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

Company Reports 140% Year-Over-Year EBITDA Growth, Acceleration of Revenue
Growth Rate

BETHESDA, MDOctober 14, 2003 –CoStar Group, Inc. (Nasdaq: CSGP) revenues increased 20.1% and EBITDA (earnings before interest, taxes, depreciation and amortization) increased 140% in the third quarter of 2003 over the third quarter of 2002, the Company announced today. The Company also reported GAAP-basis net income of $0.02 per share in the third quarter of 2003 compared to GAAP-basis net loss of $(0.07) per share in the third quarter of 2002. Cash and short-term investments grew by $4.3 million during the third quarter of 2003, the Company reported.

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

	2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Revenues	$	19.1		$	19.5		$	20.1		$	20.7		$	22.6		$	23.2		$	24.1
EBITDA		1.3			1.4			1.6			2.0			2.4			2.9			3.7
Pro forma earnings		0.2			0.3			0.4			0.8			1.0			1.4			2.1
Pro forma earnings per share		0.01			0.02			0.03			0.05			0.06			0.09			0.13
Net income (loss)		(1.6	)		(1.3	)		(1.1	)		(0.8	)		(0.8	)		(0.4	)		0.3
Net income (loss) per share — diluted		(0.10	)		(0.08	)		(0.07	)		(0.05	)		(0.05	)		(0.02	)		0.02
Weighted average common shares — diluted		15.7			15.7			15.8			15.8			15.8			15.9			16.5

Revenues for the third quarter of 2003 were $24.1 million. In addition, revenues increased sequentially by 4.0% for the third quarter of 2003 over the second quarter of 2003. CoStar has reported revenue increases in 21 consecutive quarters since its IPO.

1

“We have seen a clear acceleration of revenue growth, which is largely attributable to the strength of our new product platform” stated CoStar President & CEO Andrew C. Florance. “Customers seem to enjoy using CoStar Property 8.0, and I believe we are reaching a broader base of active users within our customer sites.” Property views in CoStar Property 8.0, one of the key ways the Company measures usage, increased 40% in the third quarter of 2003 compared to the previous quarter.

“We also are beginning to see signs of recovery in the commercial real estate markets,” Florance added. “The national vacancy rate for office space declined in the third quarter of 2003 after increasing for 12 consecutive quarters.”

For the quarter ended September 30, 2003, GAAP-basis net income increased to $281,000 or $0.02 per share, compared to a net loss of $(1.1) million or ($0.07) per share for the third quarter of 2002. Pro forma earnings, which is net income (loss) before purchase amortization in cost of revenues and operating expenses, improved to $2.1 million or $0.13 per share for the third quarter of 2003 compared to pro forma earnings of $418,000 or $0.03 per share for the same quarter in 2002. EBITDA increased 140% to $3.7 million for the third quarter of 2003 compared to EBITDA of $1.6 million in the third quarter of 2002.

As of September 30, 2003, the Company had $35.9 million in cash, cash equivalents, and short-term investments, an increase of $4.3 million compared to June 30, 2003. This substantial increase resulted from strong operating cash flows and proceeds of approximately $1.3 million from stock option exercises for approximately 62,000 shares of common stock. The Company has no long-term debt.

“For the fourth quarter of 2003, we expect overall sequential quarterly revenue growth of approximately 3.5% to 4% over the third quarter of 2003,” said Frank Carchedi, CoStar’s Chief Financial Officer. “In addition, for the fourth quarter of 2003, we expect pro forma earnings of approximately $0.15 per share, and we expect approximately $0.44 of pro forma earnings per share for 2003. Adjusting these pro forma amounts for purchase amortization, which we anticipate will be consistent with the charges for the third quarter of 2003, we expect to have GAAP-basis net income of approximately $0.04 per share for the fourth quarter of 2003, which would enable us to nearly break even with respect to GAAP-basis net income for 2003. These per share numbers assume we issue 1.25 million shares of common stock during the fourth quarter of 2003 in a public offering.”

In connection with CoStar’s planned public offering, the Company’s Registration Statement on Form S-3 filed on July 2, 2003, as amended, was selected for review by the Securities and Exchange Commission. This review has not resulted in any changes to CoStar’s previously reported financial results. CoStar filed Amendment No. 3 to its Registration Statement on October 10, 2003, and expects to commence its road show later this week. In response to comments received from the SEC, CoStar will file an amended Annual Report on Form 10-K for the year ended December 31, 2002, and an amended Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, to conform the disclosure in certain items in these reports to the disclosure in the Company’s Registration Statement.

2

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

		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,
		2003			2002			2003			2002
		(unaudited)						(unaudited)
Revenues		$	24,108		$	20,075		$	69,835		$	58,675
Cost of revenues			7,627			6,996			22,946			21,029
Gross margin			16,481			13,079			46,889			37,646
Operating expenses:
	Selling and marketing		6,683			5,872			19,650			17,106
	Software development		1,729			1,370			5,131			4,152
	General and administrative		6,528			6,243			19,685			18,345
	Purchase amortization		1,167			902			3,393			2,693
			16,107			14,387			47,859			42,296
Income (loss) from operations			374			(1,308	)		(970	)		(4,650	)
Other income, net			65			183			199			636
Income (loss) before income taxes			439			(1,125	)		(771	)		(4,014	)
Income tax expense			158			0			158			0
Net income (loss)		$	281		$	(1,125	)	$	(929	)	$	(4,014	)
Net income (loss) per share — basic		$	0.02		$	(0.07	)	$	(0.06	)	$	(0.25	)
Net income (loss) per share — diluted		$	0.02		$	(0.07	)	$	(0.06	)	$	(0.25	)
Pro forma earnings		$	2,146		$	418		$	4,569		$	899
Pro forma earnings per share		$	0.13		$	0.03		$	0.28		$	0.06
Weighted average outstanding shares — basic			15,981			15,777			15,884			15,747
Weighted average outstanding shares — diluted			16,482			15,777			15,884			15,747
Reconciliation of Non-GAAP Financial Measures with Net Income (Loss)
Net income (loss)		$	281		$	(1,125	)	$	(929	)	$	(4,014	)
Purchase amortization in cost of revenues			698			641			2,105			2,220
Purchase amortization in operating expenses			1,167			902			3,393			2,693
Pro forma earnings		$	2,146		$	418		$	4,569		$	899
Net income (loss)		$	281		$	(1,125	)	$	(929	)	$	(4,014	)
Purchase amortization in cost of revenues			698			641			2,105			2,220
Purchase amortization in operating expenses			1,167			902			3,393			2,693
Depreciation and other amortization			1,481			1,315			4,401			3,995
Interest income, net			(65	)		(183	)		(199	)		(636	)
Income tax expense			158			0			158			0
EBITDA		$	3,720		$	1,550		$	8,929		$	4,258

3

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

		September 30,		June 30,		March 31,		December 31,
		2003		2003		2003		2002
		(unaudited)		(unaudited)		(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	23,294	$	30,507	$	24,910	$	25,546
	Short-term investments		12,617		1,094		1,405		1,598
	Cash held for acquisition		0		0		0		16,386
	Accounts receivable, net		5,011		5,859		7,123		6,786
	Prepaid and other current assets		1,660		1,579		1,723		1,567
Total current assets			42,582		39,039		35,161		51,883
Property and equipment, net			10,314		10,087		10,689		11,048
Intangible and other assets, net			69,670		71,574		72,755		55,704
Deposits			914		290		280		272
Total assets		$	123,480	$	120,990	$	118,885	$	118,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses	$	10,142	$	9,884	$	9,050	$	10,124
	Deferred revenue		5,437		5,094		6,505		4,766
Total current liabilities			15,579		14,978		15,555		14,890
Stockholders’ equity			107,901		106,012		103,330		104,017
Total liabilities and stockholders’ equity		$	123,480	$	120,990	$	118,885	$	118,907

Reconciliation of Non-GAAP Financial Measures with 2002-2003 Quarterly Results
(in millions)

	2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Net income (loss)	$	(1.6	)	$	(1.3	)	$	(1.1	)	$	(0.8	)	$	(0.8	)	$	(0.4	)	$	0.3
Purchase amortization		1.8			1.6			1.5			1.6			1.8			1.8			1.8
Pro forma earnings	$	0.2		$	0.3		$	0.4		$	0.8		$	1.0		$	1.4		$	2.1
Net income (loss)	$	(1.6	)	$	(1.3	)	$	(1.1	)	$	(0.8	)	$	(0.8	)	$	(0.4	)	$	0.3
Purchase amortization		1.8			1.6			1.5			1.6			1.8			1.8			1.8
Depreciation and other amortization		1.3			1.3			1.3			1.3			1.5			1.6			1.5
Interest income, net		(0.2	)		(0.2	)		(0.1	)		(0.1	)		(0.1	)		(0.1	)		(0.1	)
Income tax expense		—			—			—			—			—			—			0.2
EBITDA	$	1.3		$	1.4		$	1.6		$	2.0		$	2.4		$	2.9		$	3.7

4

Management will conduct a conference call to discuss earnings results for the quarter ended September 30, 2003 and the financial outlook for 2003 at 11:00 am ET, Wednesday, October 15, 2003. This conference call will be broadcast live over the Internet atwww.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 October 26, 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 atwww.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 services offers customers access via the Internet to the most comprehensive database of commercial real estate information on 50 U.S. markets, London and the United Kingdom. Based in Bethesda, MD, the company has approximately 850 employees in 35 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 June 30, 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 fourth quarter of 2003 or for the year ending 2003 will be as stated in this press release, that CoStar’s GAAP-basis net income (loss) for the fourth quarter of 2003 or for the year ending 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, that CoStar’s road show will commence as stated herein, that CoStar will issue 1.25 million shares in a public offering or that the commercial real estate market will continue to improve. All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements.

5