Good day everyone and thank you for standing by. Welcome to this Q2 2024 CoStar Group Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand it over to the Head of Investor Relations, Cyndi Eakin. Please proceed..

Thank you, Carmen. Good evening and thank you all for joining us to discuss the second quarter 2024 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Chris Lown, our CFO, I would like to review our Safe Harbor statement.

Certain portions of this discussion today may contain forward-looking statements, including the company's outlook and expectations for the third quarter and full year of 2024, based on current beliefs and assumptions.

Forward-looking statements involve many risks, uncertainties, assumptions, estimates, and other factors that can cause the 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 Group's press release issued earlier today and in our filings with the SEC, including our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q under the heading Risk Factors.

All forward-looking statements are based on the 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 measure of any non-GAAP financial measures discussed on this call 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 at 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..

Thank you, Cindy. Cindy I would note that that was the most upbeat reading of the preamble I've heard ever would suggest to me that you are looking forward to turning over your duties. So, good evening and thank you for joining us for CoStar Group's second quarter earnings call.

Second quarter 2024 revenue was $678 million, a 12% increase year-over-year, coming in above the midpoint of our guidance range and in line with consensus estimates. Our two billion dollar businesses continue to deliver double-digit year-over-year revenue growth with Apartments.com growing 18% and CoStar growing 10%.

Company net new bookings were $67 million in the second quarter with 79% of our net new bookings coming from sales of our commercial real estate products and 21% from net new bookings of Homes.com memberships. Adjusted EBITDA was $41 million, which was well ahead of our guidance of $5 million to $10 million and consensus estimates of $10 million.

Our commercial margins remained strong, delivering over 40% in the quarter and are expected to expand throughout the remainder of the year. Our average monthly unique visitors to our global websites reached a record of 183 million in the second quarter, according to Google Analytics, which is up 81% over the prior year.

The Homes.com network delivered 148 million average monthly unique visitors for the second quarter, according to Google Analytics, which was an increase of 73% over the same quarter last year.

Our Homes.com site alone delivered 99 million average monthly unique visitors for the quarter, an increase of 197% -- 197% over the same quarter a year ago according to Google Analytics.

We believe that complete site-centric census style tool, like Google Analytics is more accurate than user-centric panel estimate counts generated by firms such as comScore or SEMRush. I believe tools like Google Analytics are like an election result, whereas a tool like SEMRush or comScore is more like an election poll.

If I have the election results, I choose to report those rather than the sample poll result. Our leading competitors in the U.S. residential portal space combined and report traffic associated with home sales, home rentals, rural homes, land sales, and apartment rentals in their traffic numbers.

For that reason, I believe the most accurate and best apples-to-apples comparison is comparing the traffic from our homes network of sites to the reported traffic of these three leading competitors. Our Homes.com network includes our sites with home sales, home rentals, rural homes, land sales, and apartment rentals.

The most recent reported traffic numbers we have for the leading residential portal competitors is from their first quarter results, so the comparison is not perfect.

Our reported Homes.com network traffic of 148 million average monthly unique visitors for the second quarter is fast approaching Zillow's first quarter report traffic of 217 million average monthly unique visitors.

The Homes network now has solidly lapped Realtors' reported first quarter 70 million average monthly unique visitors and has thrice lapped, Redfin's reported first quarter 49 million monthly unique visitors. These solid traffic numbers far exceed our traffic performance expectation for this quarter early in the development of the new Homes.com.

The second quarter was our first full quarter of selling Homes.com memberships and since mid-February, we have sold over $55 million in net new bookings. The first four full months selling Homes.com far exceeds the launch sales pace of any of our prior product launches.

By comparison, it took two years after launch of Apartments.com to accumulate the level of net new bookings that Home has achieved in its first full four months of sales. The solid bookings numbers are exceptional for this early in development of the new Homes.com. We now have 10,200 member agents on the platform and 86% are on 12-month contracts.

Marketing efforts continue to be successful, delivering almost 10 billion consumer impressions and 21,000 commercial placements since we launched the product. This is across broadcast, cable TV, streaming audio and video, digital and social media, and high-profile sponsorships.

Unaided brand awareness continues to increase and is now at 27%, up from our prelaunch baseline of 4%. Over the past month or so, I attended focus groups with agents and consumers in Atlanta, Chicago, Irvine, and Nashville. Our growth in unaided awareness was clear.

Agents reiterate that they prefer our business model of your listing, our lead, your listing, your lead, definitely, your listing, your lead. We have more work to do to make them aware of that preferred business model, and we'll do that work. In each session, the moderator asked agents and consumers to spend a few minutes using the Homes.com site.

The response was fantastic. The overwhelming majority of participants said that Homes.com is the better home search site than competing sites.

Common themes were that the site is clean, it's beautiful, ad-free, has more information than other sites have, has all the information you need in one spot, and participants like that the listing agent is clearly visible is not obscured and a listing agent who knows the most about the property can be readily reached to ask quick and simple questions of.

Agents responded very well to our value proposition and two agents really stood out to me as they raved about how much value they were getting from their Homes.com membership. They stated that they were using the advantage as Homes.com membership offered to win more exclusive listings. So, I'd like to quote one Chicago participant named Laura.

She said, "a couple of months ago, I became a premier agent on Homes.com. My listing that I used to get 6,000, 7,000, 8,000, 9,000, 10,000 views, I now get like 2 million views on my listings.

And it's a listing tool, she went on to say, so that she can then say the seller, well, go up and look up Orland Park, and I'll show up first if I've got a listing there." And so then as she goes on to say, I say to the seller, my listing has 2 million views.

Look at every other one after that, and they've got like 3,000, 4,000 views and I've got 2 million views. I'm like #winning." She goes on to say, "it's a listing tool. So, when a seller asks what are you going to do differently than everyone's else, most people will be saying the same things.

And then I can say, Homes.com pull up a neighborhood and I show up first. Becca, an agent from California said something similar. She said, "Homes.com has been great for me as a listing agent. I've had -- I'm having calls directly on my listings. I have a paid subscription where it puts my information in front of buyers who are calling me directly.

"In my actual listing presentation, she goes on to say, I do have marketing information about getting 60x more views on my listings since I'm a pro member on Homes.com and I think that has helped me secure listings." This was the first platform she says that I had enough confidence in that I actually paid for a Pro membership.

Another agent from Columbia, South Carolina said, "within two days of signing up for my Homes.com membership, I secured a new listing that went under contract less than a week." Another agent from Spokane, Washington said, "Since I've joined Homes.com I've watched the amount of traffic on my listening increased 30 times to 40 times compared to us getting anywhere else." We built an analysis, actually Terry Rogers and team built an analysis, to understand the advantage member agents were having in winning new listings as compared to non-member agents.

We create cohorts of members based upon the city, tier size they're in, the number of listings they had at the beginning of the study period, and the average list price of their listings. We compared members new listing win count to non-members wins for each month from March through June. This created a total of 192 cohorts, 192 cohorts.

On average, members won 51% more new listings than did non-members. More importantly to me, in 95% of the 192 cohorts members outperformed non-member agents. This is very important and the core point. Winning new listings is a primary objective for real estate agents.

We believe that the evidence is overwhelming that our product is enabling agents to achieve that core goal. We believe that the potential ROI for member agents is phenomenal. The average agent is getting 17 million annualized impressions for their listing and profile on Homes.com.

Member listings get 46 times more exposure on average than non-member listings. Another analysis we ran indicated that on average, member agents are 20% more likely to sell the home in the first 10 days than non-members and members are getting on average $11,000 more for a home.

That second analysis will vary from time-to-time, but multiple analyses have each shown a benefit for members over non-members in selling homes. So, in summary, I believe the product is a winner. As of today, we've only demoed approximately 3.5% of residential agents.

Building a dedicated Homes.com sales team is the key driver to future Homes.com revenue growth. We have 63 dedicated Homes.com salespeople in production that I can see. We have an additional 53 in training and another 30 hired.

We have been borrowing resources from our Apartments.com, CoStar LoopNet, and other sales teams to supplement the Homes.com sales team. But those borrowed sales resources will inevitably return to selling their core products as they should. Growing the Homes.com sales force must be our top priority. OnTheMarket, our U.K.

residential real estate portal is making great progress. Listings on the platform are now up to 716,000, an increase of 41% from June of 2023.

Average monthly visits for the month of June were 35 million, up 78% compared to June 2023 and average monthly unique visitors were up to 18 million in June or an increase of 118% over June 2023 according to Google Analytics. Lead counts are up 50% over the second quarter of last year and the sales results are looking good.

A recent article from a site a publication called the Negotiator, said that a leading lead management platform has found that OnTheMarket has now overtaken Zoopla for engaged inquiries. Apartments.com continued its positive momentum with another strong quarter.

Revenue was $264 million for the second quarter of 2024, representing 18% growth over the same period a year ago. We continue to add new customers with rentals of all sizes to our marketplace at a rapid pace and now have almost 76,000 paying communities on our network.

In June, we had a record number of single-family rental listings represent an increase of 108% over the prior year. Single-family rental listings have boosted lead count by more than 4 times our Homes.com membership agents.

Our mid-market efforts are contributing thousands of new properties, growing paid subscribers by almost 22% in the second quarter compared to the same quarter a year ago. New construction is also contributing to subscriber growth with 75% of all new 100-plus unit communities advertising with Apartments.com. That's a great stat.

Our sales team continues to deliver exceptional results and extremely high engagement with our clients and prospects. During the quarter, Paige's team conducted over 187,000 quality meetings, which is an increase of 23% compared to the second quarter of last year.

Our second quarter Net Promoter Score of 94 continues to lead the industry or just about any industry, which is a testament to the quality of the sales team and their service. We continue to outperform our competitors and lead quality and conversion.

In the second quarter, Market Connections, a third-party market research firm, conducted a survey of industry decision-makers responsible for 18,000 communities with over 1.5 million units under management. Apartments.com continues to lead all the metrics that matter to most -- matter most to multifamily owners and property managers.

We're number one in advertiser usage and deliver the highest quality leads. We continue to have the highest lead-to-lease conversion rate, significantly outperforming our next closest competitor in every one of these three metrics.

Our 2024 Apartments.com marketing campaign featuring Jeff Goldblum as Brad Bellflower, the inventor of the Apartminternet is in full swing again. We are reaching renters across all media channels during peak rental season and generating over 2.1 billion media impressions.

This year, we launched a dedicated landlord campaign to generate awareness with landlords owning one to four rental properties and have generated almost $500 million brand media impressions to-date.

As a result of our continued investment and success our unaided brand awareness, specifically attributed to apartment seekers, is now 74% compared to Zillow, which is only at 42%, 74% compared to 42%.

Our average monthly unique visitors for the quarter grew 3% year-over-year to 48 million, significantly outperformed the overall market, which was down 3% year-over-year according to Google. Economic conditions in the apartment industry continue to create a favorable advertising environment.

Apartment vacancy rates of 3, 4, 5-star properties, continued elevated levels with a 9.3% vacancy rate at the end of the quarter and are forecasted to remain at or above 9% for the remainder of this year. Unit level deliveries continued at all-time highs and are expected to be 561,000 units in 2024.

Supply will continue to outweigh demand in the foreseeable future. Apartments.com continues to deliver strong growth and we expect to see Apartments.com revenue growth of 17% for the year, in line with our guidance.

In the second quarter, CoStar continued to deliver double-digit revenue growth with $253 million of revenue, a 10% increase over the prior year and in line with our guidance. Our lender product had the highest net new sales quarter ever, with a 47% increase in revenue over the same period last year.

We now have 298 banks and lending institutions in the platform, up 50% year-over-year with sales to several large institutions in the quarter. We believe that our product is superior to the competition, which is something we continue to hear from our customers.

Lender is a $300 million market opportunity with 3,000 more significant lending institutions to pursue. The STR sales team had another strong quarter with a 54% increase in net new sales year-over-year. Revenue from our benchmarking product and CoStar subscriptions to hospitality clients increased 28% in the second quarter.

We are well-positioned to penetrate this $300 million market opportunity with a best-in-class product. Our consistent strong revenue and sales performance for CoStar is the result of a steady stream of product innovation that delivers expanded capabilities and increase customer value.

Over the past few years, we've integrated the STR benchmarking product, enhanced our fund data, added hospitality and CMBS data, launched a new lender product, and opened international reach for our CoStar customers. At the event of Q2, we just released our newest feature called Owner.

The new Owner module of CoStar provides unparalled insight into the underlying portfolios of the world's largest real estate developers and owners, their key tenants acquisition and disposition trends, aggregate vacancies and availabilities in key context.

Our usage data continues to show that these customers are engaging with the platform more despite the economic cycle. Our customers logged in 5 million times in the quarter and conducted 68 million property searches, up 8% over the same period a year ago.

Renewal rates are up to 92% and our NPS scores are at 65%, which is the highest levels in our history for NPS for CoStar. We've grown our subscriber base to 230,000 CoStar professional users, which is up 19% year-over-year.

We have a proven track record of growth throughout economic cycles and even in the face of historically low CRE transaction levels, CoStar is delivering solid growth and continues to be the mission-critical data and information product for brokers, owners, lenders, tenants, fund managers, and other participants in commercial property information markets.

LoopNet revenue was $70 million, up 7% year-over-year, exceeding the high end of our 5% to 6% guidance. International revenue grew 17% in the second quarter year-over-year. The LoopNet network remains the number one platform in the market with 6 times the traffic of our nearest competitor.

Average monthly unique visitors for the second quarter were 13 million with direct and organic traffic at 75% of total traffic. Even considering the difficult commercial real estate market conditions, total detailed listing views are up 14% compared to the second quarter of last year.

As the market normalizes over the coming years, LoopNet is poised to benefit significantly from that recovery. We continue to enhance all aspects of sales and client service. As a result, our NPS scores have improved to 58 or up 87% since last year.

We're growing our dedicated sales team, which will help us further penetrate this large and global market opportunity. Real Estate Manager revenue was up 9% year-over-year with renewal rates at 99%. Real Estate Manager continues to take market share from legacy competitors.

Two-thirds of our customers are sharing their lease data for anonymized analysis, which will greatly enhance our analytics in the CoStar platform. Land.com revenue grew 5% year-over-year, Signature Ads increased 9% in the second quarter, and Diamond Ad sales were up 10-fold in the last quarter.

Land.com is exclusive sponsor of a new show in production, Ranchland, which will stream on Paramount Plus and CBS, featuring aspirational ranches that are listed for sale on Land.com. Each episode will feature an aspirational ranch currently on the market and listed on Land.com and will feature a day in the life of the ranch owner.

I know none of you are going to want to miss that exciting show. BizBuySell revenue increased 6% year-over-year. The platform had a record $2 billion in enterprise value that transacted in the second quarter. Our franchise directory leads are up 25% and listing leads are up 16% over the same period last year.

Providing these quality leads to our customers and having customer response rates in the mid-19s, correlates directly to our NPS score rising 15% to 55% this quarter. Our Ten-X platform continues to outperform the market with a trade rate of 50%, more than double the offline trade rate of 23%.

We brought 57% more assets to the platform in the second quarter compared to the first quarter of 2024. CRE transaction volumes may be bottoming out with sales activity increasing slightly 6% year-over-year for the first time since the second quarter of 2022.

To stress, sales are beginning to service, particularly for office and multifamily, but remain historically low, with lenders still preferring to extend loans. CMBS delinquency rates remain elevated and office delinquencies have increased notably to 7.4%.

This is a significant opportunity as these properties will eventually need to change hands and Ten-X is the most efficient way to execute commercial real estate transactions.

I believe that the results this quarter demonstrate the strength of our commercial real estate business with continued double-digit growth and strong EBITDA margins in the face of economic headwinds. I believe that this quarter, Homes.com is coming into focus as a better product with a better business model than our competitors have.

I think that Homes.com value proposition is emerging clearly, it's compelling, and offers our future clients a huge potential ROI. Going forward, we need to focus on the blocking and tackling of building out our sales and marketing organization to realize the full revenue potential of Homes.com.

At this point, I'm pleased to welcome our new CFO, Chris Lown, and will turn the call over to him, and here we go..

Great. Thank you, Andy. Good evening. I'm excited to be here for my first of many CoStar earnings calls. I'm happy to report that CoStar has now reached its 53rd consecutive quarter of double-digit revenue growth, coming in at 12%, and we achieved a commercial business margin of 41% in the second quarter. Looking first at our Residential businesses.

Residential revenue came in at $26 million, up 40% sequentially. In just four and a half months, we have delivered cumulative net new bookings of $55 million, which is a great accomplishment.

We are focused on hiring dedicated Homes.com sales reps over the next year, who are more productive at selling homes memberships and will also allow many of our commercial sales teams to return to selling their core products full time.

As Andy mentioned, focus groups have bolstered our confidence in our Homes.com offering and we are confident in our differentiated business model and our ability to capture this exciting long-term revenue and data opportunity.

We now expect third quarter Residential revenue to come in around $30 million and we are revising our full year 2024 Residential revenue guidance to $105 million to $110 million. For the full year, we continue to expect to execute on our Homes.com investment plans. Apartments.com's second quarter revenue growth came in at 11%.

The Apartments.com team continued to perform well with the highest number of sales reps and the highest sales productivity of any brand in the company. We are on track to achieve the guidance we provided last quarter, resulting in 17% year-over-year revenue growth.

CoStar revenue grew 10% in the second quarter, in line with our guidance and we are maintaining our previous full year guidance of 10% growth. We expect growth in the third quarter to be broadly in line with the full year. LoopNet revenue grew 7% in the second quarter, slightly ahead of our 5% to 6% guidance range.

We are maintaining our full year revenue outlook for LoopNet of mid-single-digit growth. Revenue from Information Services was flat sequentially and dropped 20% year-over-year due to the transition of STR into CoStar.

We are reiterating our previously stated guidance of $130 million to $135 million for the full year and expect the third quarter to be consistent with the first two quarters of 2024.

Other Marketplaces revenue was $31 million in the second quarter and we are maintaining our guidance for Other Marketplaces to be relatively flat in the third quarter and full year.

From a consolidated basis, adjusted EBITDA for the second quarter was $41 million at a 6% margin, meaningfully above the high end of our $5 million to $10 million second quarter guidance. The favorable performance relates primarily to slower-than-anticipated hiring as well as the timing of investment spend.

We anticipate incurring some of the spend in the second half of the year. Our sales force totaled some 1,240 people at quarter end, an increase of 7% year-over-year and around 30 salespeople hire sequentially. Most of the increase in the second quarter was in our Homes.com sales force.

Our contract renewal rate was 90% for the second quarter, with the renewal rate for customers who have been subscribers for five years or longer at 95%. Subscription revenue on annual contracts was 81% for the second quarter, consistent with the prior quarter and the second quarter of 2023.

We continue to have a strong balance sheet with $4.9 billion in cash, which are net interest income of $53 million in the second quarter, a 5.1% rate of return. Our full year 2024 revenue guidance is now in the $2.735 billion to $2.745 billion range, a 12% year-over-year increase at the midpoint.

This range reflects our adjusted Residential revenue guidance for the second quarter -- second half of the year. The company expects third quarter revenue of $692 million to $697 million, representing 11% year-over-year growth at the midpoint of the range.

We are increasing the midpoint of our adjusted EBITDA guidance for the year with revised guidance of $195 million to $205 million. For the third quarter of 2024, adjusted EBITDA is expected to be in a range of $47 million to $52 million. I will now turn the call back over to our call, operator, Carmen, to open the line for questions..

Thank you. [Operator Instructions] One moment for our first question, please and it comes from the line of Pete Christiansen with Citi. Please proceed..

Thank you. Good evening. Welcome Chris, great to have you. Congratulations for the shout out to Rich. Good evening Andy. Lots of salutations there, anyway. Andy, it sounds like -- however, the momentum in the new sales for the resi side, it seems to have hit a bit of a speed bump. It sounds a bit more like blocking and tackling on the sales force.

Can you talk about adjusting the sales force to sell, who normally sell to institutional clients, how they're selling to residential agents? And I just need to follow-up.

There's a notion that there's been either refunds or cancels throughout the quarter, is it a function of the agent out there just becoming more educated on what Homes.com provides and how it differs versus other portals? Thank you..

Sure. So, I think that the broad sales force of 1,000-some people can comfortably sell the Homes.com product. However, they -- if you're an Apartment salesperson or CoStar salesperson, you've been selling those products for many years and after the initial rush of selling a new product, you begin to migrate back to your existing product.

And it's the type of thing that you can try to push them into the two products, but realistically, longer term as you move into the second -- as we move forward towards the second full quarter, the third or fourth full quarter, we want to be relying more and more on a dedicated Homes.com selling team because there's just a natural instinct for the broad sales force to go back into their core products.

The other thing is that the Homes.com team -- dedicated sales team does a better job with following up with the sales post sales and has higher Net Promoter Scores, dramatically higher Net Promoter Scores than do the salespeople that we're borrowing from the other products and who were basically renting.

Have you ever treat a rental car, not as well as you treat your own car. Well, that's a little bit the way these other -- non -- the core sales forces treat some of the Homes folks -- Homes clients. And not in a bad way, it's just that the Homes.com dedicated team has a significantly higher NPS.

So, -- and you don't want to -- we have some great products there with Apartments and Homes and you don't really want to push too hard to move them into a sales area there, that is not their long-term focus. So, in terms of -- I'm unaware of any refunds that we put out there.

We did have a -- going into the new product, we had a completely lenient canceled policy in the initial time period. So, you could pretty much back out any time you want.

It's my understanding that initially one of the single biggest reasons for cancellation is the credit card didn't process, which is not to be -- which is not unusual given residential agents with volumes down and commission-to-commission -- 100% commission-based pay.

Now, there's a little bit of the ladder that you're talking about there, which is after two decades of agents being used to buying leads off of lead diversion sites in order to get buyer agency, there is definitely an education process.

So, if I am an agent who doesn't really do normal residential real estate listings, I don't normally win listings as an agent, and I've been buying leads from a lead diversion site like Realtor, those sites are scraping the listing leads off of 100% of the agents and funneling them down to a small group of people that are just trying to work those buyer agency leads.

We do something very different. We don't do those sort of mass scrape selling buyer agency leads. We focus on giving agents an advantage in selling their owners' home. And so we're giving them dramatically more exposure for their listings on our site and that helps them win new sale listing leads or exclusive listings.

And it also helps them win buyer agency. It helps them win general branding and branding for the firm. But if you evaluate it through the lens of buyer agency scrape lead generation, it won't really meet your needs.

So, there were a bunch of buyer agency only folks who are looking for something a little bit different upfront and now we don't really focus on those folks.

We really direct our energy into people who have listings and the feedback is becoming better and better and better and better and it's really quite good because folks who are using it -- using Homes.com are winning 51% more listings. And if you think about what that means, it means everything.

Winning a new listing is much more valuable than winning a buyer agency lead. A significant percentage of buyer agency leads never transact. A super high percentage of listings homes for sale will transact and transact quickly.

And with all the things going on in the world, with the NAR, with the lawsuits, and the whole plaintiff lawsuits, the sale listing generation is a safe harbor in that storm and so agents prefer that.

So, long, short of it is, yes, we had an incredibly -- just anytime you want to cancel, which is not what we normally do, we're past that, and we're redirecting and making sure that we're not -- we're educating people on, this is not a lead stealing site, this is a promoting the home and allowing agents to win listings and generally build their brand and win by our agency leads.

Pete was that a long answer?.

It was good color. I'm going to -- we're going to take that in. Very good. Thank you..

Yes..

Thank you. One moment for our next question, please and it's from the line of Alexei Gogolev with JPMorgan. Please proceed..

Hi Andy and hi Chris. Welcome to the new role. I wanted to ask a quick question about the new guidance for the resi business.

So, as I see it, you're now assuming roughly $4 million sequential increase of resi revenue in 3Q and then another $3 million or $5 million in the 4Q quarter, which is slightly different to the $10 million sequential increase that you were initially targeting.

Just wondering what drove that decision to lower the guidance? And what is your feel around the membership additions that you're seeing at the moment?.

Sure. Thank you for the question. I think a couple of things. Obviously, this was the launch of a new product and there is a lot of brainpower going into -- trying to model out that analysis and what will happen and the initial results were very strong, and therefore, there was a reaction to that.

I think what you're seeing now is more of a growing momentum that you'll see evolve over time and while we don't provide quarterly guidance, your numbers make broad sense to me. And so I think what you're seeing is, probably a more appropriate build of the business, hopefully a conservative build of the business.

And therefore, I think it's a just a better understanding. I would also highlight as a new launch. As Andy had mentioned, compared to Apartments.com launch, this is phenomenally more successful.

And I think we feel good about that and the model outlay and so as Andy said, we are hyper focused on getting Homes.com salespeople in their seats and that momentum will drive further growth as well..

And again, I would just add that the main issue is rotation of the core sales force back into their core products by their own choice largely and then now you move into the more long-term, as Chris says, into the long-term growth of the core sales group.

And definitely a significant number the other product sales groups will keep selling homes because they want to, but you'll be relying on the growth of that dedicated sales force now..

Understood. Thank you. Andy. And Chris, just a quick follow-up on the exit rate EBITDA margin target.

Would you mind confirming if it's still 15% to 16%?.

Within that range, yes..

Thank you..

Thank you. One moment for our next question and it comes from the line of George Tong with Goldman Sachs. Please proceed..

Hi, thanks. Good afternoon. I'd also like to extend the welcome to Chris, and thanks to Cyndi. So, I want to stick with the Residential business because it sounds like you're seeing good traction with respect to online traffic and bookings and yet you're reducing your full year residential revenue guide by about $20 million to $25 million.

It sounds like some of that better appreciation of the trajectory and perhaps some sales force productivity insights.

But just want to elaborate, if you can on what's changed? Is it a function of hiring capacity with respect to the sales force? Is it a function of the productivity of the borrowed salespeople? Or is it a function of end market demand for your product?.

Yes. So, I think the number one factor is human behavior and it is the borrowed sales force, a significant number of the borrowed sales force returning to their comfort zone of selling their core products.

So, if I've been selling Apartments.com for seven years and doing really quite well, at some point, I feel anxious about selling a new product that I'm not going to be selling long-term.

So, it really -- the beginning, middle and end of it is really about building a dedicated sales team just like CoStar has, just like STR has, just like Real Estate Manager has, just like LoopNet has, we got to build that core sales team for Homes.com, so they can sell and service that product as their first priority. And those folks are doing well.

I'm happy with the results of this relatively new sales force, we just need to keep growing it. And that will be our priority.

But it is -- as I look at where we are, having the traffic that is phenomenal and having the -- both the end users prefer the product over others in our studies and having the agents signifying -- find significant value in what we're doing if they're actually in real estate, is really good, and it gives -- and now it's just a question of building out that dedicated home sales team.

But I'm reluctant, and I'm reluctant to pressure high-performing apartments or CoStar or Real Estate Manager salespeople to move into homes when they're really quite good at their core products..

Got it, that’s helpful. Thank you..

Thank you. One moment for our next question please and is from the line of Heather Balsky with Bank of America. Please proceed..

Hi, thank you for taking my question.

You touched on Apartments earlier in the call, it'd be great to hear your thoughts about how you see trends into next year, especially given the supply dynamics? And also, I know there's been a lot of questions on competition, [Indiscernible] have gotten more into the apartment space and you touched on some of that earlier in the call as well.

Just how you're thinking about keeping your leadership position as competition increases and the differentiating factors between your business?.

Yes. So, as you look at the economic environment we're operating in for Apartments.com, I do believe we are in the Goldilocks zone. So, we don't want to see vacancy rates too high. People then aren't -- don't have liquidity to pay for the ads and we don't want to see them too low because the demand for the ads go down.

So, in terms of how we maintain our competitive advantage, we have a robust and broad product development line Apartments.com, you can see the traffic continue to grow.

And you can see us consistently outpacing and lead to -- in lead-to-lease conversion, into unaided awareness, and the traffic growth, just all the different metrics, we're doing quite well.

And really, it's sort of a broader playbook here where there's a lot of room in this space because most of the apartment units are in the smaller category and in the mom-and-pop individual units and houses. And so frankly, nobody has any real penetration there. I mean it is while we're growing down there, we're in the single-digit penetration.

So, there's tons of room for us to grow in there. And you will see likely some other players grow in there, but that's because it's a big market, and we're both developing a big market..

Thank you for that.

And I could have missed it, but I was just curious, can you share just updated thoughts on commercial EBITDA margin for the year? And are your expectations still the same as they've been for the prior two quarters?.

We did provide guidance to what we did in the second quarter of around 41% and we do expect those to slightly be roughly in the same area..

Okay, thank you.

So, 41%?.

Correct..

Thank you. One moment for our next question please and it's from the line of Soham Bhonsle with BTIG. Please go ahead..

Hey good evening everyone. Thanks for taking my questions and Chris welcome. Andy, I was hoping you could touch on some of the organic levers for CoStar Suite going forward. I think last quarter, you talked about 220,000-odd subscribers, STR and the lender product being an opportunity.

But I was wondering if you could maybe break that down further as we sort of think about the growth drivers of the business over the next two to three years? Thanks..

Sure. So, continuing to develop products that are geared towards the corporate user, the owner, the lender institutions, that's a wide open area with relatively low penetration rates.

And as we add more and more people in those other sectors or segments, it creates more energy in the customer base, brokers are more likely to engage in the product more if corporate users are engaging in the product owners are more likely to engage in the product when corporate users are in the product.

So, we're building out a lot of vibrancy in the platform by going into those building features and functions to reach into the segments in which we have historically had -- had not been our first and second priorities but are huge growth areas.

Also, we are continuing progress towards moving Germany, France, Spain, some other markets into CoStar, as well as our global hospitality functions. So, I believe, later this year, we'll be releasing the more full STR global functionality. So, global will be another driver. So, I think that those are the main segments.

We still have a lot of way to -- I mean, as crazy as it is. All these years later, we still have a lot of brokers to sell to. And increasingly, residential firms over the last 10, 15 years have been doing more commercial.

So, as we get into more and more into residential, we'll be providing more CoStar services to folks that you would have viewed as more historically residential. I had a call today with a Head of Sales of CoStar with a major residential player trying to figure out how they could get access to CoStar and LoopNet.

And I don't think that call would have happened except for the fact that we're now on that CEO's radar because of Homes.com. So, CoStar Group -- I mean, sorry, CoStar remains the product with, as far as I can tell, after 38 years perpetual growth opportunity..

Great. And if I could just follow-up on commercial bookings in the quarter. It looks like you did improve quarter-over-quarter, but it's still down year-over-year. So, any color that you could sort of provide there when do you think that could start getting moving again? Thank you..

Well, you see that in -- when you've given a fixed number of hours in the day, when those CoStar apartments, LoopNet salespeople shift over and start spending some amount of time selling Homes.com, which they did a lot in the period from February 12 into the second quarter, that comes at some substitution effect where they're selling in the core.

So, I think predominantly, any reduction year-over-year is coming from that effort selling into Homes.com..

Got it. Thanks a lot..

Thank you. One moment for our next question and it's from Jeff Meuler with Baird. Please proceed..

Yes. Just -- Andy, maybe if you could just talk through kind of the key factors that are going to determine the budget for the Homes.com initiative over the next few years just with this -- the stutter in the net bookings? And then what's the exit rate assumed for ARR for Homes.com in the revenue guidance, please? Thank you..

So, I'll let Chris -- after I answer the first part, I'll let Chris answer the revenue guidance on exit ARR.

So, I think that big picture, we are coming out with this Homes.com product offering in our first full quarter with a good result, which is more than, when I look at the early stages of Apartments.com, I believe we're running more than double the sales we ran Apartments.com, and it's a question of building it out.

So, it's a little early in the first full quarter of launch to call it a stutter because you don't really have a reference point.

So, we're -- we -- as we've said earlier, we do not anticipate growing the net investment in the product, but we do have high confidence that we are on the road to building the best site and creating substantial value, and we haven't changed our minds about this. So, we're going to continue investing at that same level.

But you can see in our solid EBITDA beat this quarter, you sort of hit the NEDAR [ph] of that reinvestment period. And then, Chris, on the -- he's got the ARR question on exit..

Thanks. The ARR question, we had provided previous guidance in the range of $475 million to $500 million and at the lower end of that range is where we still feel comfortable..

Thank you. One moment for our next question and it comes from the line of John Campbell with Stephens. Please proceed..

Thanks and Chris, welcome to the CFO seat and congrats and looking forward to working with Rich again. But for Homes.com I know the unaided brand awareness metric, that's an important North Star for you guys. I think we're all trying to get a better grip on the rate of net resi investment spend in the years ahead.

And so maybe just a two-part question here. So, first, should we be thinking about Homes.com reaching that 50% level is a trigger point for spend relief? And then secondly, you guys have obviously moved that unaided awareness up quickly. I mean, basically next to nothing when you acquired it.

I think 27% now, took Homes.com -- excuse me, Apartments.com almost a decade to get to 50%. Obviously, you're spending multiple times more Homes.com.

So, Andy, rather than ask you an exact date for Homes.com, which I wouldn't expect maybe just directionally, if you -- should we be thinking about that 50% level coming in the quarters ahead, the years ahead? Or should we be looking at that path -- Apartments.com path as a guide?.

Well, I do not believe it is on the same. I believe it was going much faster and will continue to grow much faster than Apartments.com. So, we're constantly evolving the messaging just as we did with Apartments.com and fine-tuning it and shifting various value propositions out in the marketing.

I would say that we anticipate similar to Apartments.com relatively constant investment as you build this out and only really increasing investment as we did with Apartments.com in the event that you can see a revenue and EBITDA financial result that's clearly attractive and can be communicated to the investors.

But in building out something as valuable as the number one residential portal platform, it doesn't happen in one quarter. It is likely -- it is a multiyear effort, just like Apartments.com and CoStar.

So, it is the steady, persistent, consistent, making progress down the road and don't anticipate radical changes anytime soon and don't anticipate increases that would slow EBITDA growth..

Okay, that’s helpful. Thank you, Andy..

Thank you. One moment for our next question and it's from the line of Nick Jones with Citizens JMP. Please proceed..

Great. Thanks for taking my questions. Two more on Homes.com. You've done a great job driving traffic up meaningfully.

Can you speak to as you aim to get more leverage, the balance between maybe shifting focus to driving more app downloads or time on app in terms of getting maybe cheaper forms of traffic behind upper funnel advertising or social or things like that? And then I have a follow-up..

Sure. So, on the app download side, we are focused first and foremost on web mobile because that is the fastest way to collect traffic. That's the most predominant platform, it reduces friction, people aren't downloading your app to adopt a new product.

So, as we're in here in the first couple of months of the new product, our design and development teams prioritize that. I'm sure you've had the experience. If you optimize everything around that web mobile platform, it's a great experience.

And that's what we're hearing in the focus group from consumers is that hands down, they prefer it over app or web mobile of any of our competitors.

They describe it as clean, they describe it as fast, they describe it as offering a lot more information than any other platform and they describe it as having the benefit of being able to ask the listing agent a quick question, without being hard sold by someone to something you weren't looking to buy.

So, I'm sure you've been annoyed before when you're trying to look at something in a web mobile app and up pops the thing saying, okay, stop doing and go into download an app, not very popular.

And when we look at numbers that our friends at Google have shared with us, they're pretty compelling and they show that competing sites are pulling de minimis traffic from their app downloads and that still everyone is predominantly competing in the web mobile environment. So, we're doing the app side, and I get it.

If you can get everyone hooked on an app, you are less dependent on buying SEM traffic or less dependent organic traffic. But for everyone in the industry, it is overwhelmingly web mobile and so we're keeping up slightly behind the web mobile, we're keeping up app parallel functionality. But right now, we are basically about traffic attainment.

And I am thrilled with the work our Homes product team has done and the development team has done building a fantastic web mobile. And so while we're snagging traffic from other folks, we're going on the fastest, most fluid platform, which is web mobile.

In social, we're marketing anywhere and everywhere we can pull people at the most cost-effective price. So, yes, we're on -- if you can talk about digital marketing or streaming or anything social, we're on virtually everything. I'm sure you see us everywhere..

I sure do. And then I guess, maybe a bigger picture question. I think earlier you alluded to maybe buyer leads are not as valuable, as getting listing leads it makes sense.

But then how do you balance -- I guess, philosophically, how are you going to balance the value of the platform to essentially home buyers, which, I guess, sounds like our view is less valuable, then providing kind of upper funnel advertising for agents to go win more listings? Because over time, if the marketplace isn't balanced and you can't continue to draw home buyers, how do you continue to drive the ROIs? If the focus is really on driving listing, you follow the question, it's a little --, but I kind of heard two different comments on the call today..

So, I wouldn't hold you at fault for misinterpreting my bad formulation of the words apparently. But our first and foremost priority is to produce the best site possible for home buyers, which I believe we're doing. And so the home buyer comes first, first, and first and second, third and fourth, right? And so that's what we're doing.

What we're trying -- and then -- and for sure, I firmly believe that the your listing, your lead model is preferred by sellers because when they make that important decision to hire a real estate agent to help them get the best result for selling their most important asset, their home, they want that real estate agent they hired to answer that first question for a potential lead, they don't want to go to someone who has never seen their home, knows nothing about their neighborhood.

They want the seller -- they want the seller selling agent to get and that's what your listing, your lead model we have has. The agents like the your listing, your lead model because they want to get the leads off their listings. The biggest source of buyer agency leads actually comes from having listings.

So, when someone calls on your sale listing, you're generating buyer leads because they are -- nine out of 10 times, they're not buying the house, they first call on. But as an agent, you can get them as a buyer agent show them other homes because you're an expert in the category in the neighborhood they're familiar with.

You also get referral commissions and the leads you refer off your listings come back to you as referrals from other people's listings. What we're not doing is stealing everybody's leads and reselling them to a handful of lower-end agents.

So, that does not mean that we're not creating buyer agency and we're not focusing on buyers, it means we're doing it more intelligently and we're doing it in a way that resonates with the industry long-term. And frankly, I'm really excited about the fact that I am becoming more and more confident that we have the vastly superior model.

And I'm seeing one of our competitors starting to figure that out and attempting to pivot their business, which requires cannibalization of their business. And I see the other competitor not having figured out where they are and what's happening, and that's wonderful.

So, we're not saying we're stepping away from buyers or buyer agency, far from it, we're just generating buyer agent more -- buyer agency more harmoniously with the way the industry has historically done it in a more sustainable advantaged way over the long-term. But thank you for giving me a chance to clarify..

Great. Thank you..

Thank you. And that's all the time we have for Q&A today. I will pass the call back to Andy Florance for final comments..

Well, thank you, everybody, for joining us today for the call. And Chris, welcome aboard..

Thank you..

No offense to Scott Wheeler, who I hope is listening today with a scotch in his hand, but Scott was good. Chris is clearly better, but so be it. And then Cyndi, thank you for all the calls you've done. Cyndi will be rotating to focusing in her new role as Chief Accounting Officer.

And then we've gone to the bull pen and we're bringing the ever famous Rich Simonelli back to sit in the Investor Relations' seat. So, next quarter, I hope you'll be joining us, so we can update you, and we'll have Mr. Simonelli back and we'll ask him to play a brief ballot, we're going to ask them to set the preamble to music.

Do you think you can do that, Rich? Thank you all for joining us. Look forward to talking to you guys next quarter..

And thank you all for participating. You may now disconnect..