Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 CoStar Group Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bill Warmington, Vice President of Investor Relations.

Please go ahead..

Thank you, Gabriel. Good evening, and thank you all for joining us to discuss the first quarter 2021 results of CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I would like to review our safe harbor statement.

Certain portions of the discussion today may contain forward-looking statements, including the company's outlook and expectations for the second quarter and full year 2021. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements.

Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar's press release issued earlier today and in our filings with the SEC, including our most recent annual report on Form 10-K under the heading Risk Factors.

All forward-looking statements are based on information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements, whether as a result of new information, future events or otherwise.

Reconciliation to the most directly comparable GAAP measures of the non-GAAP financial measures discussed on this call, including EBITDA, adjusted EBITDA, non-GAAP net income and forward-looking non-GAAP guidance are shown in detail in our press release issued today, along with definitions for those terms.

The press release is available on our website located costargroup.com under Press Room. As a reminder, today's conference call is being webcast, and the link is also available on our website under Investors. Please refer to today's press release on how to access the replay of this call.

And with that, I would like to turn the call over to our Founder and CEO, Andy Florance..

CoStar Lender, an all-in one suite for loan underwriting, surveillance, risk management and regulatory reporting tool. There are over 10,000 banks and credit unions in the U.S. with CRE exposure. And we currently do business with less than 10% of them. We believe Lender has the potential to generate over $300 million in incremental annual revenue.

Lender will enable banks to link the collateral behind their loans to CoStar property and our independent market information. The product is being designed with input from U.S.

regulators and includes a built-in version of the CoStar COMPASS credit default model that enables banks to forecast expected loss and probability of default for easy current expected credit loss, or CECL, reporting.

The combination of increasing renewal rates, a robust new product pipeline and the simplification and standardization of the product options all position CoStar Suite for really strong accelerating revenue growth into 2022.

When we acquired Apartments.com in 2014, it had less than $80 million in annual revenue and was growing at approximately 10% per year. In this first quarter of 2021, Apartments.com grew revenue 21% year-over-year, its seventh quarter in a row of growth at or above 20%.

With a current run rate of over $660 million, I'm proud to say that Apartments.com is on track to overtake CoStar Suite as the largest component of our business in 2021. This strength is particularly impressive given 2 challenges created by the pandemic.

The first is that the apartment owners and managers continue to operate under the budget, occupancy and cash flow restrictions of an eviction moratorium currently scheduled to expire at the end of June.

And the second is that we had to suspend the build-out of our promising middle market sales team that was successfully selling into and penetrating the massive lower end of the rental market.

We have launched Apartments.com most comprehensive marketing plan ever with Jeff Goldblum returning as Brad Bellflower, our iconic spokesman and the inventor of the Apartminternet. Hopefully, many of you enjoyed our commercial Sunday night during the Oscars. Mr.

Goldblum's character demonstrates the limitless lengths to which Apartments.com will go to ensure we have the most listings so that every renter can find their perfect new home. Sunday night's focus on friendly apartments is an awesome spot and a really quality piece of creative work.

This year's campaign will feature 7 new TV spots and over 20,000 commercials on top prime time shows, premieres and finales as well as major sporting events, including premier placement on the Olympics this summer. Let's hope that all goes off without a hitch.

We estimate the campaign will deliver over 10 billion media impressions, including twice the video-on-demand, millions of ads on streaming audio and podcast stations, including Pandora, iHeart Media and Amazon and hundreds of millions of social media and digital ads on Facebook, TikTok, Vox and Cargo as well as entering new outlets like esports and livestream on Twitch.

I really believe that this is Jeff and our agency's best creative work yet, and the distribution is the most powerful we've ever deployed. I believe our Apartments.com marketing effort is operating at 214.2%. The Apartments.com network continues to make tremendous traffic gains as consumers view our advertising and experience our site.

During the first quarter of 2021, the Apartments.com network, according to comScore, had 25 million average monthly unique visitors to our websites, up 4 million uniques or 21% from the same period last year.

During the same period, RentPath had 9.8 million average monthly uniques to its -- for its network of sites, up only 400,000 uniques from the first quarter of last year. In other words, we have over 2.5x RentPath's traffic and then grew our uniques by 10x the number they grew their uniques. They continue to fall further and further behind.

Zillow, interestingly, actually lost over 2 million average monthly unique visitors quarter-over-quarter. We are now ahead of Zillow by over 5 million average monthly uniques for the quarter.

In the month of March, in the back of our new marketing campaign, the Apartments.com network had 26 million visitors, up 40% year-over-year, and set an all-time record for visits in a month at 78 million visits, up 45% year-over-year.

As we head into the peak apartment leasing season, there are more people looking online to rent an apartment than ever before, and our share of that traffic is higher than ever before.

We are continuing to see good progress in our penetration of the under 100-unit multifamily properties, both through our small and mid-market sales team based in Richmond, Virginia and our self-service e-commerce offerings to our independent owners. We define independent owners as folks who own 1 or more 1 to 5 unit properties.

The revenue growth rate for buildings with 5 to 100 units has been accelerating from the low 20% range in the first quarter of 2020 to the mid- to upper 30% range in the first quarter of this year.

We are excited that a portion of our 2021 marketing campaign will specifically target the massive but underpenetrated independent owners' marketplace for the first time. Our current offering of rental tools, including applications, screening, leases and payments is proving to be extremely valuable to these people.

In the first quarter, over 80,000 applications were submitted on Apartments.com with credit checks resulting in over 27,000 new leases, a 14,000% increase over the same period last year. Apartments.com processed $891 million in rental payments in the first quarter, up 27% from the first quarter last year.

As our marketing for these features accelerates, we look forward to expanded sales opportunities. With the now widespread availability of safe and effective vaccines, we're better positioned to restart the hiring and effective face-to-face training of new mid-market sales team members.

The normalization of business use of Zoom creates much better opportunities that couple the benefits of a centralized sales force with the effectiveness of virtual face-to-face client presentations. We are still only single-digit penetrated into the vast lower end of this rental marketplace.

So we believe very strongly that we have decades of high-growth runway ahead here. In the same way that Apartments.com revenue overtook CoStar Suite in 7 years, I believe Homes.com revenue could overtake Apartments.com revenue in the next 7 years. And that's not because we're expecting any slowdown in Apartments.com growth, quite the contrary.

It's because the opportunity in residential is so large, our strategy is so differentiated and our assets have so much potential.

We believe there's a huge gap today between how the leading portals currently leverage the digital real estate marketplace opportunity and an optimal way to leverage digital marketplaces to more effectively sell homes online. We think the current online players are overly focused on capturing agents' fees.

But in contrast, we believe there's a bigger and lower risk opportunity to facilitate selling homes faster and with greater certainty by digitally empowering the established and entrenched channels. We recognize and are comfortable with the fact that our initial market position is, in fact, modest today.

Two weeks ago, we announced our agreement to acquire Homes.com from Dominion Enterprises. Back in 2018, Dominion sold us ForRent. Thank you, Rusty. Members of the ForRent team became key members of our Apartments.com team that helped build that business.

Homes.com will similarly bring with it a talented team of managers and an excellent intuitive URL with an existing base of residential traffic.

We believe that our plans to combine Homes.com, Houses.com and the agent marketing and workflow tools of Homesnap and even CoStar will create the foundation of a differentiated solution to offer a much better alternative to the old, first-generation real estate web portal models.

Not sure where to put it in the call but somewhere, you have to admire, at least appreciate, the branding benefit of how Homes.com meets -- or fits with Apartments.com. Apartments.com, Homes.com, Homes.com, Apartments.com, there's some serious marketing in their heels.

I'm very pleased to report that LoopNet is crossing the $200 million revenue run rate milestone right now and continues to enjoy robust traffic growth with 34% quarter-over-quarter growth in unique visitors to the site. The site reached a record 10 million unique monthly visitors in March.

LoopNet sales continue to show strength in an adverse commercial real estate market in the first quarter, with revenue growing 14% over Q1 2020. The year-over-year growth number was negatively impacted by the depressed subscription sales for LoopNet last year during the chaos of the first couple of months of the pandemic.

However, during the first quarter of 2021, we saw significant growth in our higher-tier advertising solutions, with Diamond, Platinum and Gold ads growing 50% over the same period a year ago.

Demand for prominent placement with these higher-tier ads on LoopNet is strong as average listing prices for these ads grew to $984 a month average in Q1 2021, up from just $710 a month Q1 2020.

Year-over-year revenue growth for our high-volume, lower-tier Silver ads was only 6%, which is how we like to manage volume ads to avoid saturation and internal competition with CoStar. We ended the quarter on a strong note in the month of March with our third-highest monthly net bookings result.

Pandemic restrictions this past year have made it difficult to effectively onboard and train additional sales resources to sell LoopNet. If you have any children learning from home during the pandemic, you know what I mean, and you can appreciate how ineffective Zoom-based school can be.

Fortunately, with the ability to return to the office and travel, we plan to start adding sales resources later this quarter to accelerate LoopNet's growth further.

Even before that, we were still able to achieve an outstanding sales result in March by cross-commissioning and incentivizing our large, experienced, general commercial real estate sales force to sell LoopNet. Mark and Drew did a good job making that happen.

We are seeing more and more of these sales professionals put up impressive sales results in both LoopNet and CoStar simultaneously. We continue to make significant enhancements to LoopNet's e-commerce sales channel. The e-commerce LoopNet sales contribution is growing and increased 24% Q1 '21 over Q1 '20.

With the pandemic's negative impact on commercial office leasing, the availability rate for office space has jumped 400 basis points over the pre-pandemic availability rate. The availability rate as a percentage of office space being actively marketed for lease is the highest level we've ever recorded.

We believe that makes LoopNet's reach to millions of tenants searching for commercial real estate more valuable than ever to owners who need to find tenants to fill their vacancies. It couldn't be more important. As such, we're maintaining our plans for increased investments in marketing LoopNet to owners, brokers, investors and tenants.

The "Are you in the Loop?" campaign we ran from February through March this year targeted brokers and owners in an effort to elevate the LoopNet brand to top of their mind.

That campaign generated 58 million impressions of high-impact creative across a variety of direct media partners, social media channels as well as programmatic video and display partners.

The initial campaign served as a teaser to our broader $20 million campaign launching this May called Space for Dreams, which targets tenants and reinforces LoopNet as the most popular place to find a space. We're working with this on RPA, the agency we used to produce the excellent Apartments.com work, to produce this upcoming campaign.

They have tapped Niall O'Brien as director, an accomplished director and fine arts photographer, who captures the pride of ownership inherent within buildings and showcases the breadth of buildings on the LoopNet marketplace. Niall has the ability to capture buildings in their best moment and bring the design intent of the architects to life.

He creates an excitement around the properties and the opportunity they represent. The intention of this campaign ranked through the rest of the year across broad-based media is to continue to elevate the LoopNet brand and increase brand awareness.

While the campaign targets tenants, we're really actually targeting owners and brokers as a pass-through audience. We believe the striking high-end architectural imagery will resonate with owners of ultrahigh-value properties and position LoopNet as a brand-appropriate channel for high-end, high-dollar property advertising.

All this so I can tell Scott that our ASP per ad is going up. We have put in place many foundational elements for LoopNet to succeed this year and in the years to come. We can clearly see the enormous scale of this opportunity. Though we're crossing a $200 million revenue run rate milestone, our penetration rate is still only a low single-digit number.

There are tens of thousands of very high-value opportunities out there for us and hundreds of thousands of value opportunities overall, and we're focused on winning those opportunities and growing this business. Ten-X delivered another solid quarter and continues to benefit from the CoStar and LoopNet driving potential buyers to Ten-X.

Ten-X' unique monthly visitors rose 45% quarter-over-quarter. On a year-over-year basis, overall account creations increased 61% with CoStar/LoopNet source creations up over 1,000% from 330 to 3,700.

Average registered bidders per property rose from 5 to 13, a 160% increase; and average live bidders per property increased from 2.5 to 4, a 68% increase. The growth in the number of bidders is key because when there are 3 or more bidders at an auction, there's an 85% probability of transacting.

That's an excellent number that draws properties to our network. As a result, in March, the trade rate, the percentage of properties that came to auction and sold, hit an all-time high of 81%. These strong metrics are excellent proof points of the network effect from combining Ten-X with the CoStar platforms.

During the first quarter this year, we grew our Ten-X sales teams by 39%, launched a best-in-class 6-week sales training program and lead generating training program and capitalizing on this growing momentum by launching a new national marketing campaign called Ten-X It, starring comedian Keegan-Michael Key, a great actor.

We believe this campaign will further establish Ten-X as a leading brand for online commercial real estate transactions, drive market awareness that there's no faster or more certain way to exchange commercial real estate and that Ten-X as a part of the CoStar network will become an exponentially better way for buyers and sellers and brokers to exchange commercial real estate.

As the campaign says, "Why just buy it or sell it when you can Ten-X It?" The successful vaccine rollout across the U.S., combined with fiscal stimulus, high household savings rates, relaxed COVID restrictions and warmer weather, have boosted consumer sentiment and spending, helping the labor markets, retail sales, restaurants, service industries in travel.

The office sector struggled in Q1, setting a record for the largest single quarter of negative net absorption. Overall leasing activity remains depressed. Many companies are still evaluating their workplace strategies, but in-person tours are restarting. I'm doing one first thing in the morning.

And vaccinated workers are gradually returning to in-person environments. For multifamily, the defining trend of 2020 was weak demand in the densely populated urban centers and strength out in the suburbs.

While the first quarter couldn't be described as a reversal of that trend, demand has recovered to normal levels in urban centers while staying strong in the suburbs. Record search activity at Apartments.com reflects continued strong multifamily demand.

Fiscal stimulus and improving health conditions are helping the retail sector, especially the service sector tenants that have struggled with lower foot traffic over the past year. Hotel occupancies continue to improve by leisure travel and are hurt by continued weak business travel.

The industrial sector continues to outperform and set new quarterly leasing volume records driven by the double-digit acceleration of e-commerce. Despite the wave of new construction in the industrial sector, vacancies there ticked down in Q1 and remained near all-time lows.

The capital markets have rebounded on the back of strong portfolio trading activity and a return of large national buyers. With record levels of dry powder, investors are on the lookout for distressed opportunities, so far concentrated on hotels with expectation for distressed retail assets to follow.

We just need to make sure they Ten-X those opportunities instead of just buying them. Last March, as you know, we quickly evacuated all of our offices, and our staff moved to safely work from home. Our team did an outstanding job. And though it was difficult, they all made it work for our clients, our shareholders and one another.

With safe and effective vaccines now widely available, and with the help of a number of CoStar Group organized vaccine clinics on site, more and more of our staff are now vaccinated. I believe it's the majority. Employees are now safely returning to our offices by the hundreds.

While it's early days, it feels like we're moving towards a more normal and productive 3D, real, face-to-face, collaborative workplace we used to enjoy. I believe that companies with teams that are able to work together face-to-face will always outcompete remote, dispersed teams.

Our offices feel like a return to a college campus after a long, long summer break. I see thrilled colleagues smiling behind their masks when they run into close colleagues they've not seen in ages. It's really quite nice to see.

At this point, I'm going to hand the call over to my face-to-face, real, 3D, present, sitting right here next to me, at-work colleague, our CFO, Scott Wheeler..

going back to our offices, rolling out vaccines to protect our teams and their families and getting to welcome our friends and our team members back to our offices every day. It really is super fun. And we had a great first quarter financially.

I'll call it hitting through the cycle with double-digit growth in sales bookings, revenue, adjusted EBITDA and non-GAAP EPS. We included Homesnap, currently in their rookie season with CoStar, in our financial results for the first time this quarter, and they were great.

And we also signed up a strategically important prospect in the online residential spaces, Homes.com. So onto the results. Revenue in the first quarter 2021 increased 17% over the first quarter of 2020, which is above the high end of our guidance range.

The organic revenue growth in the first quarter, which excludes Homesnap and Ten-X, was a strong 11% year-over-year as we've come around to 1 year after the start of the pandemic. Going forward, we expect organic revenue growth to improve to approximately 12% to 13% for the second quarter and for the remainder of the year.

CoStar Suite revenue grew 4% in the first quarter of 2021 versus first quarter 2020, at the high end of our expectations.

As we begin to lap the low sales months that began in March 2020 as a result of the pandemic, we expect to see CoStar Suite revenue growth improve sequentially, CoStar Suite sales in the first quarter of 2021, along with contract renewal rates, return to pre-pandemic levels.

So this is certainly very encouraging and is a much faster recovery than what occurred in the last recession for CoStar Suite. We expect CoStar Suite revenue growth in the 5% to 6% range for the second quarter of 2021.

Our outlook for the full year has improved to approximately 6%, with 7% to 8% growth rates expected in the second half of the year for CoStar Suite. Revenue in Information Services grew 7% year-over-year in the first quarter of 2021 to $35 million.

Both the Real Estate Manager and STR turned in strong double-digit subscription revenue growth in the first quarter with Real Estate Manager subscription revenue up 19% and STR subscription revenue up 15% compared to the first quarter of 2020.

The strong subscription revenue growth was moderated somewhat by that drop in transaction revenue, which is the onetime revenue in STR that dropped, which occurred in the first part of the pandemic, in the first quarter of last year.

Overall, we expect revenue growth for Information Services to improve sequentially to a rate of 12% to 14% in the second quarter of 2021, and we continue to expect growth of 10% to 12% for the full year.

Multifamily revenue growth for the first quarter remained strong at 21% compared to the first quarter of 2020, which is at the high end of our expectations.

The number of properties advertising with us was up 10% in the first quarter, with growth in the average rate per property also up around 10% as properties continue to upgrade their advertising packages and increase our exposure.

The mid-market revenue growth rate was up over 35% in the first quarter, as Andy mentioned, with growth balanced pretty evenly between the growth in number of paying properties and growth in the revenue per property.

We expect revenue for multifamily to grow at the rate of approximately 18% to 19% in the second quarter of 2021 compared to the second quarter of 2020. Commercial property and land revenue grew 48% year-over-year in the first quarter, in line with our expectations. This includes the impact of the Ten-X and Homesnap acquisitions.

Organic growth was 11% year-over-year in the first quarter. We expect the reported commercial property and land revenue growth rate to be approximately 55% to 60% for the second quarter of 2021.

Organically, we expect growth of approximately 18% to 20% for the second quarter with improved growth across all of the marketplaces in the sector as we lap the initial pandemic impact from last year.

Within commercial property and land, LoopNet revenue showed solid growth in the first quarter, increasing 14% compared to the first quarter of 2020, just a touch below our expected range of 15% to 16%. But it's been difficult to effectively onboard and train additional sales resources to sell LoopNet during the pandemic, as Andy referenced.

We expect LoopNet revenue growth to improve sequentially and grow approximately 19% to 20% in the second quarter. Our gross margin came in at 81% in the first quarter of 2021, in line with our expectations, and we expect gross margins to continue at that level in the second quarter with gradual improvement throughout the end of the year.

Our profitability was strong in the first quarter with net income, adjusted EBITDA and non-GAAP EPS results all ahead of the guidance we issued in February. Net income was $74 million in the first quarter with an effective tax rate of 20% for this quarter.

The first quarter effective tax rate was higher this year compared to the first quarter of last year, and that's due to fluctuations in the amount and the timing of share-based payment deductions. Those wacky share-based payment deductions, you just don't know what they're going to do.

First quarter adjusted EBITDA was $160 million, up 29% from the first quarter of last year, and came in approximately $15 million above the high end of our guidance range. The improved adjusted EBITDA was primarily the result of higher revenue, lower personnel expenses and timing variances in the number of operating expense categories across the P&L.

The operating expense favorability is primarily timing, and we expect to incur some of those expenses later in the year. The resulting adjusted EBITDA margin of 35% in the first quarter was 320 basis points above the first quarter of last year. Now we'll talk about some of the performance metrics for the quarter.

At the end of first quarter, our sales force totaled approximately 835 people, which is lower than the sales force number reported at the end of 2020 by approximately 65. Part of this reduction is actually a modification of how we count direct sales. So a little bit of a restatement, if you would.

We moved approximately 25 positions out of the sales count in the first quarter, positions that are focused on account management or managerial responsibilities that don't really directly impact sales.

So the remaining decline in sales head count sequentially of around 40 people is from first quarter attrition in the CoStar and LoopNet sales teams primarily which, from a timing perspective, was not replaced in the first quarter given the difficulty of hiring and training new sales resources while we work remotely.

We expect to not only replace but to increase the size of both the CoStar and LoopNet sales teams this year. The renewal rate on annual contracts for the first quarter of 2021 was 90%, unchanged from the fourth quarter of 2020.

And the renewal rate for the quarter for customers who've been subscribers for 5 years or longer was 96%, a slight improvement from the renewal rate of 95% in the fourth quarter of 2020. Subscription revenue on annual contracts accounts for 78% of our revenue in the first quarter, which was in line with the last quarter.

Before I talk about the second quarter and our revised outlook, let me say a few comments about the pending Homes.com acquisition, which we have not included in our outlook for 2021. Today, Homes.com generates approximately $10 million in revenue per quarter, and it's not profitable.

Subject to the deal closing, which we expect to happen by the end of the second quarter this year, we intend to evaluate existing product revenues and discontinue certain services that are inconsistent with our strategy.

As we wind down these services and record typical acquisition accounting adjustments, we expect to record approximately $5 million to $10 million in revenue for Homes.com in the second half of this year. We're too early in the process to providing specific guidance on the profit impact to our business.

But at a high level, I would expect the transaction to be just modestly dilutive to earnings in the second half of the year as we work through integration. I'll now talk through our outlook for the full year and the second quarter of 2021.

We expect full year revenue in the range of $1.930 billion to $1.945 billion for 2021, which implies an annual growth rate of 17% at the midpoint for the year. On an organic basis, excluding the impact of the Homesnap and Ten-X acquisitions, we expect growth of approximately 12% to 13% for the full year 2021.

For the second quarter, we expect revenue in a range of $465 million to $470 million, representing revenue growth of 18% year-over-year at the midpoint of the range.

For the full year 2021, we are raising our outlook for adjusted EBITDA to a range of $645 million to $655 million, which implies an adjusted EBITDA margin of 33.5% at the midpoint of the range. We expect adjusted EBITDA of approximately $130 million to $135 million in the second quarter of 2021 for an adjusted EBITDA margin of between 28% and 29%.

Our marketing campaigns for Apartments.com, LoopNet and Ten-X all accelerate in the second quarter, which results in the lower sequential margins, which isn't the case in most years. Our marketing spend in the third quarter is expected to remain at or near second quarter levels before dropping back down into the fourth quarter.

So overall, it was a great start to the year. And even better, I'm fully vaccinated, Andy is fully vaccinated. We're very excited to see 3D people here in our office. But Bill here, he's still in 2D. We're going to call him flat Billy. All right, Billy, back to you. We're going to let you open it up for questions from the flat analysts on the call..

Well, thank you very much, Scott. [Operator Instructions] Gabriel, would you please assemble the questioners for the queue..

[Operator Instructions] Your first question will come from Andrew Jeffrey of Truist Securities..

I guess I'm going to have to accept being 2D for now. Andy, residential, obviously, has grabbed a lot of attention, right, just last quarter or 2, what was CoreLogic and all.

Could you elaborate, I guess, a little bit beyond the relatively small deals you've done, albeit important, in terms of how you intend to build that out? Do you need to buy data? Do you need to buy a database? Are you going to build the database? Just trying to think about how you get from Point A to Point B in that big TAM..

Yes. So we already have -- Homesnap already gives us a very solid seat at the table. It connects us with hundreds of thousands of important players, also leaders in the industry who can set up the access we need.

We already subscribe to a wide array of residential information sources, but we think we can work with Homesnap and Homes and put together a very interesting strategy. And we think we'll get a lot of support from market participants for that strategy.

So the first-generation models operate at scale for an extended period of time, and they never really ever produce any meaningful profits.

We think there's the ability to actually build a much more profitable, lower-risk models by adopting a different business model, not trying to take the agent fees but actually facilitating the power of the Internet, the reach of the Internet, to find buyers with greater certainty and greater speed.

So we're going to develop that plan a bit over the months to come. We're beginning to do retreats around that and build out that business plan, and we'll be rolling that out later in the year. I'm -- there's not a specific additional company we need to buy today to execute that strategy.

I'm sure that things will come up that will help and support our strategy. We are -- I think we're comfortable with what we're doing without any involvement from the CoreLogic acquisition. And I don't want you to worry that if that deal were on the table, the CoreLogic shareholders will be getting $101, we're not reinstituting that.

There's nothing happening there. We're happy with the strategy we have with a very affordable Homes.com. So we did overpay for it, Rusty, as a joke, that's just to the guy, the seller. We're negotiating with them all-time, he's tough to negotiate with..

And your next question will come from Sterling Auty of JPMorgan..

Andy, you outlined a lot of growth initiatives in your prepared remarks.

And I guess what I need to better understand, or help me better understand, how do each of those ramp in the timing because it seems like there's a lot of opportunity where I think investors are going to wonder are you going to accelerate that organic growth and to what extent and over what time frame?.

Yes. So a lot of the stuff is somewhat dependent. I know you have kids, some of them probably are -- been homeschooling for a while, not as effective as actual in-person schooling, especially not when you're starting a new school. It's been hard to build sales forces effectively during this whole thing.

And as we start to get back to a little bit more normal, I'm very much looking forward to being able to effectively build some of the sales forces. So the opportunity to accelerate growth in Apartments has been there. We've got the marketing engine that's just cranking.

We have the opportunity at the middle and lower end that's really proving effective. And just it needs some more sales resources behind it. The LoopNet product is proving effective, and it needs -- just needs -- it can accelerate growth with more resources. It's already accelerating growth, but it can accelerate more with some more sales resources.

I'm very excited about this sort of centralized, advanced virtual selling opportunities, of what we can do with technology and so on and so forth. I think that's going to be pretty cool. The CMBS launch is out there. The global launch is going to start hitting next quarter, meaningfully next quarter.

The apartment launch is out there -- I mean the hospitality launch is out there. Ten-X is also -- we nailed the demand side. We're seeing what we want to see there. We're getting those 13 registered bidders up from 5 -- or 4 or 5 whatever it was. We're getting the flow there. And now we need to just bring more supply. That's where more revenue comes from.

We've begun to train the researchers on generating those leads, and we've got an excellent training program in place. And we're going to build out the sales force there, which should bring an acceleration to that one. So it's all sort of coming together here as we come to the middle of the year. And I love Pfizer. I love Moderna. I love J&J.

Just getting back to actually growing the teams to support this effort. So Scott, is there anything that's like I'm missing in terms of when these -- I mean I think that the one thing that is not this year is CoStar Lender. Excellent product there, excellent product potential, great product team there. [John McKaron] is running that group.

That will be a great product. In the script, it said fourth quarter of 2021. I bumped it to first quarter of 2022. It's a complicated product, but it's pretty cool. I think it will be very compelling. So that one is more of a 2022..

Our next question will come from George Tong with Goldman Sachs..

CoStar Suite had its best sales quarter since 2019, and that was helped by new product enhancements.

Can you talk about what the sales strength reflects in terms of whether it's new institutional customers that are being brought on versus penetration among brokers versus increases in pricing that's coming back?.

Yes. So there's -- I don't believe there's any material impact of pricing increases. There are no pricing increases occurring right now. Going forward, later into the year, I think there will be -- not price increases, but there will be average purchasing amount increases.

So people, I believe, will step up from 1 module to 3 modules as they go to the global suite. So that's effectively more revenue per customer. But so far, what it is, is higher renewal rates.

People aren't -- the cancellation rate coming down has a big impact as people feel more secure about their businesses, and they see a light at the end of the tunnel. And then it is I think more seats from some existing institutional owner players. The CMBS data is now really valuable in our product.

The STR data is extremely popular with anybody who is doing work in hospitality. Our rationale for acquiring STR was -- we can see it was a great product valued by the actual operators of hospitality, investors in hospitality.

But we could see that STR did not have a distribution channel into those people appraising and brokering hotel sales and developing hotels and we could bring their product to market quickly. And that's been a big benefit to us, bringing the STR data in there.

Would you want to add anything to that?.

Yes. I think, George, when you look at the stats on CoStar usage right now, as far as subscriber numbers, this is the first quarter we went over 160,000 subscribers. So certainly, after the dip in the second quarter last year, it's been coming back well.

And as Andy said, clients are adding seats and adding users, particularly to take advantage of some of the new information. When you look at the number of sites that are using CoStar, that's also at a high level now that we hadn't hit before, over 38,000, 171 sites, it's right up at the top of where we've been.

And then when you look at the number of new subscribing firms coming on, this quarter was as big as it was right after we did Xceligent, that was in bankruptcy.

So like the second quarter of 2018 after that first peak, we had some pretty high levels, but now we're adding again at those levels at average contract sizes that are probably 30% higher than what they were back then.

So you just kind of look at whether it's sites, whether it's subscribers or whether it's users, all of them are rising across these different customer sets..

Our next question will come from Pete Christiansen of Citi..

Really nice trends here. Andy, I really appreciated the Homes.com-Apartments.com comparison. I thought that was pretty interesting.But certainly, looking back to that era, Apartments.com acquired a ton of marketing investment, and I think it was $150 million in its first year.

Should we expect that type of aggressiveness in scaling Homes.com at some point?.

We are not at a place today where we have any sort of specific plan of that nature. There's nothing on Scott Wheeler's desk that analyzes those sorts of investments. We obviously are exploring the broad opportunity. I'll tell you that looking at the residential opportunity for me feels an awful lot like rinse and repeat.

We've got a bunch of these information back-ends that support the front-end marketplace in real estate, and we've been doing this for a number of years. And as LoopNet crosses over $200 million, as Apartments becomes the biggest segment of our business, it is sort of like what we've been doing for a while here.

And as you do, do that, you do make investments in marketing. So right now, if you're watching Squawk Box, you might see a Ten-X ad. Shortly thereafter, you see a LoopNet ad. That evening, after you switch over to Peacock, you might see Apartments.com. I think that's part of our formula.

And you do usually invest in the marketing -- you do invest in the marketing ahead of revenue. So as we go after an opportunity, which I believe could generate, over time, billions of dollars of incremental additional EBITDA, it does take our shareholders' capital to open up that wonderful opportunity.

So it's possible we might use the weapons our shareholders have given us someday. But we'll -- it's a multiyear effort. And the first component is generally software, which doesn't really show up as anything terribly visible to the analysts or shareholders..

And your next question will come from David Chu of Bank of America..

So you mentioned that signature ads were up about 50% in the quarter. I think that was about similar to 2020.

So do you expect the new marketing campaign and the step-up in the sales force to accelerate growth this year? Just wondering, besides the marketing campaign and the sales force additions, what are the other key levers to accelerate this?.

Yes. So we do expect that LoopNet year-over-year sales number to start moving around the 20% zone again pretty quickly. And if we're more successful with adding salespeople that know how to do it, and if the trend with the existing large CRE sales force, they keep on selling both CoStar and LoopNet, yes, we'll get some good acceleration.

I think that we are getting real buy-in from the high-end folks. They used to view LoopNet as being something where people predominantly marketed lower-end properties, suburban properties, industrial properties for sale.

These marketing campaigns really don't leave those smaller apartments behind but really sort of focus on branding super high-end, $1 billion properties.

And I think that will open up a lot of opportunities at the high end, which is really where we're trying to go because if I take our high-target prospects, 50-some thousand high-target prospects who are multi-thousand a month opportunities, we're only 3.8% penetrated into that segment.

And moving that number up to 20% on some sales-first growth and some -- and marketing that talks to that audience, I think, would have a huge impact on revenue acceleration. So we have a winner, it's just sort of tuning the different components..

Your next question will come from Mayank Tandon of Needham & Co..

A question to margins.

Given the investment priorities and the growth initiatives, what are some of the levers you have to increase margins and get that 40% targeted goal by 2023 and how you're taking change in terms of that target and how you even get there, given the change in the cost structure in the midst of the pandemic?.

Yes. So as we go forward to 2023, we've got organic growth coming back up, primarily with CoStar hitting its low quarter first quarter and then rising the rest of the year. So organic revenue growth would increase. We'll continue to add revenue in modest places as we have with acquisitions.

And then our cost profile right now is pretty well a decision -- an investment decision profile every year. So we can still grow our cost 8%, 10% or a little more percent over the next couple of years, and that revenue growth will just bring that margin up.

So it's all about the fixed cost leverage, maintaining that organic and increasing that organic revenue growth, which is the investments we put in place over the last year and then in this year that are creating these opportunities, so we've got the right fuel in there to get that revenue growth up, and then as a matter of monitoring that cost growth, again, between the 8% to 12% range over the next couple of years, and we'll hit that 40% so -- which is nice, we've been able to increase this year big ad campaigns for Ten-X and LoopNet.

Last year we did it for Apartments. But still, even with big increases in marketing every year, we can still grow our margins. So the scale of the business and the leverage profile of the business now is really helping us do things that in the current or future environment -- years ago would be scary and take a lot of our profit.

Now they don't they don't impact it nearly as much, and it gives us a lot of firepower in all these sectors we're in..

Our next question will come from Ryan Tomasello of KBW..

Just in terms of M&A, it's hard to ignore the cash balance and the balance sheet. So you said publicly recently that you intend to focus on acquisitions in areas which CoStar does not directly compete meaningfully today. And it's clear that residential is going to be a part of that playbook.

But maybe you can elaborate on other areas of the business that you see as potentially being synergistic with the broader CoStar portfolio. For example, I believe, in the past, you've referenced areas like workflow and facilities management software as examples..

Sure. So I guess we are 3 deals into this year, roughly. Yes, so we've done 3. And I anticipate we'll continue to -- like, we are constantly evaluating deals that are out there. And they do come from a range of different sectors. Facilities, sure, that's a zone we look at. We're looking at a range of different things in residential.

Most of them are domestic. And ForRent was a small exception to that. And these things are generally sort of tough-to-discuss specifics before they happen. And lately, they've been relatively smaller deals. So there are things out there that were kind of -- like, we're probably talking about 20 deals at any given moment.

There are 20 things on the radar screen in any given moment. But just the last couple we've done have been small. There was one you may have noticed that was potentially massive. But we're resetting and focusing on a lot of opportunities. So there's zero chance that CoStar won't continue what it's done consistently for 30 years.

And they'll be similar to what we've done before, which is closely related to what we're already doing but generally, strategically, additive to some broader theme we're trying to pursue. And as you go into residential, that's a pretty big theme with a lot of opportunities. I have to tell you that the flow of deals is absurd at this point.

I think I probably have 3 of my LinkedIn a day. So -- but it's more of the same, more measured, continued flow there.

Do you want to add anything to that or not really?.

As you say, the residential pipeline has thrown everything at us right now. We still see things coming in the apartment sector quite frequently and commercial real estate and small information plays. There will still be others internationally that are coming at us. So all the things we've talked about before are still very active.

But residential has just added another dimension and higher volumes, a lot to sift through..

Your next question will come from Mario Cortellacci of Jefferies..

So I wanted to talk about the new salespeople you're adding. And maybe you can just talk about the timing to productivity for these new salespeople. You're building out the middle market team, the LoopNet team, Ten-X. I mean we've heard other companies within the information services space talk about, say, a 3-year time line.

And so they hit their max productivity. Do you guys have an idea of what that looks like for these new hires? And then also, because of what we're seeing in the labor market with the government support and stimulus, there's been commentary from a lot of other companies saying that it's been hard to hire, basically competing against the government.

Is that a concern of yours at all? And does that create any type of wage inflation or an increased labor expense or comp expense for you?.

Yes. Well, your observation on competition with the government for employees is accurate. That tends to be a little bit more in the restaurant industry and some of the service industries where, yes, I hear about folks who can't hire because they earn more working for -- not working for the government. But whatever.

There's definitely -- so in terms of hiring, I am definitely focused on particular -- I'm focused on the centralized sales effort. We have a great field sales team with Apartments. We have a great field sales team with CoStar, the CRE team there.

For the Ten-X effort and for the mid-market Apartments effort and for the LoopNet effort, I am looking at a centralized effort. I have been able to recruit some very experienced trainers and leaders to Richmond where we think that we have the ability to compete aggressively for talent there.

And our training -- we're investing a little bit more in our training programs than ever before. So we are looking at 6- and 12-week training programs but with a -- expecting a much higher success rate of deployment. On LoopNet, we believe that people can get onboard and start selling within 3 months. With Ten-X, it might be 6 months.

With Apartments, we think it's 3 months. And then in terms of peak efficiency, they probably start to get up to -- I think that LoopNet, Apartments, probably, we would expect them to climb up at about 18 months to sort of full production level, and Ten-X might be 24 months.

But if we can get them onboard in the first 3 to 6 months, we have a good idea of what that ROI looks like for those salespeople. And it's strong. And the situation we have here is this is a -- we have the prospects in our database. We know what their economic need for marketing is. There are many, many, many of them.

There are more of them than we can reach with the existing team we have. So we have the benefit of -- and there's not a lot of competition for what we're selling. So our offering is highly differentiated. Our intelligence on who to sell to is excellent. And so yes, I think that answers that.

But I would -- I do look forward to the time when there's less competition from the government for the sales force..

Your next question will come from Stephen Sheldon of William Blair..

On the CoStar Suite, the global platform, I guess, what percentage of your CoStar Suite subscriber base do you think could be interested in this? And what could the revenue uplift potentially look like over the next years if you're able to drive meaningful adoption?.

Yes. So there's two things happening there -- there's 3 things happening there. One is, for the first time, really focusing on module upsell. So someone buying just information on the properties, getting the tenant the comps and more functionality overall for the city they're already operating in. That is thousands and thousands of upsell opportunities.

The next one is someone operating, getting the data -- the most common thing is someone just getting the data for the city they operate in. At this point, the way commercial real estate works, that's kind of silly because 30%, 40% of your clients are coming in from out of town, you really should know what they're doing outside your market.

That one is pretty straightforward. Going up to -- when you go to global, that's going to move more into private equity firms, institutions and investors who are cross-border.

So if I'm looking at a New York or London, if I look at institutional properties, 50% plus of the capital for those bigger and higher-end properties crossing borders, we think we'll be able to offer that group a unique offering. So it's like from the small all the way up to the gigantic.

And I think it also is something -- so it's hundreds of millions of potential revenue. But it's also a transformational positioning of CoStar Group where, today, if I am a commercial real estate professional in London or Toronto or Madrid, I sort of look at these -- our current solutions as being a London solution.

I might even -- yes, a London solution as opposed to even a U.K. solution. I'm just used to thinking of it as how we service our local needs. I don't think it will be that hard for us to build out a fairly robust pan-European product. And I think that pan-European product will change the game as to how people view our product in -- at the local level.

And I think that will be pretty powerful. If I think about if I go back 10 years, 20 years and I think about how -- 20 years ago, how people viewed CoStar when we were really just servicing a handful of U.S. cities, our value proposition might have been a 50 on a scale of 100. Once we were serving all the major U.S. markets, we went to 100.

There was an exponential value growth to the consumer, the professional, to user, when we covered their entire investment footprint, which is generally multinational. So we're focusing heavily on investment sales tools, selling tools, comparable sales tools, news on international.

And I think that will change the way we're viewed and how we're positioned. So I don't know if I answered your question at all, but I threw out a random stream of consciousness on international and suite upsell. It's exciting. It's pretty cool..

Your next question will come from Jeff Meuler of Baird..

It sounds like a lot of the consolidated net bookings growth was in Suite. I caught a lot of metrics on Apartments' traffic and lead quality and revenue, but I don't think I caught Apartments' net bookings trends, so would love some detail on that or, if not, maybe just a random stream of consciousness on something else..

Do you want to do a random stream of consciousness?.

Yes, it's my turn. Yes, we didn't talk specifically about Apartments' sales. But I mean you can do the math on our total sales numbers and kind of assume if CoStar goes up quite a bit, we're going to have like other sectors that will come down a bit. LoopNet stayed strong. Information Services stayed strong.

And I'll say the volatility in Apartments is within the range of volatility it does every quarter. So it happened to be down a bit this quarter.

But if you look back over the last 10 quarters of Apartments sales, which appreciate, Jeff, we don't give these numbers because of this fact, because they are volatile, Apartments net bookings move up and down, on an average, $5 million between each quarter. So you'll see this kind of up and down in the pattern.

But over time, the growth obviously is there because we're still pushing the thing at 20% revenue growth. So we had such good quarters mid- to late 2020 in Apartments. I think property owners have used a lot of budget then.

They trimmed them back a little bit in the first quarter, waiting for the second quarter season mostly, and then seeing where they're going to be positioned when we come back to these moratoriums, the eviction moratoriums. So you saw a little hesitancy, I think, in property owners in the first quarter, which moderated the Apartments side a bit.

But CoStar picked up the slack..

And to be clear, Apartments.com is rocking. Like, January is not the most exciting time for renting apartments out there, never has been. Historically, it was probably -- before we owned Apartments.com, it was a period in which the revenue actually fell very often.

But the eviction moratorium is also a wet blanket, so we anticipate there'll be much more enthusiasm coming into the spring and summer. And again, I think the marketing campaign we've got going right now, when we're the only ones really doing it, is just super strong. So -- and then spiring up the mid-market.

So the fluctuation Scott talks about is there and goes up, goes down. But overall, it goes up, up, up..

We have the last question from Joe Goodwin of JMP Securities..

On the payments -- the rental payments that are occurring through Apartments.com, can you just talk about the economics that CoStar gets from those payments? And then is that a -- will that develop into a larger opportunity? Is that more just the tool set that you're offering to these folks?.

Yes. I'll let -- do you want to hit -- it's just like a credit card we're getting..

Yes, we get a few small percentages off of the cards. We don't get anything else to ACH-type payments. So you get a little bit of margin off of the payment tools. And it keeps people on the platform month-to-month, which is what's really important when they filled up their units.

It's not intended to be a primary revenue driver for us but one of the tools that drive the advertising and the other services..

As it gets up into tens of billions or to $100 billion, it would become much more meaningful. We do offer an ACH acceleration that has a fee on it, too, but that's -- only a portion of the audience takes that.

The real value there for us by a mile, the real value for us is these folks, the owners who are liking our applications and our payment and our renewal tools tend to open up their wallet to purchase a $200, $300 online ad to get higher up in the presentation.

And that tends to dwarf the credit card earning sort of ACH acceleration fee, so that revenue potential of them buying the overall bundle of all the services we offer. The independent owner is a multibillion-dollar revenue opportunity at higher margins. So that's where we're focused.

Not to dismiss the revenue potential of that significant growing payment, but we're really trying to get the membership, the overall membership in our platform going. And also feeds, content, so the more participation we get in the marketplace, the more robust that marketplace is, which brings more renters in, which brings more advertisers in.

So it's part of the whole cycle. We've long ago felt we needed to provide a broad range of services to that independent owner, which does not have the scale to really serve -- to really do it in-house or implement things in-house..

And we have no further questions at this time. I'll turn the call back over to the presenters for closing remarks..

Well, we appreciate you joining us for this first quarter 2021 earnings call, and we look forward to updating you on our progress. We obviously have a lot of stuff going on. And I think we may be appearing optimistic, and that is how we are. So thank you very much for joining us. We look forward to talking to you again..

This concludes today's conference call. Thank you for joining. You may now disconnect..