Q1 2021 CoStar Group Inc Earnings Call
Sequential quarter of revenue growth above 20% year over year.
Our Q1 marketing campaigns for Loopnet and <unk> are hitting the ground running with both businesses showing good traction.
And residential home snaps first quarter pro forma revenue grew over 40% year over year as paid subscribers more than doubled and subscription revenue grew 68%.
Two weeks ago, we announced our agreement to acquire homes Dot com the next incremental step and building out our differentiated residential strategy.
Overall, we remain highly confident and our ability to continue to deliver double digit organic growth revenue for many many years to come.
Total revenue for the first quarter of 2021 was $458 million, which is and a 17% year over year growth rate and $3 million ahead of the high end of our guidance range given in February.
Nearly sales bookings were a solid $52 million.
Our profit performance was equally strong with adjusted EBITDA of $160 million and increase of 29% year over year and.
And $15 million above the high end of our February guidance.
As a result, we are modestly rising raising our full year 2021 revenue adjusted EBITDA and adjusted EPS guidance.
And Youll hear more about that interesting news from our CFO Scott with her.
Costar suite had its best net new sales quarter since 2019, and we appear to be moving past the pandemic disruption.
We believe the combination of renewals returning to the high pre pandemic levels, new product introductions with CBS, STR international and lender and the global Costar Upselling effort and physician Costar suite for accelerating revenue growth into 2022.
And three Costar suite product enhancements, both improve the utility of the product for all users and expand the universe of potential users.
New users often sign up because of a specific feature or use case, but they often renew because of the power of the overall platform.
By the end of this week, we will have loaded and of Costar information on over $1 trillion of outstanding commercial loans made to over 100000 properties.
Since we began including <unk> data and Costar suite. The supporting marketing campaign has reached the target audience with 45 million impressions and one 3 million views of the Costar see MBS product video.
And <unk> data has helped open the doors to prospects and land multiple new accounts.
The inclusion of Str's hotel data and Costar suite is following a similar pattern before STR and Costar suite had minimal data on hotels beginning on April 1st Costar suite subscribers received access to highly detailed data on 90000, new and enhanced hotel properties.
Since then the STR data has been generating about $10 8000 and views per day.
The sales force began marketing the STR data to existing clients on April 12, and are successfully adding new costar suites. The next wave of sales activity will focus on targeting non clients beginning later in Q2.
Major capital flows are regularly cross border and one of our goals at Costar is to align information flow with capital flow our strategy with international is to start a mile wide in terms of geographic coverage and several inches deep in terms of data and then continuously and consistently add depth over time.
On April 22nd all subscribers to our highest costar suite subscription level with national coverage received access to information on 500000 additional international properties and over 200 200 countries.
Our plan is to steadily grow our international coverage and <unk>.
<unk> pace over the years to come.
We plan to launch Costar suite and mountain Liao from say, the summer and Costar suite and Madrid, and all Spaniel later and this year and 2022, we are planning to establish deeper research coverage and additional European markets, including such as Berlin, Frankfurt, Munich, Paris, Rome and Milan.
And if travel access to overseas markets open sooner, we may accelerate the expansion pace incrementally.
And the second half of this year, we also plan to launch.
Full global coverage of hospitality and Costar suite.
Our goal is to track every significant commercial real estate property listing transaction and participant possible around the world, while providing customers with the best local market experience for cross border global access based on their needs.
Over the past 30 years, we sold Costar subscriptions and a modular basis with a wider range of geographical coverage options customers have subscribed to our property information module a light version of our property modular comparable sales module, our tenant module or a suite of all the modules 10000 and firms.
Scribed to just the city, they operate and with thousands of subscribed and adjust the state and only a few thousand and subscribing to full national coverage. We believe that as we continue to expand our geographic coverage and functionality, we can better serve our customers and create more value by offering one comprehensive global solution with all the <unk>.
<unk> included to all of our customers over the course of the next 18 months, we're commencing a focused effort to up sell and migrate our clients to this global suite product.
The standardization of options should reduce support costs simplify the selling process facilitate pricing discipline and eliminate technical debt. We also believe that providing more comprehensive value. We can also increase our renewal rates.
Today, only 17% of our clients subscribe to our and most comprehensive offering so the upselling effort can create and opportunity for tens of millions of dollars and incremental subscription revenue.
Decades ago, we went through a similar successful streamlining process as we move from being a small regional company to being and National company and as we move into a more global footprint, where again streamlining to facilitate growth. This.
And this strategy is similar to Bloomberg successful comprehensive non module offering strategy.
We believe that as we offer readily accessible and accurate information and more and more segments of real estate covering more and more geographies. Our clients have consistently expanded their business and to the incremental revenue opportunities we presented.
By giving them these broader information solutions.
Through the years I have observed many brokers, who wants transacted, one property type and one or two neighborhoods grow their business and to covering multiple segments across multiple cities.
Previously brokers would have simply refer deals to other brokers, if it was not and their geography.
But by upgrading their costar suite subscriptions from a single markets and national and international They can now pursue these deals themselves once their business grows into these new broader opportunities, we've become and even more important partner and their success.
And early 2022, we plan to launch a powerful new costar product for the banking sector.
Costar lender and all and one suite for loan underwriting surveillance risk management and regulatory reporting tool.
There are over 10000, and banks and credit unions and 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 and 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 and version of Costar Compass credit default model that enables banks to forecast expected loss and probability of default for easy current expected credit loss or <unk> reporting.
The combination of increasing renewal rates, a robust new product pipeline and the simplification and standardization of the product options all positioned Costar suite for really strong accelerating revenue growth into 2022.
When we acquired apartments dot com, and 2014 and had less than $80 million and annual revenue and was growing at approximately 10% per year and this first quarter of 2021 apartments Dot com grew revenue, 21% year over year, its seventh quarter in a row of growth at or.
20%.
And with our current run rate of over $660 million and proud to say that apartments Dot com is on track to overtake Costar suite as the largest component of our business in 2021.
This strength is particularly.
And impressive given two challenges created by the pandemic. The first is that the apartment owners and managers continuing to operate under the budget occupancy and cash flow restrictions are and 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 dot com most comp compartments dotcoms, most comprehensive marketing plan ever with Jeff Goldbloom, returning as Brad Bellflower iconic spokesman and the inventor of the apartment or net.
Hopefully many of you enjoyed our commercial Sunday night during the Oscars, Mr. Goldbloom character demonstrates the limitless lengths to which apartments dot com will go to ensure we have the most listings. So every renter can find their perfect new home.
Sunday night, and focus on credit friendly apartments, as an awesome spot and a really quality piece of creative work.
This year's campaign will feature seven new TV spots and over 20000 commercials on top primetime shows premieres and <unk> as well as major sporting events, including Premier placement on the Olympics this summer and so hope that.
It all goes out for that hedge.
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 I Heart media and Amazon and hundreds of millions of social media and digital ads on Facebook Tictoc box and cargo as well as entering new <unk>.
<unk> like esports and live stream on Twitch.
And I really believe that this is Jeff and our agencies best creative work, yet and the distributions most powerful we've ever deployed.
Bolivar apartments Dot com marketing effort is operating at 214, 2%.
The apartment Satcom network continues to make tremendous traffic gains as consumers via our advertising and experience our site.
During the first quarter of 2021, the apartments Dot 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 rent path had 9.8 million average monthly uniques to its for its network of sites up only 400000 uniques from the first quarter of last year and in other words, we have over two five times range pass traffic and then grew our uniques by 10 times the number.
They grew their uniques and 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 and the month of March and the back of our new marketing campaign. The apartments Dot Com network had 26 million visitors up 40% year over year and set an all time record for visits at a month and a month at 78 million visits of <unk> 45 per.
<unk> year over year.
As we head into the park peak 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 and our penetration of the under 100 unit multifamily properties. Both for our small 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 one or more one to five unit properties.
The revenue growth rate for buildings with 500 to 100 units has been accelerating from the low 20% range and the first quarter of 2020 to the mid to upper 30% range and 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.
Our current offering of rental tools, including application screening leases and payments is proven to be extremely valuable to these people.
And the first quarter over 80000 applications were submitted on apartments dot com with credit checks and resulting in over 27000 new leases.
14% increase over the same period last year.
Apartments, dot com processed $891 million and rental payments and the first quarter up 27% from the first quarter last year.
And as our marketing for these features accelerates and we look forward to expanded sales opportunities with and now widespread availability of safe and effective vaccines were better positioned to restart the hiring and effective face to face training of new mid market sales team members.
And the normalization of business use of zoom creates much better opportunities to couple the benefits of our centralized sales force with the effectiveness of virtual face to face client presentations.
We are still only single digit penetrated into the vast lower and this rental marketplace. So we are we believe very strongly that we have decades of high growth runway ahead here.
And the same way that apartment stock com revenue overtook Costar suite and seven years.
I believe homestyle com revenue could overtake apartments dot com revenue and the next seven years.
And thats, not because were expecting any slowdown and apartments dot com growth quite the contrary.
The opportunity and residential is so large and our strategy is so differentiated and our assets have so much potential.
We believe there is a huge GAAP today between how the leading portals currently leveraged and digital real estate marketplace opportunity and and 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 theres, a bigger and lower risk opportunity to facilitate selling homes faster and with greater certainty by digitally empowered and established and entrenched channels.
We recognize and are comfortable with the fact that our niche and our initial market position is in fact modest today too.
Two weeks ago, we announced our agreement to acquire homes Dot com from Dominion enterprises.
Back in 2018 Dominion sold us for rent. Thank you Rusty members. The for rent team became key members of our apartments Dot com team that helped build that business homes Dot com was similarly bring with it a talented team of managers and and excellent intuitive urls and within existing base of.
<unk> traffic.
We believe that our plans to combine homes dot com houses dot com and the agent marketing and workflow tools of home snap 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 in the call but.
Some where you have to admire at least appreciate the branding benefit of how homes dot com meats.
Fits with apartments Dot com harvest dotcom homes dot com homes Dot com apartments Dot com.
Some serious marketing then their sales.
I am 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 and unique visitors to the site.
The site reached a record 10 million unique monthly visitors and March <unk>.
<unk> net sales continued to show strength and in an adverse commercial real estate market and the first quarter with revenue growing 14% over Q1 and 2020.
The year over year growth number was negatively impacted by the depressed subscription sales for Loopnet last year during the chaos. So the first couple of months of the pandemic. However.
However.
During the first quarter of 2021, we saw a significant growth and our higher tier advertising solutions with diamond platinum and gold adds 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 as was only 6%, which is how we like to manage volume adds to avoid saturation and internal competition with costar.
We ended the quarter on a strong note and 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.
Unfortunately, with the ability to return to the office and travel we plan to start adding sales resources later this quarter to accelerate loopnet growth further.
Even before that we were still able to achieve and outstanding sales results in March by cross commissioning and Incentivising, our large experienced general commercial real estate sales force to sell Loopnet.
Mark and drew did a good job of 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 enhancement to Loopnet and E Commerce sales channel. The E. Commerce Loopnet sales contribution is growing and increased 24% Q1, 'twenty one over Q1 'twenty.
With a pandemic negative impact on commercial office leasing the availability rate for office space has jumped 400 basis points over the pre pandemic availability rate.
And the availability rate of the percentage of office space being actively marketed for lease is the highest level we've ever recorded.
We believe that makes loopnet reach to millions of tenants searching for commercial real estate more valuable than average owners, who need to find tenants to fill their vacancies it couldnt be more important.
And as such we're maintaining our plans for increased investments and marketing loopnet to owners brokers investors.
And tenants.
The are you and the loop campaign, we ran from February through March this year targeted brokers and owners and an effort to elevate the loopnet brand top of their mind.
And 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 is the most popular place to find the space.
We are working with us on RPI, the agents, who we used to produce the excellent apartments dot com work to produce this upcoming campaign.
And they have tapped Niall O'brien as director and accomplished.
Rector and fine art photographer, who captures the pride of ownership inherent within buildings and showcases the breadth of buildings on the Loopnet marketplace.
<unk> has the ability to capture buildings and their best moment and bring the design intent of the architects to light and creates an excitement around the properties and the opportunity they represent.
Tension of this campaign ranked through the rest of the year across 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 ultra high value properties and position Loopnet as a brand appropriate channel for high end high dollar property adverse.
Sizing.
All of this so I can tell Scott that our ASP per AD is going up.
We have we have put in place many foundational elements for loopnet to succeed this year and and years to come we can clearly see the enormous scale of this opportunity.
Though we're crossing a $200 million revenue run rate milestone.
And 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 of opportunities overall, and we're focused on winning those opportunities and grow and this business.
<unk> delivered another solid quarter and continues to benefit from the Costar and loopnet driving potential buyers to tenex.
Tenex unique monthly visitors rose, 45% quarter over quarter on a year over year basis overall account creation increased 61% with Costar and Loopnet source creations up over 1000% from $3 30 to 3700.
Average registered bidders per property rose from five to 13, a 160% increase and average life bidders per property increased from two five to for a 68% increase.
The growth of the number of bidders is key because when there are three or more bidders and auction. There is an 85% probability of transaction transact and Thats a thats an excellent number that draws property is toward 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 per cent.
These strong metrics are excellent proof points of the network effect from combining <unk> with the Costar platforms.
During the first quarter. This year, we grew our tenex sales teams by 39% launched a best in class six week sales training program and lead and lead generating training program and.
And capitalizing on this growing momentum by launching a new national marketing campaign called 10 exit starring comedian Keegan, Michael key great Great actor.
We believe this campaign will further establish <unk> as a leading brand for online commercial real estate transactions drive market awareness that there is no faster or more certain way to exchange commercial real estate and that <unk> is a part of the Costar and network will become an exponentially better way for buyer.
And sellers and brokers to exchange commercial real estate as.
As the campaign says why just buy it or sell it when you can turn exit.
The successful vaccine rollout across the U S combined with fiscal stimulus high household savings rates relax COVID-19 restrictions and warmer weather has boosted consumer sentiment and spending helping and labor markets retail sales restaurants service industries and travel.
The office strength 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 and person environments.
For multifamily the defining trend of 2020 was weak demand and the densely populated urban centers and strength out in the suburbs, while the first quarter Couldnt be described as a reversal of that trend demand has recovered to normal levels and urban centers, while staying strong and the suburbs.
Record search activity and apartments Dot Com reflects continued strong multifamily.
Demand for.
Fiscal stimulus and improving health conditions are helping the retail sector, especially the service sector tenants they've struggled with lower foot traffic over the past year.
Hotel occupancy Nancy and I am sorry hotel Occupancies continue to improve by leisure travel and are hurt by continued weak business travel and the industrial sector continues to outperform and set new quarterly leasing volume records driven by the double digit acceleration of E Commerce.
Quite the wave of new construction and the industrial sector vague.
Vacancies there ticked down in Q1 and remain 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 concentrator and hotels with expectation for distressed resale and retail assets to follow.
We just need to make sure they can ask those opportunities instead of just buying them.
And last March as you know we quickly evacuate all of our offices and our staff moved to safely work from home our team did an outstanding job and there was difficult. They all made it work for our clients our shareholders and one another.
With safe and effective vaccine is now widely available and with the help of a number of Costar group organized vaccine clinics onsite more and more of our staff are now vaccine I believe it's the majority.
Employees are now safely returning to our offices by the hundreds and.
While it is early days it feels like we're moving towards a more normal and productive three D 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 out compete remote dispersed teams.
Our offices feel like a return to a college campus. After a long long summer break and thrilled colleagues filing behind their masks when they run into close colleagues, they've not seen and 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 three D presence sitting right here next to me.
At work colleague, our CFO Scott Wheeler.
Thank you Andy I'll be using my voice today. So hopefully you will notice a difference all of you who are listening to the from a family for them.
But last year.
Too deeply.
But I think that last part is the best news of all of everything you've talked about going back to our offices rolling out vaccine to protect our teams and their families.
And getting to welcome our friends and our team members back to our offices every day and it really is Super fund.
And we had a great first quarter financially.
Call it hitting for the cycle with double digit growth and sales bookings revenue adjusted EBITDA and non-GAAP EPS.
We included homes that currently and they're rookie season, with Costar and our financial results for the first time this quarter and they were great and we also signed up a strategically important prospect and the online residential spaces homes Dot com.
So onto the results.
Revenue and the first quarter 2020, one increased 17% over the first quarter of 2020.
Above the high end of our guidance range.
The organic revenue growth and the first quarter, which excludes home snap and <unk> with a strong 11% year over year as we come around to one 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% and the first quarter of 2021 versus first quarter of 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 and we expect to see Costar suite revenue growth growth improved sequentially.
Costar suite sales and the first quarter of 2021, along with contract renewal rates returned to pre pandemic levels.
So this is certainly very encouraging and is a much faster recovery than what occurred and the last recession for Costar suite.
We expect Costar suite revenue growth and the 5% to 6% range for the second quarter of 2021, and 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 and information services grew 7% year over year, and the first quarter of 2000 $21 million to $35 million.
Both the real estate manager and STR turned and strong double digit subscription revenue growth and 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 and transaction revenue, which is the onetime revenue and STR.
Drop which occurred in the first part of the pandemic and the first quarter of last year.
Overall, we expect revenue growth from information services to improve sequentially for rate of 12%, 14% and 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 and 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% and the first quarter with growth and the average rate per property also up around 10% as properties continue to upgrade their advertising packages and increase our exposure.
And mid market revenue growth rate was up over 35% and the first quarter as Andy mentioned with growth balanced pretty evenly between the growth and number of paying properties and growth and the revenue per property.
And we expect revenue from multifamily to grow at a rate of approximately 18%, 19% and the second quarter of 2021 compared to the second quarter of 2020.
Commercial property and land revenue grew 48% year over year and the first quarter in line with our expectations.
This includes the impact of the <unk> and home at Homestead acquisitions.
Organic growth was 11% year over year and 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 and this sector as we lap the initial pandemic impact from last year.
Within commercial property and land Loopnet revenue showed solid growth and the first quarter, increasing 14% compared to the first quarter of 2020, just a touch below our expected range of 15 and 16%.
And it's been difficult to effectively onboard and train additional sales resources to sell loopnet during the pandemic has and the referenced.
And we expect Loopnet revenue growth to improve sequentially and grow approximately 19% to 20% and the second quarter.
Our gross margin came in at 81% and the first quarter of 2021 in line with our expectations and we expect gross margins to continue at that level and the second quarter with gradual improvement throughout the end of the year.
Our profitability was strong and 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 and the first quarter with an effective tax rate of 20% for this quarter.
First quarter effective tax rate was higher this year compared to the first quarter of last year, and that's due to fluctuations and the amount and the timing of share based payment for them.
Those wacky share based payment reductions can you just and if so what theyre 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 improvement adjusted EBITDA was primarily the result of higher revenue lower personnel expenses and timing variances and and 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% and the first quarter was 320 basis points above the first quarter of less.
And I will talk about some other 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 222020 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 and the first quarter positions that are focused on account management or managerial responsibilities that don't really directly impact sales.
So the remaining decline and sales head count sequentially around 40 people and from first quarter attrition and the Costar and Loopnet sales teams primarily.
From a timing perspective was not replaced and the first quarter and given the difficulty of hiring and training new sales and resources, while we work remotely.
Expect to not only replace but and 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 five years or longer was 96% a slight improvement from the renewal rate of 95% and the fourth quarter of 2020.
Subscription revenue on annual contracts accounts for 78% of our revenue and 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 Dot Com acquisition, which we have not included in our outlook for 2021.
Today homes, dot com and generate approximately $10 million and revenue per quarter and it is not profitable.
Subject to the deal closing, which we expect to happen by the end of the second quarter of this year, we intend to evaluate and existing product revenue and discontinue certain services that are inconsistent with our strategy.
As we wind down these services and recorded typical acquisition accounting adjustments, we expect to record approximately $5 million to $10 million and revenue for homes Dot com and the second half and this year.
We're too early and the process to providing specific guidance on the profit impact for our business.
But at a high level I would expect the transaction to be just modestly dilutive to earnings and the second half of the year as we worked through integration.
I'll now talk through our outlook for the full year and the second quarter of 2021.
We expect full year revenue and a range of $1 billion at $930 million to $1 billion $945 million for 'twenty, and 'twenty, one, which implies an annual growth rate and 17% at the midpoint for the year.
On an organic basis, and excluding the impact for the home snap and <unk> acquisitions, we expect growth of approximately 12% to 13% for the full year 2021.
For the second quarter, and we expect revenue arrangement and $465 million to $470 million, representing revenue growth of 18% year over year at the midpoint and the range.
For the full year 2021, we're raising our outlook for adjusted EBITDA for a range of $645 million to $655 million, which implies an adjusted EBITDA margin of 33, 5% at the midpoint of the range.
And we expect adjusted EBITDA of approximately $130 million to $135 million and the second quarter of 2021.
And for an adjusted EBITDA margin of between 28 and 29%.
Our marketing campaigns for apartments, Dot com, Loopnet and <unk>, all accelerate and the second quarter, which resulted in the lower sequential margins, which isn't the case and most years.
And our marketing spend and 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 for the year and even better and fully vaccinated and he is fully vaccinated. We're very excited to see <unk> people here and our office.
And bill here, he's still and <unk>.
And you'll have to Stanley.
And then.
And we're going to call and flat billing alright.
Alright.
Back to you we're going to let you open it up for questions from the free.
Analysts on the call.
Well, thank you very much Scott.
Thanks.
Yes.
So for everyone out there.
One question per participant please so make it and exceptionally insightful, one but not a multipart one day.
Gabriel would you please assemble the questioners.
Q.
Absolutely and again just as a reminder, in order to ask a question you will need to press star one on your telephone keypad.
If you wished withdraw question, Chris and thank you.
Your first question will come from Andrew Jeffrey of True Securities. Please go ahead.
Thank you very much.
I guess I'm going to have to accept for.
And now.
Thanks, Andrew.
Andy.
Residential obviously has grabbed a lot of attention.
Last quarter Q1 weighted Corelogic and all.
Could you elaborate I guess, a little bit beyond the relatively small deals you've done all the debt, albeit are important.
In terms of how you intend to build that out do you need to buy.
Data do you need to buy and database build the database. So just trying to think about how you get from point a to point be and that big Tam.
Yes, so we already have a home snap already gives us a very solid.
Table.
Access wins.
Hundreds of thousands of important players also leaders and the industry who.
Can set up the access we need we already subscribe to a wide array of residential information sources, but we think that we can work with home snap 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.
No.
For the first generation models operating at scale for an extended period of time and they never really ever produced 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 try and take the agent fees, but actually facilitating the power of the internet and the reach the internet too.
Find buyers with greater certainty and greater speeds. So we're going to develop that plan a bit over.
Over the months to come and we're beginning to do retreats around that and.
And build out and that business plan and we'll be rolling that out later in the year.
And.
Theres not a specific additional company, we need to buy today to execute that strategy I am sure that things will come up that will help and support our strategy.
We are.
Uh huh.
And I think we are we are comfortable with what we're doing.
Without.
Any involvement in the.
For the Corelogic acquisition.
And.
And I don't want you to worry that if that deal were on the table to gave the corelogic shareholders will be getting $101. We're not we're not reinstituted and that Theres nothing happened and there we're happy with the strategy we have.
With a very affordable homes dot com.
So we did ever pay for Rusty.
And.
And Thats, a joke and just for the Guy the seller from negotiating and amount of time, it's tough for negotiated with.
Your next question will come from Sterling Auty of Jpmorgan. Please go ahead.
Yeah, Thanks, Hi, guys.
Got it.
Well, you outlined a lot of growth initiatives and.
And your prepared remarks, and I guess, what I need to better understand is or help me better understand how each of those ramp and the timing because it seems like theres a lot of opportunity where I think investors are going to wonder are you going to accelerate debt organic growth.
And what time frame.
Yes so.
And a lot of this stuff is.
Somewhat dependent I know you have kids summer, probably or been home schooling for awhile not as effective as actual interest and schooling, especially not when youre.
Starting a new school.
And it's been hard to build sales force is effectively during this whole thing and as we start to get back to a little bit more normal I am very much looking forward to being able to.
Actively build some of the sales force is 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 at the middle and lower and Thats really proving effective and just that need some more sales resources behind it the loopnet product is proving effective and it.
And it needs just needs.
And can accelerate growth weighted more resources. It is already accelerating growth, but it can accelerate more with some more sales resources and I'm very excited about.
This sort of centralized.
Advanced.
Virtual selling opportunities technology, what we can do with technology sensor and it's going to be pretty cool.
The <unk> launches out there the global launch is going to start hitting.
Next quarter and meaningfully next quarter.
And.
Permanent launches out there.
And <unk>.
Hospitality launches out there.
And then axes also.
And now the demand side, we're seeing what we would want to see there we're getting those 13 registered bidders up from five or for fiber. It was we're getting the flow there and.
And now and you do is bring more supply and that's where the 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.
And it's all sort of coming together here as we can.
Come to the middle of the year, and I Love, Pfizer, I Love Medina and lunch.
And just getting back to getting back to actually.
Grow and the teams to support this effort so.
And is there anything thats like I'm missing in terms of when these and 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 Mccain and that group.
And that'll be a great product.
And the script had said fourth quarter of 2021, I bumped it to the first quarter of 2022.
It's a complicated product, but it's pretty cool and I think it will be very compelling so.
And so that one is more of a 2022.
Our next question will come from George Tong with Goldman Sachs. Please go ahead.
Hi, Thanks, Good afternoon Costar suite.
Alright.
Suite sales.
Orders in 2019 net was helped by new product enhancements can you talk about.
What's 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 is.
I don't believe Theres any material impact pricing increases there are no price 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.
And one module to three modules as they go to the global suite. So that's effectively more revenue per customer, but so far what it has higher renewal rates.
For the cancellation rate coming down and has a big impact as people feel more secure about their businesses and they see light at the end of the tunnel.
And then and then it is.
I think more seats from.
And some existing institutional owner players the <unk> data is now.
Really valuable and 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 but the actual operators and hospitality investors and hospitality, but we could see that.
SCR did not have a distribution channel and to those people appraising and and brokering hotel sales and developing hotels and.
And we could bring that we could bring their product to market quickly and thats been a big benefit to us, bringing the STR data and there.
And in.
Yes, I think George when you look at the when you look at the stats on Costar usage right now.
And our subscriber numbers and this is the first quarter. We went over 160000 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, but when you look at the number of sites that are using Costar and that's also at a high level now that we haven't hit before over 38000.
$101 71 sites, it's a 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 <unk>.
Which is a male and bank bankruptcies like the second quarter of 2018 after that first peak, we had some pretty high levels, but now we're adding again.
And those levels at that 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 its subscribers whether its users all of them are rising.
Across these different customer sets.
Next question will come from Pete Christiansen of Citi. Please go ahead.
Good evening guys. Thanks for the question and really nice trends here, Andy and I really appreciated the.
<unk> Dot com apartments dotcom comparison.
That was pretty interesting.
And certainly looking back to that era.
Departments dotcom required a ton of marketing investment and I think it was 100.
$150 million and its first year.
Should we expect that type of aggressiveness and scaling homes dot com and at some point.
Hi.
We are not and in place today, where we have.
Any sort of specific plan.
That nature.
Nothing on Scott Wheeler his desk that.
Analyzes those sorts of investments.
We obviously are exploring the broad.
And 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 and that support a front end marketplace and 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.
And then as you do do that you do make investments and marketing. So right now if you watch and Squark bikes, you might see <unk>. Shortly thereafter, you see a loopnet ad.
That evening FTA switchover to Peacock, you might see apartments dot com.
And that's part of our Formula and you do usually invest and the marketing you do invest and the marketing ahead of revenue. So as we go after and 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.
It's possible.
And we might use the weapons our shareholders have given us some day.
Well, it's a it's a multiyear effort and.
And the first component is generally software, which doesn't really show up as.
Anything terribly visible to the analysts or shareholders.
Our next question will come from David Chu of Bank of America. Please go ahead.
Alright, thanks, guys.
And so you mentioned the signature ads were up about 50% and the quarter I think that was about similar to 2020. So do you expect the new marketing campaign campaign, and a step up and the sales force to ancillary growth this year and I just.
Wondering besides the marketing campaign and the sales force additions.
Are the other key levers to accelerate that.
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.
We got some good acceleration.
I think that we are.
Getting real buy in from the high and folks like they used to view loopnet as being something that where people predominantly marketed lower and properties.
And our 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.
And $1 billion of properties and I think that'll open up a lot of opportunities at the high and which is really where we're trying to go because.
And I take our high high target.
<unk> 50, some thousand high target prospects, who are multi thousands a month opportunities. We're only three 8% penetrated into that segment and moving that number up to 20% on some sales force growth and some.
And marketing and it talks to that audience I think would have a huge impact on on revenue acceleration. So we have a winner it's just sort of.
Tuning the different components.
The next question will come from the Yankton of Needham. Please go ahead.
And through margins, but given the investment priorities and the growth initiatives. What are the other levers you have to increase margins and get that 40% targeted goal by 2023 and I'll get to.
And in terms of that target and how you can get there given the change and the cost structure and the midst of the pandemic.
Yes, so as we as we go forward to 2020 three we've got.
Organic growth coming back up primarily with costar hitting its low quarter first quarter, and then ryzen and the rest of the year for organic revenue growth and increase we'll continue to add.
Revenue and.
And modest places as we have with acquisitions and then our cost profile right now is pretty well.
A decision investment decision profile every year, so we can still grow our costs.
And <unk> 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 the fixed cost leverage and maintaining that organic and increasing net organic revenue growth.
Which is the investments we put in place over the last year, and then and this year that are creating these opportunities.
And we've got the right fuel and there to get that revenue growth up and then it's a matter of.
Monitoring that cost growth again between the 8% to 12% range over the next couple of years.
And we will hit that 40% so.
Which is nice we've been able to increase this year, a big AD campaign for <unk> and Loopnet last year, we did it for apartments, but still even with big increases and 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 and future environment years ago would be scary and take a lot of our profit now they don't they don't impacted nearly as much and it gives us a lot of firepower and.
And all of these sectors we're in.
Our next question will come from Ryan Tomasello of K BW. Please go ahead.
Thanks for taking the questions.
Just in terms of M&A or in total.
The cash balance and the balance sheet.
You've said publicly and the recently that you intend to focus on acquisitions and hearing AIDS, which costar does not directly compete meaningfully today.
And it is clear that residential is going to be a part of that playbook, but maybe you can elaborate on other areas and the business that you see as potentially being synergistic.
With the broader costar portfolio for.
For example, I believe and the capacity of reference areas like workflow and facilities management software as examples.
Sure so.
I guess we are.
Three deals into this year.
Roughly yes, so we've done three.
And just for paying.
And we will continue to I think we are constantly evaluating deals that are out there and they do come from.
A range of different sectors facility sure Thats, a zone and we look at.
And now.
We're looking at a range of different things and residential most of them are domestic and Paris.
For us wasn't a small exception to that.
And these.
These things are generally and 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 I think we're probably talking about <unk>.
<unk> deals and at any given moment Theyre 20 things on the radar screen at any given moment, but.
And just the last couple we've done have been small there was one you may have noticed that was potentially massive.
But.
But.
And we're resetting and focusing a lot of opportunities.
There is zero chance the costar loans.
Continue what it's done consistently for 30 years.
And then.
And there'll be similar and 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.
A lot of opportunities I have to tell you that.
And the flow of deals is absurd at this point.
I, probably have three and mine linked and a day.
And so but yes.
More and the same more measured continued flow there.
Do you want to add anything and that not really.
So you say the residential pipeline is.
Throw and everything at US right now, yes, it's filthy see things come in and the apartment sector.
Frequently and commercial real estate and commercial real estate and small small information plays there will still be others internationally that are coming at us. So all of the things we've talked about before are still very active but residential just added another dimension and and higher volumes.
Lot to sift through.
Next question will come from Mario <unk> from Jefferies. Please go ahead.
Hi, guys. Thanks for the time.
And we wanted to talk about.
And I wanted to talk about the.
The new sales people youre, adding and maybe you can just talk about the timing.
Productivity for these new salespeople and you're building out the middle market team the Loopnet team Tenex.
I mean, we've heard other companies within the information services space talk about <unk>.
Three year timeline and so they hit their Max productivity.
You guys have an idea of what that looks like for these.
New hires and then also because of what we're seeing and the labor market.
With the government support and stimulus.
There's been commentary from a lot of other companies, saying that its been hard to hire and basically competing against the government is that a concern of yours at all and does that create any type of wage inflation or and increased labor expense our comp expense for you.
Yes, well.
Your.
And your observation on competition with the government for employees is accurate.
Yes.
And that tends to be a little bit more on the restaurant industry and some other service industries, where.
Yes, I hear about folks who can hire because they earn more working for and not working for the government, but whatever.
And there is definitely.
So in terms of hiring.
And I'm definitely focused on particular.
Just on the centralized sales and effort, we have a great field sales team and departments, we have a great field sales team.
With Costar the CRE team there.
And for these for the Tenex effort and for the mid.
Mid market apartments effort and for the Loopnet effort.
I am <unk>.
Looking at our centralized effort I have been able to recruit some very experienced trainers and leaders to essential to Richmond, where we think that we have the ability to.
Compete aggressively for talent there and.
And.
Our training, we're investing a little bit more and our training programs and ever before so we are looking.
Looking at six and 12 week training programs, but with <unk>.
Expecting a much higher success rate of deployment on Loopnet, we believe that people can get on the board and start selling within three months with tenex it might be six months.
Is apartments, we think it's three months and then in terms of peak efficiency.
Probably start to get up to.
And I think that Loopnet and apartments, probably we would expect them decline at about 18 months to sort of full production level and <unk> might be 24 months, but.
If we can get them on the boards and the first three to six months, we have a good idea.
And what that ROI looks like for those salespeople and <unk> and.
And strong and the situation. We have here is this is a.
We have the <unk>.
Prospects and our database, we know what their economic need for marketing is there are many many many years.
And there are more of them than we can reach with the existing team. We have so we have the benefit of and Theres not a lot of competition for what we're selling.
Our offering is highly differentiated our intelligence on who to sell to is excellent.
And.
So.
Yes, I think that.
And that answers that.
And I do look forward for the time when.
And theres less competition from.
And the government sales.
Our sales force.
Okay.
Okay. Thank you.
Yes.
Your next question will come from Stephen Sheldon with William Blair. Please go ahead.
Alright, thanks on the Costar suite, the global platform and guess what percentage of your Costar suite subscriber base do you think could be interested in this and.
And what could the revenue uplift potentially look like over the next few years, if youre able to drive meaningful adoption.
Yes, so there's two things happening there.
Three things happening there.
One is.
For the first time really focusing on module up sell so someone buying just information on the property is going to China for comps and more functionality overall for the sitting there already operating in that is thousands and thousands of up sell opportunities. The next one and someone operating gain and Jane and the most common thing is.
And just getting the data for the Sydney operate and at this point the weighted commercial real estate works Thats constantly because.
30%, 40% of your clients are coming in from out of China, and you really should know what they are doing outside your market now and it's pretty straightforward.
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 in London, and violent and institutional property is 50% plus for the capital for those bigger and higher and properties are crossing borders.
We think moving on offer that group a unique unique offerings.
And it's like from the small all the way up to the gigantic and.
And I think and also is something so.
And it's.
Hundreds of millions of potential revenue, but it's also.
And transformational.
Positioning of Costar group, where today and <unk>.
Commercial real estate professional and London, our Toronto, or but drew and I certainly look at these are current solutions as being.
And London solution and I might even.
And London solution as opposed to even the UK solution and I'm just used to thinking of it as how we service our local needs and I don't think it'll 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 pre.
<unk> and at the local level and I think.
And I think it will be pretty I think that'll be pretty powerful if I think about I go back 10 years or 20 years, and I think about how 'twenty.
20 years ago, how people viewed costar, where we're really just servicing a handful of U S cities.
Our value proposition and I might have been a 50 on a scale and 100. Once we were serving all of the major U S markets. We went to 100, there was an exponential value growth for the consumer.
For the professional user when we cover their entire investment footprint, which is generally and multinational so we're focusing heavily on.
Investment sales tools selling tools.
Comparable sales tools news on international and I think that will.
<unk> the way were viewed and how our position so.
I don't know if I answered your question at all but throughout.
And throughout a random stream of consciousness on international and Serena upsell.
Exciting it's pretty cool.
Next question will come from Jeff Mueller of Baird. Please go ahead.
Yeah. Thanks, it sounds like a lot of the consolidated net bookings growth was and sweet I caught a lot of metrics on apartments traffic and lead quality and revenue, but I don't think I caught a apartment net bookings trends so would love some detail on that or if not maybe just a random stream of consciousness.
And something else.
Alright.
You want to do a range of Assurant pension yes.
Yes, we didn't talk specifically about apartment sales.
And you can you can do the math on our total sales numbers and kind of assume of Costar goes up quite a bit we're going to have the other sectors that will come down a bit.
Loopnet stayed strong information services stayed strong and I'll say the volatility and 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 apartment sales, which I appreciate Jeff we don't give these numbers.
Cause of this fact, because they are volatile and apartments.
Net bookings move up and down on an average 5 million bucks between each quarter. So so you'll see this kind of up and down and the pattern, but overtime the growth obviously as Eric because we're still pushing the thing and 20% revenue growth. So.
So we had such good quarters mid.
Mid to late <unk>.
2020 and apartments.
Think property owners have used a lot of budget than they trimmed and back a little bit and the first quarter waiting for the second quarter season, mostly.
And then seeing where theyre going to be positioned when we come back to these moratoriums.
And.
And eviction moratorium. So you saw a little hesitant and see I think and and property owners and the first quarter, which moderated the apartment side a bit but costar picked up the slack and.
To be clear apartments, dot com is rock and effort there.
We have built levels are very like January is not the most exciting time for renting apartments out there.
Never has been historically.
Historically, it was probably before we owned apartments dot com and it was a period in which the revenue actually fell very often.
But the.
And the eviction moratorium is also and wet blanket.
So we anticipate there'll be enthused at more much more enthusiasm coming into the spring and summer and.
And again, I think and the marketing campaign, and we've got going on right now.
And we're the only ones really doing it is just super strong so and then aspiring for mid market. So the fluctuation as Scott talks about.
Is there and.
It goes up goes down, but overall goes up.
And we have a last question from Joe Goodwin with JMP Securities. Please go ahead.
Great. Thank you guys for taking the question.
On the payments the other rental payments that are occurring through apartments dot com can you just talk about the economics that costar.
Gets from those payments and then is.
We will not develop into a larger opportunity is that more just the tool set.
And you are offering for these folks thank you.
Yes.
You want to hit it feels like.
Credit card, we're getting and yes, we get a few small percentages off of the off of the.
Off the cards, we don't get anything off the AC H type payments so.
And you get a little bit of margin off of the the payment tools.
And it keeps people on the platform month to month, which is what's really important.
They filled up their unit, it's not intended to be.
Our primary revenue driver for us, but one of the tools and drives the advertising and the other services as it gets up into the tens of billions or to a $100 billion. It would become much more meaningful and we do offer and HCA and <unk>.
Acceleration and that has a fee on it too.
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 honors who are liking our applications and our payment and a renewal of tools.
Tend to open up their wallet to purchase a $200 $300 online and to get higher up and the presentation and that tends to dwarf the credit current earnings sort of ACTH.
Acceleration piece of that revenue potential of them.
By and the overall bundle of all of the services, we offer the independent owner.
And is a multibillion dollar revenue opportunity and high margin. So that's where we're focused not not to.
Not too.
Dismissed the revenue potential of <unk>.
Significant and growing payment, but we're really trying to get them.
And the membership and the overall membership and our platform going and and also feeds content. So the more participation, we get and the marketplace and a more robust net marketplaces, which brings more renters, and which brings more advertisers and so as part of the home.
Cycle, we long ago, and we needed to provide a broad range of services that independent owner, which does not have the scale to really serve and are really doing and house or implement and things in house. So.
Yes.
And we have no further questions at this time I will 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.
As we are how we are.
So thank you very much for joining us and we look forward to talking to you again.
Okay.
This concludes today's conference call. Thank you for joining you may now disconnect.
Yes.
[music].