UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 0-24531

CoStar Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-2091509
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1331 L Street, NW
Washington,	DC	20005

(Address of principal executive offices) (Zip Code)

(202) 346-6500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock ($0.01 par value)	CSGP	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of July 21, 2023, there were 408,336,600 shares of the registrant’s common stock outstanding.

COSTAR GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

	Glossary of Terms	3
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
Signatures		46

2

Glossary of Terms

The following abbreviations or acronyms used in this Quarterly Report on Form 10-Q (this "Report") are defined below:

Abbreviation or Acronym	Definition
2020 Credit Agreement	The second amended and restated credit agreement, which amended and restated in its entirety the then-existing credit agreement originally entered into on April 1, 2014, dated July 1, 2020, as amended by the first amendment to the second amended and restated credit agreement, dated May 8, 2023.
2022 Form 10-K	CoStar Group's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 22, 2023
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Brexit	The June 23, 2016 U.K. referendum in which British citizens approved an exit from the E.U.
Business Immo	The legal entity BIH, a French société par actions simplifiée, the owner and operator of Business Immo, a leading commercial real estate news service provider in France
Business Immo Acquisition	CoStar UK's acquisition of the issued share capital of Business Immo on April 5, 2022
CECL	Current expected credit losses
CoStar Group (also the “Company,” “we,” “us” or “our”)	The legal entity, CoStar Group, Inc., a Delaware corporation, one or more of its consolidated subsidiaries or operating segments, or the entirety of CoStar Group, Inc. and its consolidated subsidiaries
CoStar UK	The legal entity, CoStar UK Limited, a wholly owned subsidiary of CoStar Group
Covenant Suspension Period	A period of time defined in the 2020 Credit Agreement in which we maintain a corporate investment grade rating from any two of Standard & Poor’s Rating Services, Fitch Ratings, Inc. or Moody’s Investors Services, Inc. and no event of default is continuing
CRI	CoStar Realty Information, Inc., a Delaware corporation and wholly owned subsidiary of CoStar Group, Inc.
DSUs	Deferred Stock Units
E.U.	European Union
EBITDA	Net income before interest income or expense, net; other income or expense, net; loss on debt extinguishment; income taxes; depreciation and amortization
ESG	Environmental, Social and Governance
ESPP	Employee Stock Purchase Plan
EURIBOR	Euro Interbank Offered Rate
FASB	Financial Accounting Standards Board
GAAP	Generally accepted accounting principles in the U.S.
GILTI	Global intangible low taxed income inclusion
Halo Merger Sub	Snapped Halo Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of CoStar Realty Information, Inc.
Homes.com	A homes for-sale listings site
Homesnap	Homesnap is an online and mobile software platform that provides residential real estate professionals access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms acquired in the Homesnap Acquisition
Homesnap Acquisition	CRI's acquisition of Homesnap completed on December 22, 2020, pursuant to an Agreement and Plan of Merger dated November 20, 2020 between CRI, Snapped Halo Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of CRI, and Homesnap, Inc., a Delaware corporation. Snapped Halo Merger Sub Corp. was merged with and into Homesnap, Inc., with Homesnap, Inc. surviving the merger as a wholly owned subsidiary of CRI
Land.com Network	Our network of sites featuring rural lands for sale including: LandsofAmerica, LandAndFarm and LandWatch

3

Abbreviation or Acronym	Definition
LIBOR	London Interbank Offered Rate
Matching RSUs	Awards of matching restricted stock units awarded under the Company's Management Stock Purchase Plan
MSPP	Management Stock Purchase Plan
ROU	Right-of-use
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SEM	Search Engine Marketing
Senior Notes	2.800% notes issued by CoStar Group, Inc. due July 15, 2030
SOFR	Secured Overnight Financing Rate
SONIA	Sterling Overnight Index Average
STAR Report	A benchmarking tool used by the hospitality industry to compare a hotel's performance against a set of similar hotels in the same geographical area.
STR	Originally known as "Smith Travel Research", STR is a global data and analytics company that specializes in benchmarking hotel performance and providing market insights to the industry
Ten-X	The legal entity Ten-X Holding Company, Inc. and its directly and indirectly owned subsidiaries
Term SOFR	The forward-looking SOFR term rates administered by CME Group Benchmark Administration Limited
U.K.	The United Kingdom of Great Britain and Northern Ireland
U.S.	The United States of America

4

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues	$	605,906	$	536,308	$	1,190,272	$	1,052,133
Cost of revenues	112,362		100,971		231,558		196,450
Gross profit	493,544		435,337		958,714		855,683
Operating expenses:
Selling and marketing (excluding customer base amortization)	250,026		181,344		476,260		325,341
Software development	63,369		51,587		129,959		105,608
General and administrative	90,563		77,345		180,071		155,306
Customer base amortization	10,440		14,878		21,057		30,970
	414,398		325,154		807,347		617,225
Income from operations	79,146		110,183		151,367		238,458
Interest income (expense), net	51,911		(3,399)		95,459		(11,117)
Other income, net	609		1,343		1,190		2,207
Income before income taxes	131,666		108,127		248,016		229,548
Income tax expense	31,146		24,654		60,365		56,757
Net income	$	100,520	$	83,473	$	187,651	$	172,791
Net income per share - basic	$	0.25	$	0.21	$	0.46	$	0.44
Net income per share - diluted	$	0.25	$	0.21	$	0.46	$	0.44
Weighted-average outstanding shares - basic	405,429		393,342		404,960		393,119
Weighted-average outstanding shares - diluted	406,751		394,478		406,454		394,356

See accompanying notes.

5

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	100,520	$	83,473	$	187,651	$	172,791
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss)	3,377		(17,842)		7,471		(24,198)
Total other comprehensive income (loss), net of tax	3,377		(17,842)		7,471		(24,198)
Total comprehensive income	$	103,897	$	65,631	$	195,122	$	148,593

    

See accompanying notes.

6

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	5,205,295	$	4,967,970
Accounts receivable	196,255		166,140
Less: Allowance for credit losses	(15,042)		(12,195)
Accounts receivable, net	181,213		153,945
Prepaid expenses and other current assets	58,376		63,952
Total current assets	5,444,884		5,185,867
Deferred income taxes, net	9,724		9,722
Property and equipment, net	359,455		321,250
Lease right-of-use assets	79,491		80,392
Goodwill	2,321,205		2,314,759
Intangible assets, net	295,022		329,306
Deferred commission costs, net	162,391		142,482
Deposits and other assets	17,497		16,687
Income tax receivable	2,005		2,005
Total assets	$	8,691,674	$	8,402,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	61,546	$	28,460
Accrued wages and commissions	100,915		104,988
Accrued expenses	115,654		89,113
Income taxes payable	11,100		10,438
Lease liabilities	40,329		36,049
Deferred revenue	113,231		103,567
Total current liabilities	442,775		372,615
Long-term debt, net	989,858		989,210
Deferred income taxes, net	69,280		76,202
Income taxes payable	16,978		14,001
Lease and other long-term liabilities	71,711		80,321
Total liabilities	1,590,602		1,532,349
Total stockholders' equity	7,101,072		6,870,121
Total liabilities and stockholders' equity	$	8,691,674	$	8,402,470

See accompanying notes.

7

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	406,671	$	4,066	$	5,065,511	$	(29,075)	$	1,829,619	$	6,870,121
Net income	—	—		—		—		87,131		87,131
Other comprehensive income	—	—		—		4,094		—		4,094
Exercise of stock options	24	—		500		—		—		500
Restricted stock grants	1,262	13		(13)		—		—		—
Restricted stock grants surrendered	(480)	(5)		(18,642)		—		—		(18,647)
Employee stock purchase plan	79	1		5,810		—		—		5,811
Management stock purchase plan	67	1		(2,985)		—		—		(2,984)
Stock-based compensation expense	—	—		19,583		—		—		19,583
Balance at March 31, 2023	407,623	$	4,076	$	5,069,764	$	(24,981)	$	1,916,750	$	6,965,609
Net income	—	—		—		—		100,520		100,520
Other comprehensive income	—	—		—		3,377		—		3,377
Exercise of stock options	396	4		6,946		—		—		6,950
Restricted stock grants	9	1		(1)		—		—		—
Restricted stock grants surrendered	(67)	(1)		(813)		—		—		(814)
Employee stock purchase plan	50	1		3,889		—		—		3,890
Stock-based compensation expense	—	—		21,540		—		—		21,540
Balance at June 30, 2023	408,011	$	4,081	$	5,101,325	$	(21,604)	$	2,017,270	$	7,101,072

See accompanying notes.

8

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	394,936	$	3,946	$	4,253,318	$	(5,758)	$	1,460,166	$	5,711,672
Net income	—	—		—		—		89,318		89,318
Other comprehensive loss	—	—		—		(6,356)		—		(6,356)
Restricted stock grants	1,277	13		(13)		—		—		—
Restricted stock grants surrendered	(403)	(4)		(19,455)		—		—		(19,459)
Employee stock purchase plan	64	1		4,117		—		—		4,118
Stock-based compensation expense	—	—		18,005		—		—		18,005
Balance at March 31, 2022	395,874	3,956		4,255,972		(12,114)		1,549,484		5,797,298
Net income	—	—		—		—		83,473		83,473
Other comprehensive loss	—	—		—		(17,842)		—		(17,842)
Restricted stock grants	65	1		(1)		—		—		—
Restricted stock grants surrendered	(108)	(1)		(295)		—		—		(296)
Stock-based compensation expense	—	—		17,680		—		—		17,680
Employee stock purchase plan	65	1		4,039		—		—		4,040
Balance at June 30, 2022	395,896	$	3,957	$	4,277,395	$	(29,956)	$	1,632,957	$	5,884,353

See accompanying notes.

9

COSTAR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2023		2022
Operating activities:
Net income	$	187,651	$	172,791
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	51,690		64,127
Amortization of deferred commissions costs	45,267		35,996
Amortization of Senior Notes discount and issuance costs	1,197		1,178
Non-cash lease expense	14,147		15,080
Stock-based compensation expense	41,871		35,959
Deferred income taxes, net	(6,989)		(14,946)
Credit loss expense	13,938		6,890
Other operating activities, net	540		(1,149)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(40,601)		(33,318)
Prepaid expenses and other current assets	(4,220)		3,152
Deferred commissions	(65,028)		(54,155)
Accounts payable and other liabilities	54,422		14,098
Lease liabilities	(16,559)		(15,932)
Income taxes payable, net	12,916		(27,770)
Deferred revenue	8,873		8,520
Other assets	(735)		1,578
Net cash provided by operating activities	298,380		212,099
Investing activities:
Proceeds from sale of property and equipment and other assets	—		5,034
Purchase of Richmond assets	(45,621)		(25,664)
Purchases of property and equipment and other assets	(8,801)		(30,746)
Cash paid for acquisitions, net of cash acquired	—		(6,331)
Net cash used in investing activities	(54,422)		(57,707)
Financing activities:
Repayments of long-term debt assumed in acquisition	—		(2,155)
Repurchase of restricted stock to satisfy tax withholding obligations	(22,445)		(19,755)
Proceeds from exercise of stock options and employee stock purchase plan	16,175		7,340
Net cash used in financing activities	(6,270)		(14,570)
Effect of foreign currency exchange rates on cash and cash equivalents	(363)		(2,832)
Net increase in cash and cash equivalents	237,325		136,990
Cash and cash equivalents at the beginning of period	4,967,970		3,827,126
Cash and cash equivalents at the end of period	$	5,205,295	$	3,964,116
Supplemental cash flow disclosures:
Interest paid	$	15,432	$	14,953
Income taxes paid	$	63,725	$	99,507
Supplemental non-cash investing and financing activities:
Consideration owed for acquisitions	$	—	$	55
Accrued capital expenditures and non-cash landlord incentives	$	8,220	$	9,538

See accompanying notes.

10

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.ORGANIZATION

CoStar Group (the “Company”) provides information, analytics, online marketplaces and auction services to the commercial real estate and related business community through its comprehensive, proprietary database of commercial real estate information and related tools. The Company provides online marketplaces for commercial real estate, apartment rentals, residential real estate, land for sale and businesses for sale, and its services are typically distributed to its clients under subscription-based agreements that typically renew automatically, a majority of which have a term of at least one year. The Company operates within two operating segments, North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America.

The Company acquired Business Immo in April 2022. See Note 5 for further discussion of this acquisition.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating segment.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information. In the opinion of the Company’s management, the financial statements reflect all adjustments, consisting only of a normal recurring nature, necessary to present fairly the Company’s financial position at June 30, 2023 and December 31, 2022, the results of its operations for the three and six months ended June 30, 2023 and 2022, its comprehensive income for the three and six months ended June 30, 2023 and 2022, its changes in stockholders' equity for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Report. Therefore, these financial statements should be read in conjunction with the Company’s 2022 Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for credit losses, the useful lives and recoverability of long-lived and intangible assets, goodwill, income taxes, accounting for business combinations, stock-based compensation, estimating the Company's incremental borrowing rate for its leases and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ from these estimates.

Revenue Recognition

The Company derives revenues primarily by (i) providing access to its proprietary database of commercial real estate information and (ii) providing online marketplaces for professional property management companies, property owners, real estate agents and brokers and landlords, in each case, typically through a fixed monthly fee for its subscription-based services. Other subscription-based services include (i) real estate and lease management solutions to commercial customers, real estate investors and lenders, (ii) access to applications to manage workflow and advertising and marketing services for residential real estate agents, (iii) benchmarking and analytics for the hospitality industry and (iv) market research, portfolio and debt analysis, management and reporting capabilities.

11

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Subscription contract rates are generally based on the number of sites, number of users, organization size, the client’s business focus, geography, the number of properties reported on or analyzed, the number and types of services to which a client subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results. The Company’s subscription-based license agreements typically renew automatically, and a majority have a term of at least one year. Revenues from our subscription-based contracts were approximately 95% and 93% of total revenues for the three months ended June 30, 2023 and 2022, respectively, and 95% and 93% of total revenues for the six months ended June 30, 2023 and 2022, respectively.

The Company also derives revenues from transaction-based services including: (i) an online auction platform for commercial real estate through Ten-X, (ii) providing online tenant applications, including background and credit checks, and rental payment processing and (iii) ancillary products and services that are sold on an ad hoc basis.

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations, and (v) determination of revenue recognition based on timing of satisfaction of the performance obligations.

The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. Revenues from transaction-based services are recognized when the promised product or services are delivered, which, in the case of Ten-X auctions, is at the time of a successful closing for the sale of a property.

In limited circumstances, the Company's contracts with customers include promises to transfer multiple services, such as contracts for its subscription-based services and professional services. For these contracts, the Company accounts for individual performance obligations separately if they are distinct, which involves the determination of the standalone selling price for each distinct performance obligation.

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of the Company's fulfillment of its performance obligation(s) and is recognized as those obligations are satisfied.

Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Contract assets are generated when contractual billing schedules differ from revenue recognition timing.

Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions incurred for obtaining new contracts are deferred and then amortized as selling and marketing expenses on a straight-line basis over a period of benefit that the Company has determined to be three years. The three-year amortization period was determined based on several factors, including the nature of the technology and proprietary data underlying the services being purchased, customer contract renewal rates and industry competition. Sales commissions that do not represent incremental costs of obtaining a contract, or that would otherwise be amortized over a period of one year or less, are not subject to capitalization.

See Note 3 for further discussion of the Company's revenue recognition.

Cost of Revenues

Cost of revenues principally consists of salaries, benefits, bonuses, stock-based compensation expenses and other indirect costs for the Company's researchers who collect and analyze the real estate data that is the basis for the Company's information, analytics and online marketplaces and for employees that support these products. Additionally, cost of revenues includes the cost of data from third-party data sources, product hosting costs and costs related to advertising purchased on behalf of customers, credit card and other transaction fees relating to processing customer transactions, which are expensed as incurred, and the amortization of acquired trade names, technology and certain other intangible assets.

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency for the majority of its operations is the local currency, with the exception of certain international locations for which the functional currency is the British Pound. Assets and

12

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

liabilities denominated in a foreign currency are translated into U.S. dollars using the exchange rates in effect as of the balance sheet date. Gains and losses resulting from translation are included in accumulated other comprehensive loss. Currency gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included in accumulated other comprehensive loss. Gains and losses resulting from transactions denominated in a currency other than the functional currency of the entity are included in other income, net in the condensed consolidated statements of operations using the average exchange rates in effect during the period. The Company recognized a net foreign currency loss of $0.4 million for the three months ended June 30, 2023 and a net foreign currency gain of $0.9 million for the three months ended June 30, 2022. The Company recognized a net foreign currency loss of $0.8 million for the six months ended June 30, 2023 and a net foreign currency gain of $1.3 million for the six months ended June 30, 2022.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):

	June 30, 2023		December 31, 2022
Foreign currency translation loss	$	(21,604)	$	(29,075)
Total accumulated other comprehensive loss	$	(21,604)	$	(29,075)

There were no amounts reclassified out of accumulated other comprehensive loss to the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs include SEM, other digital marketing, television, radio, print and other media advertising. Advertising costs were $141 million and $92 million for the three months ended June 30, 2023 and 2022, respectively, and $253 million and $146 million for the six months ended June 30, 2023 and 2022, respectively.

Income Taxes

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported in the Company’s condensed consolidated financial statements. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted rates in effect during the year in which the Company expects differences to reverse. Valuation allowances are provided against assets, including net operating losses, if the Company determines it is more likely than not that some portion or all of an asset may not be realized. Interest and penalties related to income tax matters are recognized in income tax expense.

The Company has elected to record the GILTI under the current-period cost method.

See Note 11 for further discussion of income taxes.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period on a basic and diluted basis.

13

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
Numerator:	2023		2022		2023		2022
Net income	$	100,520	$	83,473	$	187,651	$	172,791
Denominator:
Denominator for basic net income per share — weighted-average outstanding shares	405,429		393,342		404,960		393,119
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units	1,322		1,136		1,494		1,237
Denominator for diluted net income per share — weighted-average outstanding shares	406,751		394,478		406,454		394,356
Net income per share — basic	$	0.25	$	0.21	$	0.46	$	0.44
Net income per share — diluted	$	0.25	$	0.21	$	0.46	$	0.44

The Company’s potentially dilutive securities include outstanding stock options, unvested stock-based awards, which include restricted stock awards that vest over a specific service period, restricted stock awards with a performance and market condition, restricted stock units and Matching RSUs awarded under the Company's MSPP. Shares underlying unvested restricted stock awards that vest based on a performance and a market condition that have not been achieved as of the end of the period are not included in the computation of basic or diluted earnings per share. Diluted net income per share considers the impact of potentially dilutive securities except when the inclusion of the potentially dilutive securities would have an anti-dilutive effect.

The following table summarizes the shares underlying the unvested performance-based restricted stock and anti-dilutive securities excluded from the basic and diluted earnings per share calculations (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Performance-based restricted stock awards	681	621	681	621
Anti-dilutive securities	502	1,620	1,082	1,342

Stock-Based Compensation

Equity instruments issued in exchange for services performed by officers, employees, and directors of the Company are accounted for using a fair-value based method and the fair value of such equity instruments is recognized as expense in the condensed consolidated statements of operations.

For stock-based awards that vest over a specific service period, compensation expense is measured based on the fair value of the awards at the grant date and is recognized on a straight-line basis over the service period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of both a performance and market condition, stock-based compensation expense is recognized over the service period of the awards based on the expected achievement of the related performance conditions at the end of each reporting period. If the Company's initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized, and any previously recognized stock-based compensation expense will be reversed. For awards with both a performance and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards, which includes the recent market price and volatility of the Company's shares. When

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

determining the grant date fair value of all stock-based awards, the Company considers whether it is in possession of any material, non-public information that upon its release would have a material effect on its share price, and if so, whether the observable share price or expected volatility assumptions used in determining the fair value of the awards should be adjusted.

Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, stock purchases under the ESPP, DSUs and Matching RSUs awarded under the MSPP included in the Company’s condensed consolidated statements of operations were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	3,522	$	2,991	$	6,905	$	5,961
Selling and marketing (excluding customer base amortization)	2,375		1,985		4,589		3,648
Software development	4,335		2,998		8,361		6,104
General and administrative	11,594		10,138		22,016		20,246
Total stock-based compensation expense	$	21,826	$	18,112	$	41,871	$	35,959

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no restricted cash as of June 30, 2023 and December 31, 2022.

Allowance for Credit Losses

The Company maintains an allowance for credit losses to cover its current expected credit losses on its trade receivables and contract assets arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables and contract assets based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables and historical write-off trends. Based on the Company’s experience, the customer's delinquency status, which is analyzed periodically, is the strongest indicator of the credit quality of the underlying trade receivables. The Company’s policy is to write off trade receivables when they are deemed uncollectible. A majority of the Company's trade receivables are less than 365 days outstanding.

Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on five portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of the Company’s business operations and the characteristics of the underlying trade receivables, as follows:

•CoStar Portfolio Segment - The CoStar portfolio segment consists of two classes of trade receivables based on geographical location: North America and International.

•Information Services Portfolio Segment - The Information Services portfolio segment consists of four classes of trade receivables: CoStar Real Estate Manager; Information Services, North America; STR, North America; and STR, International.

•Multifamily Portfolio Segment - The Multifamily portfolio segment consists of one class of trade receivables.

•LoopNet Portfolio Segment - The LoopNet portfolio segment consists of one class of trade receivables.

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

•Other Marketplaces Portfolio Segment - The Other Marketplaces portfolio segment consists of two classes of trade receivables: Ten-X and other marketplaces.

The majority of Residential revenues is e-commerce-based, where payments are collected at the time of sale, and does not result in accounts receivable. Residential accounts receivable and the related allowance for credit losses are not material.

See Note 4 for further discussion of the Company’s accounting for allowance for credit losses.

Leases

The determination of whether an arrangement contains a lease and the classification of a lease, if applicable, is made at the commencement of the arrangement, at which time the Company also measures and recognizes an ROU asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. For the purposes of recognizing ROU assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient to not recognize a ROU asset or lease liability for short-term leases, which are leases with a term of twelve months or less. The lease term is defined as the noncancelable portion of the lease term, plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised.

In determining the amount of lease payments used in measuring ROU assets and lease liabilities, the Company has elected the practical expedient not to separate non-lease components from lease components for all classes of underlying assets. Consideration deemed part of the lease payments used to measure ROU assets and lease liabilities generally includes fixed payments and variable payments based on either an index or a rate, offset by lease incentives. Upon commencement, the initial ROU asset also includes any lease prepayments. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The rates implicit within the Company's leases are generally not determinable. Therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment and is determined at lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

Lease costs related to the Company's operating leases are generally recognized as a single ratable lease cost over the lease term.

See Note 7 for further discussion of the Company’s accounting for leases.

Long-Lived Assets, Intangible Assets and Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company removes the cost and accumulated amortization of intangible assets as they become fully amortized.

Goodwill is tested annually for impairment by each reporting unit on October 1 of each year or more frequently if an event or other circumstance indicates that the Company may not recover the carrying value of the asset. The Company may first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or elect to bypass such assessment. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or the Company elects to bypass such assessment, the Company then determines the fair value of each reporting unit. The fair value of each reporting unit is compared to the carrying amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference.

Debt Issuance Costs

Costs incurred in connection with the issuance of long-term debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method for term debt and on a straight-line basis for revolving debt. The Company made a policy election to classify deferred issuance costs on the revolving credit facility as a long-term asset on its condensed consolidated balance sheets. Upon a refinancing or amendment, previously capitalized debt issuance costs are

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification of the related debt. If the Company determines that there has not been a substantial modification of the related debt, any previously capitalized debt issuance costs are amortized as interest expense over the term of the new debt instrument.

See Note 10 for further discussion of the Company's accounting for its outstanding debt, revolving credit facility and related issuance costs.

Business Combinations

The Company generally allocates the purchase consideration to the tangible assets acquired and liabilities assumed and intangible assets acquired based on their estimated fair values. The purchase price is, generally, determined based on the fair value of the assets transferred, liabilities assumed and equity interests issued, after considering any transactions that are separate from the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. The Company applies significant assumptions, estimates and judgments in determining the fair value of assets acquired and liabilities assumed on the acquisition date, especially with respect to intangible assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired technology and acquired trade names, useful lives, royalty rates and discount rates. Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax-related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been assumed at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in the Company's estimates of such contingencies will affect earnings and could have a material effect on its results of operations and financial position.

In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items based upon facts and circumstances that existed as of the acquisition date with any adjustments to its preliminary estimates being recorded to goodwill, provided that the Company is within the measurement period. Subsequent to the measurement period, changes to these uncertain tax positions and tax-related valuation allowances will affect the Company's provision for income taxes in its condensed consolidated statements of operations and comprehensive income and could have a material impact on its results of operations and financial position.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to debt, contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied to all contracts that are accounted for under a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level. Originally, the guidance was effective for fiscal years beginning after January 1, 2021, including interim periods within those fiscal years. However, in response to the deferral of the cessation date for certain overnight LIBOR measures, the FASB issued ASU 2022-06 on December 21, 2022, which extends the sunset date of Topic 848 to December 31, 2024. The Company's 2020 Credit Agreement provides for a $750 million revolving credit facility and a letter of credit sublimit of $20 million, with interest rates previously benchmarked to LIBOR. The Company adopted this accounting pronouncement with the execution of the First Amendment to the 2020 Credit Agreement in May 2023. See Note 10 for further discussion of the Company's accounting for its outstanding debt, revolving credit facility and related issuance costs. This guidance provides an optional practical expedient that allows qualifying modifications to be

17

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

accounted for as a debt modifications rather than be analyzed under existing guidance to determine if the modification should be accounted for as a debt extinguishment. In adopting this accounting standard, we have elected to apply this optional expedient. Adopting this accounting standard did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

3.REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

The Company provides information, analytics and online marketplaces to the commercial real estate industry, hospitality industry, residential industry and related professionals. Revenues by operating segment and type of service consist of the following (in thousands):

	Three Months Ended June 30,
	2023						2022
	North America		International		Total		North America		International		Total
CoStar	$	219,573	$	9,596	$	229,169	$	197,380	$	9,186	$	206,566
Information Services	32,213		9,708		41,921		30,511		7,991		38,502
Multifamily	224,291		—		224,291		182,359		—		182,359
LoopNet	63,268		2,295		65,563		54,603		1,694		56,297
Residential	12,708		—		12,708		20,154		—		20,154
Other Marketplaces	32,254		—		32,254		32,430		—		32,430
Total revenues	$	584,307	$	21,599	$	605,906	$	517,437	$	18,871	$	536,308

	Six Months Ended June 30,
	2023						2022
	North America		International		Total		North America		International		Total
CoStar	$	435,386	$	18,796	$	454,182	$	386,484	$	18,731	$	405,215
Information Services	64,313		19,237		83,550		60,782		14,935		75,717
Multifamily	434,988		—		434,988		357,836		—		357,836
LoopNet	124,447		4,353		128,800		107,291		3,453		110,744
Residential	25,861		—		25,861		38,214		—		38,214
Other Marketplaces	62,891		—		62,891		64,407		—		64,407
Total revenues	$	1,147,886	$	42,386	$	1,190,272	$	1,015,014	$	37,119	$	1,052,133

Deferred Revenue

Deferred revenue as of June 30, 2023 and December 31, 2022 were as follows (in thousands):

Balance	Balance Sheet Caption	June 30, 2023		December 31, 2022
Current portion	Deferred revenue	$	113,231	$	103,567
Non-current portion	Lease and other long-term liabilities	227		215
Total deferred revenue		$	113,458	$	103,782

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Changes in deferred revenue for the period were as follows (in thousands):

Balance at December 31, 2022	$	103,782
Revenues recognized in the current period from the amounts in the beginning balance	(82,503)
New deferrals, net of amounts recognized in the current period	91,376
Effects of foreign currency	803
Balance at June 30, 2023	$	113,458

Contract Assets

Contract assets are generated when contractual billing schedules differ from revenue recognition timing and represent a conditional right to consideration for satisfied performance obligations that becomes a receivable when the conditions are satisfied. Contract assets as of June 30, 2023 and December 31, 2022 were as follows (in thousands):

Balance	Balance Sheet Caption	June 30, 2023		December 31, 2022
Current portion	Prepaid expenses and other current assets	$	4,786	$	3,953
Non-current portion	Deposits and other assets	8,541		8,464
Total contract assets		$	13,327	$	12,417

Revenues recognized from contract assets for the three and six months ended June 30, 2023 were $0.4 million and $0.9 million, respectively. Revenues recognized from contract assets for the three and six months ended June 30, 2022 were negligible.

Unsatisfied Performance Obligations

Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations was approximately $406 million at June 30, 2023, which the Company expects to recognize over the next five years. This amount does not include contract consideration for contracts with a duration of one year or less.

Commissions

Commissions expense is included in selling and marketing expense in the Company's condensed consolidated statements of operations. Commissions expense activity for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Commissions incurred	$	46,718	$	38,423	$	92,331	$	75,238
Commissions capitalized in the current period	(32,747)		(28,326)		(65,028)		(54,155)
Amortization of deferred commissions costs	23,378		18,413		45,267		35,996
Total commissions expense	$	37,349	$	28,510	$	72,570	$	57,079

The Company determined that no deferred commissions were impaired as of June 30, 2023 and 2022.

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4.ALLOWANCE FOR CREDIT LOSSES

The following tables detail the activity related to the allowance for credit losses for trade receivables by portfolio segment (in thousands):

	Six Months Ended June 30, 2023
	CoStar		Information Services		Multifamily		LoopNet		Other Marketplaces		Total
Beginning balance at December 31, 2022	$	4,510	$	1,051	$	4,347	$	1,396	$	891	$	12,195
Current-period provision (release) for expected credit losses	8,781		504		2,092		2,603		(42)		13,938
Write-offs charged against the allowance, net of recoveries and other	(8,072)		(104)		(910)		(2,005)		—		(11,091)
Ending balance at June 30, 2023	$	5,219	$	1,451	$	5,529	$	1,994	$	849	$	15,042

	Six Months Ended June 30, 2022
	CoStar		Information Services		Multifamily		LoopNet		Other Marketplaces		Total
Beginning balance at December 31, 2021	$	5,380	$	1,820	$	3,393	$	1,968	$	813	$	13,374
Current-period provision (release) for expected credit losses	3,422		(1,063)		2,676		1,805		50		6,890
Write-offs charged against the allowance, net of recoveries and other	(4,708)		9		(2,849)		(3,078)		—		(10,626)
Ending balance at June 30, 2022	$	4,094	$	766	$	3,220	$	695	$	863	$	9,638

Credit loss expense is included in general and administrative expenses on the condensed consolidated statements of operations. Credit loss expense related to contract assets was not material for the six months ended June 30, 2023 and 2022. The majority of the Residential portfolio segment revenue is e-commerce-based and does not result in accounts receivable.

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5.ACQUISITIONS

Business Immo

In April 2022, the Company acquired Business Immo, a leading commercial real estate news service provider in France, for €5.8 million ($6.3 million), net of cash acquired, and the assumption of outstanding debt. As part of the Business Immo Acquisition, the Company recorded goodwill and intangible assets of $7.1 million and $3.9 million, respectively. The net assets of Business Immo were recorded at their estimated fair value. The Company retired the assumed debt in the second quarter of 2022. The impact of the Business Immo Acquisition on the Company's revenue and net income in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and related pro forma financial information was not material.

6.INVESTMENTS AND FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2023 and December 31, 2022, the Company's financial assets comprise Level 1 cash equivalents with original maturities of three months or less in the amount of $5.0 billion and $4.8 billion, respectively. The Company had no Level 2 or Level 3 financial assets measured at fair value.

The Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, accrued expenses and Senior Notes. The carrying value for such financial instruments, other than the Senior Notes, each approximated their fair values as of June 30, 2023 and December 31, 2022. The estimated fair value of the Company's outstanding Senior Notes using quoted prices from the over-the-counter markets, considered Level 2 inputs, was $0.8 billion as of June 30, 2023 and December 31, 2022.

7.LEASES

The Company has operating leases for its office facilities, data centers, and certain vehicles, as well as finance leases for office equipment. The Company's leases have remaining terms of less than one year to nine years. The leases contain various renewal and termination options. The period that is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. The period that is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised.

Lease costs related to the Company's operating leases included in the condensed consolidated statements of operations were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Operating lease costs:	2023		2022		2023		2022
Cost of revenues	$	2,401	$	1,725	$	4,445	$	4,278
Software development	1,482		1,345		3,015		3,129
Selling and marketing (excluding customer base amortization)	3,928		1,931		7,480		4,941
General and administrative	945		4,258		2,030		5,911
Total operating lease costs	$	8,756	$	9,259	16,970		$	18,259

The impact of lease costs related to finance leases and short-term leases was not material for the three and six months ended June 30, 2023 and 2022.

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Supplemental balance sheet information related to operating leases was as follows (in thousands):

Balance	Balance Sheet Location	June 30, 2023			December 31, 2022
Operating lease liabilities		$	115,945		$	118,294
Less: imputed interest		(7,091)			(6,238)
Present value of lease liabilities		108,854			112,056
Less: current portion of lease liabilities	Lease liabilities	40,329			36,049
Long-term lease liabilities	Lease and other long-term liabilities	$	68,525		$	76,007
Weighted-average remaining lease term in years		3.8			3.6
Weighted-average discount rate		3.3		%	3.1		%

Balance sheet information related to finance leases was not material as of June 30, 2023 and December 31, 2022.

Supplemental cash flow information related to leases was as follows (in thousands):

	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	19,382	$	19,111
ROU assets obtained in exchange for lease obligations:
Operating leases	$	10,496	$	13,917

8.GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):

	North America		International		Total
Goodwill, December 31, 2021	$	2,145,846	$	175,169	$	2,321,015
Acquisitions, including measurement period adjustments(1)	3,401		7,095		10,496
Effect of foreign currency translation	—		(16,752)		(16,752)
Goodwill, December 31, 2022	2,149,247		165,512		2,314,759
Effect of foreign currency translation	—		6,446		6,446
Goodwill, June 30, 2023	$	2,149,247	$	171,958	$	2,321,205
__________________________

(1) North America goodwill recorded during the year ended December 31, 2022 relates to a measurement period adjustment for income taxes for Homes.com of $3.4 million. International goodwill recorded in connection with the Business Immo Acquisition was $7.1 million.

No impairments of the Company's goodwill were recognized during the three and six months ended June 30, 2023 and 2022.

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COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

9.    INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands, except amortization period data):

	June 30, 2023		December 31, 2022		Weighted- Average Amortization Period (in years)
Acquired technology and data	$	40,202	$	40,422	5
Accumulated amortization	(24,270)		(20,693)
Acquired technology and data, net	15,932		19,729
Acquired customer base	466,403		464,242		10
Accumulated amortization	(309,209)		(287,051)
Acquired customer base, net	157,194		177,191
Acquired trade names and other intangible assets	247,907		247,361		13
Accumulated amortization	(126,011)		(114,975)
Acquired trade names and other intangible assets, net	121,896		132,386
Intangible assets, net	$	295,022	$	329,306

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. No impairments of the Company's intangible assets were recognized during the six months ended June 30, 2023 and 2022. During the six months ended June 30, 2023, the Company removed $0.5 million of intangible assets that were fully amortized from the acquired intangible assets and accumulated amortization, which had no net impact on the Company's financial results.

10.LONG-TERM DEBT

The table below presents the components of outstanding debt (in thousands):

	June 30, 2023		December 31, 2022
2.800% Senior Notes due July 15, 2030	$	1,000,000	$	1,000,000
2020 Credit Agreement, due July 1, 2025	—		—
Total face amount of long-term debt	1,000,000		1,000,000
Senior Notes unamortized discount and issuance costs	(10,142)		(10,790)
Long-term debt, net	$	989,858	$	989,210

Senior Notes

On July 1, 2020, the Company issued $1.0 billion aggregate principal amount of 2.800% Senior Notes due July 15, 2030. The Senior Notes were sold to a group of financial institutions as initial purchasers who subsequently resold the Senior Notes to non-U.S. persons pursuant to Regulation S under the Securities Act, and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 99.921% of their principal amount. Interest on the Senior Notes is payable semi-annually in arrears on January 15 and July 15. The Senior Notes may be redeemed in whole or in part by the Company (a) at any time prior to April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus the Applicable Premium (as calculated in accordance with the indenture governing the Senior Notes), and any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to, but excluding, the redemption date, and (b) on or after April 15, 2030 at a redemption price equal to 100% of the principal amount of the Senior Notes, plus any accrued and unpaid interest, if any, on the principal amount of Senior Notes being redeemed to,

23

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

but excluding, the redemption date. The Company’s obligations under the Senior Notes are guaranteed on a senior, unsecured basis by the Company’s domestic wholly owned subsidiaries, and the indenture governing the Senior Notes contains covenants, events of default and other customary provisions with which the Company was in compliance as of June 30, 2023.

Revolving Credit Facility

On July 1, 2020, the Company entered into the 2020 Credit Agreement, which provides for a $750 million revolving credit facility with a term of five years (maturing July 1, 2025) and a letter of credit sublimit of $20 million from a syndicate of financial institutions as lenders and issuing banks. A commitment fee of 0.25% to 0.30% per annum, depending on the Total Leverage Ratio (defined in 2020 Credit Agreement), is payable quarterly in arrears based on the unused revolving commitment. The Company and the syndicate of lenders and issuing banks entered into the First Amendment of the 2020 Credit Agreement in May 2023, which replaced LIBOR as the reference rate with Term SOFR for U.S. dollar denominated borrowings, SONIA rates for Sterling denominated borrowings and EURIBOR for Euro denominated borrowings.

Borrowings under the 2020 Credit Agreement can be on a revolving basis or term basis, not to exceed the remaining term of the facility, and denominated in U.S. dollars, sterling, euros or other allowed currency at the Company's option, subject to a limit of $250 million U.S. dollar equivalent for non-U.S. dollar denominated borrowings. Borrowings bear interest at a floating rate which can be, at the Company’s option, either (a) an alternate base rate plus an applicable rate ranging from 0.50% to 1.25% or (b) a Term SOFR, SONIA rate or EURIBOR (with a floor of 0.0%) for the specified interest period plus an applicable rate ranging from 1.50% to 2.25%, in each case depending on the Company's Total Leverage Ratio (as defined in the 2020 Credit Agreement). Any borrowing with a Term SOFR reference rate includes an additional 0.10% credit spread adjustment.

Funds drawn down on the revolving credit facility pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate purposes of the Company and its restricted subsidiaries. The obligations under the 2020 Credit Agreement are guaranteed by each of the Company’s current and future direct or indirect wholly owned restricted domestic subsidiaries, other than certain excluded subsidiaries, in each case subject to certain exceptions, pursuant to guarantee agreements.

Subject to certain conditions, on no more than five occasions, the Company may request increases in the amount of revolving commitments and/or the establishment of term commitments under the 2020 Credit Agreement.

The 2020 Credit Agreement includes covenants, including ones that, subject to certain exceptions, restrict the ability of the Company and its subsidiaries to (i) merge and consolidate with other companies, (ii) incur indebtedness, (iii) grant liens or security interests on assets, (iv) make investments, acquisitions, loans or advances, (v) pay dividends and (vi) sell or otherwise transfer assets. As of June 30, 2023, the Company is in a Covenant Suspension Period. During any Covenant Suspension Period, the Company will not be subject to certain of these covenants such as restrictions on the ability to incur indebtedness. The 2020 Credit Agreement also requires the Company to maintain a Total Leverage Ratio (as defined in the 2020 Credit Agreement) not exceeding 4.50 to 1.00. The Company was in compliance with the covenants in the 2020 Credit Agreement as of June 30, 2023.

As of June 30, 2023, the Company had no amounts drawn under this facility.

The Company had $2.2 million and $2.7 million of deferred debt issuance costs as of June 30, 2023 and December 31, 2022, respectively, in connection with the 2020 Credit Agreement. These amounts are included in deposits and other assets on the Company's condensed consolidated balance sheets.

The Company recognized interest expense as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest on outstanding borrowings	$	7,000	$	7,000	$	14,000	$	14,000
Amortization of Senior Notes discount and issuance costs	600		590		1,197		1,178
Commitment fees and other	475		484		1,433		955
Total interest expense	$	8,075	$	8,074	$	16,630	$	16,133

24

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

11.INCOME TAXES

The income tax provision reflects an effective tax rate of approximately 24% and 23% for the three months ended June 30, 2023 and 2022, respectively, and 24% and 25% for the six months ended June 30, 2023 and 2022, respectively. The increase in the effective tax rate for the three months ended June 30, 2023 was primarily due to higher income before income taxes for the three months ended June 30, 2023. The decrease in the effective tax rate for the six months ended June 30, 2023 was primarily due to an increase in excess tax benefits for the six months ended June 30, 2023.

12.COMMITMENTS AND CONTINGENCIES

The following summarizes the Company's significant contractual obligations, including related payments due by period, as of June 30, 2023 (in thousands):

Year Ending December 31,	Operating lease obligations		Long-term debt principal payments		Long-term interest payments
Remainder of 2023	$	21,907	$	—	$	14,000
2024	39,989		—		28,000
2025	21,457		—		28,000
2026	11,273		—		28,000
2027	9,403		—		28,000
Thereafter	11,916		1,000,000		84,000
Total	$	115,945	$	1,000,000	$	210,000

The Company leases office facilities under various non-cancelable operating leases. The leases contain various renewal options.

See Note 7 for further discussion of the Company's operating lease commitments.

Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is reasonably possible that an unfavorable outcome may occur as a result of one or more of the Company’s current litigation matters, at this time, management has concluded that the resolutions of these matters are not expected to have a material effect on the Company's consolidated financial position, future results of operations or liquidity. Legal defense costs are expensed as incurred.

13.SEGMENT REPORTING

Segment Information

The Company manages its business geographically in two operating segments, with the primary areas of measurement and decision-making being North America, which includes the U.S. and Canada, and International, which primarily includes Europe, Asia-Pacific and Latin America. Management relies on an internal management reporting process that provides revenue and operating segment EBITDA. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of the Company’s operating segments. EBITDA is used by management to internally measure operating and management performance, and to evaluate the performance of the business. However, this measure should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

25

COSTAR GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Summarized EBITDA information by operating segment consists of the following (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
North America	$	104,614	$	138,527	$	201,270	$	294,489
International	595		1,481		1,787		3,949
Total EBITDA	$	105,209	$	140,008	$	203,057	$	298,438

The reconciliation of net income to EBITDA consists of the following (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	100,520	$	83,473	$	187,651	$	172,791
Amortization of acquired intangible assets in cost of revenues	7,536		7,937		14,600		15,035
Amortization of acquired intangible assets in operating expenses	10,440		14,878		21,057		30,970
Depreciation and other amortization	8,087		7,010		16,033		13,975
Interest (income) expense, net	(51,911)		3,399		(95,459)		11,117
Other income, net	(609)		(1,343)		(1,190)		(2,207)
Income tax expense	31,146		24,654		60,365		56,757
EBITDA	$	105,209	$	140,008	$	203,057	$