Q2 2022 CoStar Group Inc Earnings Call
$128 million and clients subscribing for five years or more renewed at 97.8%.
And 97, 8% as we ramp up our investment in our residential product strategies, we continue to deliver strong results with adjusted EBITDA of $150.
$9 million in the second quarter, well above the high end of our guidance range and consensus as a result, we will raise our full year 2022 revenue adjusted EBITDA and adjusted EPS guidance.
Revenue for our Costar product was 207 million in the second quarter, representing a 17% increase over the same quarter a year ago.
<unk> net new sales bookings increased by 60% in the second quarter, making the last fourth quarters, the highest sales quarters on record.
Trailing 12 months sales level as of June 30th is 145% greater than the same period 12 months prior.
Our consistent strong revenue and sales performance for Costar as the result of a steady stream of product innovations that deliver expanded capabilities and increased customer value.
The past few years, we've added hospitality, David integrated <unk> data and analytics launched a new lender product and opened up full multinational reach for our Costar customers. We can continue to grow our subscriber base and now have 177000 Costar professional users.
This quarter, we crossed over 40000 subscribing sites.
<unk> ASP continues to climb as we transition more and more of our customers to our global solutions.
Overall, I'm very confident in our ability to sustain our current levels of strong double digit revenue growth for Costar group.
I think I've been saying that for 30 years.
Apartments Dot com turned in an outstanding performance in the second quarter with net new sales bookings up 138% compared to the second quarter of last year.
As the second highest quarterly sales ever for apartments Dot com.
Sequential growth in sales was 35% in the second quarter this year, which makes us the third quarter in a row of improving sales results.
The apartment vacancy rates have increased at a rapid pace throughout the first half of 2022 climbing quickly climbing from the all time low vacancy rates in the third quarter of 'twenty, one that we're suppressing demand for apartment advertising.
Vacancy rates for three four and five star properties were up 60 basis points to five 7% in the second quarter from that all time low of five 1% in the third quarter of 'twenty one.
We're now only 80 basis points below the historic pre pandemic vacancy rate average for that class a properties.
We believe we will be back to the historic average vacancy rates in the next several quarters.
One of the drivers there is demand for apartments installed in the second quarter of 2002 with absorption of only 67000 units.
That is a dramatic 74% drop from the 260000 unit absorption level in the second quarter of 'twenty one.
New apartment construction deliveries are expected to reach record levels. This year. The forecasted 415000 unit deliveries are on par with a highest level recorded since the mid eighties, Tampa and Phoenix for example will add over 25000 units while absorption in these markets is projected to be a third of new supply.
The need to fill these newly constructed apartments building clearly increases demand for apartments Dot com.
Raising vacancy rates the number of properties advertising on apartments Dot com increased sequentially in the second quarter of 'twenty two continuing the positive trend that began in March of this year. In addition cancellation rates have improved by approximately 20 basis points since the end of last year.
Our apartments Dot Com Salesforce delivered outstanding results in the second quarter sales productivity per person increased 64% year over year and is at an all time high.
With post pandemic restrictions behind us we're once again focused on in person meetings with our customers and our prospects.
In the second quarter 2002, our field sales team conducted an impressive 55000 in person meetings with our clients and that's up 35% from the first quarter of this year.
This has always been a relationship based industry and our in person meetings are the most effective way to build customer satisfaction and demonstrate the value of our products.
Traffic to our apartments Dot com network improve sequentially as we ramped up our advertising campaign, starring Jeff Goldblum, as Brad Bellflower, which delivered over 4 billion impressions in the second quarter alone.
I am very happy with the outstanding results of our apartments Dot Com team is turning in and I'm increasingly confident that our positive sales momentum will result in double digit revenue growth in the second half of this year.
Turning to Costar real estate manager product line continues to grow the fortune 2000, and global customer base Costar, adding 23 major new customers in Q2 subscription.
Revenue grew 15% in the first half of 2022 over the same period in 'twenty one we're.
Were on path to have the real estate manager product integrating to Costar by 2023. This will significantly increase revenue opportunity for costar by connecting the fortune 2000 tenant oriented customer base, our real estate manager with the power of the Costar network.
Lands of America, our rural land marketplaces, focusing on three key growth initiatives. These initiatives include growing the field sales team introducing signature ads and launching land dot com.
We've grown our sales force at lands by 16% year to date.
Last year lands of America began offering gold at signature ads similar to the differentiated signature ads at apartments Dot com in Loopnet offer.
This quarter lands launched platinum signature ads are standard adds costs $22 75 per month on average our gold ads average much higher number of $359 per month in the platinum ads averaged 599 per month since the recent launch we sold 932 <unk>.
Sure ads.
Growing the sales force and introducing premium exposure listings helped drive 23, 4% year over year revenue growth this quarter in the lands of America business Les.
Later this quarter, we will redirect lands of America Dot com to our Urls land dot com to harness the power of this simple memorable and valuable domain.
<unk> Dot Com will then join category Definer like apartments, dot com and homes Dot com.
Loopnet had the strongest sales quarter in years with net new sales bookings growing 43% of the same quarter last year second quarter revenue was $56 million up 10% over the prior year.
I am encouraged to see our efforts to build a loopnet sales force are progressing well year to date, we've grown the dedicated loopnet sales team by 95%.
We have built a strong infrastructure with regional sales management team and a strong training program.
Our training and Onboarding process is much more effective now that we're able to train and onboard together in person.
As a result of our new sales team is delivering 100% more sales and there are six months in production.
Then when compared to the Loopnet sales team, we onboard remotely during the pandemic.
Traffic to our Loopnet network of sites remains strong in the second quarter, averaging approximately 12 million unique visitors per month.
We have an order of magnitude more traffic than our closest competitor that gap between Loopnet and our next closest traffic competitor widened by 1 million unique visitors during the second quarter.
We're pulling away even further.
This demonstrates the effectiveness of our SCO the quality of our content the strength of our brand the quality of site design.
The performance of the site and the impact of our space for Dreams advertising campaign, which generated 253 million impressions in the second quarter.
We believe that Loopnet will deliver significantly more value to customers users and shareholders as an international platform.
Trillions of dollars across many borders to invest in commercial real estate.
International platform has significant scale advantages and software development, both in functionality and cost per user efficiency.
We recently invested to relaunch re launch Loopnet in Canada under Loopnet that CA.
The number number of monthly unique visitors on the Canadian Loopnet network has surged 45% year over year.
That investment has significantly widened our competitive lead in Canada against the next closest CRE site space list at CA <unk>.
Corey to SCM Rush in June of 'twenty, one the Loopnet network had 48% more traffic than did space list at CA.
This June the Loopnet network has pulled away and has 233% more traffic than the space growth.
Yes.
So.
Four five times.
Advantage.
We're now investing significant energy into launching Loopnet in the UK, France, Spain, and Germany, and the rest of Europe in that order.
In fact, I believe our president of Loopnet, just saw them on the video screen in France, just now.
<unk>.
We currently own leading CRE marketplaces across the UK Europe with Rialto in the UK and Bureau, local in France, <unk> in Spain.
When we compete we will have one code base for Loopnet globally, and redirect when we're complete with integration with one code base for Loopnet globally, and we will redirect traffic from our family of European platforms into Loopnet.
Users will build a use loopnet to search for investments or properties to lease from Madrid to Paris, or London, New York or San Francisco Vancouver more.
A property owner with an industrial facility at Heathrow, we will to appropriately market to robust audience as it may need that warehouse from around the world with just one placement on Loopnet Dot com.
Conventional wisdom is that real estate marketplaces, or a local product and lack cross border value or synergy.
I believe this couldn't be further from the truth is just assume because you have made the effort to try and do it.
We released Costar in the UK in 2012 and rolled out our.
Rolled our predecessor offering focus into Costar, our revenues in the UK doubled in the years that followed.
That half of Costar users today now have global subscriptions can easily access data across borders.
<unk> thousand 800 U S users access data and Canadian properties. This year 1200 Canadian users are accessing data in U S properties.
7600 U S. Users are accessing information on UK properties in 2300, UK users are accessing data on U S properties.
In total just under 20% of all users have accessed tens of millions of property views across borders with Costar we.
We intend to release international Loopnet in the UK in the fourth quarter I am grateful to be a small part of such an exciting and challenging product with a great team executing this work.
Our costar risk analytics business continued to gain momentum with strong growth driven by the recently released Costar for lender solution Center.
Since release in February we signed 66 clients of which 42 were added in Q2.
We believe this growth rate will continue to accelerate with investment in our dedicated sales team for the next phase of product innovation and marketing.
The strategy behind Costar from lenders has to offer a highly scalable fully integrated solution that is essential to market participants by supporting their risk management regulatory requirements loan production strategic decision, making.
The Costar lender value proposition meets the requirements of our initial client base, which are diverse including banks credit unions dust lenders private lenders and life insurance companies of which the CRE portfolios range from as small as $10 million.
Two huge 50 billion dollar portfolios.
This buy sell our leading business for sale marketplace is having a great year.
Revenue grew 27% year over year with investments in sales and marketing driving strong increases in listing supply in buyer demand.
We are realizing tremendous synergy between Loopnet and best buy sell business to <unk> sell subscribers listings displayed on Loopnet increased 54% in the first half of the year.
Reported sold business comps increased 19% in the first half to 44754 business comps.
<unk> of business owners and leverage these comps every month to get an estimate of their businesses value.
This is my cell counts one of the largest franchise brands among its customers, including 711 19 muscles.
Storage, if you leave checkers Jackson Hewitt and many more open the door to deeper relationships across other costar real estate products.
SDR continues to grow revenue and add new hotels contributing data, while the hotel industry recovers from the global pandemic STR now has an all time high of almost 75000 hotels contributing daylight data on a monthly basis.
There is still 1500 hotels that previously participated and are currently closed due to COVID-19 and half of those are in Asia STI.
<unk> revenues year to date are up 10% year over year.
When Costar acquired STR at the end of 2019 subscription revenue was 60% of total revenues with focused effort subscription revenue year to date is now 77% of total revenues.
Str's currently migrating its benchmarking product into the Costar platform.
Customer migration will begin at the start of 2023.
At the conclusion of the product rollout the expectation is to be in a position to double STR revenue through sales of benchmarking to new customers and upgrade existing customers.
<unk> will also be better positioned to introduce costar to new hospitality customers. Once the benchmarking product is in the Costar platform.
I think that introduction has already begun with STR selling costar to hospitality companies, such as Saundra Hopper Vista, Indianapolis atrium, hospitality and Highgate hotels.
<unk> continues to perform.
With high volume of assets being brought to the platform, which exceeded $2 billion in the first half of 2022 or 33% over the first half of 'twenty, one and the highest level of activity since <unk> 2015.
As mentioned last quarter, we launched our Tenex marketing program for 'twenty, two called Battle of the bids which is a gamification of the tenants bidding process in which people can guess the price at which your real estate properties will be sold on Fedex and have a chance to win millions of dollars in cash prizes nearly 13000 brokers and owners have played the.
<unk>, adding approximately 12000, new <unk> accounts.
The bidding power on Tenex as reaching record levels, when a potential bidder registers to bid on Pemex lean check to ensure that they have sufficient funds to buy the properties. They bid on the amount we approved for them as they are proof of funds in the second quarter of 'twenty. Two total proof of funds reached 11 7 billion.
Up 144% from $4.
<unk> 8 billion in the second quarter of 'twenty, when we acquired Tenex.
Our residential business continues to perform very well second quarter revenue in residential was $20 million, an increase of 40% on an organic basis compared to the second quarter of 'twenty one.
Our home snap business continues to focus on expanding agent engagement and sales of our pro plus products, while we develop our homes dot com marketplace.
Registered agents for our home snap pro product totaled 880000 at the end of the second quarter, an increase of 17% over the same quarter last year.
Revenue from our pro plus products grew an impressive 46% year over year, while our cost here.
<unk> plus product grew 175% versus the second quarter of last year.
Agents continue to spend more and more in our residential products with average agent spend increasing 42% on a year over year basis.
It is important that we continue to grow our sales force to reach more agents and prepare for the launch of our homes Dot Com product next year, we've successfully establish our direct sales force to support the pro plus product and I'm encouraged by the initial sales productivity of that team.
We have plans to expand this team to over 100 dedicated sales representatives by the end of 'twenty two.
In the second quarter, we grew that team by almost 50%, including adding field based sales agents, who are having some real success.
Our research efforts are off to a good start as we build proprietary content for <unk> dot com or in playgrounds neighborhood schools and other features that are important to consumers.
From a standing start we have successfully engaged over a thousand photographers writers editors.
<unk> talent and video editors across the country.
So far we have produced content on over 70% of the largest residential markets in the U S.
We expect our rich original data and media content will produce significant organic search results that will be a product differentiator from our competitors.
We successfully launched citizen App in June in coordination with our partners at the real estate Board of New York for the first time, New York Renters buyers and brokers now have a single real time source for all available real estate Board of New York listings.
Better yet all of an agent's listings appear for free on city snap.
The launch of Citi Snap was well received by the agent community in New York City and in only a few short weeks over 37% of the real estate Board of New York agents have registered to use a snap.
City snap reached the number one spot on the top new category on Google play and is off to a strong start.
As with any new product launch. This is only the beginning version one Oh, we're planning a regular pace of product releases, focusing on optimizing user experience and adding more valuable content, which we feel is the key differentiator for Costar group.
Yesterday marked the formal launch of our city snap consumer marketing campaign, our marketing campaigns are designed to deliver hundreds of millions of media impressions across streaming video audio digital social and out of home media.
Just before this call began I got word that we reached our first 1 million users of Citi snap.
Sure.
Okay.
To realize our many growth initiatives. It is imperative that we continue to attract and retain the best talent for Costar group.
<unk> Scott Wheeler.
We've had tremendous head count growth I was just checking to make sure Scott still listening.
We've had tremendous head count growth over the past six months, surpassing 5400 team members for the first time in our company history.
Our strategic goals of building, our residential platform international expansion and growing our sales teams have been extremely successful over.
Over the first half of the year, we've welcomed more than 1000, new team members across multiple areas and around the globe.
A big contributor.
Our increased head count as the creation of hundreds of new jobs in our residential business thousands of skilled photographers drone pilots and content writers have applied to Costar group with hopes of being able to take part in documenting their cities Park schools and neighborhoods and beautiful homes as we prepare our for our homes Dot com relaunch late.
For this year.
Our new team members have listed a variety of reasons, they decided to come to Costar group, including our positioning as an innovative industry leader are high performing and fast paced work environment, the opportunity to build new businesses and products and services for our customers.
Over the top reason most new hires mentioned when joining costar is the people they get to work with and learn with here, while Costar offers flexibility to our colleagues we predominantly work on our mission together in the office and we thrive in that environment, we believe that working together rather than on a road to screen is becoming competitive edge.
For example, an example of many very talented valuable new colleague Leslie Hall joined Costar group in May to grow our HR business partner function. After a successful 26 year career at <unk>.
Another very well known and respected wash generic company.
But its still all remote despite maintaining millions of square feet of emptied premium office space.
She said.
<unk> built a career in HR, because I love partnering with people solving business problems. She goes on to say after two and a half years of remote working on zoom I missed the in person collaboration in connection with business leaders and employees is.
You simply cannot maintain meaningful and sustainable relationships virtually over the long term.
She was impressed with the caliber of people she met during the interview process and their commitment enthusiasm for Costar.
We are thrilled to welcome Leslie and 1000 other new colleagues to Costar this year.
When we first return to the office last year that was difficult for some of our colleagues initially our retention rate dropped.
But surprisingly now that we're back together in the office our retention rates are climbing to some of the highest levels we've ever seen.
According to castle security, while many workers in the U S and a return to working together in the office must most of not.
Many think that workers in companies that do not work with their colleagues in person do not form meaningful connections to their companies. According to the Bureau of Labor statistics in this pandemic.
Induce great resignation overall private industry attrition trends remain very elevated at three 1%.
Real estate attrition is slightly lower at two 8%.
I am pleased to report that we are experiencing the opposite our attrition rates continue to improve and are now the best they've been in years in fact, our attrition rate is now less than half of the private sector's turnover rate in.
In the most recent 60 day trending employee retention rate is an impressive 98, 5%.
We are retaining the best talent at Costar group. The average tenure for technology companies is three years Costar group is a clear leader with an average tenure well above both well above <unk> or real estate or private sector and is approaching.
An impressive five years to five years compared to tech averaged three years, we're retaining employees, 60% longer than the average company.
We have been deliberate in our execution of employee retention initiatives, including leadership development programs management training career mobility and promotions. In addition, we've enhanced our already strong suite of employee benefit offerings to adapt to the needs of our people in the current environment.
Our approach is proving particularly successful with regard to our sales force as we are simultaneously growing five different sales teams all of which have the potential to add significant growth capability to the company.
For the first half we have grown our sales team by a net 150 sellers. That's the fastest we've ever grown an increase of 18% since the end of 'twenty one.
At the beginning of 'twenty two.
This is the largest half year organic growth in sales resources, we've ever achieved.
Carefully watching the growing productivity of these new salespeople salespeople we're onboarding.
We have invested carefully in our training programs with talented and committed trainers I am pleased to report that while it does take time to ramp up these new salespeople to full productivity, we're exceeding our historic ramp up success rate.
Our commitment to in person collaboration coupled with our investments in our people have us well positioned to continue to grow the business as well as execute our strategic objectives.
The commercial real estate markets are entering a period of potential disruption as the U S economy adjust these higher levels of inflation raising interest rates.
And lingering pandemic effects.
With office vacancy rates climbing to 14% we are now observing the highest nationwide vacancy rates in 30 years.
The gap between future availability rate and current vacancy is growing suggesting a bit more paying ahead in vacancy.
Office leasing continues to lag pre crisis levels central business districts are particularly challenged as more office space is being returned contributing to slower recoveries. According to castle system as a percentage of group returned to office has remained around 40% with only modest increases in recent months.
There isn't this persistent softness in the office market Costar continues to outperform and our Loopnet Tenex products are counter cyclical should the office market deteriorate further.
Industrial properties are experiencing the opposite of office properties industrial properties are maintaining record occupancy double digit rent growth in booming construction.
Retail leasing held steady near post pandemic highs in the second quarter, while new development remains sparse. The retail now market is now reporting tighter conditions than prior to the pandemic as the amount of retail space available space available for lease fell to the lowest level in over a decade store openings remaining are remaining on <unk>.
Pace to significantly eclipsed store closures this year.
Transaction volumes for commercial real estate properties continue to reach new highs over 216 billion traded during the second quarter, leading to a second quarter record and a record breaking first half of the year.
Depreciation continues across all asset classes with industrial multifamily, leading and retail and office lagging.
So far this year distressed commercial property sales remain low encompassing only 1300 assets representing less than one 5% of all sales.
<unk> delinquencies at 30, 60, and 90 days continued to decline in the second quarter, we anticipate that the rise in interest rates will create difficulties with loan maturities and refinancing in the months and years ahead.
According to a leading <unk> mortgage servicer request for loan extensions increased 38% of requests for loan restructurings increased 21% in the second quarter and.
An increase in delinquencies could represent a significant revenue opportunity for <unk>.
Well after those brief remarks, I'm going to turn the call over to our Chief Financial Officer, Scott Wheeler.
Yeah.
Thank you Andy I Love those brief remarks, I'm happy to report to everyone on the call that.
But I am still retained with costar, even after that script and I'm awake and listening.
Part of the statistics.
Interesting that five.
Five year.
Returning customers is 98%.
And we have a retention rate of our employees, 98% with an average tenure of five years.
Is that art imitating life income was that what you would say.
That's fascinating.
Hotel, California could check and never leave.
That's why I stay around here facts are amazing.
Alright, let's talk about our revenue by our services and Andy reported costars growing 17% in the second quarter.
Price and new sales volumes, each contributing roughly half of that revenue growth.
So we expect revenue growth in the 60% to 70% range in the third and fourth quarters and the lower end and just really a result of some negative movements as the dollar strengthened around 10% to 15% over the past year against the pound so on and so our organic currency adjusted basis, we're going to keep that 17% going in the second half.
Our second quarter multifamily revenue grew 6% in last guidance and that most definitely represents a turning point for apartments Dot com revenue growth will increase going forward.
Sales levels have continued to improve in each quarter since the third quarter of 2021, and the total number of properties advertising on our network increased sequentially in the second quarter compared to the first quarter of this year.
We expect third quarter revenue growth of 11% fourth quarter growth of 14%.
Family.
This increase to our prior full year revenue estimate, we now full year revenue growth of 9% and multifamily.
Loopnet revenue grew 10% in the second quarter also in line with our expectations.
The net new bookings increased 43% year over year as we've increased both our loopnet and Costar sales staff, both of which sell at least not very effectively.
We expect this trend to continue through the remainder of the year, increasing our third quarter revenue growth to 13%.
This results in an increase in our full year revenue growth estimate to a range of 11% to 12%.
Information services revenue grew 10% in the second quarter, a little ahead of our guidance.
Real estate manager continues to post solid double digit growth in STR is now back to double digit revenue on a constant currency basis, which is really a great recovery news for STR, even before global hotels of all recovered from the pandemic.
In addition, we added business ammo to our info services revenue, which we acquired at the beginning of the second quarter.
For the third quarter, we expect revenue growth of 11% and we're increasing our full year expectation for information services and revenue growth to 10%.
Residential revenue increased 11% over the second quarter last year.
<unk>, excluding the effect of the wind down of the non <unk> revenue from homes Dot com.
Revenue grew around 40% in the second quarter on a like for like basis as Andy mentioned.
We now expect full year 2022 revenue of $73 million in residential which is above our prior guidance of $70 million.
Revenue growth for the second half of the year will be down 20%, 25% again as a result of the homes Dot com revenue in the second half of 2021 that was wound down at no longer exist in the second half of 2022.
Putting that aside the year over year growth in our pro plus subscription product is expected to be around 35% in the second half of the year, which is why we remain our focus in growing our sales force.
The other market revenue versus 10% in the second quarter 2022, as expected with lands in business for sale marketplaces, posting growth rates of 25% or more.
<unk> performed well in the quarter against our strategic and increasing the volume of assets as well as the bidding power on the demand side of the marketplace.
We expect the other marketplace to grow around 18% for the full year of 2022.
Yes.
Adjusted EBITDA for the second quarter was 109 million $31 million above the high end second quarter guidance range.
Our adjusted EBITDA margin was 30% compared to 31% second quarter.
<unk>.
Approximately 10% of the favorable.
Does from revenue outperformance, while 90% was from mobility.
Primarily all of which relates to the timing of our investments in content development for our residential products.
We're off to a good start mobilizing our content teams across the country and they're going to produce 10 bottles of <unk>.
Pieces of proprietary content.
Our initial second quarter spending forecast on this.
Contemplated a very steep spending ramp in the second quarter, which in hindsight I must say too aggressive.
Accordingly, we have shifted our $10 million of our second quarter cost favorability to the second half of the year to ramp up in content development will continue.
Also our existing field research team is doing a great job contributing more residential content than we had anticipated.
This is much more efficient outcome and it lowers our incremental costs.
If this trend continues we could even see additional investment favorability in the second half of the year.
So overall, we estimate our 2022 residential investment levels now in the $180 million to $200 million range.
Our sales force totaled approximately 975 people on June 30th an increase of one five sales reps from the end of last quarter and an increase of only 150 reps from where we began the year.
This is the largest increase we have ever given our sales.
In a quarter or a half year, and it's a well balanced increase across all of our major product areas.
Contract renewal rate was 91% for the second quarter of 2022, similar to the 91% renewal rate in the first quarter of this year.
Subscription revenue on annual contracts was 80% for the second quarter of 2022.
Compared to 77% this time last year and consistent with the first quarter of this year.
Turning to the outlook, we expect full year 2022 revenues to range from $2 165 to $2 8 billion, an increase of approximately $12 $5 at the midpoint of the range, implying an annual growth rate of 12% at the midpoint.
Organic growth, excluding the revenue run off from the homes Dot com products is expected to be 13%.
Third quarter 2022 revenue expected in a range from five two to $5 $57 million representing growth of 11% year over year at the mid <unk>.
Once again organic growth, excluding those pesky running off home to Dot Com legacy revenues is it.
At 12%.
Sure.
The 2022 full year adjusted EBITDA is expected now to be in a range of $610 million to $630 million, which is an increase of $20 million from our previous guidance.
Half of the increase in improvement in our revenue outlook with the other half the result of lower forecasted.
<unk> levels that I just mentioned.
For the third quarter 2022, adjusted EBITDA is expected to be in a range of $130 million to $140 million, indicating a margin of 24% at the midpoint.
With regards to capital allocation our strategy remains unchanged.
With interest rates on the rise and economic uncertainty and market volatility, we see valuations moderating with regards to acquisition opportunities.
Our balance sheet is in great shape, and we are well positioned to take advantage of opportunities should they arise in the near future.
With that I'll turn the call back over to Cindy to orchestrate the anxiously awaited Q&A session Sydney back to you.
Scott I would like to ask the fence key.
One question and one part please.
I'll turn it over to Austin, if you could please open up the line for questions.
Thank you as a reminder to ask a question. It is star one on your telephone keypad and if you'd like to remove your question. Please press star followed by two.
Again to ask a question it is star one.
We will pause here briefly ask questions registered.
Our first question is with George Tong from Goldman Sachs.
George Your line is open.
Hi, Thanks, good afternoon.
You indicated that multifamily vacancy rates are improving to.
To what extent do vacancy rates need to reach historical levels before apartments dot com revenue growth can return to 20% organic and what's the timing for this recovery.
Well I think we're on the way to that and Youre already seeing our second best sales quarter ever. So I think it's just a question of continuing to do that for a year or so and the trends appear to be clear and obvious.
And expected.
So I think were were on our road to that.
That result would you want to add anything there Scott.
No I have been encouraged that even.
Industry recovers in the Vaca <unk> start to move up slightly our sales performance is recovering faster than the industry.
Which speaks to the platform. So we Don Beck departments Dot com backup to that.
You alluded to George we haven't given any guidance.
Outlook into 2023, yet, but when we do we'll be sure to let you know when thats expected. Thanks for the question.
Thank you.
Yeah.
Our next question is with Pete Christiansen from Citi.
Your line is open.
Thank you good evening, thanks for the question.
Scott I was wondering I, just wanted to dig a little bit into the multifamily a little bit break it apart in term.
Great sales quarter.
How should we think about at least the glide path in terms of revenue per property versus new volumes coming on.
Just generally how do you see the next two to three quarters for me out after a big sales quarter.
Yes, hi, thanks for the question.
<unk>.
The revenue growth up to this point.
The industry is still rebalancing a bit of work place ads on the different levels that we offer.
Is primarily in.
The price movements that we've put in place this year.
So price is running ahead of percent though.
We're starting to see the sequential volumes move up so I would expect those to start moving as we annually to the low to mid single digits and I would expect our pricing to stay in that.
Hi digit range that we're seeing now.
When the vacancy rates move up a little higher. We then did start to see people moving up the AD stacks again.
They need to create more leads for their <unk>.
I think it's when you add that positive mix shift on top of.
Low to mid single digit volumes in mid single digits pricing.
And then you start to add salespeople all of those will add up then to get back to that 20% that George referenced a bit earlier. So we expect those trends to continue through the year and then strong 2023.
Great. Thank you yes.
I apologize unfortunately, it looks like our DC line is cracking add a little bit there.
As Scott is not trying to avoid the answer.
Okay.
We will have a brand new telephone line for the next earnings call.
The.
And I have to come all the way to London defined a good line, but yes, I think one of the things that will really drive there is tons of penetration opportunity in apartments still we are definitely in the early days of that opportunity and we're adding salespeople at a great clip and that will drive new account business and new.
New units for sure.
We will be able to continue to get price as people are advertising, new construction and alike.
Thank you.
Our next question is with Jeff Mueller from Baird.
Jeff Your line. Thank you.
Thank you.
Curious of your views of.
How youre assessing your recent AD spend efficiency.
<unk>, a big budget I guess into a market where some other advertisers are pulling back for macro reasons. Just are you seeing lift are you reinvesting the lift just any comment on AD spend efficiency.
Hi.
I think that the sales results in the quarter sort of speak for themselves.
We're having tremendous growth across loopnet traffic growth revenue growth apartments, as having tremendous sales growth. So I think that we're getting.
We're getting good results.
We're hearing all the.
Concerns of Doom and gloom that everyone else is talking about.
But I have to say in our business, we simply are not seeing any of that and we're watching for it but.
It's not there so we're continuing to divest in the opportunity and getting Greg good results.
Yeah.
And I guess, what I'm wondering is are you actually benefiting from advertisers pulling back in other channels that would otherwise compete with you for AD spend as you try to drive traffic to your sites.
I think we probably are I mean, obviously one of the biggest single budgets are.
Our SCM budgets.
And.
It's a little difficult to like I think we've had a continuous progression of <unk>.
Better and better efficiency lower cost on our target keywords on SCM.
To separate that continued gain efficiency from just the way we bid and the way we get brand recognition clickthrough rates tough to separate that from <unk>.
Less congestion competition. So we are continuing to get efficiency, but it's tough to.
Suss out what component is less competition I imagine going into 2023, we probably will see it like obviously and clearly.
Alright, thank you.
Yes.
Our next question is with Stephen Sheldon from William Blair.
Kevin Your line is open.
Hey, thanks, so it sounds like Youre, making progress on the residential content build out.
So can you remind us when you plan to plug all that proprietary content back into homes dot com, how quickly that could potentially support stronger organic search traffic.
And then I might get slapped on the rest of your for asking asking another part but.
What what did overall traffic to the residential assets look like in the second quarter apologies, if I missed that.
Yes so.
Where we would expect to see.
That.
<unk> really start to make a difference as you go into 2023.
I have been sitting down with the content teams periodically and I have been looking at the content we are building.
And I have to say I feel really good about the fact the potential of that content.
Individually the different things, we're building look pretty powerful when I think about it with my CFO hat on I think in some across massive scale it should be awesome.
But we're not going to see any of that really impacting until the earliest the very end of this year and really the beginning of 2023, so right now the traffic growth.
Don't have the year over year traffic growth.
With me Cindy has it youre not going to see major traffic growth until we.
Until we relaunch the Holmes platform and start to bring that content in.
Do you have a number there cindy for year over year homes growth.
Okay.
Yes, I think.
Slightly but as you mentioned, it's really going to look to to get that growth through marketing and advertising campaign launch.
Yes, we were pretty much in line with where we were in the first quarter.
Spending any additional money on marketing.
Yes.
Great. Thank you.
Yes.
Our next question is with Ryan Thomas seller from K B W.
Brian Your line is open.
Thanks in terms of M&A and specifically regarding residential was wondering if you see an operator.
To execute a similar.
Playbook as you did with apartments dot com in terms of consolidating appear.
Any pure residential portals to accelerate that timeline around those consumer traffic holes that you set out.
Some of those peers operate with alternatives.
Revenue in business models, including in the brokerage space to.
How feasible you think those types of deals could be if they were attractive.
Well as usual.
We don't comment anything specific but I will say that I have been flying more in the last months than I've ever flown in my life.
It's an interesting time I mean, we have a great balance sheet with a lot of cash.
I think we've just turned in a really strong quarter, we've got strength in all of our businesses.
And I believe that were seeing valuations across half dozen dozen interesting companies fall.
Become more and more attractive so.
We think that.
Your question is not terribly far off of a range of opportunities we have out in the world.
But.
It's sort of obvious and the time, we're in a company like ours with a great balance sheet Super performance track record of M&A.
Falling values, both in the United States and Europe are interesting.
Okay.
Our next question is with John Campbell from Stephens, Inc.
John Your line is open.
Hey, guys great work on the quarter.
Got you briefly touched on this but I think the original 2022 guidance, calling for I think it was 200 $220 million of step up and resin investment it sounds like Youre now expecting maybe $20 million less moving forward. So I guess first.
And then secondly.
If you could maybe unpack how much of that hit in the first half versus what's expected in the second half and then also just to refresh on the expected kind of breakdown and spanned across content and marketing.
Yes, Jon for the question.
Yes, we had.
We had initially estimated that 200 to 220 level of spend as you appreciate that was.
Early in the year.
We had a strong ramp up in the second quarter in content more aggressive like I mentioned then.
Then we actually.
We're able to achieve in the and we can see from our internal teams, which very positive sign. So my current estimate puts us.
Puts us in the <unk>.
About $20 million below where we were originally about half of that is.
See a little bit of it is from just I'm sure I have enough cost in there for my longer term estimates given the uncertainty you start off the year with.
And then the restaurant timing of the ramp that some of that will push out of the year given the amount of time left in.
In the second half so we still are.
The same.
As we did with <unk>.
With half or a little less than half of that spend is going to be in content.
Probably about 45% of its in marketing, which might be a little higher than we thought at first.
Given success of Citi snap another doing.
Then the rest is technology in and.
Other costs.
So.
<unk>.
We've probably got 100.
Oh <unk>.
And I have it in the second half and probably around 35.
Or a little more than that in the first half that helps with the pacing.
Yes very helpful. Thank you.
You bet.
Question is with Ashish <unk> from RBC.
<unk> Your line is open.
Hi, I just wanted to focus on the Costar suite product, particularly the <unk> product.
Talked about some pretty good traction there.
Up 66, new clients.
I was just wondering as you with.
With this initial success, how do you think about debt principal market now and.
Yes in terms of like how many clients that are out there and total addressable market. Thanks.
Yes, so I think I mean again, the one of the thing it's 56, new customers most of them in the last quarter and 40. Some in the last quarter great pace. We've got I think 12 to 14 dedicated sales reps on that right now.
The addressable market is.
I'm going to do this from memory.
But it is approximately 6% to 7000 lenders who have portfolios again, we're selling to folks with <unk>.
Very small portfolios and very large portfolios.
And then watching the gross margin these implementations.
Really good.
So.
We believe that the opportunity is well north of $300 million on this product.
It's a wonderful.
Wonderful addition, too.
Our growth drivers because it's all it's all new opportunity.
That's very helpful. Thank you.
Our next question is with Gustavo Galla from Truest Gustaf.
Gustavo Your line is open.
Okay.
Hi, there.
Just wanted to ask on how the roadmap on so.
Just comparing it to the multifamily ramp how traffic is doing this fall along versus how it was doing for multifamily back in the day that will be.
Super helpful. Thanks.
Yes so.
I think it's very similar because.
Back in the day.
We picked up in apartments dot com from classified ventures, a consortium of newspapers.
And we completely re imagined and rebuilt the site over the course of <unk>.
270 days or so this one is a little bit bigger.
Scale project.
But.
<unk> set a strategy you have a talented team both software and field research and content building this out.
And.
Youll really see growth in traffic once you release the product and then once you begin to invest in SCM and then and in brand marketing. So that's going to be the end of this year beginning of next year and so it's very similar but I think.
You and I and everybody are impatient to see.
That story unfolds over the next couple of years.
Yes.
Our next question is with my young Tandon from Needham.
Your line is open.
Thank you good evening, Andy looking at Costar suite as a whole you remind us sort of where the penetration is with brokers and outside the broker world, where you obviously have very strong presence.
Where are you seeing the best opportunities for growth looking out over the medium term.
I think that.
The most exciting well, obviously lenders very exciting several hundred million dollars of opportunity there.
The owner sector remains very exciting to us because it's a huge market.
Is.
It is a later stage penetration market.
Penetration rates, there, probably a third quarter, where the broker market penetration rates are so that one is just the goliath that just as we can keep on working for years, one of the ones that I alluded to briefly in my comments about real estate manager.
Is the top 2000 tenants in the United States.
The major corporations folks, who often are buying real estate manager from us, they're an obvious potential market opportunity for US Corporation with hundreds of facilities. It is a no brainer to have access to Costar group and a good broker.
And then it depresses me a little bit when I look at the penetration rate for brokers, because having been very successful at selling this product for many many years.
We still haven't penetrated all the broker opportunities out there there is still.
Hundreds of millions of potential penetration and brokers. So when you look at.
Mid size smaller brokers and even some.
Not so mid size like the upper mid sized brokers all the major guys do.
Do subscribe and rely on it but there is a penetration opportunity across the board and Scott and I were joking before the call someone's going to ask about can we sustain the growth rates on costar and it really is something where.
Ask that question.
For decades from the point at which we had $7 million in revenue.
Now and one of the things I really look forward to his crossing through $1 billion in Costar revenue and then talking to you guys about the story for $2 billion in Costar revenue and Oh by the way I'm talking to you from London, and we are working hard on beginning and continue to carry Costar Alice throughout.
Europe and other markets and I think there is a super exciting opportunity.
Costar changes its whole, meaning to a lot of compliance where it allows people to see investment opportunities in asset classes across borders so thats a whole another driver.
So.
My answer is yes, I am very excited about growing costar huge numbers for a long long time and we're just beginning.
Was that the question.
Yes, okay.
Okay.
Our next question is with Joe Goodwin from JMP.
Joe Your line is open.
Great. Thank you so much for taking my question.
Just curious Andy.
Or were you thinking about price increases across the Costar suite suite.
Today as well as if you could comment on price increases on apartments Dot com.
Yes tiers.
If your approach to price increases is changing in the current environment at all.
Yes. It is.
A company like ours.
Must be disciplined.
<unk>.
Set our prices in real dollars not nominal dollars and so we are watching that closely with the sales force at renewals.
And we are reminding people of <unk>.
Not just what the nominal dollar increases or what the real dollar realities are so that's very important with apartments, especially with apartments, where our clients are overwhelmingly.
<unk> incredibly well right now.
So we are disciplined on that and you can see that in our results on Costar suite I think we're in a slightly different position, yes, we are.
Pushing our.
Our.
Pricing team to at least remain.
Constant on a real dollar basis, and a little bit more than that and but the real story. There is this.
Upselling activity, we're in the middle of where we're reaching out to these tens of thousands of customers, who subscribe to a small piece of our product either in the modules they get or the geography, they get and we're upgrading them to our full.
All modules global suite, because we want to see network effects grow across borders and as I mentioned, we're seeing that happening we're seeing that.
Tens of millions of searches cross border so.
Costar suite. It is tens of millions of property is being viewed across borders.
In Costar suite, the more powerful driver is this upgrading not not price increasing.
On Loopnet.
Our intent actually don't have to move the pricing because in theory, It's a commission against the asset price inflation in theory would move the asset price up and <unk> is more in a place of.
Sure.
Sure.
Early days of penetration so it's still 1% penetrated in the opportunity on Loopnet, we are focused on.
Variable silver at or base add pricing, which will be a more powerful.
Revenue driver than just price increases so that's the initiative, where we will begin beta ing out on a couple of markets.
Pricing based on the market and on the asset value. So.
That will.
<unk> be a combination of lowering our prices for low value assets.
In smaller markets to drive volume and revenue overall revenue and increasing prices to recognize the value of the higher end assets and bigger markets that will dwarf.
That will dwarf units or just inflation pricing increases. So we're all over it this is not our first rodeo and.
The one thing I learned in my Economics degree was a difference between real and nominal.
Yeah.
Can't remember anything else up.
[laughter] awesome. Thank you so much.
At this time there are no further questions. So as a reminder, it is star one on your telephone keypad.
I think with that we can wind it up I want to congratulate Austin, our moderator on her big news today and.
And thank you all for it.
I'm not going to disclose and I want to.
Thank you all for joining us for the second quarter 'twenty two.
Earnings call and congratulations to all the sales leaders and product folks and developers who and.
And the research teams that basically put in tremendous effort, which delivered such a great quarter. This year and we look forward to this quarter and we look forward to speaking with you again in the third quarter and giving you updates on all of the various initiatives, we've got going on and we will get a new speaker phone in our Washington, boardroom I apologize for that.
But thanks again for joining us.
That concludes today's call. Thank you for your participation you may now disconnect your line.
Yeah.