1.2 million of noncurrent liabilities classified as available-for-salewithin lease and other long-term liabilities on the Company’s consolidated balance sheet as of December 31, 2017 are2021.
(2) Deferred revenue was comprised of $103.6 million of current liabilities and $0.2 million of noncurrent liabilities classified within lease and other long-term liabilities on the Company’s consolidated balance sheet as follows (in thousands):of December 31, 2022. This balance includes $1.8 million of net new deferrals recognized in connection with business acquisitions made in 2022. See Note 5 for further discussion of acquisitions.

Contract Assets
Maturity Fair Value
Due in:  
2018 $
2019 — 2022 
2023 — 2027 
2028 and thereafter 10,070
Available-for-sale investments $10,070


The Company had no realized gains on its investments during the year endedcontract assets of $12.4 million and $9.2 million as of December 31, 2017.2022 and December 31, 2021, respectively, which are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied. Current contract assets are included in prepaid expenses and other current assets and non-current contract assets are included in deposits and other assets on the Company's consolidated balance sheets.

F-18

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commissions

Commissions expense is included in selling and marketing expense in the Company's consolidated statements of operations. The Company realized gainsdetermined that no deferred commissions were impaired as of $0.8 million related to an ARS that was redeemed at a par value of $1 million for the year endedboth December 31, 2016. The Company had no realized gains on its investments for the year ended2022 and December 31, 2015. The Company had no realized losses on its investments2021. Commissions expense activity for the years ended December 31, 2017, 2016,2022, 2021 and 2015. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis.

As of December 31, 2017, the amortized cost basis and fair value of investments classified as available-for-sale were as follows (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Auction rate securities$10,800
 $
 $(730) $10,070
Available-for-sale investments$10,800
 $
 $(730) $10,070
As of December 31, 2016, the amortized cost basis and fair value of investments classified as available-for-sale were as follows (in thousands):

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Auction rate securities$10,800
 $
 $(848) $9,952
Available-for-sale investments$10,800
 $
 $(848) $9,952

The unrealized losses on the Company’s investments as of December 31, 2017 and 2016 were generated primarily from changes in interest rates and ARS that failed to settle at auction, due to adverse conditions in the global credit markets. The losses are considered temporary, as the contractual terms of these investments do not permit the issuer to settle the security at a price less than the amortized cost of the investment. Because the Company does not intend to sell these instruments and it is not more likely than not that the Company will be required to sell these instruments prior to anticipated recovery, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of December 31, 2017 and 2016. See Note 4 for further discussion of the fair value of the Company’s financial assets.

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.INVESTMENTS — (CONTINUED)

The components of the Company’s investments in an unrealized loss position for twelve months or longer were2020 was as follows (in thousands):
Year Ended December 31,
202220212020
Commissions incurred$162,126 $117,391 $97,183 
Commissions capitalized in the current period(116,796)(72,038)(64,355)
Amortization of deferred commissions costs76,082 63,391 60,516 
Total commissions expense$121,412 $108,744 $93,344 

 December 31,
 2017 2016
 
Aggregate
Fair
 Value
 
Gross
Unrealized
Losses
 
Aggregate
Fair
 Value
 
Gross
Unrealized
Losses
Auction rate securities$10,070
 $(730) $9,952
 $(848)
Investments in an unrealized loss position$10,070
 $(730) $9,952
 $(848)
See Note 2 for the Company's policy on accounting for commissions.


The Company didUnsatisfied Performance Obligations

Remaining contract consideration for which revenue had not have any investments in an unrealized loss position for less than twelve monthsbeen recognized due to unsatisfied performance obligations was $436.1 million as of December 31, 20172022, which the Company expects to recognize over the next five years. This amount does not include contract consideration for contracts with a duration of one year or less.

F-19

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.ALLOWANCE FOR CREDIT LOSSES

The following tables detail the activity related to the allowance for credit losses for trade receivables by portfolio segment (in thousands):
Year Ended December 31, 2022
CoStarInformation servicesMultifamilyLoopNetOther MarketplacesTotal
Beginning balance at December 31, 2021$5,380 $1,820 $3,393 $1,968 $813 $13,374 
Current-period provision (release) for expected credit losses9,168 (557)5,813 3,807 78 18,309 
Write-offs charged against the allowance, net of recoveries and other(10,038)(212)(4,859)(4,379)— (19,488)
Ending balance at December 31, 2022$4,510 $1,051 $4,347 $1,396 $891 $12,195 


Year Ended December 31, 2021
CoStarInformation servicesMultifamilyLoopNetOther MarketplacesTotal
Beginning balance at December 31, 2020$5,531 $2,739 $4,387 $1,667 $786 $15,110 
Current-period provision (release) for expected credit losses5,699 (392)3,057 2,564 — 10,928 
Write-offs charged against the allowance, net of recoveries and other(5,850)(527)(4,051)(2,263)27 (12,664)
Ending balance at December 31, 2021$5,380 $1,820 $3,393 $1,968 $813 $13,374 


Year Ended December 31, 2020
CoStarInformation servicesMultifamilyLoopNetOther MarketplacesTotal
Beginning balance at December 31, 2019$1,264 $624 $1,195 $576 $889 $4,548 
Current-period provision for expected credit losses11,622 2,649 7,644 3,213 84 25,212 
Write-offs charged against the allowance, net of recoveries and other(7,355)(534)(4,452)(2,122)(187)(14,650)
Ending balance at December 31, 2020$5,531 $2,739 $4,387 $1,667 $786 $15,110 

Credit loss expense is included in general and 2016,administrative expenses on the consolidated statements of operations. Credit loss expense related to contract assets was not material for the years ended December 31, 2022, 2021 and 2020. The majority of the Residential portfolio segment revenue is e-commerce based and does not result in accounts receivable.
F-20

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.    ACQUISITIONS

Business Immo

In April 2022, the Company acquired Business Immo, a leading commercial real estate news service provider in France, for €5.8 million ($6.3 million), net of cash acquired and the assumption of outstanding debt. As part of the acquisition, the Company recorded goodwill and intangible assets of $7.1 million and $3.9 million, respectively. The net assets of Business Immo were recorded at their estimated fair value. The purchase price allocation is preliminary, subject primarily to the Company's assessment of certain tax matters and contingencies. The Company retired the assumed debt in the second quarter of 2022, which is included in payments of long-term debt on the consolidated statements of cash flow.


BureauxLocaux

In October 2021, CoStar UK acquired BureauxLocaux, a commercial real estate digital marketplace in France, for a base purchase price of €35.0 million ($40.6 million) in cash, subject to customary working capital and other post-closing adjustments which were settled in the fourth quarter of 2021. As part of the acquisition, the Company recorded goodwill and intangible assets of $27.4 million and $18.3 million, respectively, in the Company's International operating segment. The net assets of BureauxLocaux were recorded at their estimated fair value.

Homes.com

In May 2021, the Company closed the Homes.com Acquisition in which the Company acquired all of the issued and outstanding equity interests in Homes Group for a purchase price of $150.0 million in cash, subject to customary working capital and other post-closing adjustments which resulted in total consideration of $152.2 million. Homes Group operates Homes.com, a residential marketplace hosted on the website Homes.com and mobile apps that provided real estate advertising and marketing services. In November 2022 CoStar Group integrated the operations of Homes.com and Homesnap.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):
4.FAIR VALUEFinal: May 24, 2021
Cash and cash equivalents$— 
Accounts receivable1,798 
Lease right-of-use assets371 
Goodwill91,875 
Intangible assets53,400 
Deferred tax assets7,862 
Lease liabilities(371)
Deferred revenue(1,521)
Other assets and liabilities(1,239)
Fair value of identifiable net assets acquired$152,175 


The net assets of Homes Group were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.
The following table summarizes the fair values (in thousands) of the identifiable intangible assets acquired in the Homes.com Acquisition included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods:
F-21

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Fair ValueEstimated Useful LifeAmortization Method
Customer base$32,000 8Accelerated
Trade name21,000 15 Straight-line
Technology400 2 Straight-line
Total intangible assets$53,400 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Homes.com Acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Homes.com operations and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $91.9 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment, of which $20.0 million is expected to be deductible for income tax purposes.

Transaction costs associated with the Homes.com Acquisition were not material. The Company paid $5.0 million into a cash escrow account for stay bonuses for certain Homes.com employees and recognized compensation expense for the stay bonus over the six-month post-combination period. Upon acquisition, the Company assessed the probability it would be required to pay certain state tax liabilities and recorded an accrual of $6.6 million determined in accordance with the provisions of ASC 450, Contingencies, as the fair value was not determinable. Landmark has agreed to indemnify the Company for tax liabilities related to periods prior to the acquisition and an indemnification asset was established for $6.6 million in the purchase price allocation.

Homesnap

In December 2020, the Company closed the Homesnap Acquisition, acquiring all of the issued and outstanding equity interests in Homesnap, Inc. for a purchase price of $250.0 million in cash. The Homesnap Acquisition enabled CoStar Group to enter the residential real estate market and expand the markets in which the Company competes. Homesnap, Inc. operates a residential marketplace through its Homesnap.com website and mobile apps which is integrated with an online and mobile software platform that provides applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Homesnap, Inc. has relationships, data, software and tools for residential real estate professionals that are complementary to CoStar Group’s existing offerings.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):

Final:
December 22, 2020
Cash, cash equivalents and restricted cash$10,225 
Accounts receivable662 
Lease right-of-use assets3,437 
Goodwill184,371 
Intangible assets67,000 
Deferred tax assets, net(2,778)
Lease liabilities(3,375)
Deferred revenue(4,000)
Other assets and liabilities(5,188)
Fair value of identifiable net assets acquired$250,354 
The net assets of Homesnap, Inc. were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The estimated fair value of the customer base assets incorporated significant
F-22

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.
The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods:
Estimated Fair ValueEstimated Useful LifeAmortization Method
Customer base$45,000 10Accelerated
Trade name7,000 10Straight-line
Technology15,000 6Straight-line
Total intangible assets$67,000 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Homesnap Acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Homesnap, Inc.'s operations and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $184.4 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recognized is not deductible for income tax purposes.

Transaction costs associated with the Homesnap Acquisition were not material.

Ten-X

In June 2020, the Company closed the Ten-X Acquisition, acquiring all of the issued and outstanding equity interests in Ten-X for a purchase price of $188.0 million in cash. Ten-X operates an online auction platform for commercial real estate. The Ten-X Acquisition enable the Company to create an end-to-end commercial real estate platform, combining LoopNet and the Company's online audience of buyers with Ten-X’s leadership in online auctions for commercial properties.

The following table summarizes the amounts recorded for acquired assets and assumed liabilities recorded at their fair values as of the acquisition date (in thousands):

Final:
June 24, 2020
Cash and cash equivalents$3,290 
Accounts receivable131 
Lease right-of-use assets4,945 
Goodwill134,322 
Intangible assets58,000 
Lease liabilities(4,945)
Deferred tax liabilities, net(2,981)
Other assets and liabilities(5,047)
Fair value of identifiable net assets acquired$187,715 
The net assets of Ten-X were recorded at their estimated fair values. In valuing the acquired assets and assumed liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates. The estimated fair value of the customer base assets incorporated significant assumptions that had a material impact on the estimated fair value, such as discount rates, projected revenue growth rates, customer attrition rates and profit margins.
F-23

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the fair values (in thousands) of the identifiable intangible assets included in the Company's North America operating segment, their related estimated useful lives (in years) and their respective amortization methods:
Estimated Fair ValueEstimated Useful LifeAmortization Method
Customer base$46,000 6Accelerated
Technology11,000 5Straight-line
Other intangible assets1,000 2Straight-line
Total intangible assets$58,000 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Ten-X Acquisition includes but is not limited to: (i) the expected synergies and other benefits that the Company believes will result from combining its operations with Ten-X's operations and (ii) any intangible assets that do not qualify for separate recognition, such as the assembled workforce. The $134.3 million of goodwill recorded as part of the acquisition is associated with the Company's North America operating segment. Goodwill recognized is not deductible for income tax purposes.

The transaction costs associated with the Ten-X Acquisition were not material. The Company paid $3.0 million in incentive compensation to Ten-X employees negotiated as part of the acquisition, and this expense was recognized in the post-combination period.

Pro Forma Financial Information (unaudited)

The unaudited pro forma financial information presented below reflects the consolidated results of operations of the Company assuming the Homes.com Acquisition had taken place on January 1, 2020 and the Homesnap Acquisition and Ten-X Acquisition had taken place on January 1, 2019. The unaudited pro forma financial information for all periods presented includes amortization charges from acquired intangible assets, retention compensation, as referenced above, and the related tax effects, along with certain other accounting effects, but excludes the impacts of any expected operational synergies. The unaudited pro forma financial information, as presented below, is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had not taken on place on the dates listed above.

The unaudited pro forma financial information, in the aggregate, was as follows (in thousands, except per share data):
Year Ended
December 31,
20212020
Revenue$1,962,102 $1,758,612 
Net income$286,718 $197,994 
Net income per share - basic$0.74 $0.52 
Net income per share - diluted$0.73 $0.51 
The impact of the Homes.com Acquisition on the Company's revenues and net income in the consolidated statements of operations from May 24, 2021 through December 31, 2021 was an increase of $13.6 million and a decrease of $23.5 million, respectively. The impact of the Homesnap Acquisition on the Company's revenues and net income in the consolidated statements of operations from December 22, 2020 through December 31, 2020 was not material. The impact of the Ten-X Acquisition on the Company's revenues and net income in the consolidated statements of operations from June 24, 2020 through December 31, 2020 was an increase of $31.8 million and a decrease of $10.0 million, respectively. The pro forma financial information of the BureauxLocaux Acquisition and Business Immo Acquisition was not material.
F-24

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.    INVESTMENTS AND FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.


The following table represents the Company's fair value hierarchy for its financial assets (cashcomprise Level 1 cash equivalents with original maturities of three months or less in the amount of $4.8 billion and investments)$3.0 billion as of December 31, 2022 and December 31, 2021, respectively. The Company had no Level 2 or Level 3 financial assets measured at fair value on a recurring basis as of December 31, 2017 (in thousands):value.

 Level 1 Level 2 Level 3 Total
Assets:       
Money markets$586,084
 $
 $
 $586,084
Commercial paper351,098
 
 
 351,098
Auction rate securities
 
 10,070
 10,070
Total assets measured at fair value$937,182
 $
 $10,070
 $947,252


The carrying value ofCompany holds other financial instruments, including cash deposits, accounts receivable, accounts payable, accrued expenses and long-term debt approximates fair value.

Senior Notes. The following table represents the Company's fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of December 31, 2016 (in thousands):
 Level 1 Level 2 Level 3 Total
Assets:       
Money markets$175,344
 $
 $
 $175,344
Commercial paper6,383
 
 
 6,383
Auction rate securities
 
 9,952
 9,952
Total assets measured at fair value$181,727
 $
 $9,952
 $191,679

The Company’s Level 3 assets consist of ARS, whose underlying assets are primarily student loan securities supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education.

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.
FAIR VALUE (CONTINUED)

The following table summarizes changes in fair value of the Company’s Level 3 assets from December 31, 2015 to December 31, 2017 (in thousands):

 
Auction
Rate
Securities
Balance at December 31, 2015$15,507
Decrease in unrealized loss included in accumulated other comprehensive loss395
Settlements(5,950)
Balance at December 31, 20169,952
Decrease in unrealized loss included in accumulated other comprehensive loss118
Balance at December 31, 2017$10,070

ARS are variable rate debt instruments whose interest rates are reset approximately every 28 days. The underlying securities have contractual maturities greater than twenty years. The ARS are recorded at fair value.

As of December 31, 2017, the Company held ARS with $11 million par value, all of which failed to settle at auction. The majority of these investments are of high credit quality with AA to AAA credit ratings and are primarily student loan securities supported by guarantees from the FFELP of the U.S. Department of Education. The Company may not be able to liquidate and fully recover the carrying value offor such financial instruments, other than the ARS in the near term. As a result, these securities are classified as long-term investments in the Company’s consolidated balance sheetSenior Notes, each approximated their fair values as of December 31, 2017. See Note 3 for further discussion of the scheduled maturities of investments classified as available-for-sale. 

While the Company continues to earn interest on its ARS investments at the contractual rate, these investments are not currently actively trading2022 and therefore do not currently have a readily determinable market value.December 31, 2021. The estimated fair value of the ARS no longer approximates par value. The Company used a discounted cash flow model to determineCompany's outstanding Senior Notes using quoted prices from the estimated fair value of its investment in ARSover-the-counter markets, considered Level 2 inputs, was $0.8 billion and $1.0 billion as of December 31, 2017. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit spreads, timing2022 and amount of contractual cash flows, liquidity risk premiums, expected holding periods and default risk. December 31, 2021, respectively.

F-25

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    LEASES

The Company updateshas operating leases for its office facilities, data centers and certain vehicles, as well as finance leases for office equipment. The Company's leases have remaining terms of less than one year to six years. The leases contain various renewal and termination options. The period that is subject to an option to extend the discounted cash flow model on a quarterly basis to reflect any changeslease is included in the assumptions usedlease term if it is reasonably certain that the option will be exercised. The period that is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised.

Lease costs related to the Company's operating leases included in the model and settlementsconsolidated statements of ARS investments that occurred during the period.operations were as follows (in thousands):
 Year Ended December 31,
 202220212020
Operating lease costs:   
   Cost of revenues$8,428 $10,110 $11,632 
   Software development7,201 6,947 6,020 
   Selling and marketing (excluding customer base amortization)12,642 11,911 10,356 
   General and administrative5,360 5,911 4,827 
Total operating lease costs$33,631 $34,879 $32,835 
The only significant unobservable input inimpact of lease costs related to finance leases and short-term leases was not material for the discounted cash flow model is the discount rate. The discount rate used represents the Company's estimate of the yield expected by a market participant from the ARS investments. The weighted average discount rate used in the discounted cash flow modelyears ended December 31, 2022, 2021 and 2020.

Supplemental balance sheet information related to operating leases was as follows (in thousands):
Year Ended December 31,
BalanceBalance Sheet Location20222021
Operating lease liabilities$118,294 $134,150 
Less: imputed interest(6,238)(8,512)
Present value of lease liabilities112,056 125,638 
Less: current portion of lease liabilitiesLease liabilities36,049 26,268 
Long-term lease liabilitiesLease and other long-term liabilities$76,007 $99,370 
Weighted-average remaining lease term in years3.64.0
Weighted-average discount rate3.1 %3.1 %
Balance sheet information related to finance leases was not material as of December 31, 20172022 and 2016 was approximately 6% and 5%, respectively. Selecting another discount rate within the range used in the discountedDecember 31, 2021.

Supplemental cash flow model would not result in a significant changeinformation related to the fair value of the ARS.leases was as follows (in thousands):

Year Ended December 31,
202220212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases$41,550 $37,298 $37,006 
ROU assets obtained in exchange for lease obligations:
Operating leases$19,967 $34,247 $19,746 
Based on this assessment of fair value, as of December 31, 2017, the Company determined there was a decline in the fair value of its ARS investments of approximately $730,000. The decline was deemed to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity. In addition, while a majority of the ARS are currently rated AAA, if the issuers are unable to successfully close future auctions and/or their credit ratings deteriorate, the Company may be required to record additional unrealized losses in accumulated other comprehensive loss or an other-than-temporary impairment charge to earnings on these investments.

F-26

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.    PROPERTY AND EQUIPMENT
5.PROPERTY AND EQUIPMENT


Property and equipment consists of the following (in thousands):
 
 December 31,
 20222021
Leasehold improvements$108,901 $75,634 
Furniture, office equipment and vehicles52,610 47,540 
Computer hardware and software43,830 30,179 
Aircrafts44,209 68,670 
Land52,227 38,774 
Buildings105,060 96,496 
Property and equipment, gross406,837 357,293 
Accumulated depreciation and amortization(85,587)(85,862)
Property and equipment, net$321,250 $271,431 
 December 31,
 2017 2016
Leasehold improvements$59,447
 $53,073
Furniture, office equipment and vehicles52,163
 45,035
Computer hardware and software71,281
 64,577
Property and equipment, gross182,891
 162,685
Accumulated depreciation and amortization(98,395) (75,117)
Property and equipment, net$84,496
 $87,568

Depreciation expense for property and equipment was approximately $26$29.1 million, $24$29.0 million and $20$28.8 million, for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, respectively. In 2022, the Company removed $27.6 million of property and equipment, that was fully depreciated from property and equipment, gross and accumulated depreciation and amortization, which had no net impact on the Company's financial results.

In August 2022, the Company entered into an agreement to sell an aircraft subject to customary condition and inspection terms. The sale of the aircraft closed in October 2022 for cash consideration of $24.9 million. The Company recorded a gain on the sale of the aircraft of $3.3 million, which was recorded to general and administrative expenses in the consolidated statements of operations. The aircraft related to the North America segment.

 
6.GOODWILL

9.    GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):

 North America International Total
Goodwill, December 31, 2015$1,227,310
 $25,635
 $1,252,945
Acquisition467
 5,933
 6,400
Effect of foreign currency translation
 (4,479) (4,479)
Goodwill, December 31, 20161,227,777
 27,089
 1,254,866
Acquisitions25,717
 
 25,717
Effect of foreign currency translation
 2,874
 2,874
Goodwill, December 31, 2017$1,253,494
 $29,963
 $1,283,457

The Company
 North AmericaInternationalTotal
Goodwill, December 31, 2020$2,085,494 $150,505 $2,235,999 
Acquisitions, including measurement period adjustments(1)
60,352 27,441 87,793 
Effect of foreign currency translation— (2,777)(2,777)
Goodwill, December 31, 20212,145,846 175,169 2,321,015 
Acquisitions, including measurement period adjustments(2)
3,401 7,095 10,496 
Effect of foreign currency translation— (16,752)(16,752)
Goodwill, December 31, 2022$2,149,247 $165,512 $2,314,759 
__________________________
(1) North America goodwill for the year ended December 31, 2021 includes goodwill recorded goodwill of approximately $6 million in connection with the May 3, 2016 acquisition of Thomas Daily GmbH (“Thomas Daily”), a commercial real estate newsHomes.com of $88.5 million, offset by measurement period adjustments of $1.4 million for Ten-X and information provider operating in Freiburg, Germany. Additionally, the Company$26.7 million for Homesnap recorded goodwill of approximately $0.5 million during the year ended December 31, 20162021 primarily related to the measurement of the fair value of Homesnap customer relationships in the first quarter of 2021. International goodwill recorded in connection with the acquisition of certain assets relatedBureauxLocaux was $27.4 million. See Note 5 for further discussion.
(2) North America goodwill recorded during the year ended December 31, 2022 relates to the business operationsa measurement period adjustment for income taxes for Homes.com of Apartment Finder's independent distributors within various markets.

The Company$3.4 million. International goodwill recorded goodwill of approximately $8 million in connection with the January 31, 2017 acquisition of Koa Lei, Inc. (doing business as Westside Rentals® and now known as Westside Rentals, LLC), an online marketplace specializingBusiness Immo was $7.1 million.
Of the goodwill generated from acquisitions completed in Southern California real estate rentals, and its affiliated entity Westside Credit Services, LLC, a provider of credit checks and tenant screening for landlords in the Southern California real estate rental market. The Company recorded goodwill of approximately $152021, $20 million in connection with the May 10, 2017 acquisition of certain assets and assumption of certain liabilities from Datasphere Technologies, Inc., in each case, related to the LandWatch.com® business (collectively referred to as “LandWatch”), a leading listing site dedicated to land and rural properties. The Company recorded goodwill of approximately $2 million in connection with the July 18, 2017 acquisition of The Screening Pros, LLC, an online apartment leasing platform that includes tenant screening services, rental applications and payments processing and lease renewals. The purchase accounting for the acquisitions of Westside Rentals®, LandWatch®, and The Screening ProsTM is preliminary, subject to the completion of the accounting for certain tax related items and working capital adjustments.

The total amount of goodwill that is expected to be deductible for tax purposes is approximately $24 million aspurposes. Goodwill generated from acquisitions completed in 2022 and was not deductible for tax purposes.
No impairments of the Company's goodwill were recognized during the years ended December 31, 2017. No goodwill was deductible as of December 31, 2016.2022, 2021 and 2020.


During the fourth quarters of 2017, 2016 and 2015, the Company completed the annual impairment test of goodwill and concluded that goodwill was not impaired.

F-27

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)

10.    INTANGIBLE ASSETS
7.INTANGIBLE ASSETS


Intangible assets consist of the following (in thousands, except amortization period data):
 
December 31,Weighted- Average
Amortization Period
(in years)
December 31, 
Weighted- Average
Amortization Period
(in years)
20222021
2017 2016 
Capitalized product development cost$2,275
 $2,275
 4
Acquired technology and dataAcquired technology and data$40,422 $41,979 5
Accumulated amortization(2,262) (2,217)  Accumulated amortization(20,693)(15,333) 
Capitalized product development cost, net13
 58
  
    
Building photography18,739
 17,271
 4
Accumulated amortization(18,212) (16,351)  
Building photography, net527
 920
  
    
Acquired database technology83,469
 78,151
 5
Accumulated amortization(79,188) (72,691)  
Acquired database technology, net4,281
 5,460
  
Acquired technology and data, netAcquired technology and data, net19,729 26,646  
    
Acquired customer base225,879
 220,749
 10Acquired customer base464,242 569,666 10
Accumulated amortization(169,157) (150,445)  Accumulated amortization(287,051)(319,039) 
Acquired customer base, net56,722
 70,304
  Acquired customer base, net177,191 250,627  
    
Acquired trade names and other intangible assets167,718
 153,607
 13Acquired trade names and other intangible assets247,361 262,136 13
Accumulated amortization(46,369) (34,384)  Accumulated amortization(114,975)(103,747) 
Acquired trade names and other intangible assets, net121,349
 119,223
  Acquired trade names and other intangible assets, net132,386 158,389  
    
Intangible assets, net$182,892
 $195,965
  Intangible assets, net$329,306 $435,662  
Amortization expense for intangible assets was approximately $37$102.6 million, $46$103.6 million and $59$88.1 million for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, respectively. In 2022, the Company removed $87.7 million of intangible assets that were fully amortized from the acquired intangible assets and accumulated amortization, which had no net impact on the Company's financial results.
 
In the aggregate, the Company expects the future amortization expense for intangible assets existing as of December 31, 2017 for future periods2022 to be approximately $29approximately $69.1 million $24, $57.0 million $21, $45.5 million $20, $37.3 million and $17$30.2 million for the years endingending December 31, 2018, 2019, 2020, 20212023, 2024, 2025, 2026 and 2022,2027, respectively.


Intangible assets are reviewed for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. DuringNo impairments of the first quarter of 2016,Company's intangible assets were recognized during the years ended December 31, 2022, 2021 and 2020. The Company determined that the acquired trade names recorded in connection with the LoopNet acquisition on April 30, 2012 should be reclassified from an indefinite-lived intangible assetdecided to eliminate usage fees related to agent access to a definite-lived intangible asset dueHomesnap product charged to work being performed to integrate the backend systemsa specific customer class. This resulted in an acceleration of LoopNet and CoStar, which may result$16.3 million of amortization expense in a future re-branding effort if aspects of the LoopNet and CoStar services are ultimately combined. The Company estimated the fair value of the LoopNet trade names using the relief from royalty method and concluded that no impairment existed as of March 31, 2016. The Company estimated a useful life of fifteen years2022 for the LoopNet trade names, which are being amortized on a straight-line basis.acquired customer base for this customer class.



F-28

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)

11.    LONG-TERM DEBT
8.LONG-TERM DEBT 


The table below presents the components of outstanding debt (in thousands):

December 31, 2022December 31, 2021
2.800% Senior Notes due July 15, 2030$1,000,000 $1,000,000 
2020 Credit Agreement, due July 1, 2025— — 
Total face amount of long-term debt1,000,000 1,000,000 
Senior notes unamortized discount and issuance costs(10,790)$(12,056)
Long-term debt, net$989,210 $987,944 
Senior Notes

On July 1, 2020, the Company issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030. The Senior Notes were sold to a group of financial institutions as initial purchasers who subsequently resold the Senior Notes to non-U.S. persons pursuant to Regulation S under the Securities Act, and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 99.921% of their principal amount. Interest on the Senior Notes is payable semi-annually in arrears on January 15 and July 15. The Senior Notes may be redeemed in whole or in part by the Company (a) at any time prior to April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus the Applicable Premium (as calculated in accordance with the indenture governing the Senior Notes), and any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date, and (b) on or after April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date. The Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the Company’s domestic wholly owned subsidiaries and the indenture governing the Senior Notes contains covenants, events of default and other customary provisions with which the Company was in compliance as of December 31, 2022.

Revolving Credit Facility

On July 1, 2014 (the “Closing Date”),2020, the Company entered into the 20142020 Credit Agreement, by and among the Company, as Borrower, CoStar Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. The 2014 Credit Agreement provided for a $400 million term loan and a $225 million revolving credit facility, each with a term of five years. The Company repaid the remaining balance of $310 million and accrued interest on its existing term loan under the 2014 Credit Agreement on October 19, 2017 from existing cash balances.

The revolving credit facility includes a subfacility for swingline loans of up to $10 million, and up to $10 million of the revolving credit facility is available for the issuance of letters of credit. The Company has an irrevocable standby letter of credit outstanding totaling $0.2 million as of December 31, 2017 and December 31, 2016, which was required to secure its San Francisco office lease. The letter of credit was established in 2014 related to the San Francisco office lease, and automatically renews through January 31, 2025.

The term loan was amortized in quarterly installments in amounts resulting in an annual amortization of 5% during each of the first, second and third years, 10% during the fourth year and 15% during the fifth year after the Closing Date, with the remainder payable at final maturity. The loans under the 2014 Credit Agreement bore interest, at the Company's option, either (i) during any interest period selected by the Company, at the London interbank offered rate for deposits in U.S. dollars with a maturity comparable to such interest period, adjusted for statutory reserves (“LIBOR”), plus an initial spread of 2% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio (as defined in the 2014 Credit Agreement) of the Company, or (ii) at the greatest of (x) the prime rate from time to time announced by JPMorgan Chase Bank, N.A., (y) the federal funds effective rate plus 0.5% and (z) LIBOR for a one-month interest period plus 1%, plus an initial spread of 1% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio of the Company. If an event of default occurred under the 2014 Credit Agreement, the interest rate on overdue amounts increased by 2% per annum. The obligations under the 2014 Credit Agreement were guaranteed by all material subsidiaries of the Company and were secured by a lien on substantially all of the assets of the Company and those of its material subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee documents entered into on the Closing Date.

On October 19, 2017, the Company entered into an amended and restated credit agreement (the ‘‘2017 Credit Agreement’’), which amended and restated in its entirety the existing 2014 Credit Agreement. The 2017 Credit Agreement provides for a $750 million revolving credit facility with a term of five years (maturing July 1, 2025) and a letter of credit sublimit of $20 million from a syndicate of financial institutions as lenders and issuing banks. The 2017A commitment fee of 0.25% to 0.30% per annum, depending on the Total Leverage Ratio (defined in 2020 Credit Agreement), is payable quarterly in arrears based on the unused revolving commitment.

Subject to certain conditions, on no more than five occasions, the Company may request increases in the amount of revolving commitments and/or the establishment of term commitments under the 2020 Credit Agreement. Borrowings under the 2020 Credit Agreement will bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a LIBOR or EURIBOR (with a floor of 0.0%) for the specified interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case depending on the Company's Total Leverage Ratio (as defined in the 2020 Credit Agreement). As LIBOR may not always be available to the Company as a base interest rate for borrowings under the credit facility, the 2020 Credit Agreement allows the Company and the administrative agent under the 2020 Credit Agreement to amend the 2020 Credit Agreement to replace LIBOR with one or more SOFR-based rates or another alternative benchmark rate. Funds drawn down on the revolving credit facility pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate purposes of the Company and its restricted subsidiaries. In connection with the transaction, the Company incurred $4 million of issuance costs. Those costs along with the $5 million of unamortized costs related to the prior agreement were allocated between the extinguishment of the 2014 Credit Agreement and the 2017 Credit Agreement. This allocation resulted in the Company recognizing a loss of $4 million on the extinguishment with the remaining $4 million being deferred and amortized on a straight-line basis as interest expense over the term of the 2017 Credit Agreement.

Up to $20 million of the revolving credit facility is available for the issuance of letters of credit. The loans under the 2017 Credit Agreement bear interest during any interest period selected by the Company, at either (i) the London interbank offered rate for deposits in U.S. dollars with a maturity comparable to such interest period, adjusted for statutory reserves (“LIBOR”), plus an initial spread of 1.25% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio (as defined in the 2017 Credit Agreement) of the Company, or (ii) at the greatest of (x) the prime rate from time to time announced by JPMorgan Chase Bank, N.A., (y) the federal funds effective rate plus ½ of 1% and (z) LIBOR for a one-month interest period plus 1.00%, plus an initial spread of 0.25% per annum, subject to adjustment based on the First Lien Secured Leverage Ratio of the Company. If an event of default occurs under the 2017 Credit Agreement, the interest rate on overdue amounts will increase by 2.00% per annum. The obligations under the 20172020 Credit Agreement are guaranteed by all material subsidiarieseach of the CompanyCompany’s current and are secured by a lien on substantially all of the assets of the Company and its materialfuture direct or indirect wholly owned restricted domestic subsidiaries, other than certain excluded subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee agreements entered into on the Closing Date.agreements.


The 20172020 Credit Agreement requires the Company to maintain (i) a First Lien Secured Leverage Ratio not exceeding 3.50 to 1.00 and (ii) after the incurrence of additional indebtedness under certain specified exceptions in the 2017 Credit Agreement, a Total Leverage Ratio (as defined in the 2017 Credit Agreement) not exceeding 4.50 to 1.00. The 2017 Credit Agreement also includes other covenants, including covenantsones that, subject to certain exceptions, restrict the ability of the Company and its subsidiaries to (i) merge and consolidate with other companies, (ii) incur additional indebtedness, (ii) create, incur, assume(iii) grant liens or permit to exist any liens, (iii) enter into mergers, consolidations or similar transactions,security interests on assets, (iv) make investments, acquisitions, loans or advances, (v) pay dividends and acquisitions, (v) make(vi) sell or otherwise transfer assets. As of December 31, 2022, the Company is in a Covenant Suspension Period. During any Covenant Suspension Period, the Company will not be subject to certain dispositions of assets, (vi) make dividends, distributions and prepayments of certain indebtedness, and (vii) enter into certain transactions with affiliates.these covenants such as restrictions on the ability to incur indebtedness. The 2020 Credit Agreement also requires the Company to maintain a Total Leverage Ratio (as defined in the 2020 Credit Agreement) not exceeding 4.50 to 1.00. The Company was in compliance with the covenants in the 20172020 Credit Agreement as of December 31, 2017.2022.

F-29

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)


As of December 31, 2017 and 2016, no amounts were outstanding under2022, the Company's credit facility. Total interest expense for the term loan and revolving credit facilities was approximately $9 million, $10 million and $9 million for the years ended December 31, 2017, 2016, and 2015, respectively. Interest expense included amortized debt issuance costs of approximately $2 million, $3 million, and $3 million for the years ended December 31, 2017, 2016, and 2015. Total interest paid for the term loan and revolving credit facilities was approximately $6 million, $7 million, and $6 million for the years ended December 31, 2017, 2016, and 2015, respectively.
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.LONG-TERM DEBT — (CONTINUED) 

The Company had no outstanding long-term debt at December 31, 2017 as it had not drawn any amounts under its 2017 Credit Agreement. At December 31, 2017, thethis facility.
The Company had $4$2.7 million and $3.8 million of deferred debt issuance costs as of December 31, 2022 and December 31, 2021, respectively, in connection with the 2020 Credit Agreement. These amounts are included in deposits and other assets.

The following table representsassets on the Company's long-term debt atconsolidated balance sheets.
For the years ended December 31, 20162022, 2021 and 2020, the Company recognized interest expense as follows (in thousands):

Year Ended
December 31,
202220212020
Interest on outstanding borrowings$28,000 $28,000 $18,509 
Amortization of Senior Notes discount and issuance costs2,365 2,327 1,658 
Commitment fees and other1,960 1,989 1,627 
Total interest expense$32,325 $32,316 $21,794 

F-30
 December 31,
 2016
Term loan$345,000
Debt issuance costs, net(6,661)
Total debt338,339
Current maturities of long-term debt(35,000)
Current debt issuance costs, net3,134
Total long-term debt, less current portion$306,473

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.    INCOME TAXES


9.INCOME TAXES


The components of the provision for income taxes attributable to operations consist of the following (in thousands):
 Year Ended December 31,
 202220212020
Current:   
Federal$116,312 $61,290 $43,461 
State31,231 24,618 11,726 
Foreign664 1,331 195 
Total current148,207 87,239 55,382 
Deferred:  
Federal(20,455)22,859 (9,599)
State(9,582)8,467 (926)
Foreign(1,166)(7,161)(1,005)
Total deferred(31,203)24,165 (11,530)
Total provision for income taxes$117,004 $111,404 $43,852 
 Year Ended December 31,
 2017 2016 2015
Current:     
Federal$41,453
 $32,198
 $10,295
State3,518
 3,682
 1,503
Foreign295
 76
 40
Total current45,266
 35,956
 11,838
Deferred: 
  
  
Federal(7,917) 12,586
 (8,382)
State4,695
 3,014
 2,590
Foreign319
 35
 
Total deferred(2,903) 15,635
 (5,792)
Total provision for income taxes$42,363
 $51,591
 $6,046

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.
INCOME TAXES (CONTINUED)

The components of deferred tax assets and liabilities consist of the following (in thousands):
 December 31,
 20222021
Deferred tax assets:  
Allowance for credit losses$3,373 $3,601 
Accrued compensation4,590 3,913 
Stock compensation20,427 18,956 
Net operating losses26,794 45,835 
Accrued reserve and other6,768 4,134 
Lease liabilities26,446 28,306 
Capitalized research and development costs45,351 — 
Research and development credits6,073 5,812 
Total deferred tax assets, prior to valuation allowance139,822 110,557 
Valuation allowance(5,241)(5,694)
Total deferred tax assets, net of valuation allowance134,581 104,863 
Deferred tax liabilities:  
Deferred commission costs, net(36,112)(25,700)
Lease right-of-use assets(18,217)(22,574)
Prepaid expenses(3,206)(2,569)
Property and equipment, net(25,691)(21,827)
Intangible assets, net(117,835)(125,815)
Total deferred tax liabilities(201,061)(198,485)
Net deferred tax liabilities$(66,480)$(93,622)
For the years ended December 31, 2022 and 2021, the Company has not recognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries that were deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.
F-31

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
 2017 2016
Deferred tax assets:   
Reserve for bad debts$1,636
 $2,437
Accrued compensation6,706
 5,562
Stock compensation10,568
 14,268
Net operating losses25,899
 30,319
Accrued reserve and other1,393
 2,097
Unrealized loss on securities185
 326
Deferred rent6,533
 7,814
Deferred gain on the sale of building4,741
 8,166
Total deferred tax assets, prior to valuation allowance57,661
 70,989
    
Valuation allowance(13,032) (8,557)
Total deferred tax assets, net of valuation allowance44,629
 62,432
    
Deferred tax liabilities: 
  
Prepaids(1,239) (1,753)
Depreciation(6,229) (13,045)
Intangibles(43,800) (58,747)
Total deferred tax liabilities(51,268) (73,545)
    
Net deferred tax assets (liabilities)$(6,639) $(11,113)

As of December 31, 20172022 and 2016,2021, a valuation allowance has been established for certain deferred tax assets due to the uncertainty of realization. The valuation allowance as of December 31, 20172022 and 20162021 includes an allowance for unrealized losses on ARS investments, foreign deferred tax assets and stateacquired net operating losses and tax credits. The valuation allowance for theforeign deferred tax asset for unrealized losses on ARS has been recorded as an adjustment to accumulated other comprehensive loss.assets.


The Company established the valuation allowance because it is more likely than not that a portion of the deferred tax asset for certain items will not be realized based on the weight of available evidence. A valuation allowance was established for the unrealized losses on securities as the Company has not historically generated capital gains, and it is uncertain whether the Company will generate sufficient capital gains in the future to absorb the capital losses. A valuation allowance was established for the foreign deferred tax assets due to the cumulative loss in recent years in those jurisdictions. The Company has not had sufficient taxable income historically to utilize the foreign deferred tax assets, and it is uncertain whether the Company will generate sufficient taxable income in the future to utilize the deferred tax assets. Similarly, theThe Company has established a valuation allowance for certain acquired net operating losses and tax credits in certain states where it is uncertain whetherSection 382 limitations will impact the ability of the Company will generate sufficient taxable income to utilize the net operating losses and tax credits before they expire.


The Company’s change in valuation allowance was an increasea decrease of approximately $4$0.5 million for the year ended December 31, 20172022 and a decrease of approximately $1$5.5 million for the year ended December 31, 2016.2021. The increasedecreases for the yearyears ended December 31, 2017 is2022 and December 31, 2021 were primarily due to an increase in the valuation allowance for foreign deferred tax assets related to foreign net operating losses of approximately $4 million . The decrease for the year ended December 31, 2016 is due to a decrease in the valuation allowance for foreign deferred tax assets of approximately $1 million.international restructuring.


The Company had U.S. income before income taxes of approximately $167$493.2 million, $135$408.8 million , and $2$290.6 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. The Company had a foreign losslosses before income taxes of approximately $2$6.7 million, for the year ended December 31, 2017. The Company had foreign income before income taxes of approximately $2$4.8 million and $1$19.7 million for the years ended December 31, 20162022, 2021 and 2015,2020, respectively.

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.
INCOME TAXES (CONTINUED)


The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax rate as follows (in thousands):

 Year Ended December 31,
 202220212020
Expected federal income tax provision at statutory rate$102,156 $84,833 $56,906 
State income taxes, net of federal benefit21,486 21,012 11,409 
(Decrease) in valuation allowance(453)(4,995)(4,848)
Research credits(17,517)(13,070)(14,322)
Excess tax benefit(1,821)(10,933)(21,038)
Tax reserves1,506 (12,787)4,762 
Nondeductible compensation11,368 10,369 5,949 
International restructuring(3,912)34,854 — 
Other adjustments4,191 2,121 5,034 
Income tax expense$117,004 $111,404 $43,852 
 Year Ended December 31,
 2017 2016 2015
Expected federal income tax provision at statutory rate$57,770
 $47,832
 $903
State income taxes, net of federal benefit4,776
 3,638
 (678)
Foreign income taxes, net effect(3,540) (31) 469
Increase (decrease) in valuation allowance3,624
 (103) 1,956
Nondeductible compensation230
 141
 574
Nondeductible transaction costs
 103
 229
Meals and entertainment958
 712
 1,032
Tax rate changes(7,340) 283
 1,203
Research credits(20,547) (920) 
Excess tax benefit(7,010) 
 
Tax reserves12,646
 (150) 71
Other adjustments796
 86
 287
Income tax expense$42,363
 $51,591
 $6,046

The Company’s U.K. subsidiaries with foreign losses are disregarded entities for U.S. income tax purposes. Accordingly, the losses from these disregarded entities are included in the Company’s consolidated federal income tax provision at the statutory rate. Federal income taxes attributable to income from these disregarded entities are reduced by foreign taxes paid by those disregarded entities.

The Company paid approximately $41 million, $34 million , and $1 million in income taxes for the years ended December 31, 2017, 2016, and 2015, respectively.

The Company recognized an income tax benefit during the year ended December 31, 2017 for research credits of $21 million for tax years December 31, 2013 through December 31, 2017. These research credits relate to eligible activities including the development of new products, product enhancements and new or improved processes.


The Company has net operating loss carryforwards for international income tax purposes of approximately $49$24.9 million whichthat do not expire. The Company has federal net operating loss carryforwards of approximately $38$95.8 million that begin to expire in 2020,2035, state net operating loss carryforwards with a tax value of approximately $6$0.4 million that begin to expire in 20202033 and state income tax credit carryforwards with a tax value of approximately $3$10.3 million primarily relating to state research and development credits and the D.C. qualified high technology company tax credit that begin to expire in 2020.2022. The Company realized a cash benefit relating to the use of its tax loss carryforwards of approximately $7$12.6 million, $5$14.1 million and $1$4.8 million in December 31, 2017, 2016,2022, 2021 and 2015,2020, respectively.


F-32

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unrecognized tax benefits as of December 31, 2014$5,749
Increase for current year tax positions
Increase for prior year tax positions1,954
Expiration of the statute of limitation for assessment of taxes(39)
Unrecognized tax benefits as of December 31, 20157,664
Increase for current year tax positions368
Decrease for prior year tax positions(6,115)
Expiration of the statute of limitation for assessment of taxes(74)
Unrecognized tax benefits as of December 31, 20161,843
Increase for current year tax positions12,620
Decrease for prior year tax positions(34)
Expiration of the statute of limitation for assessment of taxes(66)
Unrecognized tax benefits as of December 31, 2017$14,363
COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9.Unrecognized tax benefit as of December 31, 2019
INCOME TAXES (CONTINUED)
$
25,467 
Increase for current year tax positions4,213 
Increase for prior year tax positions452 
Expiration of the statute of limitation for assessment of taxes(1,259)
Unrecognized tax benefit as of December 31, 202028,873 
Increase for current year tax positions3,024 
Decrease for prior year tax positions(5,353)
Decrease for settlements with taxing authorities(9,924)
Expiration of the statute of limitation for assessment of taxes(1,866)
Unrecognized tax benefit as of December 31, 202114,754 
Increase for current year tax positions3,394 
Increase for prior year tax positions330 
Expiration of the statute of limitation for assessment of taxes(2,325)
Unrecognized tax benefit as of December 31, 2022$16,153 

Approximately $14$16.2 million and $1$14.8 million of the unrecognized tax benefits as of December 31, 20172022 and 2016,2021, respectively, would favorably affect the annual effective tax rate if recognized in future periods. The increase for current year tax positions of $13$3.4 million and increase for prior year tax positions of $0.3 million for the year ended December 31, 2017 is2022 are primarily attributable to research credits. The Company recognized $72,000decrease for interest and penalties in its consolidated statementexpiration of operationsthe statute of limitation of $2.3 million for the year ended December 31, 2017. The Company reversed interest2022 is attributable to research credits and penalties of $416,000 in its consolidated statement of operations for the year ended December 31, 2016.state apportionment reserves. The Company recognized $83,000$0.1 million, reversed $0.4 million, and recognized $0.4 million for interest and penalties in its consolidated statements of operations for the yearyears ended December 31, 2015.2022, 2021 and 2020, respectively. The Company had liabilities of $205,000, $133,000,$0.7 million, $0.6 million, and $549,000$1.0 million for interest and penalties in its consolidated balance sheets as of December 31, 2017, 2016, 20152022, 2021 and 2020, respectively. The Company does not anticipate the amount of the unrecognized tax benefits will change significantly over the next twelve months.


The Company is subject to taxation in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company’s federal income tax returns for tax years 20112015 and 2019 through 20162021 remain open to examination. Most of the Company’s state income tax returns for tax years 20142019 through 20162021 remain open to examination. For states that have a four-year statute of limitations, the state income tax returns for tax years 20132018 through 20162021 remain open to examination. The Company’s U.K. income tax returnsreturn for tax years 2012 through 2016 remainyear 2021 remains open to examination.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed U.S. tax law. The Tax Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income. The Tax Act also created a new minimum tax on certain future foreign earnings. The Securities and Exchange Commission staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with the Company's initial analysis of the impact of the Tax Act, the Company recorded a provisional discrete net tax benefit of $7 million in the period ending December 31, 2017. This net benefit primarily consists of a net benefit for the corporate tax rate reduction of $7.4 million and a net expense for the repatriation tax of $400,000. For various reasons, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. The Company was able to make reasonable estimates of the effects of elementsbelieves that an adequate provision has been made for which the Company's analysis is not yet complete and recorded provisional adjustments. As the Company completes its analysis of the Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts. Those adjustments may materially impact the provision for income taxes in the period in which the adjustments are made.

Global intangible low taxed income (GILTI): Due to the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the measurement of deferred taxes (the “deferred method”). The Company's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only its current structure and estimated future results of global operations but also its intent and ability to modify its structure and/or its business, the Company is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not made any adjustments related to potential GILTIthat may result from tax in its financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI.examinations.



F-33

10.COMMITMENTS AND CONTINGENCIES


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



13.    COMMITMENTS AND CONTINGENCIES

The following summarizes the Company's significant contractual obligations, including related payments due by period, as of December 31, 2022 (in thousands):

Year Ending December 31,Operating lease obligationsLong-term debt principal paymentsLong-term debt principal interest payments
2023$39,015 $— $28,000 
202436,893 — 28,000 
202519,302 — 28,000 
20269,724 — 28,000 
20277,880 — 28,000 
Thereafter5,480 1,000,000 84,000 
Total$118,294 $1,000,000 $224,000 

The Company leases office facilities and office equipment under various non-cancelable operating leases. The leases contain various renewal options. Rent expense

See Note 7 for further discussion of the years ended December 31, 2017, 2016 and 2015, was approximately $26 million, $22 million and $21 million, respectively.Company's operating lease commitments.

Future minimum lease payments as of December 31, 2017 are as follows (in thousands):
2018$30,853
201927,925
202026,136
202124,544
202222,883
Thereafter46,061
Total future minimum lease payments$178,402


Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. In accordance with GAAP, theThe Company records a provision for a liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated. At the present time, whileWhile it is reasonably possible that an unfavorable outcome may occur as a result of one or more of the Company’s current litigation matters, at this time management has concluded that it isthe resolutions of these matters are not probable thatexpected to have a loss has been incurred in connection withmaterial effect on the Company’s current litigation. In addition, the Company is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in the Company’s current litigation and accordingly, the Company has not recognized any liability in theCompany's consolidated financial statements for unfavorableposition, future results if any.of operations or liquidity. Legal defense costs are expensed as incurred.



F-34

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)

14.    SEGMENT REPORTING
11.SEGMENT REPORTING


Segment Information


The Company manages its business geographically in two operating segments, with the primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes the U.K., Spain, GermanyEurope, Asia-Pacific and France. The Company and its subsidiaries' subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals. The Company’s subscription-based information services consist primarily of CoStar Suite®services. CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and through the Company's mobile application, CoStar Go®. CoStar Suite is the Company’s primary service offering in the North America and International operating segments.Latin America. Management relies on an internal management reporting process that provides revenue and operating segment net income (loss) before interest and(expense) income, net, other income (expense), income taxes, depreciation and amortization (“EBITDA”).EBITDA. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of the Company’s operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of the business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP. 


Summarized EBITDA information by operating segment consists of the following (in thousands):
 Year Ended December 31,
 202220212020
North America$577,242 $557,125 $410,852 
International5,413 7,856 (4,706)
Total EBITDA$582,655 $564,981 $406,146 

The reconciliation of net income to EBITDA consists of the following (in thousands):
Year Ended December 31,
202220212020
Net income$369,453 $292,564 $227,128 
Amortization of acquired intangible assets in cost of revenues29,019 28,809 25,675 
Amortization of acquired intangible assets in operating expenses73,560 74,817 62,457 
Depreciation and other amortization29,127 29,018 28,812 
Interest (income) expense, net(32,125)31,621 17,395 
Other (income) expense, net(3,383)(3,252)827 
Income tax expense117,004 111,404 43,852 
EBITDA$582,655 $564,981 $406,146 

35

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information by operating segment consists of the following (in thousands):

 December 31,
 20222021
Property and equipment, net  
North America$320,209 $269,792 
International1,041 1,639 
Total property and equipment, net$321,250 $271,431 
Goodwill  
North America$2,149,247 $2,145,846 
International165,512 175,169 
Total goodwill$2,314,759 $2,321,015 
Assets  
North America$8,146,239 $6,976,752 
International256,231 280,119 
Total assets$8,402,470 $7,256,871 
Liabilities  
North America$1,486,237 $1,502,497 
International46,112 42,702 
Total liabilities$1,532,349 $1,545,199 


F-36
 Year Ended December 31,
 2017 2016 2015
Revenues     
North America$934,464
 $809,492
 $686,573
International 
  
  
External customers30,766
 28,138
 25,191
Intersegment revenue42
 40
 41
Total International revenue30,808
 28,178
 25,232
Intersegment eliminations(42) (40) (41)
Total revenues$965,230
 $837,630
 $711,764
      
EBITDA 
  
  
North America$236,906
 $210,901
 $87,092
International553
 4,169
 2,895
Total EBITDA$237,459
 $215,070
 $89,987

The reconciliation of net income (loss) to EBITDA consists of the following (in thousands):
 Year Ended December 31,
 2017 2016 2015
Net income (loss)$122,695
 $85,071
 $(3,465)
Amortization of acquired intangible assets in cost of revenues19,707
 22,819
 30,077
Amortization of acquired intangible assets in operating expenses17,684
 22,731
 27,931
Depreciation and other amortization26,252
 24,615
 20,524
Interest and other income(4,044) (1,773) (537)
Interest and other expense9,014
 10,016
 9,411
Loss on debt extinguishment3,788
 
 
Income tax expense42,363
 51,591
 6,046
EBITDA$237,459
 $215,070
 $89,987


COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.
SEGMENT REPORTING (CONTINUED)

15.    STOCKHOLDER'S EQUITY
Segment Information — (Continued)

Intersegment revenues were attributable to services performed for the Company's wholly owned subsidiary, CoStar Portfolio Strategy by Grecam S.A.S. (“Grecam”), a wholly owned subsidiary of CoStar Limited, the Company’s wholly owned U.K. holding company. Intersegment revenues are recorded at an amount the Company believes approximates fair value. North America EBITDA includes a corresponding cost for the services performed by Grecam.


Summarized information by operating segment consists of the following (in thousands):

 December 31,
 2017 2016
Property and equipment, net   
North America$79,736
 $84,727
International4,760
 2,841
Total property and equipment, net$84,496
 $87,568
    
Goodwill 
  
North America$1,253,494
 $1,227,777
International29,963
 27,089
Total goodwill$1,283,457
 $1,254,866
    
Assets 
  
North America$2,816,156
 $2,139,896
International57,285
 45,167
Total assets$2,873,441
 $2,185,063
    
Liabilities 
  
North America$201,831
 $520,833
International20,360
 10,017
Total liabilities$222,191
 $530,850

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.
SEGMENT REPORTING (CONTINUED)

Revenues by Services

The Company provides information, analytics and online marketplaces to the commercial real estate industry. The revenues by type of service consists of the following (in thousands):
 Year Ended December 31,
 2017 2016 2015
Information and analytics     
CoStar Suite(1)
$463,185
 $408,456
 $360,440
Information services(2)
72,618
 77,178
 75,790
Online marketplaces     
Multifamily(3)
279,855
 224,835
 160,630
Commercial property and land(4)
149,572
 127,161
 114,904
Total revenues$965,230
 $837,630
 $711,764

(1) CoStar Suite is comprised of: CoStar Property Professional, CoStar COMPS Professional, CoStar Tenant; and CoStar Portfolio Strategy.

(2) Information services is comprised of: LoopNet Premium Searcher; CoStar Real Estate Manager; CoStar Risk Analytics COMPASS; CoStar Investment Analysis Portfolio Maximizer; CoStar Investment Analysis Request; CoStar Brokerage Applications; PROPEX; Grecam; Belbex; and Thomas Daily.

(3) Multifamily is comprised of Apartments.com, ApartmentFinder.com and ApartmentHomeLiving.com; WestsideRentals.com; Apartamentos.com; and The Screening Pros.

(4) Commercial property and land is comprised of: LoopNet Premium Lister; LoopLink; CoStar Advertising; BizBuySell and BizQuest; LandsofAmerica,LandAndFarm, and LandWatch; and CoStar Private Sale Network.

12.STOCKHOLDERS’ EQUITY


Preferred Stock


The Company has 2,000,0002 million shares of preferred stock, $0.01 par value, authorized for issuance as of December 31, 2017.issuance. The Board of Directors may issue the preferred stock from time to time as shares of one or more classes or series.


Common Stock


The Company has 60,000,0001.2 billion shares of common stock, $0.01 par value, authorized for issuance. Dividends may be declared and paid on the common stock, subject in all cases to the rights and preferences of the holders of preferred stock and authorization by the Board of Directors. In the event of liquidation or winding up of the Company and after the payment of all preferential amounts required to be paid to the holders of any series of preferred stock, any remaining funds shall be distributed among the holders of the issued and outstanding common stock.


Common Stock Split

At the Company's 2021 Annual Meeting of Stockholders in June 2021, upon the recommendation of the Company's Board of Directors, the Company's stockholders approved the adoption of the Company's Fourth Amended and Restated Certificate of Incorporation, which increased the total number of shares of common stock that the Company is authorized to issue from 60 million to 1.2 billion. The Fourth Amended and Restated Certificate of Incorporation became effective on June 7, 2021. On June 7, 2021, the Board of Directors approved a ten-for-one stock split of the Company's outstanding shares of common stock to be effected in the form of a stock dividend. Each stockholder of record on June 17, 2021 received a dividend of nine additional shares of common stock for each then-held share, distributed after close of trading on June 25, 2021. The par value of the Company's common stock remained $0.01 per share. All applicable share and per-share amounts in the consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the impact of the stock split.

Equity OfferingOfferings


In October 2017,On September 20, 2022, the Company completed a public equity offering of 3,317,30810.7 million shares of common stock for $260.00at an offering price of $70.38 per share. Net proceeds from the public equity offering were approximately $834$745.7 million, after deducting approximately $29$4.3 million of underwriting discountsfees, commissions and other fees.stock issuance costs. On May 28, 2020, the Company completed a public equity offering of 26.3 million shares of common stock for $65.50 per share. Net proceeds from the public equity offering were approximately $1.7 billion, after deducting approximately $35 million of underwriting fees, commissions and other stock issuance costs. The Company expectsintends to use the net proceeds from the public equity offeringsale of the securities to fund all or a portion of the costs of any strategic acquisitions we determine to pursueit pursues in the future, to finance the growth of its business and for working capital and other general corporate purposes. General corporate purposes may include additions to working capital, capital expenditures, repayment of debt, investments in the Company’s subsidiaries possible acquisitions and the repurchase, redemption or retirement of securities, including the Company’s common stock.




F-37

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16.    NET INCOME PER SHARE

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.NET INCOME (LOSS) PER SHARE


The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands except per share data):

 Year Ended December 31,
 202220212020
Numerator:   
Net income$369,453 $292,564 $227,128 
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares396,284 392,210 380,726 
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units1,468 1,950 2,540 
Denominator for diluted net income per share — weighted-average outstanding shares397,752 394,160 383,266 
Net income per share — basic(1)
$0.93 $0.75 $0.60 
Net income per share — diluted(1)
$0.93 $0.74 $0.59 
 Year Ended December 31,
 2017 2016 2015
Numerator:     
Net income (loss)$122,695
 $85,071
 $(3,465)
Denominator: 
  
  
Denominator for basic net income (loss) per share — weighted-average outstanding shares33,200
 32,167
 31,950
Effect of dilutive securities: 
  
  
Stock options and restricted stock359
 269
 
Denominator for diluted net income (loss) per share — weighted-average outstanding shares33,559
 32,436
 31,950
      
Net income (loss) per share — basic $3.70
 $2.64
 $(0.11)
Net income (loss) per share — diluted $3.66
 $2.62
 $(0.11)

Stock options(1) Certain prior period amounts have been retroactively adjusted to purchase approximately 87,000 and 194,000 shares that were outstanding forreflect the years ended December 31, 2017 and December 31, 2016, respectively, were not includedten-for-one stock split effected in the computationform of diluted net income per share because the inclusion of the potentially dilutive common shares would have an anti-dilutive effect. The Company did not consider the impact of potentially dilutive securities for the year ended December 31, 2015 when calculating the diluted net loss per share because the inclusion of the potentially dilutive common shares would have an anti-dilutive effect. Shares underlying restricted commona stock awards that vest based on Company performance and service conditions that have not been achieved as of the end of the period are not includeddividend in the computation of basic or diluted earnings per share. Shares underlying restricted stock units that vest based on Company service conditions, that have not been achieved as of the end of the period are not included in the computation of basic or diluted earnings per share. June 2021.
The following table summarizes the shares underlying the unvested performance-based restricted stock awards and service-based restricted stock unitsanti-dilutive securities excluded from the basic and diluted calculationearnings per share calculations (in thousands):

 Year Ended December 31,
 202220212020
Performance-based restricted stock awards(1)
398 415 526 
Anti-dilutive securities(1)
966 373 540 
(1) Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.

17.    EMPLOYEE BENEFIT PLANS
 Year Ended December 31,
 2017 2016 2015
Performance-based restricted stock awards58
 59
 55
Service-based restricted stock units1
 1
 1
Total shares excluded from computation59
 60
 56

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.EMPLOYEE BENEFIT PLANS
 

Stock Incentive Plans


In April 2007, the Company’s Board of Directors adopted the CoStar Group Inc. 2007 Stock Incentive Plan (as amended, the “2007 Plan”), subject to stockholder approval, which was obtained on June 7, 2007. In April 2016, the Company’s Board of Directors adopted the CoStar Group Inc. 2016 Stock Incentive Plan (as amended, the “2016 Plan”), subject to stockholder approval, which was obtained on June 9, 2016. All shares of common stock that were authorized for issuance under the 2007 Plan that, as of June 9, 2016, remained available for issuance under the 2007 Plan (excluding shares subject to outstanding awards) were rolled into the 2016 Plan and, as of that date, no shares of common stock were available for new awards under the 2007 Plan. The 2007 Plan continues to govern vested unexercised and unexpired awardsstock options issued under the 2007 Plan prior to June 9, 2016. The 2007 Plan provided for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights to officers, directors and employees of the Company and its subsidiaries. Stock options granted under the 2007 Plan could be incentive or non-qualified, and except in limited circumstances related to a merger or other acquisition, the exercise price for a stock option may not be less than the fair market value of the Company’s common stock on the date of grant. The vesting period of the options, restricted stock and restricted stock unit grants under the 2007 Plan was determined by the Board of Directors or a committee thereof and was generally three to four years. In some cases, vesting of restricted stock awards under the 2007 Plan is subject to performance conditions. Upon the occurrence of a Change of Control, as defined in the 2007 Plan, all outstanding unexercisable options and restricted stock grants under the 2007 Plan immediately become exercisable.


The 2016 Plan provides for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights to officers, directorsemployees and employeesdirectors of the Company and its subsidiaries. Stock options granted under the 2016 Plan may be non-qualified or may qualify as incentive stock options. Except in limited circumstances related to a merger or other acquisition, the exercise price for an option may not be less than the fair market value of the Company’s common stock on the date of grant. The vesting period for each grant of options, restricted stock, restricted stock units and stock appreciation rights under the 2016 Plan is determined by the Board of Directors or a committee thereof and is generally three to four years, subject to minimum vesting periods for restricted stock and restricted stock units of at least one year. In some cases, vesting of awards under the 2016 Plan may be based on performance conditions. The Company has issued and/orinitially reserved the followingapproximately 22.7 million shares of common stock for issuance under the 2016 Plan: (a) 1,450,000 shares of common stock, plus (b) 815,464Plan, which included shares of common stock that were authorized for issuance under the 2007 Plan that, as of June 9, 2016,and remained available for issuance under the 2007 Plan (not including any Shares that were subject as of such date to outstanding awards under the 2007 Plan), and (c) anyJune 9, 2016. Any shares of common stock subject to (a) outstanding awards under the 2007 Plan as of June 9, 2016 that on or (b) outstanding awards under the 2016 Plan after such dateJune 9, 2016, that cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are
F-38

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

exercised for or settled in vested and nonforfeitable shares). will become authorized and unissued under the 2016 Plan. Pursuant to the terms of the 2016 Plan, all amounts reserved or issued under the plan were adjusted to reflect the Company’s ten-for-one common stock split. Unless terminated sooner, the 2016 Plan will terminate in June 2026, but will continue to govern unexercised and unexpired awards issued under the 2016 Plan prior to that date. Approximately 214.3 million shares were available for future grant under the 2016 Plan as of December 31, 2017.2022.


At December 31, 2017,2022, there was approximately $57$107.4 million of unrecognized compensation cost related to stock incentive plans, net of estimated forfeitures, which the Company expects to recognize over a weighted-average-period of 2.22.4 years. The income tax benefit realized from stock-based compensation was immaterial, $2.4 million and $20.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.


COSTAR GROUP, INC.See Notes 2 and 12 for further discussion of stock-based compensation expense and income taxes, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.
EMPLOYEE BENEFIT PLANS (CONTINUED)


Stock Options


Option activity was as follows:
 
Number of
Shares(1)
Range of
Exercise Price(1)
Weighted-
Average
Exercise
Price(1)
Weighted-
Average
Remaining
Contract
Life (in years)
Aggregate
Intrinsic
Value
(in thousands)
Number of
Shares
 
Range of
Exercise Price
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contract
Life (in years)
 
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2014370,179
 $36.48 - $201.04 $99.12
  
Granted89,500
 $193.69 - $193.69 $193.69
  
Exercised(59,602) $36.48 - $201.04 $85.48
  
Outstanding at December 31, 2015400,077
 $36.48 - $201.04 $122.30
  
Outstanding at December 31, 2019Outstanding at December 31, 20192,756,580 $5.45 - $39.82$26.72 6.98$91,262 
Granted82,400
 $182.75 - $182.75 $182.75
  Granted341,000 $66.65$66.65 
Exercised(29,285) $36.48 - $201.04 $112.78
  Exercised(953,130)$19.37 - $39.82$22.95 
Canceled or expired(13,034) $193.69 - $201.04 $195.78
  Canceled or expired(121,350)$34.21 - $66.65$44.31 
Outstanding at December 31, 2016440,158
 $36.48 - $201.04 $132.08
 
 

Outstanding at December 31, 2020Outstanding at December 31, 20202,023,100 $10.22 - $66.65$34.18 6.99$117,846 
Granted95,500
 $204.91 $204.91
  Granted159,000 $91.98$91.98 
Exercised(81,815) $36.48 - $201.04 $83.07
  Exercised(206,000)$20.49 - $39.82$30.78 
Outstanding at December 31, 2017453,843
 $36.73 - $204.91 $156.24
 6.67 $63,861
     
Exercisable at December 31, 2015220,107
 $36.48 - $201.04 $77.63
    
Exercisable at December 31, 2016284,489
 $36.48 - $201.04 $100.94
 
 

Exercisable at December 31, 2017278,239
 $36.73 - $201.04 $130.91
 5.47 $46,199
Outstanding at December 31, 2021Outstanding at December 31, 20211,976,100 $10.22 - $91.98$39.18 6.24$80,800 
GrantedGranted202,100 $67.29$67.29 
ExercisedExercised— 
Canceled or expiredCanceled or expired— 
Outstanding at December 31, 2022Outstanding at December 31, 20222,178,200 $10.22 - $91.98$41.79 5.60$79,639 
Exercisable at December 31, 2020Exercisable at December 31, 20201,228,060 $10.22 - $39.82$24.68 6.18$83,204 
Exercisable at December 31, 2021Exercisable at December 31, 20211,473,420 $10.22 - $66.65$29.55 5.59$72,905 
Exercisable at December 31, 2022Exercisable at December 31, 20221,766,070 $10.22 - $91.98$34.40 4.96$76,515 

(1) Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.
The aggregate intrinsic value of outstanding options is calculated as the difference between (i) the closing price of the common stock at the end of the period and (ii) the exercise pricesprice of the underlying awards, multiplied by the shares underlyingnumber of outstanding options as of the end of the period that had an exercise price less than the closing price on that date. Options to purchase 81,815, 29,285, and 59,602, sharesNo options were exercised duringin the yearsyear ended 2017, 2016, and 2015, respectively.December 31, 2022. The aggregate intrinsic value of options exercised, determined as of the exercise date, of option exercise, was approximately $13 million, $3$11.0 million and $7$49.0 million for the years ended December 31, 2017, 2016,2021 and 2015,2020, respectively.


The weighted-average grant date fair value of each option granted during the years ended December 31, 2017, 2016, and 2015 using the Black-Scholes option-pricing model was $59.06, $54.34 and$56.53, respectively.
F-39

COSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model, using the assumptions in the following table:
 Year Ended December 31,
 202220212020
Dividend yield%%%
Expected volatility31 %30 %26 %
Risk-free interest rate1.89 %0.56 %1.45 %
Expected life (in years)555
Weighted-average grant date fair value(1)
$20.43 $25.09 $17.21 
 Year Ended December 31,
 2017 2016 2015
Dividend yield0% 0% 0%
Expected volatility28% 31% 30%
Risk-free interest rate2% 1% 2%
Expected life (in years)5
 5
 5

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.
EMPLOYEE BENEFIT PLANS (CONTINUED)

Stock Options (Continued)

(1) Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.
The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash dividend payments. The Company has never declared ornor paid any dividends on its common stock and does not anticipate paying any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its business. Expected volatility is calculated based on historical volatility of the daily closing price of the Company's common stock over a period consistent with the expected life of the options granted. The risk-free interest rate is based on the U.S. Treasury rate with terms similar to the expected life of the options granted. The expected life for the options is determined based on multiple factors, including historical employee behavior patterns of exercising options and post-employment termination behavior as well as expected future employee option exercise patterns.


The following table summarizes information regarding options outstanding at December 31, 2017:2022:

  Options Outstanding Options Exercisable
Range of
Exercise Price
 Number of
Shares
Weighted-Average Remaining Contractual Life (in years)Weighted-
Average
Exercise Price
Number of
Shares
Weighted-
Average 
Exercise Price
$10.22 - $19.93411,540 2.91$17.62 411,540 $17.62 
$19.94 - $27.35350,880 4.16$20.49 350,880 $20.49 
$27.36 - $37.02357,010 5.16$34.21 357,010 $34.21 
$37.03 - $53.24385,670 6.10$39.82 385,670 $39.82 
$53.25 - $91.98673,100 7.95$72.83 260,970 $71.79 
2,178,200 5.60$41.79 1,766,070 $34.40 
   Options Outstanding  Options Exercisable
Range of
Exercise Price
 
 Number of
Shares
 Weighted-Average Remaining Contractual Life (in years) 
Weighted-
Average
Exercise Price
 
Number of
Shares
 
Weighted-
Average 
Exercise Price
$36.73 - $58.06 41,359
 3.13 $56.64
 41,359
 $56.64
$58.07 - $59.59 40,004
 4.14 $58.95
 40,004
 $58.95
$59.60 - $81.19 1,000
 3.42 $60.23
 1,000
 $60.23
$81.20 - $142.45 70,944
 5.19 $102.16
 70,944
 $102.16
$142.46 - $188.22 76,934
 8.19 $182.75
 21,999
 $182.75
$188.23 - $197.37 65,802
 7.17 $193.69
 40,633
 $193.69
$197.38 - $202.98 62,300
 6.16 $201.04
 62,300
 $201.04
$202.99 - $204.91 95,500
 9.16 $204.91
 
 $
$36.73 - $204.91 453,843
 6.67 $156.24
 278,239
 $130.91


Restricted Stock Awards


In March 2017, March 2016, and March 2015, theThe Compensation Committee of the Board of Directors of the Company historically approved grants of restricted common stock to employees and directors of the Company that vest over a specific service period and to executive officers that vest based on the Company’sachievement of certain performance conditions, primarily, the achievement of a three-year cumulative revenue goal established at the grant date, and are subject to forfeiture in the event the foregoingdate. The grant of awards with performance condition is not met by the end of each respective three-year period. The number of shares that may be earned ranges between 0% (if the specified threshold performance level is not attained) and 200% (if performance meets or exceeds the maximum achievement level) of the target award. If actual performance exceeds the pre-established threshold, the number of shares earned is calculated based on the relative performance between specified levels of achievement. These awards supportconditions supports the Company’s goalsgoal of aligning executive incentives with long-term stockholder value and ensuring that executive officers have a continuing stake in the long-term success of the Company.


These grantsThe vesting of restricted common stock areis subject to continuing employment requirements andrequirements. Certain performance-based restricted common stock awards are also subject to a market condition. Thecondition such that the actual number of shares that vest at the end of the respective three-year period is determined based on the Company’s achievement of the three-year performance goals described above, as well as itsand an established Company specific TSR factor relative to the Russell 1000 Index over the same three-year performance period. At the end of the three-year performance period, if the performance condition is achieved at or above the pre-established threshold, the number of shares earned is further adjusted by a TSR payout percentage, which ranges between 80% and 120%, based on the Company’s TSR performance relative to that of the Russell 1000 Index over the respective three-year period. The Company granted a total of 32,160, 25,680 and 32,400 shares of performance-based restricted common stock during the years ended December 31, 2017, 2016, and 2015, respectively.


F-40

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



14.
EMPLOYEE BENEFIT PLANS (CONTINUED)

Restricted Stock Awards (Continued)

The Company estimates the fair value of its performance-based restricted common stockequity awards with both a performance and market condition on the date of grant using a Monte-Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate the probability of achieving the Company achieving various stock price levelsmarket condition to determinecalculate the expected TSR performance ranking.fair value of the awards. Expense is only recorded for awards that are expected to vest, net of estimated forfeitures. The assumptions used to estimate the fair value of performance-based restricted common stock awards with both a performance and a market condition granted were as follows:
 Year Ended December 31,
 202220212020
Dividend yield%%%
Expected volatility34 %42 %27 %
Risk-free interest rate1.71 %0.20 %1.43 %
Expected life (in years)333
Weighted-average grant date fair value(1)
$71.19 $99.73 $72.69 
 Year Ended December 31,
 2017 2016 2015
Dividend yield0% 0% 0%
Expected volatility28% 28% 26%
Risk-free interest rate2% 1% 1%
Expected life (in years)3
 3
 3
Weighted-average grant date fair value$218.59
 $184.97
 $208.08

(1) Certain prior period amounts have been retroactively adjusted to reflect the ten-for-one stock split effected in the form of a stock dividend in June 2021.
The expected dividend yield is determined based on the Company's past cash dividend history and anticipated future cash dividend payments. The Company has never declared ornor paid any dividends on its common stock and does not anticipate paying any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future growth of its business. Expected volatility is calculated based on historical volatility of the daily closing price of the common stock of the companies within the Russell 1000 Index over a period consistent with the expected life of the performance-based restricted common stock awards with a market condition.awards. The risk-free interest rate is based on the U.S. Treasury rate with terms similar to the expected life of the performance-based restricted common stock awards with a market condition.awards. The expected life is consistent with the performance measurement period of the performance-based restricted common stock awards with a market condition.

awards.
As of December 31, 2017,2022, the Company reassessed the probability of achieving the performance and market conditions and determined that it was probable that at least the minimum performance goals associated with restricted stock awards with performance and market conditions for the 2017, 2016granted during 2022, 2021 and 2015 performance-based restricted common stock awards2020 would be met by their forfeiture dates. As a result, theThe Company recorded a total of approximately $5$11.9 million, $3$8.0 million and $3$3.7 million of stock-based compensation expense related to the performance-based restricted common stock awards with aperformance and market conditionconditions for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. TheAs of December 31, 2022, the Company expects to record an aggregate amount of stock-based compensation expense related to the performance-basedof approximately $13.3 million for restricted common stock awards of approximately $6 millionwith performance and market conditions over the periods 2018, 20192023, 2024 and 2020.2025.


F-41

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents unvested restricted stock awards activity for the year ended December 31, 2017:2022:

Restricted Stock Awards — without Market ConditionRestricted Stock Awards — with Market Condition
 Number of
Shares
Weighted-Average
Grant Date
Fair Value per Share
Number of
Shares
Weighted-Average
Grant Date
Fair Value per Share
Unvested restricted stock awards at December 31, 20211,782,306 $66.74 717,600 $67.40 
Granted1,277,303 $62.15 205,680 $71.19 
Vested(750,435)$59.45 (238,130)$42.96 
Canceled(247,280)$63.15 (64,270)$42.96 
Unvested restricted stock awards at December 31, 20222,061,894 $67.15 620,880 $80.55 
 Restricted Stock Awards — without Market Condition Restricted Stock Awards — with Market Condition
 
Number of
Shares
 
Weighted-Average
Grant Date
Fair Value per Share
 
Number of
Shares
 
Weighted-Average
Grant Date
Fair Value per Share
Unvested restricted stock awards at December 31, 2016                                   394,712
 $192.38
 72,480
 $202.07
Granted156,238
 $211.69
 32,160
 $218.59
Vested(156,240) $177.72
 (13,477) $216.20
Canceled(30,827) $196.87
 (5,963) $216.20
Unvested restricted stock awards at December 31, 2017363,883
 $206.59
 85,200
 $205.08

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.
EMPLOYEE BENEFIT PLANS (CONTINUED)


Restricted Stock Units


The following table presents unvested restricted stock units activity for the year ended December 31, 2017:2022:

 Number of
Units
Weighted-Average
Grant Date
Fair Value per Share
Unvested restricted stock units at December 31, 202112,485 $71.44 
Granted13,666 $60.11 
Vested(4,061)$66.47 
Canceled(530)$69.56 
Unvested restricted stock units at December 31, 202221,560 $65.24 
Management Stock Purchase Plan

The Board of Directors adopted the Company’s Management Stock Purchase Plan in December 2017 with the intent of providing selected key employees of the Company and its subsidiaries, including the Company's executive officers, the opportunity to defer a portion of their cash incentive compensation and to align management and stockholder interests through awards of DSUs under the MSPP and awards of Matching RSUs issued under the Company's 2016 Plan. Under this plan participants are permitted to elect to defer up to 100% of their annual incentive bonus or commissions earned during the year by submitting an irrevocable election in accordance with Section 409A of the Internal Revenue Code, as amended. On the date the incentive bonus or commission would otherwise be paid in cash (typically during the following calendar year), the Company awards the participant DSUs representing the number of shares of common stock with an aggregate fair market value on that date equal to the amount of compensation elected to be deferred under the MSPP. On the same date the DSUs are awarded, the participant receives a grant of Matching RSUs covering the number of shares of common stock equal up to 100% of the DSUs granted. The expense related to the DSUs is recognized on a straight-line basis during the period that the related incentive bonus or commission is earned. The Company granted 75,479 and 40,960 DSUs during the years 2022 and 2021, respectively. The expense related to the Matching RSUs is recognized over the four-year vesting period following the grant date.

F-42

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
Number of
Shares
 
Weighted-Average
Grant Date
Fair Value per Share
Unvested restricted stock units at December 31, 20161,199
 $182.64
Granted69
 $291.82
Vested(306) $183.28
Canceled
 $
Unvested restricted stock units at December 31, 2017962
 $190.27
The following tables presents the Matching RSU activity for the year ended December 31, 2022:

 Number of Matching RSU
Shares
Weighted-Average
Grant Date
Fair Value per Share
Unvested MSPP restricted stock units at December 31, 2021116,090 $62.66 
Granted75,479 $57.84 
Vested— 
Canceled(11,138)$64.66 
Unvested MSPP restricted stock units at December 31, 2022180,431 $60.52 

Employee 401(k) Plan


The Company maintains a 401(k) Plan (the “401(k)”) as a defined contribution retirement plan for all eligible employees. The 401(k) Plan provides for tax-deferred contributions of employees’ salaries, limited to a maximum annual amount as established by the IRS. In addition to the traditional 401(k), effective January 1, 2015, eligible employees have the option of making an after-tax contribution to a Roth 401(k) plan or a combination of both. In 2017, 2016each of 2022, 2021 and 2015,2020, the Company matched 100% of employee contributions up to a maximum of 4% of total compensation. Amounts contributed to the 401(k) Plan by the Company to match employee contributions for the years ended December 31, 2017, 2016,2022, 2021 and 20152020 were approximately $10$21.5 million, $9$17.6 million and $8$15.4 million, respectively. The Company had no administrative expenses in connection with the 401(k) planPlan for each of the years ended December 31, 2017, 2016,2022, 2021 and 2015, respectively.2020.
 
Employee Pension Plan
 
The Company maintains a Group Personal PensionGPP Plan (the “Plan”) for all eligible employees in the Company’s U.K. offices. The GPP Plan is a defined contribution plan. Employees are eligible to contribute a portion of their salaries, subject to a maximum annual amount as established by Her Majesty's Revenue and Customs. In 2017, 2016each of 2022, 2021 and 2015,2020, the Company's matching contribution was based on the percentage contributed by the employee, up to a maximum of 6% of total compensation. Amounts contributed to the GPP Plan by the Company to match employee contributions for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, were approximately $380,000, $380,000$1.0 million, $0.9 million and $420,000$0.9 million, respectively.


Registered Retirement Savings Plan


As of January 1, 2015, the Company introduced a registered retirement savings plan (“RRSP”)RRSP for all eligible employees in the Company’s Canadian offices. In 2017, 2016,each of 2022, 2021 and 2015,2020, the Company matched 100% of employee contributions up to a maximum of 4% of total compensation. Amounts contributed to the RRSP by the Company to match employee contributions were approximately $0.1 million for each of the years ended December 31, 2017, 2016,2022, 2021 and 2015 were approximately $43,000, $10,000, and $40,000 respectively.2020.


 Employee Stock Purchase Plan
 
As of August 1, 2006, the Company introduced an Employee Stock Purchase Plan (“ESPP”),ESPP, pursuant to which eligible employees participating in the plan authorize the Company to withhold specified amounts from the employees’ compensation and use the withheld amounts to purchase shares of the Company's common stock at 90% of the market price. Participating employees are able to purchase common stock under this plan during each offering period. An offering period begins the second Saturday before each of the Company’s regular pay dates and ends on each of the Company’s regular pay dates. On June 3, 2015,2, 2021, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares available for purchase under the ESPP by 100,0001 million shares. On September 14, 2015, theThe Company registered the issuance of these additional shares under the ESPP pursuant to the registration statement filed September 14, 2015.on July 28, 2021. There were 80,0221,010,267 and 93,8121,233,863 shares available for purchase under the ESPP as of December 31, 20172022 and 2016,2021, respectively, and approximately 13,790223,596 and 14,735152,047 shares of the Company’s common stock were purchased under the ESPP during 20172022 and 2016,2021, respectively.



F-43

COSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



18.    SUBSEQUENT EVENTS
15.QUARTERLY RESULTS OF OPERATIONS

The following is a summaryCompany has evaluated all events through the date of issuance of the unaudited quarterly results of operations for the years ended December 31, 2017consolidated financial statements and 2016.

have concluded that there are no recognized or non-recognized subsequent events that require disclosure.
F-44
 2017
 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues$226,553
 $237,153
 $247,533
 $253,991
Cost of revenues51,346
 55,273
 55,483
 58,301
Gross profit175,207
 181,880
 192,050
 195,690
Operating expenses137,545
 153,997
 134,537
 144,932
Income from operations37,662
 27,883
 57,513
 50,758
Interest and other income429
 605
 555
 2,455
Interest and other expense(2,686) (2,693) (2,901) (734)
Loss on debt extinguishment
 
 
 (3,788)
Income before income taxes35,405
 25,795
 55,167
 48,691
Income tax expense13,275
 3,611
 20,990
 4,487
Net income$22,130
 $22,184
 $34,177
 $44,204
Net income per share — basic$0.69
 $0.68
 $1.05
 $1.24
Net income per share — diluted$0.68
 $0.68
 $1.04
 $1.22

 2016
 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues$199,739
 $206,869
 $212,711
 $218,311
Cost of revenues42,900
 42,679
 42,222
 46,013
Gross profit156,839
 164,190
 170,489
 172,298
Operating expenses126,538
 136,071
 130,893
 125,409
Income from operations30,301
 28,119
 39,596
 46,889
Interest and other income84
 159
 344
 1,186
Interest and other expense(2,509) (2,455) (2,498) (2,554)
Income before income taxes27,876
 25,823
 37,442
 45,521
Income tax expense11,155
 10,247
 14,241
 15,948
Net income$16,721
 $15,576
 $23,201
 $29,573
Net income per share — basic$0.52
 $0.48
 $0.72
 $0.92
Net income per share — diluted$0.52
 $0.48
 $0.72
 $0.91





16.SUBSEQUENT EVENTS

On February 21, 2018, the Company completed the acquisition of ForRent, a division of Dominion Enterprises, pursuant to which the Company acquired all of the issued and outstanding shares of common stock, no par value per share, of DE Holdings, Inc., for a purchase price of approximately $385 million, payable approximately $350 million in cash and approximately $35 million in shares of Company common stock, subject to a customary working capital adjustment and other post-closing adjustments.



F-41