CoStar (CSGP) 8-K CoStar Group, Inc. Announces Second Quarter 2003 Results

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Contact:
Mark A. Klionsky,
Senior Vice President
CoStar Group, Inc.
(301) 280-3898
mklionsky@costar.com

CoStar Group, Inc. Announces Second Quarter 2003 Results

Company Reports 108% Year-Over-Year EBITDA Growth

BETHESDA, MDJuly 22, 2003 –CoStar Group, Inc. (Nasdaq: CSGP) revenues increased 18.6% and EBITDA (earnings before interest, taxes, depreciation and amortization) increased 108% in the second quarter of 2003 over the second quarter of 2002, the Company announced today. In addition, cash balances grew by $5.3 million during the second quarter of 2003 over the first quarter of 2003.

Year 2002-2003 Quarterly Results
($’s in millions, except per share data)

	2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2
Revenues	$	19.1		$	19.5		$	20.1		$	20.7		$	22.6		$	23.2
EBITDA		1.3			1.4			1.6			2.0			2.4			2.9
Pro forma net income		0.2			0.3			0.4			0.8			1.0			1.4
Pro forma net income per share		0.01			0.02			0.03			0.05			0.06			0.09
Net income (loss)		(1.6	)		(1.3	)		(1.1	)		(0.8	)		(0.8	)		(0.4	)
Net income (loss) per share		(0.10	)		(0.08	)		(0.07	)		(0.05	)		(0.05	)		(0.02	)
Weighted average common shares		15.7			15.7			15.8			15.8			15.8			15.9

CoStar Group, based in Bethesda, MD, is the leading provider of information services to the commercial real estate industry in the United States and the United Kingdom.

Revenues for the second quarter of 2003 were $23.2 million, an increase of 18.6% compared to the second quarter of 2002. In addition, revenues increased sequentially by 2.7% for the second quarter of 2003 over the first quarter of 2003. CoStar has reported revenue increases in 20 consecutive quarters since its IPO.

“Our subscription-based model has produced consistent quarterly increases in revenues, which have translated into consistent earnings growth,” stated CoStar President & CEO Andrew C. Florance. “The investments we have made in developing our products and our infrastructure are now paying off with strong EBITDA and cash flow.”

For the quarter ended June 30, 2003, pro forma net income, which excludes only purchase amortization, improved to $1.4 million or $0.09 per share versus pro forma net income of $256,000 or $0.02 per share for the same quarter in 2002. EBITDA increased to $2.9 million for the second quarter of 2003 compared to EBITDA of $1.4 million in the second quarter of 2002. The Company’s GAAP-basis net loss for the second quarter of 2003 narrowed to ($367,000) or $(0.02) per share, compared to a net loss of $(1.3) million or $(0.08) per share for the second quarter of 2002.

As of June 30, 2003, the Company had $31.6 million in cash, cash equivalents, and short-term investments, an increase of $5.3 million or 20% compared to March 31, 2003. This substantial increase resulted from strong operating cash flows and proceeds of approximately $2.2 million from stock option exercises for approximately 122,000 shares of common stock. In addition, the Company continues to have no long-term debt.

“The new product platform we released in December 2002 has been very well received,” Florance added. “Usage of CoStar Property 8.0, our flagship leasing and analysis product, increased 79% in the second quarter of 2003 from an average of approximately 1.4 million weekly page views at the end of March 2003 to an average of approximately 2.5 million weekly page views at the end of June 2003. We believe that our new generation of products, together with our strong balance sheet and experienced team, positions us very well for continued growth.”

“For the third quarter of 2003, we expect overall sequential quarterly revenue growth of approximately 2.5% to 3.0% over the second quarter of 2003, and pro forma net income of approximately $0.12 per share,” said Frank Carchedi, CoStar’s Chief Financial Officer. “Adjusting these pro forma amounts for purchase amortization, which we anticipate will be consistent with the charges for the second quarter of 2003,we expect to have GAAP-basis net income of approximately $0.01 per share in the third quarter of 2003.”

CoStar Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)

		For the Three Months						For the Six Months
		Ended June 30,						Ended June 30,
		2003			2002			2003			2002
		(unaudited)						(unaudited)
Revenues		$	23,174		$	19,539		$	45,727		$	38,600
Cost of revenues			7,716			6,937			15,319			14,033
Gross margin			15,458			12,602			30,408			24,567
Operating expenses:
	Selling and marketing		6,397			5,565			12,966			11,234
	Software development		1,702			1,385			3,402			2,782
	General and administrative		6,669			6,235			13,158			12,102
	Purchase amortization		1,113			898			2,225			1,791
			15,881			14,083			31,751			27,909
Loss from operations			(423	)		(1,481	)		(1,343	)		(3,342	)
Other income, net			56			214			133			453
Net loss		$	(367	)	$	(1,267	)	$	(1,210	)	$	(2,889	)
Net loss per share		$	(0.02	)	$	(0.08	)	$	(0.08	)	$	(0.18	)
Pro forma net income		$	1,450		$	256		$	2,422		$	481
Pro forma net income per share		$	0.09		$	0.02		$	0.15		$	0.03
Weighted average common shares			15,856			15,742			15,835			15,730
Reconciliation of Non-GAAP Financial Measures with Net Loss
Net loss		$	(367	)	$	(1,267	)	$	(1,210	)	$	(2,889	)
Purchase amortization in cost of revenues			704			625			1,407			1,579
Purchase amortization in operating expenses			1,113			898			2,225			1,791
Pro forma net income		$	1,450		$	256		$	2,422		$	481
Pro forma net income		$	1,450		$	256		$	2,422		$	481
Depreciation and other amortization			1,464			1,329			2,920			2,680
Interest income, net			(56	)		(214	)		(134	)		(453	)
EBITDA		$	2,858		$	1,371		$	5,208		$	2,708

Costar Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

		June 30,		March 31,		December 31,
		2003		2003		2002
		(unaudited)		(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	30,507	$	24,910	$	25,546
	Short-term investments		1,094		1,405		1,598
	Cash held for acquisition		0		0		16,386
	Accounts receivable, net		5,859		7,123		6,786
	Prepaid and other current assets		1,579		1,723		1,567
Total current assets			39,039		35,161		51,883
Property and equipment, net			10,087		10,689		11,048
Intangible and other assets, net			71,574		72,755		55,704
Deposits			290		280		272
Total assets		$	120,990	$	118,885	$	118,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses	$	9,884	$	9,050	$	10,124
	Deferred revenue		5,094		6,505		4,766
Total current liabilities			14,978		15,555		14,890
Stockholders’ equity			106,012		103,330		104,017
Total liabilities and stockholders’ equity		$	120,990	$	118,885	$	118,907

Reconciliation of Non-GAAP Financial Measures with 2002-2003 Quarterly Results

	2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2
Net loss	$	(1.6	)	$	(1.3	)	$	(1.1	)	$	(0.8	)	$	(0.8	)	$	(0.4	)
Purchase amortization		1.8			1.6			1.5			1.6			1.8			1.8
Pro forma net income	$	0.2		$	0.3		$	0.4		$	0.8		$	1.0		$	1.4
Pro forma net income	$	0.2		$	0.3		$	0.4		$	0.8		$	1.0		$	1.4
Depreciation and other amortization		1.3			1.3			1.3			1.3			1.5			1.6
Interest income, net		(0.2	)		(0.2	)		(0.1	)		(0.1	)		(0.1	)		(0.1	)
EBITDA	$	1.3		$	1.4		$	1.6		$	2.0		$	2.4		$	2.9

Management will conduct a conference call to discuss earnings results for the quarter ended June 30, 2003 and financial outlook for 2003 at 11:00 am ET, Wednesday, July 23, 2003. This conference call will be broadcast live over the Internet at www.costar.com/corporate/investor. If you would like to join by telephone, please call (800) 329-4405 within the United States or (706) 634-0964 outside the United States. A telephonic replay of the conference call will be available two hours after the live call concludes through midnight on August 1, 2003. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 1429694. The replay will also be available over the Internet at www.costar.com/corporate/investor for a period of time following the call.

About CoStar Group, Inc.

CoStar Group, Inc., (NASDAQ: CSGP) is the leading provider of information services to commercial real estate professionals in the United States and the United Kingdom. CoStar’s suite of products offers customers access via the Internet to the most comprehensive, verified database of commercial real estate information on 50 U.S. markets, London and the United Kingdom. Based in Bethesda, MD, the company has approximately 800 employees in 34 offices throughout the United States and the United Kingdom, including the largest professional research organization in the industry.

This news release includes “forward-looking statements” including, without limitation, statements regarding CoStar’s expectations, beliefs, intentions or strategies regarding the future. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. More information about potential factors that could cause actual results to differ materially include, but are not limited to, those stated in CoStar’s filings from time to time with the Securities and Exchange Commission, including CoStar’s Form 10-Q for the quarter ended March 31, 2003, under the heading “Risk Factors”. In addition to these statements, there can be no assurance that CoStar’s revenues will grow at the rates specified herein, that CoStar’s pro forma net income for the third quarter of 2003 will be as stated in this press release, that CoStar’s GAAP-basis net income/loss for the third quarter of 2003 will be as stated in this press release, that CoStar’s estimated purchase amortization will be as stated in this press release, that CoStar’s sequential quarterly growth rate or earnings will continue to improve, or that CoStar will reach GAAP-basis net income during 2003. All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements.