COSTAR GROUP, INC. (CSGP)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those stated above in under the heading “Cautionary Statement Concerning Forward-Looking Statements” and in Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the SEC.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update such statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other filings with the SEC, and the consolidated financial statements and related notes included in Part IV of this Report.

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Overview

Our principal online marketplace services, information, and analytics are described in the following paragraphs by type of service:

CoStar

CoStar is our subscription-based integrated platform for commercial real estate intelligence, which includes information about commercial real estate properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news and market status and provides benchmarking for the hospitality industry, lease analytical capabilities, and risk management capabilities for lenders. We expect CoStar's revenue growth rate for the year ending December 31, 2025 to decelerate compared to the revenue growth rate for the year ended December 31, 2024 primarily due to a lack of benefit from converting legacy STR customers to our new CoStar-based benchmarking product realized in 2024.

Information Services

We provide real estate and lease management technology solutions, including lease administration, lease accounting, transaction management, and professional services through our CoStar Real Estate Manager and Visual Lease service offerings. We also provide data and reports on an ad hoc basis to customers in the hospitality industry. We expect Information Services' revenue growth rate for the year ending December 31, 2025 to accelerate compared to the revenue growth rate for the year ended December 31, 2024 as a result of the Visual Lease Acquisition.

Multifamily

Apartments.com is the flagship brand of our apartment marketing network of subscription-based advertising services and provides property management companies and landlords with a comprehensive advertising destination for their available rental units. In addition, it offers renters a platform for searching for available rentals and earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. We expect Multifamily's revenue growth rate for the year ending December 31, 2025 to moderate compared to the revenue growth rate for the year ended December 31, 2024, due to the impact in 2025 of pivoting the Apartments.com sales force to support the Homes.com product launch in 2024.

LoopNet

Our LoopNet Network of commercial real estate websites offer subscription-based, online marketplace services that enable commercial property owners, landlords, and real estate agents working on their behalf to advertise properties for sale or for lease. Commercial real estate agents, buyers, and tenants use the LoopNet Network of online marketplace services to search for available property listings that meet their criteria. We expect LoopNet's revenue growth rate for the year ending December 31, 2025 to be consistent with the revenue growth rate for the year ended December 31, 2024.

Residential

Homes.com offers real estate agents subscription memberships promoting the agent's home listings and profile on our websites. Homebuyers and real estate agents use Homes.com to find dream homes using our proprietary research and neighborhood content combined with listing information. OnTheMarket is a property portal in the U.K., which primarily hosts agents' listings on a subscription basis. We expect Residential's revenues for the year ending December 31, 2025 to increase, but at a slower rate, compared to the year ended December 31, 2024 due to additional sales of our Homes.com memberships.

Other Marketplaces

Our other marketplaces include Ten-X, an online auction platform for commercial real estate, our Land.com Network, and our BizBuySell Network. The Land.com Network provides online marketplaces for rural lands for sale and BizBuySell Network provides online marketplaces for businesses and franchises for sale. We expect Other Marketplaces' revenues for the year ending December 31, 2025 to increase compared to the revenues for the year ended December 31, 2024 due to increased revenues from our Land.com and BizBuySell Networks.

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Subscription-based Services

The majority of our revenue is generated from service offerings that are distributed to our customers under subscription-based agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the years ended December 31, 2024, 2023, and 2022, our annualized net new bookings of subscription-based services on all contracts were approximately $250 million, $286 million, and $305 million, respectively. Net new bookings is calculated based on the annualized amount of change in the Company's sales bookings resulting from new subscription-based contracts, changes to existing subscription-based contracts, and cancellations of subscription-based contracts for the period reported. Net new bookings is calculated on all subscription-based contracts without regard to contract term. Net new bookings is considered an operating metric that is an indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. We generally see higher net new bookings of Apartments.com listing services during the peak summer rental season and higher CoStar net new bookings towards the end of the year; however, sales fluctuate from year-to-year and revenue is not generally seasonal because our services are typically sold on a subscription basis. Revenues from our subscription-based contracts were approximately 96%, 95%, and 93% of total revenues for the years ended December 31, 2024, 2023, and 2022, respectively. The increase in the percentage of our revenues from subscription-based contracts from 2023 to 2024 was due to increased sales in our Multifamily products.

For the trailing 12 months ended December 31, 2024, 2023, and 2022, our contract renewal rates for subscription-based services for contracts with a term of at least one year were approximately 89%, 90%, and 90%, respectively; and, therefore, our cancellation rates for those services for the same periods were approximately 11%, 10%, and 10%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing 12-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending, or decreases in our customer base. Revenues from our subscription-based contracts with a term of at least one year were approximately 81%, 82%, and 80% of total revenues for the trailing 12 months ended December 31, 2024, 2023, and 2022, respectively. The decrease in the percentage of our revenue from subscription-based contracts with a term of at least one year from 2023 to 2024 was primarily due to increases in sales of shorter-term Multifamily products.

Development, Investments, and Expansion

We plan to continue to invest in our business and our services, evaluate strategic growth opportunities, and pursue our key priorities as described below. We are committed to supporting, improving, and enhancing our online marketplace solutions, information, and analytics, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants, and residential renters and buyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions, and expand and develop supporting technologies for our research, sales, and marketing organizations. We may reevaluate our priorities as economic conditions continue to evolve.

Our key priorities for 2025 currently include:

•Continuing to invest in and develop Homes.com. In 2024, we launched Homes.com memberships giving real estate agents the ability to advertise and promote their listings on our website featuring original, media rich content. In 2025, we plan to continue hiring our dedicated Homes.com sales force. We plan to continue to raise unaided brand awareness of the site through targeted marketing campaigns and to continue to focus on attracting recurring visitors to the site. In addition, we plan to develop and market additional products.

•Continuing to expand our CoStar and LoopNet products internationally. We continue to increase our international research team to collect data in European markets. We plan to launch our LoopNet brand in France and Spain and continue to expand our footprint of commercial listings.

•Using the aggregate and anonymized data from leases within CoStar Real Estate Manager and Visual Lease to create a trusted source of pricing and occupancy information for Commercial Real Estate. We also plan to begin the integration of the CoStar Real Estate Manager and Visual Lease products.

We expect our investment in the sales force will increase our selling and marketing expenses for the year ending December 31, 2025 compared to the year ended December 31, 2024. We intend to continue to assess the need for additional investments in

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our business in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services, or elimination of services or corporate expansion, development, or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings, or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

For further discussion of our Company, strategy, and products, see our business overview set forth in "Item 1. Business" in this Report.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls, and filings with the SEC. The non-GAAP financial measures that we may disclose include EBITDA, adjusted EBITDA, and adjusted EBITDA margin. EBITDA is our net income before interest income or expense, net, other expense or income, net, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls, and filings with the SEC. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period.

We may disclose adjusted EBITDA and adjusted EBITDA margin on a consolidated basis in our earnings releases, investor conference calls, and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, and adjusted EBITDA margin as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA and adjusted EBITDA is net income. We believe the most directly comparable GAAP financial measure to adjusted EBITDA margin is net income divided by revenue. In calculating EBITDA, adjusted EBITDA, and adjusted EBITDA margin we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, and adjusted EBITDA margin are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income, or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, and adjusted EBITDA margin as a substitute for any GAAP financial measure. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, and adjusted EBITDA margin.

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EBITDA, adjusted EBITDA, and adjusted EBITDA margin may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs, and loss on debt extinguishment. Adjusted EBITDA and adjusted EBITDA margin exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and compare our performance from quarter-to-quarter and from year-to-year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest income or expense, net, other expense or income, net, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment, and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on EBITDA and may rely on adjusted EBITDA and adjusted EBITDA margin to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of interest income or expense, net and other expense or income, net we generate and incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest income or expense, net and other expense or income, net to be a representative component of the day-to-day operating performance of our business.

•Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

•The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

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Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

•The amount of acquisition- and integration-related costs incurred may be useful for investors to consider because such costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters, charges related to terminations of contracts or impairments of acquired intangible assets or other long lived assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. Because we do not carry out restructuring activities on a predictable cycle, we do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.

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Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in millions and as a percentage of total revenue):

(1) Amounts may not foot due to rounding.

The following table provides our revenues by type of service (in millions and as a percentage of total revenue):

(1) For further discussion of our Company, strategy, and products, see our business overview set forth in "Item 1. Business" in this Report.

(2) Totals may not foot due to rounding.

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Comparison of Year Ended December 31, 2024 and Year Ended December 31, 2023

The following table provides a comparison of our selected consolidated results of operations for the years ended December 31, 2024 and 2023 (in millions):

(1) Not meaningful

Revenues. Revenues increased $281 million, or 11%, to $2.7 billion. The increase in our revenues included:

•an increase in Multifamily revenues of $153 million, or 17%, due to an increase in the number of properties listed on our network and increases in pricing for existing customers,

•an increase in CoStar revenues of $95 million, or 10%, due to an increase in subscribers and price increases, as well as converting legacy STR customers to our new CoStar-based benchmarking product,

•an increase in Residential revenues of $55 million, or 118%, due to the launch of the new Homes.com membership subscriptions and the OnTheMarket Acquisition, partially offset by the discontinuation and reduced sales of certain products and services that were inconsistent with our long-term business strategy,

•an increase in LoopNet revenues of $17 million, or 6%, due to an increase in the average price per listing and an increase in the number of paid listings,

•a decrease in Information services revenues of $35 million, or 20%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product, partially offset by an increase in revenue from CoStar Real Estate Manager and the Visual Lease Acquisition, and

•a decrease in Other marketplaces revenues of $4 million, or 3%, due to lower property volumes auctioned on Ten-X partially offset by increases in revenues of the Land.com Network.

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Gross Profit and Cost of Revenues. Gross profit increased $214 million, or 11%, to $2.2 billion in 2024, and the gross profit percentage was consistent at 80%. The increase in gross profit was due to higher revenues partially offset by an increase in the cost of revenues. Cost of revenues increased $67 million, or 14% to $559 million and, as a percentage of revenues, was consistent at 20%. The increase in cost of revenues primarily included:

•an increase in personnel costs of $43 million related to increases in salaries and benefits costs for our existing employees and rising headcount to support our residential research efforts,

•an increase of $17 million for web hosting costs, and

•an increase of $6 million of payment processing fees.

Selling and Marketing Expenses. Selling and marketing expenses increased $374 million, or 38%, to $1,364 million and, as a percentage of revenues, increased from 40% to 50%. The increase primarily included:

•an increase in marketing expenses of $304 million for advertising our brands and

•an increase in personnel costs of $67 million related to rising headcount in our sales force, recruiting costs, and commissions expense.

Software Development Expenses. Software development expenses increased $58 million, or 22% to $325 million and, as a percentage of revenues, increased from 11% to 12%. The increase primarily included:

•an increase in personnel costs of $43 million related to rising headcount and increases in salaries, stock-based compensation, and benefits costs for our existing employees,

•an increase of $9 million in software and equipment costs, and

•an increase of $3 million in occupancy costs.

General and Administrative Expenses. General and administrative expenses increased $58 million, or 15%, to $439 million and, as a percentage of revenues, was consistent at 16%. The increase primarily included:

•an increase in professional services of $29 million, primarily related to acquisition activities and costs to defend our intellectual property,

•an increase in personnel costs of $14 million related to the OnTheMarket Acquisition and rising headcount,

•an increase in depreciation expense of $7 million related to new communications and networking equipment across our offices and increased depreciation expense associated with the change in useful life of our previous headquarters building, and

•an increase of $4 million in occupancy costs from the OnTheMarket Acquisition.

Customer Base Amortization Expense. Customer base amortization expense was consistent.

Interest Income, Net. Interest income, net was consistent.

Other (Expense) Income, Net. Other (expense) income, net was an expense of $7 million for the year ended December 31, 2024 and related to leasing operations acquired in February 2024.

Income Tax Expense. Income tax expense decreased $55 million, or 44%, to $71 million and the effective tax rate was 34% of income before income taxes compared to 25% of income before income taxes for the year ended December 31, 2023. The decrease in income tax expense was primarily attributable to lower U.S. income. The increase in the effective tax rate is primarily attributable to an increase in foreign losses with no tax benefit.

For a comparison of our results of operations for the fiscal year ended December 31, 2023 to the year ended December 31, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on the Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 21, 2024.

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Comparison of Business Segment Results for Year Ended December 31, 2024 and Year Ended December 31, 2023

We manage our 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, which is our net income before interest income or expense, net, other expense or income, net, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of our business.

Segment Revenues. North America revenues increased $234 million, or 11%, to $2.6 billion and included:

•an increase in Multifamily revenues of $153 million, or 17%, due to an increase in the number of properties listed on our network and increases in pricing for existing customers,

•an increase in CoStar revenues of $71 million, or 8%, due to an increase in subscribers and price increases, as well as converting legacy STR customers to our new CoStar-based benchmarking product,

•an increase in LoopNet revenues of $16 million, or 6%, due to an increase in the average price per listing and an increase in the number of paid listings,

•an increase in Residential revenues of $15 million, or 34%, due to the launch of the new Homes.com membership subscriptions, partially offset by the discontinuation and reduced sales of certain products and services that were inconsistent with our long-term business strategy,

•a decrease in Information services revenues of $17 million, or 13%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product, partially offset by an increase in revenue from CoStar Real Estate Manager and the Visual Lease Acquisition, and

•a decrease in Other marketplaces revenues of $4 million, or 3%, due to the lower property volumes auctioned on Ten-X, partially offset by an increase in revenue from the Land.com Network.

International revenues increased $47 million, or 53%, to $136 million and primarily included:

•an increase in Residential revenues of $39 million due to the OnTheMarket Acquisition,

•an increase in CoStar revenues of $24 million, or 61%, due to converting legacy STR customers to our new CoStar-based benchmarking product, as well as an increase in subscribers and price increases, and

•a decrease in Information services revenues of $18 million, or 46%, attributable to converting legacy STR customers to our new CoStar-based benchmarking product.

Segment EBITDA. North America EBITDA decreased to $181.5 million for the year ended December 31, 2024, from $403 million for the year ended December 31, 2023. The decrease in North America EBITDA was primarily due to increases in marketing costs, personnel costs, professional services fees, and web hosting costs, partially offset by increases in revenues described above. International EBITDA decreased to a loss of $58.5 million for the year ended December 31, 2024 from a loss of $13 million for the year ended December 31, 2023. The decrease was primarily due to the OnTheMarket Acquisition for which we have increased marketing expenses since acquisition and an increase in personnel costs associated with the expansion of our international research team.

For a comparison of our business segment results of operations for the fiscal year ended December 31, 2023 to the year ended December 31, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 21, 2024.

Liquidity and Capital Resources

We believe the balance of cash and cash equivalents, which was $4.7 billion as of December 31, 2024, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our material cash requirements include the following contractual and other obligations.

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Debt. As of December 31, 2024, we had outstanding an aggregate principal amount of $1.0 billion of Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $168.0 million, with $28.0 million payable within 12 months.

Leases. We have lease arrangements for office facilities, data centers, and certain vehicles. As of December 31, 2024, we had fixed lease payment obligations of $139 million, with $32 million payable within 12 months.

Purchase Obligations. Our purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily relate to web hosting, sponsorship agreements, third-party data or listings, and software subscriptions. As of December 31, 2024, we had purchase obligations of $244 million, with $94 million payable within 12 months.

Construction Commitments. We are expanding our Richmond, Virginia campus, which is expected to result in a material cash requirement in 2025 and 2026. We broke ground on the expansion in November 2022 and expect construction to be substantially completed in the first half of 2026. We have engaged a project manager, architects, and a general contractor on terms that generally require payments as services are provided or construction is performed. As of December 31, 2024, we are obligated to spend an additional $395 million as further work is performed under these contracts. We expect $361 million of these costs to be paid 2025 and intend to fund these expenditures with cash on hand.

In conjunction with this expansion, we negotiated various tax incentives with the Commonwealth of Virginia and the City of Richmond, including the allowance to use market-based income apportionment for income taxes and partial reimbursements of property tax assessments related to the value of the campus expansion. These incentives are conditional upon achieving job creation and capital expenditure targets from 2022 to 2029. Failure to meet these targets could result in a reduction of the value of the tax incentives and repayment of previous tax reductions. The value of the allowance to use a market-based income apportionment for income taxes is dependent on our taxable income. We estimate the value of the allowance to use market-based income apportionment for income taxes for tax years 2023 to 2032 and partial reimbursements of property tax assessments related to the value of the campus expansion to be in the range of $275 million - $285 million.

Pending Acquisitions. On April 21, 2024, the Company entered into Matterport Merger Agreement, subject to the terms and conditions of which, each share of Matterport Common Stock issued and outstanding immediately prior to the effective time of the First Merger (the “First Effective Time”) (other than any cancelled shares or Dissenting Shares (as defined in the Matterport Merger Agreement)) will be converted into (i) a number of CoStar Group Shares equal to the Merger Exchange Ratio (such consideration, the “Per Share Stock Consideration”) and (ii) $2.75 in cash per share, without interest (the “Per Share Cash Consideration”). Holders of Matterport Common Stock will receive cash in lieu of fractional CoStar Group Shares.

Consummation of the Mergers is subject to certain customary conditions, including, among others, expiration or termination of the applicable waiting periods under the HSR Act and the Antitrust Laws (each as defined in the Matterport Merger Agreement) of certain other jurisdictions, the absence of any law, injunction, order, or award restraining, enjoining, or otherwise prohibiting or making illegal the consummation of the Mergers. Each party’s obligation to consummate the Mergers is subject to certain other conditions, including the accuracy of the representations and warranties of the other party, compliance in all material respects by the other party with its obligations under the Matterport Merger Agreement, and the absence of a material adverse effect related to the other party. Consummation of the Mergers is not subject to approval by our stockholders or to any financing condition.

On July 3, 2024, Matterport and CoStar Group each received a request for additional information and documentary materials (the “Second Request”) from the FTC in connection with the FTC’s review of the Transaction. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after Matterport and CoStar Group have each substantially complied with their respective Second Requests, unless that period is extended or terminated sooner by the FTC. Matterport and CoStar Group certified they were in substantial compliance with the Second Request in November 2024 and January 2025, respectively. Each of Matterport and CoStar Group continue to work cooperatively with the FTC in its review of the Transaction and expect that the Transaction will be completed in the first quarter of 2025, subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the Matterport Merger Agreement.

The Matterport Merger Agreement requires the Company to pay an $85 million fee to Matterport in the event the Matterport Merger Agreement is terminated under specified circumstances, including, among others: if certain antitrust approvals are not obtained or a governmental order related to antitrust or competition matters prohibits the consummation of the transaction. The Company intends to fund the cash consideration with cash on hand. The cash consideration is estimated to be

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$940 million and the stock consideration would require the issuance of approximately 11.2 million CoStar Group Shares using the share price of the Company at April 19, 2024, not considering Fractional Share Consideration. In addition, awards of restricted stock units relating to Matterport grants that are outstanding at the time of the First Merger will be converted into a corresponding award of CoStar Group Shares based on the Matterport Merger Consideration.

Stock Repurchase Program

In February 2025, the Board of Directors approved the Stock Repurchase Program which authorizes, but does not obligate, the repurchase of up to $500 million of the Company’s common stock. Repurchases may be made from time to time at management's discretion, and the timing and amount of any such repurchases will be determined based on share price, market conditions, legal requirements, and other relevant factors. The program has no time limit and can be discontinued at any time at the Company’s discretion. There can be no assurance as to the timing or number of shares of any repurchases in the future.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts, the Stock Repurchase Program and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

Cash and cash equivalents decreased to $4.7 billion as of December 31, 2024, compared to cash and cash equivalents of $5.2 billion as of December 31, 2023. The decrease in cash and cash equivalents for the year ended December 31, 2024 was primarily due to $912.9 million of cash used in investing activities and cash used in financing activities of $13.7 million, partially offset by cash provided by operating activities of $392.6 million.

Net cash provided by operating activities for the year ended December 31, 2024 was $392.6 million compared to $489.5 million for the year ended December 31, 2023. The $96.9 million decrease in cash provided by operating activities was primarily driven by a decrease in net income, partially offset by an increase in non-cash expenses and working capital changes.

Net cash used in investing activities for the year ended December 31, 2024 was $912.9 million compared to $238.6 million for the year ended December 31, 2023. The change was primarily driven by an increase in the purchase of property, equipment, and other assets for our new campuses of $461.5 million, including $343 million related to the purchase of an office building in Arlington, Virginia to relocate our Washington, D.C.-based employees, and an increase in cash paid for acquisitions, net of cash acquired of $177.1 million primarily related to the Visual Lease acquisition.

Net cash used in financing activities for the year ended December 31, 2024 was $13.7 million compared to net cash used in financing activities of $3.7 million for the year ended December 31, 2023. The increase was primarily driven by repurchases of restricted stock to satisfy tax withholding obligations and payment of debt issuance costs related to the 2024 Credit Agreement.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. While we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider the accounting for the following matters to contain critical accounting estimates:

•Intangible assets and goodwill;

•Income taxes; and

•Business combinations.

With respect to our accounting policy for intangible assets and goodwill, we further supplement in Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report with the following:

We assess the impairment of identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of intangible assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:

•Significant underperformance relative to historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

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•Significant negative industry or economic trends; or

•Significant decline in our market capitalization relative to net book value for a sustained period.

When we determine that the carrying value of intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of purchase consideration paid in a business combination over the fair value of assets of the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We 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 the qualitative 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 we elect to bypass the qualitative assessment, we then perform a quantitative assessment by determining the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our discount rate, growth rate, and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections, and anticipated future cash flows. These assumptions are subject to change from period-to-period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions, and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations. 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.

As of October 1, 2024, we assessed the relevant qualitative factors for our North America and International reporting units and concluded that it was not more likely than not that the fair value of reporting units were less than the respective carrying amounts. We elected to bypass performing the qualitative screen and performed the first step quantitative analysis of the goodwill impairment test for our International reporting unit in 2023, which indicated that the fair value of this unit exceeded its carrying value. There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1, 2024, that would indicate that the carrying value of each reporting unit may not be recoverable.

For an in-depth discussion of each of our significant accounting policies, including further information regarding estimates and assumptions involved in their application, see Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report.

Recent Accounting Pronouncements

See Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report for further discussion of recent accounting pronouncements, including the expected dates of adoption.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those stated above in under the heading “Cautionary Statement Concerning Forward-Looking Statements” and in Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the SEC.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update such statements, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC and the consolidated financial statements and related notes included in this Report.

Overview

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

CoStar

CoStar is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily, hospitality and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news and market status and provides lease analytical, risk management, and hospitality benchmarking capabilities. CoStar's revenue growth rate for the year ended December 31, 2023 slowed compared to the year ended December 31, 2022. We expect CoStar's revenue growth rate for the year ending December 31, 2024 to be consistent with the revenue growth rate for the year ended December 31, 2023 primarily due to converting legacy STR customers to our new CoStar based benchmarking product offsetting lower inflation-based price adjustments.

Information Services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Risk Analytics service offerings. We also provide benchmarking and analytics for the hospitality industry both on a subscription basis and an ad hoc basis. We earn revenue on ad hoc transactions as reports or data are delivered to customers. We provide information services internationally, through our Business Immo, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively. Information Services revenue growth rate for the year ended December 31, 2023 slowed compared to the year ended December 31, 2022. We expect Information Services' revenue growth rate for the year ending December 31, 2024 to slow compared to the revenue growth rate for the year ended December 31, 2023 as a result of transitioning legacy STR customers to our new CoStar based benchmarking product.

Multifamily

Apartments.com is the flagship brand of our apartment marketing network of subscription-based advertising services and provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. This network also earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. Multifamily's revenue growth rate for the year ended December 31, 2023 accelerated compared to the year ended December 31, 2022 as a result of higher sales volumes driven by increases in pricing on renewals and an increase in the number of properties listed on our network. We expect Multifamily's revenue growth rate for the year ending December 31, 2024 to moderate compared to the revenue growth rate for the year ended December 31, 2023 due to lower inflation-based price adjustments.

LoopNet

Our LoopNet network of commercial real estate websites offer subscription-based, online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants use the LoopNet network of online marketplace services to search for available property listings that meet their criteria. LoopNet's revenue growth rate for the year ended December 31, 2023 accelerated compared to the year ended December 31, 2022, due to an increase in the average price per listing. We expect LoopNet's revenue growth rate for the year ending December 31, 2024 to

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slow compared to the revenue growth rate for the year ended December 31, 2023 as a result of disruptions related to transitioning sales and service activities to a dedicated LoopNet field sales team.

Residential

Our Homes.com Network and the acquisition of OnTheMarket have enabled us to expand our offerings to the residential for sale market. Homes.com is a homes for sale listings site that combines our proprietary research with listing information to allow homebuyers an informative and collaborative experience finding homes for sale or lease. Homes.com provides residential real estate professionals subscription-based access to applications that manage residential real estate agent workflow and receives transaction-based revenue for marketing campaigns delivered on third-party platforms. In February 2024, we began selling subscription memberships to promote the home listing as well as the agent in the sort order. OnTheMarket is a property portal in the U.K., which primarily offers subscriptions-based advertising services to agents. Residential's revenues for the year ended December 31, 2023 decreased compared to the year ended December 31, 2022, due to the discontinuation of certain non-strategic products and services. We expect Residential's revenues for the year ending December 31, 2024 to increase compared to the year ended December 31, 2023 due to the OnTheMarket Acquisition and the launch of our new Homes.com product.

Other Marketplaces

Our other marketplaces include Ten-X, an online auction platform for commercial real estate and our BizBuySell and Land.com networks. The BizBuySell network provides online marketplaces for businesses and franchises for sale, and THE Land.com network provides online marketplaces for rural land for sale. Other marketplaces' revenues for the year ended December 31, 2023 decreased compared to the year ended December 31, 2022, due to lower Ten-X transaction revenue, partially offset by growth in other products. We expect other marketplaces' revenues for the year ending December 31, 2024 to be consistent with the revenues for the year ended December 31, 2023.

Subscription-based Services

The majority of our revenue is generated from service offerings that are distributed to our clients under subscription-based agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the years ended December 31, 2023, 2022 and 2021, our annualized net new bookings of subscription-based services on all contracts were approximately $286 million, $305 million and $217 million, respectively. Net new bookings is calculated based on the annualized amount of change in the Company's sales bookings resulting from new subscription-based contracts, changes to existing subscription-based contracts and cancellations of subscription-based contracts for the period reported. Net new bookings is calculated on all subscription-based contracts without regard to contract term. Net new bookings is considered an operating metric that is an indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. Revenue from our subscription-based contracts were approximately 95%, 93% and 93% of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. The increase in the percentage of our revenue from subscription-based contracts from 2022 to 2023 was primarily due to the growth in our subscription-based services.

For the trailing 12 months ended December 31, 2023, 2022 and 2021, our contract renewal rates for subscription-based services for contracts with a term of at least one year were approximately 90%, 90% and 92%, respectively; and, therefore, our cancellation rates for those services for the same periods were approximately 10%, 10% and 8%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing 12-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year were approximately 82%, 80% and 77% of total revenue for the trailing 12 months ended December 31, 2023, 2022 and 2021, respectively. The increase in the percentage of our revenue from subscription-based contracts for contracts with a term of at least one year from 2022 to 2023 was due to increases in sales of longer term advertising products. The decrease in the percentage of our revenue from subscription-based contracts with a term of at least one year from 2023 to 2022 was primarily due to the acquisitions of companies that contained a higher percentage of transaction-based revenue than our legacy businesses, as well as increases in sales of shorter term advertising products.

Development, Investments and Expansion

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We plan to continue to invest in our business and our services, evaluate strategic growth opportunities and pursue our key priorities as described below. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants and residential renters and buyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. We may reevaluate our priorities as economic conditions continue to evolve.

Our key priorities for the year ending December 31, 2024 currently include:

•Continuing to develop and invest in our residential marketplaces. For Homes.com we are creating additional content for neighborhoods, parks, schools and condos. In February 2024, we launched our new Homes.com subscription memberships to promote the home listing as well as the agent in the sort order on the website. We intend to create an expanded dedicated sales force, to supplement the efforts of our sales team already in place. We plan to increase our residential marketing investment, including the launch of a brand campaign.

For OnTheMarket, we plan to integrate OnTheMarket into the Company’s operations including additional investment in marketing, content creation and enhancing OnTheMarket’s website to improve performance and facilitate better search engine optimization.

•Continuing to enhance our facilities. We are expanding our research and technology center in Richmond, Virginia. We broke ground on the expansion in November 2022 and expect construction to be substantially completed in the first half of 2026. The expansion includes construction of two new buildings spanning 750,000 square feet and will bring our campus footprint to over 1 million square feet when completed. We plan to increase our research, technology, operations, software development, marketing and sales teams in this location.

In February 2024, we closed on the purchase of a building in Arlington, Virginia and we plan to build out a space for our employees. The lease on our current Washington, DC headquarters ends in 2025.

We expect our investment in these priorities will increase our research, selling and marketing and facilities expenses, including potential impairments of assets associated with the acquired building. Each of these will reduce our net income and may reduce our cash on hand for the year ending December 31, 2024 compared to the year ended December 31, 2023. We intend to continue to assess the need for additional investments in our business in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Report.

Impacts of Current Economic Conditions

In response to the concerns over inflation risk, the U.S. Federal Reserve raised interest rates over the past two years. It is currently unclear how the commercial real estate industry will ultimately be impacted by the current economic conditions. Rising interest rates or a period of elevated interest rates may reduce demand for all types of real estate. If the demand for office space or other real estate decreases significantly, there could be a downturn in the commercial real estate market that may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we may disclose include EBITDA, adjusted EBITDA, adjusted EBITDA margin,

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non-GAAP net income and non-GAAP net income per diluted share. EBITDA is our net income before interest income or expense, net, other income or expense, net, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the SEC. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our ordinary course of business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs, and then subtracting an assumed provision for income taxes. Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and compare our performance from quarter-to-quarter and from year-to-year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest income or expense, net, other income or expense, net, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted

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EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of interest income or expense, net and other income or expense, net we generate and incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest income or expense, net and other income or expense, net to be a representative component of the day-to-day operating performance of our business.

•Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

•The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

•The amount of acquisition- and integration-related costs incurred may be useful for investors to consider because such costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters, charges related to terminations of contracts or impairments of acquired intangible assets or other long lived assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. Because we do not carry out restructuring activities on a predictable cycle, we do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration-related costs, restructuring and related costs and settlement and impairment costs incurred outside

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our ordinary course of business. These items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated with using this non-GAAP financial measure as compared to net income. In addition to these exclusions from net income, we subtract an assumed provision for income taxes to calculate non-GAAP net income. In both 2023 and 2022, we assumed a 26% tax rate, which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.

See Note 14 of the Notes to Consolidated Financial Statements included in Part IV of this Report for the reconciliation of our net income to our EBITDA.

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Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in millions and as a percentage of total revenue):

(1) Amounts may not foot due to rounding.

The following table provides our revenues by type of service (in millions and as a percentage of total revenue):

(1) For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Report.

(2) Totals may not foot due to rounding.

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Comparison of Year Ended December 31, 2023 and Year Ended December 31, 2022

The following table provides a comparison of our selected consolidated results of operations for the years ended December 31, 2023 and 2022 (in millions):

Revenues. Revenues increased $273 million, or 12.5%, to $2.5 billion. The increase in our revenues included:

•an increase in Multifamily revenues of $169 million, or 22.6%, due to higher sales volume driven by an increase in the number of properties listed on our network and increases in pricing on renewals,

•an increase in CoStar revenues of $88 million, or 10.5%, due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as an increase in subscribers,

•an increase in LoopNet revenues of $34 million, or 14.7%, due to an increase in the average price for listings,

•an increase in Information services revenues of $14 million, or 8.6%, primarily attributable to an increase in revenues for STR of $7 million, CoStar Real Estate Manager of $5 million and $2 million of revenue related to the Business Immo Acquisition,

•a decrease in Residential revenues of $28 million, or 37.4%, due to the discontinuation of certain products and services that were inconsistent with our long-term business strategy partially offset by $2 million of revenue related to the OnTheMarket Acquisition and

•a decrease in Other marketplaces revenues of $4 million, or 3.0%, due to lower property volumes auctioned on Ten-X partially offset by increases in revenue of Land.com.

Gross Profit and Cost of Revenues. Gross profit increased $195 million, or 11.0%, to $2.0 billion in 2023, and the gross profit percentage decreased from 81% to 80%. The increase in gross profit was due to higher revenues partially offset by an increase in the cost of revenues. Cost of revenues increased $78 million, or 18.7% to $492 million and, as a percentage of revenues, increased from 19% to 20%. The increase in cost of revenues included:

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•an increase in personnel costs of $61 million related to rising headcount to support our residential research efforts, and increases in salaries, bonus, stock-based compensation and benefits costs for our existing employees,

•an increase of $25 million in technology costs to host our database and products and

•an decrease of $11 million in expenses related to advertising purchased on behalf of customers.

Selling and Marketing Expenses. Selling and marketing expenses increased $306 million, or 44.7%, to $990 million and, as a percentage of revenues, increased from 31% to 40%. The increase included:

•an increase in marketing expenses of $244 million for advertising our brands,

•an increase in personnel and events costs of $63 million related to rising headcount in our sales force and increases in salaries, bonus, stock-based compensation and benefits costs for our existing employees and

Software Development Expenses. Software development expenses increased $47 million, or 21.1% to $268 million and, as a percentage of revenues, increased from 10% to 11%. The increase primarily included higher personnel costs of $42 million related to rising headcount to support our residential efforts and increases in salaries, bonus, stock-based compensation and benefits costs for our existing employees.

General and Administrative Expenses. General and administrative expenses increased $43 million, or 12.6%, to $382 million and, as a percentage of revenues, was consistent at 16%. The increase included:

•an increase of $17 million in credit loss expense primarily due to our expectations that the downturn in the commercial real estate market will increase delinquent trade receivables,

•an increase of $19 million in professional service costs due to diligence efforts associated with potential acquisitions and legal fees to defend our intellectual property rights and

•an increase of $11 million in personnel costs related to increases in salaries, bonus, stock-based compensation and benefits costs for our existing employees and rising headcount.

Customer Base Amortization Expense. Customer base amortization expense decreased $31 million, or 42.7%, to $42 million and, as a percentage of revenues, decreased from 3% to 2%. The decrease was primarily attributable to acceleration of amortization of $16 million related to eliminating certain usage fees for agent access to the Homesnap product recorded in 2022, as well as a reduction in amortization expense related to customer base assets acquired in the acquisitions of LoopNet, ForRent and Ten-X, which have been amortizing on an accelerated basis since the respective acquisitions.

Interest Income, Net. Interest income, net increased $182 million, or 565.4%, to $214 million due to an increase in interest earned on our cash equivalents.

Other Income, Net. Other income, net was insignificant for both the years ended December 31, 2023, and 2022.

Income Tax Expense. Income tax expense increased $10 million, or 8.2%, to $127 million and the effective tax rate increased 1% to 25% of income before income taxes. The increase in income tax expense was primarily attributable to additional income before income taxes and a benefit recognized in 2022 for state tax credits.

For a comparison of our results of operations for the fiscal year ended December 31, 2022 to the year ended December 31, 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on the Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 22, 2023.

Comparison of Business Segment Results for Year Ended December 31, 2023 and Year Ended December 31, 2022

We manage our 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, which is our net income before interest income or expense, net, other income or expense, net, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of our business.

Segment Revenues. North America revenues increased $260 million, or 12.3%, to $2.4 billion and included:

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•an increase in CoStar revenues of $86 million, or 10.7%, due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as an increase in subscribers,

•an increase in Information services revenues of $7 million, or 5.9%, primarily attributable to an increase in revenues for CoStar Real Estate Manager of $5 million and STR of $3 million,

•an increase in Multifamily revenues of $169 million, or 22.7%, due to higher sales volume driven by increases in pricing on renewals and an increase in the number of properties listed on our network,

•an increase in LoopNet revenues of $32 million, or 14.2%, due to an increase in the average price for listings,

•a decrease in Residential revenues of $30 million, or 40.4%, due to the discontinuation of certain products and services that were inconsistent with our long-term business strategy and

•a decrease in Other marketplaces revenues of $4 million, or 3.0%, due to the lower property volumes auctioned on Ten-X partially offset by increases in revenue of Land.com..

International revenues increased $13 million, or 16.9%, to $89 million and primarily included:

•an increase in Information services revenues of $6 million, or 18.8%, primarily attributable to an increase in revenues for STR of $4 million and $2 million of revenue related to the Business Immo Acquisition,

•an increase in CoStar revenues of $2 million, or 6.5%, due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as an increase in subscribers,

•an increase in LoopNet revenues of $2 million, or 30.6%, due to an increase in the average price for listings and

•$2 million of revenue related to the OnTheMarket Acquisition.

Segment EBITDA. North America EBITDA decreased to $403 million for the year ended December 31, 2023, from $577 million for the year ended December 31, 2022. The decrease in North America EBITDA was primarily due to increases in personnel costs, marketing costs, technology hosting costs, professional service fees, sales events costs, credit loss expense and occupancy costs partially offset by increases in revenues described above. International EBITDA decreased to a loss of $13 million for the year ended December 31, 2023 from $5 million for the year ended December 31, 2022. The decrease was due to increased personnel costs, partially offset by, an increase in revenue.

For a comparison of our business segment results of operations for the fiscal year ended December 31, 2022 to the year ended December 31, 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 22, 2023.

Liquidity and Capital Resources

We believe the balance of cash and cash equivalents, which was $5.2 billion as of December 31, 2023, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our material cash requirements include the following contractual and other obligations.

Debt. As of December 31, 2023, we had outstanding an aggregate principal amount of $1.0 billion of Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $196.0 million, with $28.0 million payable within 12 months.

Leases. We have lease arrangements for office facilities, data centers and certain vehicles. As of December 31, 2023, we had fixed lease payment obligations of $110 million, with $39 million payable within 12 months.

Purchase Obligations. Our purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily relate to web hosting, sponsorship agreements, third-party data or listings and software subscriptions. As of December 31, 2023, we had purchase obligations of $264 million, with $81 million payable within 12 months.

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Construction Commitments. We are expanding our Richmond, Virginia campus, which is expected to result in material cash requirements in 2024 and beyond. We broke ground on the expansion in November 2022 and expect construction to be substantially completed in the first half of 2026. We negotiated various tax incentives with the Commonwealth of Virginia and the City of Richmond including the allowance to use market-based income apportionment for income taxes and partial reimbursements of property tax assessments related to the value of the campus expansion. These incentives are conditional upon achieving job creation and capital expenditure targets from 2022 to 2029. Failure to meet these targets could result in a reduction of the value of the tax incentives and repayment of previous tax reductions. The value of the incentives is dependent on our taxable income.

We expect the total cost of construction, net of the estimated value of the tax incentives from 2023 to 2032, to be in the range of $450 – $600 million. We have engaged a project manager, architects and a general contractor on terms that generally require payments as services are provided or construction is performed. As of December 31, 2023, we have paid $128 million and we have committed to spend an additional $437 million as further work is performed under these contracts. We plan to amend these contracts to include additional commitments as construction progresses. Total cash expenditures for 2024 are expected to be approximately $385 million. We expect to fund the expansion with cash on hand.

In January 2024, the Company entered into a conditional purchase and sale agreement for an office building in Arlington, Virginia. The Company closed on the transaction in February 2024 along with an agreement to purchase the land underlying the building. These transactions totaled $340.0 million, inclusive of property taxes, titling insurance and other transaction costs and were paid with cash on hand.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

Cash and cash equivalents increased to $5.2 billion as of December 31, 2023, compared to cash and cash equivalents of $5.0 billion as of December 31, 2022. The increase in cash and cash equivalents for the year ended December 31, 2023 was primarily due to cash flow from operations of $489.5 million, partially offset by spending on capital assets

Net cash provided by operating activities for the year ended December 31, 2023 was $489.5 million compared to $478.7 million for the year ended December 31, 2022. The $10.8 million increase was primarily due to higher net income, excluding certain non-cash expenses.

Net cash used in investing activities for the year ended December 31, 2023 was $238.6 million compared to $69.1 million for the year ended December 31, 2022. The change was primarily due to an increase in cash paid for acquisitions of $93.3 million, increased spending for the Richmond campus of $82.3 million, and a decrease in proceeds from sale of property and equipment and other assets of $30.1 million.

Net cash used in financing activities for the year ended December 31, 2023 was $3.7 million compared to net cash provided by financing activities of $734.0 million for the year ended December 31, 2022. The change was primarily due to $745.7 million of net proceeds from our September 2022 equity offering.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider policies relating to the following matters to be critical accounting policies:

•Intangible assets and goodwill;

•Income taxes;

•Revenue recognition; and

•Business combinations.

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With respect to our accounting policy for intangible assets and goodwill, we further supplement in Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report with the following:

We assess the impairment of identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of intangible assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:

•Significant underperformance relative to historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•Significant negative industry or economic trends; or

•Significant decline in our market capitalization relative to net book value for a sustained period.

When we determine that the carrying value of intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of purchase consideration paid in a business combination over the fair value of assets of the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We 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 the qualitative 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 we elect to bypass the qualitative assessment, we then perform a quantitative assessment by determining the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections and anticipated future cash flows. These assumptions are subject to change from period-to-period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations. 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.

As of October 1, 2023, we assessed the relevant qualitative factors for our North America reporting unit and concluded that it was not more likely than not that the fair value of this reporting unit was less than its respective carrying amounts. We elected to bypass performing the qualitative screen and performed the first step quantitative analysis of the goodwill impairment test for our International reporting unit in 2023, which indicated that the fair value of this unit exceeded its carrying value. There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1, 2023, that would indicate that the carrying value of each reporting unit may not be recoverable.

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 of the Notes to the Consolidated Financial Statements included in Part IV of this Report.

Recent Accounting Pronouncements

See Note 2 of the Notes to the Consolidated Financial Statements included in this Report for further discussion of recent accounting pronouncements, including the expected dates of adoption.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those stated above in under the heading “Cautionary Statement Concerning Forward-Looking Statements” and in Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the SEC.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update such statements, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC and the consolidated financial statements and related notes included in this Report.

Overview

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

CoStar

CoStar is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily, hospitality and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news and market status and provides lease analytical, risk management, and hospitality benchmarking capabilities. CoStar's year-over-year revenue growth rate for 2022 accelerated compared to 2021. The number of subscribers has increased year-over-year and we have also realized the impact of price increases and existing customers upgrading to our global service offering. We expect CoStar's revenue growth rate for 2023 to slow compared to the revenue growth rate for 2022 as a result of less benefit from customer upgrades as the global product upgrade campaign is substantially complete and lower inflation-based price adjustments.

Information services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Risk Analytics service offerings. We also provide benchmarking and analytics for the hospitality industry both on a subscription basis and an ad hoc basis. We earn revenue on ad hoc transactions as reports or data are delivered to customers. We provide information services internationally, through our Business Immo, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively. Information Services' year-over-year revenue growth rate for 2022 accelerated compared to 2021 as a result of increased revenue from CoStar Real Estate Manager services and the results of the Business Immo acquisition. We expect Information Services' revenue growth rate for 2023 to slow compared to the revenue growth rate for 2022 as a result of lower price adjustments.

Multifamily

Apartments.com is the flagship brand of our apartment marketing network of subscription-based advertising services and provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. This network also earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. Multifamily's year-over-year revenue growth rate for 2022 slowed compared to 2021 due to customers selecting lower-priced ad packages in the second half of 2021 while rental vacancy rates declined relative to historical averages reducing demand for top-level packages. Quarterly sales of multifamily products increased over 2022 due to new properties being added to the network and the impact of a new pricing strategy implemented to align prices at each product level with the value of the leads delivered. We expect Multifamily's year-over-year revenue growth rate for 2023 to accelerate compared to the revenue growth rate for 2022 due to expected increases in sales levels from bringing additional properties on the network.

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LoopNet

Our LoopNet network of commercial real estate websites offer subscription-based, online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants use the LoopNet network of online marketplace services to search for available property listings that meet their criteria. LoopNet's revenue growth rates slowed in 2022 when compared to 2021 as growth in the average price per listing declined in 2022 when compared to 2021. We expect LoopNet's year-over-year revenue growth rate for 2023 to accelerate compared to the revenue growth rate for 2022 due to expected increases in sales levels from increasing the number of listings in the network.

Residential

The acquisitions of Homes.com and Homesnap enabled us to expand our offerings to the residential for sale market. Homes.com is a homes for sale listings site. 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. Homesnap also receives transaction-based revenue for short-term advertising delivered on third-party platforms. Residential revenue was consistent between 2022 and 2021. We expect residential revenue for 2023 to decrease when compared to 2022 due to the discontinuation of certain non-strategic products and services.

Other Marketplaces

Our other marketplaces include Ten-X, an online auction platform for commercial real estate that was acquired on June 24, 2020. Also included is our BizBuySell network, which includes BizQuest® and FindaFranchise and our Land.com Network of sites. The BizBuySell network provides online marketplaces for businesses and franchises for sale and our Land.com Network provides online marketplaces for rural lands for sale. Overall, other marketplaces' revenue growth rate slowed in 2022 compared to 2021 primarily due to the impact of the Ten-X acquisition closing in June 2020.We expect other marketplaces revenue growth rate for 2023 to slow compared to the growth rate for 2022 due to lower Ten-X transaction revenue.

Subscription-based Services

The majority of our revenue is generated from service offerings that are distributed to our clients under subscription-based agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the years ended December 31, 2022, 2021 and 2020, our annualized net new bookings of subscription-based services on all contracts were approximately $305 million, $217 million and $184 million, respectively, calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upgrades on all existing subscription-based contracts, less write-downs and cancellations, for the period reported. Net new bookings is considered a key indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. Revenue from our subscription-based contracts was approximately 93%, 93% and 95% of total revenue for the years ended December 31, 2022, 2021 and 2020, respectively. The declines in the percentage of our revenue from subscription-based contracts from 2020 to 2021 was primarily due to the acquisitions of companies that contained a higher percentage of transaction-based revenue than our legacy businesses.

For the trailing 12 months ended December 31, 2022, 2021 and 2020, our contract renewal rates for existing CoStar Group company-wide subscription-based services for contracts with a term of at least one year were approximately 90%, 92% and 89%, respectively; and, therefore, our cancellation rates for those services for the same periods were approximately 10%, 8% and 11%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing 12-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year was approximately 80%, 77% and 80% of total revenue for the trailing 12 months ended December 31, 2022, 2021 and 2020, respectively. The increase in the percentage of our revenue from subscription-based contracts for contracts with a term of at least one year from 2021 to 2022 was due to increases in sales of longer term advertising products. The decrease in the percentage of our revenue from subscription-based contracts with a term of at least one year from 2020 to 2021 was primarily due to the acquisitions of companies that contained a higher percentage of transaction-based revenue than our legacy businesses, as well as increases in sales of shorter term advertising products.

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Impacts of Current Economic Conditions

In response to the concerns over inflation risk, the U.S. Federal Reserve has raised interest rates in the first, second, third and fourth quarters of 2022 and the first quarter of 2023 and signaled it expects additional rate increases. Further, the COVID-19 pandemic has created significant economic volatility, uncertainty and disruption around the world. While the impacts of the COVID-19 pandemic and current economic conditions continue to evolve, they have not materially affected our consolidated financial statements during 2022, 2021 and 2020. It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements – allowing work from the office or home, or switch to all work from home, or by the current economic conditions. These activities may result in reduced demand for office space and rising interest rates may reduce demand for all types of real estate. If the demand for office space or other real estate decreases significantly, there could be a downturn in the commercial real estate market that may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

Development, Investments and Expansion

We plan to continue to invest in our business and our services, evaluate strategic growth opportunities and pursue our key priorities as described below. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants and residential renters and buyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. We may reevaluate our priorities as economic conditions continue to evolve.

Our key priorities for 2023 currently include:

◦Continuing to develop and invest in the Homes.com residential marketplace. Our residential strategy involves creating new and improved tools for residential agents and brokers and to help homebuyers find a new home and connect with the agents of their choosing. We plan to increase our residential marketing investment over the course of the year to build traffic on the website.

◦Continuing to invest in our LoopNet marketplace and international business. We plan to invest in additional sales capabilities and increase marketing investment to accelerate revenue growth in LoopNet. This includes expansion of our LoopNet brand in the U.K., France and Spain.

◦Continuing to invest in CoStar, including:

▪Enhancing benchmarking capabilities. We continue to integrate the STR products into our core platform. We plan to apply STR's benchmarking expertise within CoStar by making STAR reports available in the CoStar environment and provide users with tools to perform ad hoc analysis.

▪Enhancing analytics capabilities. We are adding information on commercial property investment funds and linking property data to allow fund investors to perform detailed analysis on their property portfolios directly in the CoStar platform.

We expect our investment in these priorities, and the full-year impact realized in 2023 from an increase in our sales force which occurred primarily in the second half of 2022, will increase our selling and marketing expense and reduce our income from operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. We intend to continue to assess the need for additional investments in our business in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

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For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Report.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we may disclose include EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share. EBITDA is our net income before interest (expense) income, other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the SEC. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our ordinary course of business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs, and then subtracting an assumed provision for income taxes. Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully

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evaluate and compare our performance from quarter-to-quarter and from year-to-year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest (expense) income, other (expense) income, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of interest (expense) income and other (expense) income we generate and incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest (expense) income and other (expense) income to be a representative component of the day-to-day operating performance of our business.

•Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

•The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

•The amount of acquisition- and integration-related costs incurred may be useful for investors to consider because such costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters, charges

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related to terminations of contracts or impairments of acquired intangible assets or other long lived assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. We do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration-related costs, restructuring and related costs and settlement and impairment costs incurred outside our ordinary course of business. These items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated with using this non-GAAP financial measure as compared to net income. In addition to these exclusions from net income, we subtract an assumed provision for income taxes to calculate non-GAAP net income. In 2022 and 2021, we assumed a 26% and 25% tax rate, respectively, which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.

The following table shows our net income reconciled to our EBITDA and our net cash flows from operating, investing and financing activities for the indicated periods (in thousands):

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Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in thousands and as a percentage of total revenue):

The following table provides our revenues by type of service (in thousands and as a percentage of total revenue):

(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

(2) For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Report.

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Comparison of Year Ended December 31, 2022 and Year Ended December 31, 2021

The following table provides a comparison of our selected consolidated results of operations for the years ended December 31, 2022 and 2021 (in thousands):

Revenues. Revenues increased to $2.2 billion in 2022, from $1.9 billion in 2021. The $238 million increase was attributable to increases across nearly all of our primary service offerings, led by a $114 million, or 16%, increase in CoStar revenue. The CoStar revenue increase was due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as, an increase in subscribers. Multifamily revenues increased $67 million, or 10%, primarily due to increases in pricing on renewals and, to a lesser extent, an increase in properties listed. LoopNet revenues increased $23 million, or 11%, primarily as a result of an increase in average prices and, to a lesser extent, due to the acquisition of BureauxLocaux. Other marketplaces revenue increased $19 million, or 16%, primarily driven by increases in Ten-X and Land for Sale revenue and, to a lesser extent, an increase in revenue for BizBuySell. Information services revenue increased $16 million, or 11%, primarily due to increased revenues from our CoStar Real Estate Manager and STR service offerings.

Gross Profit. Gross profit increased to $1.8 billion in 2022, from $1.6 billion in 2021. The gross profit percentage was 81% for 2022 compared to 82% for 2021. The increase in gross profit was due to higher revenue, partially offset by an increase in cost of revenues of $57 million, or 16%, mostly due to an increase of $28 million related to our investment and further development of our residential marketplaces, including personnel, research equipment, software and equipment, and data and content costs. There were also increases in costs supporting our other service offerings, including $19 million in personnel costs, driven by an increase in salaries, $6 million in software and equipment to support our researchers, $3 million in professional services and $2 million in travel expenses.

Selling and Marketing Expenses. Selling and marketing expenses increased to $684 million in 2022, from $622 million in 2021. The $62 million increase was mostly attributable to an increase of $40 million in personnel costs, due to a $21 million increase in salaries, driven by an increase in headcount, and an increase in commission expense of $13 million. There were also

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increases of $17 million in conferences and travel costs and $2 million each for occupancy, and computer equipment and other office supplies.

Software Development Expenses. Software development expenses increased to $221 million in 2022, from $201 million in 2021, and remained consistent as a percentage of revenues at 10% in 2022 and 2021. The $20 million increase was primarily due to an increase of $16 million in personnel costs, driven by increased headcount to support the development of our products, and to a lesser extent, to increases of $2 million in occupancy costs, and of $1 million in computer equipment and other office supplies.

General and Administrative Expenses. General and administrative expenses increased to $339 million in 2022, from $257 million in 2021, and increased as a percentage of revenues to 16% in 2022 from 13% in 2021. The $82 million increase in the amount of general and administrative expense was driven by an increase of $22 million in personnel costs, primarily due to increases in salaries and stock-based compensation expense, and to a lesser extent, increases of $16 million in professional services, driven by an increase in legal costs, $10 million in travel and conferences costs, driven partially by an increase in the average cost of air travel, $8 million in software and equipment, and $7 million in bad debt expense, and $2 million each in property taxes and charitable donations. Other non-recurring charges incurred in 2022 included, $9 million due to impairments of right-of-use assets and property and equipment related to abandoned leases, and $4 million for a fee paid to counterparty to terminate a contract. The increase in general and administrative expense was partially offset by a $3 million gain recognized for the sale of a corporate aircraft.

Customer Base Amortization Expense. Customer base amortization expense decreased to $74 million in 2022, from $75 million in 2021, and decreased as a percentage of revenues at 3% in 2022 from 4% in 2021. The decrease in customer base amortization expense was primarily attributable to decreases in amortization expense related to the customer base intangible assets acquired in the acquisitions of ForRent, Ten-X, STR and LoopNet, which had been amortizing on an accelerated basis since their acquisitions, partially offset by an increase of $13 million in amortization expense driven by intangible assets related to a Homesnap product for which we decided to eliminate usage fees related to a specific customer class.

Interest Income (Expense), net. Interest income, net was $32 million in 2022, as compared to interest expense, net of $32 million in 2021. The increase of $64 million in 2022 was primarily due to an increased rate of return on cash and cash equivalents.

Other Income, net. Other income, net was a net income of $3 million in 2022, consistent with net income of $3 million in 2021.

Income Tax Expense. Income tax expense increased to $117 million in 2022, from $111 million in 2021, as a result of higher income before income taxes, the release of reserves due to recent audit settlements which were recorded in 2021, and lower excess tax benefits on option exercises for the year ended December 31, 2022, partially offset by a decrease due to a gain recognized for the year ended December 31, 2021 related to an international restructuring.

For a comparison of our results of operations for the fiscal year ended December 31, 2021 to the year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Report for the year ended December 31, 2021, which was filed with the SEC on February 23, 2022.

Comparison of Business Segment Results for Year Ended December 31, 2022 and Year Ended December 31, 2021

We manage our 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, which is our net income before interest income (expense) and other income (expense), loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our 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.

Segment Revenues. North America revenues increased to $2.1 billion for the year ended December 31, 2022, from $1.9 billion for the year ended December 31, 2021. The $138 million increase in North America revenues was attributable to increases in revenues for several of our services. CoStar revenues increased $113 million due to higher sales volume driven by the impact of annual price increases and customer upgrades on contract renewals, as well as an increase in subscribers.

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Multifamily revenues increased $67 million, primarily due to increases in pricing on renewals and, to a lesser extent, an increase in properties listed. Other marketplaces revenue increased $19 million primarily driven by increases in Ten-X and Land for Sale revenue and, to a lesser extent, an increase in revenue for BizBuySell. LoopNet revenues increased $19 million, primarily as a result of stronger site traffic, which drove an increase in the price per advertisement as compared to the prior year. Information services revenue increased $11 million primarily due to increases of $7 million and $4 million in revenue for our CoStar Real Estate Manager and STR service offerings, respectively. International revenues increased to $76 million in 2022, from $67 million in 2021. The $10 million increase in International revenues was driven by increases in sales of LoopNet products, including the acquisition of BureauxLocaux, and, to a lesser extent, increased revenue from the acquisition of Business Immo.

Segment EBITDA. North America EBITDA increased to $577 million for the year ended December 31, 2022, from $557 million for the year ended December 31, 2021. The increase in North America EBITDA was primarily due to an increase in revenue and a decrease in marketing costs, partially offset by increases in general and administrative and personnel costs. International EBITDA decreased to $5 million for the year ended December 31, 2022 from $8 million for the year ended December 31, 2021. The decrease was due to increased personnel, general and administrative, and marketing costs, partially offset by, an increase in revenue.

For a comparison of our business segment results of operations for the fiscal year ended December 31, 2021 to the year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Report for the year ended December 31, 2021, which was filed with the SEC on February 23, 2022.

Liquidity and Capital Resources

We believe the balance of cash and cash equivalents, which was $5.0 billion as of December 31, 2022, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our material cash requirements include the following contractual and other obligations.

Debt. As of December 31, 2022, we had outstanding an aggregate principal amount of $1.0 billion of Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $224 million, with $28 million payable within 12 months.

Leases. We have lease arrangements for office facilities, data centers and certain vehicles. As of December 31, 2022, we had fixed lease payment obligations of $118 million, with $39 million payable within 12 months.

Purchase Obligations. Our purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily relate to web hosting, third-party data or listings and software subscriptions. As of December 31, 2022, we had purchase obligations of $85 million, with $45 million payable within 12 months.

Construction Commitments. We plan to expand our Richmond, Virginia campus which is expected to result in a material cash requirement in 2023 and beyond. We broke ground on the expansion in November 2022 and expect construction to be completed in 2025. We negotiated various tax incentives with the Commonwealth of Virginia and the City of Richmond including the allowance to use market-based income apportionment for income taxes and partial reimbursements of property tax assessments related to the value of the campus expansion. These incentives are conditional upon achieving job creation and capital expenditure targets from 2022 to 2029. Failure to meet these targets, could result in a reduction of the value of the tax incentives and repayment of previous tax reductions. The value of the incentives is dependent on our expected taxable income.

We expect the total cost of construction, net of the estimated value of the tax incentives from 2023 to 2032, to be in the range of $450 – $550 million. We have engaged a project manager, architects and a general contractor on terms that generally require payments as services are provided or construction is performed. As of December 31, 2022, we have paid $17 million and we have committed to spend an additional $148 million as further work is performed under these contracts. We plan to amend these contracts to include additional commitments as construction progresses. Total cash expenditures for 2023 are expected to be approximately $200 million. We expect to fund the expansion with cash on hand.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

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Cash and cash equivalents increased to $5.0 billion as of December 31, 2022, compared to cash and cash equivalents of $3.8 billion as of December 31, 2021. The increase in cash and cash equivalents for the year ended December 31, 2022 was primarily due to $746 million of net proceeds from our September 2022 equity offering and cash flow from operations of $479 million.

Net cash provided by operating activities for the year ended December 31, 2022 was $479 million compared to $470 million for the year ended December 31, 2021. The $9 million increase was due to an increase in net income, excluding certain non-cash expenses such as amortization of deferred commission costs and stock-based compensation expense, partially offset by, a increase in working capital, excluding cash, of $51 million driven by an increase in capitalized commissions and decreases in income taxes payable, accounts receivable, and deferred revenue, partially offset by an increase in accounts payable and other accrued liabilities driven by payment of the $52 million termination fee pursuant to the Asset Purchase Agreement with RentPath in the first quarter of 2021.

Net cash used in investing activities for the year ended December 31, 2022 was $69 million compared to $381 million for the year ended December 31, 2021. The $312 million decrease in cash used in investing activities was primarily due to a decrease in cash paid for acquisitions of $187 million and for purchases of property, equipment and other assets including Richmond assets of $95 million, as well as, an increase in proceeds from sale of property and equipment and other assets of $29 million

Net cash provided by financing activities for the year ended December 31, 2022 was $734 million compared to net cash used in financing activities of $16 million for the year ended December 31, 2021. The increase in cash provided by financing activities was primarily due to $746 million of net proceeds from our September 2022 equity offering.

As permitted under the Coronavirus Aid, Relief and Economic Security Act, we deferred payroll taxes due in 2020; all amounts deferred were paid during the year ended December 31, 2021.

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Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider policies relating to the following matters to be critical accounting policies:

•Long-lived assets, intangible assets and goodwill;

•Income taxes;

•Revenue recognition; and

•Business combinations.

With respect to our accounting policy for long-lived assets, intangible assets and goodwill, we further supplement in Note 2 of the Notes to the Consolidated Financial Statements included in this Report with the following:

We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of long-lived assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:

•Significant underperformance relative to historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•Significant negative industry or economic trends; or

•Significant decline in our market capitalization relative to net book value for a sustained period.

When we determine that the carrying value of long-lived and identifiable intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of purchase consideration paid in a business combination over the fair value of assets of the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We 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 the qualitative 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 we elect to bypass the qualitative assessment, we then perform a quantitative assessment by determining the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections and anticipated future cash flows. These assumptions are subject to change from period-to-period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations. 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.

As of October 1, 2022, we performed an assessment of the relevant qualitative factors for our North America and International reporting units and concluded that it was not more likely than not that the fair value of each reporting unit was less

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than its respective carrying amounts. There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1, 2022, that would indicate that the carrying value of each reporting unit may not be recoverable.

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 of the Notes to the Consolidated Financial Statements included in this Report.

Recent Accounting Pronouncements

See Note 2 of the Notes to the Consolidated Financial Statements included in this Report for further discussion of recent accounting pronouncements, including the expected dates of adoption.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially from those discussed in any forward-looking statements include, but are not limited to, those stated above in under the heading “Cautionary Statement Concerning Forward-Looking Statements” and in Item 1A. under the heading “Risk Factors,” as well as those described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update such statements, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission and the consolidated financial statements and related notes included in this Annual Report on Form 10-K.

Overview

Our principal information, analytics and online marketplace services are described in the following paragraphs by type of service:

CoStar

CoStar® is our subscription-based integrated platform for commercial real estate intelligence, which includes information about office, industrial, retail, multifamily and student housing properties, properties for sale, comparable sales, tenants, space available for lease, industry professionals and their business relationships, industry news and market and lease analytical capabilities. CoStar's revenue growth rates increased in 2021 compared to 2020 as the average number of subscribers increased in 2021 compared to 2020 and we resumed annual price increases for contract renewals occurring in the third quarter of 2021 after a temporary suspension. We expect CoStar revenue growth rates to increase in 2022 compared to 2021 as a result of signing up new subscribers, existing subscribers upgrading their subscriptions and the resumption of annual price increases.

Information services

We provide real estate and lease management technology solutions, including lease administration, lease accounting and abstraction services, through our CoStar Real Estate Manager® service offerings, as well as portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics® service offerings. We also provide analytics and benchmarking reports for the hospitality industry. STARTM reports are provided on a subscription basis, but we also provide one-time or ad hoc reports or analysis on a transaction-basis. We provide information services internationally through our Grecam, Belbex and Thomas Daily businesses in France, Spain and Germany, respectively. Information services' revenue growth rates decreased in 2021 compared to 2020 primarily due to the STR acquisition in 2019 which resulted in a full year of results in 2020. We expect information services revenue growth rates in 2022 to remain consistent with 2021.

Multifamily

Apartments.comTM is part of our network of apartment marketing sites, which primarily includes ApartmentFinder®, ForRent.com®, ApartmentHomeLiving.comTM, Apartamentos.comTM and Westside Rentals®. Our network of subscription-based advertising services provides property management companies and landlords with a comprehensive advertising destination for their available rental units and offers renters a platform for searching for available rentals. Apartments.com also earns transaction-based revenue primarily from providing online tenant applications, including background and credit checks, and rental payment processing. Apartments.com has continued to successfully increase traffic to its network of sites, year-over-year, resulting in increased leads to customers. As leads per ad have increased, Apartments.com’s lower priced ad packages are generating more leads than top-level packages were generating approximately one year ago. In addition, rental vacancy rates have declined relative to historical averages reducing demand for top-level packages. As a result, customers began selecting lower-priced ad packages in the second half of 2021. Consequently, net new bookings declined year-over-year in 2021 resulting in a decrease in the Multifamily revenue growth rates in 2021 compared to 2020. We have implemented a revised pricing strategy to align prices at each product level with the value of the leads delivered. We expect multifamily revenue growth rates in 2022 to decrease when compared to 2021 due to lower net new booking activity in 2021.

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LoopNet

Our LoopNet network of commercial real estate websites offer subscription-based, online marketplace services that enable commercial property owners, landlords and real estate agents working on their behalf to advertise properties for sale or for lease and to submit detailed information about property listings. Commercial real estate agents, buyers and tenants use the LoopNet network of online marketplace services to search for available property listings that meet their criteria. This product offering also includes Realla in the United Kingdom and BureauxLocaux in France which was acquired on October 1, 2021. LoopNet's revenue growth rates decreased in 2021 when compared to 2020 as growth in the average price per listing declined in 2021 when compared to 2020. We expect LoopNet revenue growth rates in 2022 to decrease when compared to 2021.

Residential

On December 22, 2020, we acquired Homesnap®, an online and mobile software platform that provides subscription-based access to applications that manage residential real estate agent workflow and marketing campaigns delivered on third-party platforms. On May 24, 2021, we acquired Homes.com®, a residential advertising and marketing services company primarily operating through its portal, Homes.com. We expect residential revenue for 2022 to decline when compared to 2021 due to the discontinuation of certain Homes.com products and services, which is expected to be partially offset by expected increases in sales of Homesnap products and services.

Other Marketplaces

Our other marketplaces include Ten-X®, an online auction platform for commercial real estate which was acquired on June 24, 2020. Also included is our BizBuySell network, which includes BizQuest® and FindaFranchise and our Land.com network of sites, which includes LandsofAmerica, LandAndFarm and LandWatch®. The BizBuySell network provides online marketplaces for businesses for-sale and our Land.com network of sites provide online marketplaces for rural lands for-sale. Overall, revenues in other marketplaces increased during 2021 compared to 2020 primarily due to two additional quarters of Ten-X revenue included in 2021. We expect other marketplaces revenue for 2022 to increase over 2021 as more properties are sold on Ten-X .

Subscription-based Services

The majority of our revenue is generated from service offerings which are distributed to our clients under subscription-based agreements that typically renew automatically and have a term of at least one year. We recognize subscription revenues on a straight-line basis over the life of the contract.

For the years ended December 31, 2021, 2020 and 2019, our annualized net new bookings of subscription-based services on all contracts were approximately $217 million, $184 million and $210 million, respectively, calculated based on the annualized amount of change in our sales resulting from all new subscription-based contracts or upgrades on all existing subscription-based contracts, less write-downs and cancellations, for the period reported. Net new bookings is considered a key indicator of future subscription revenue growth and is also used as a metric of sales force productivity by us and investors. However, information regarding net new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. Revenue from our subscription-based contracts was approximately 93%, 95% and 96% of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively. The decline in the percentage of our revenue from subscription-based contracts from 2019 to 2020 and from 2020 to 2021 was primarily due to the acquisitions of companies which contained a higher percentage of transaction-based revenue than our legacy businesses.

For the trailing twelve months ended December 31, 2021, 2020 and 2019, our contract renewal rates for existing CoStar Group company-wide subscription-based services for contracts with a term of at least one year were approximately 92%, 89% and 90%, respectively, and; therefore, our cancellation rates for those services for the same periods were approximately 8%, 11% and 10%, respectively. Our contract renewal rate is a quantitative measurement that is typically closely correlated with our revenue results. As a result, we believe that the rate may be a reliable indicator of short-term and long-term performance absent extraordinary circumstances. Our trailing twelve-month contract renewal rate may decline as a result of negative economic conditions, consolidations among our clients, reductions in customer spending or decreases in our customer base. Revenue from our subscription-based contracts with a term of at least one year was approximately 77%, 80% and 82% of total revenue for the trailing twelve months ended December 31, 2021, 2020 and 2019, respectively. The decline in the percentage of our revenue from subscription-based contracts from 2019 to 2020 and from 2020 to 2021 was primarily due to the acquisitions of companies which contained a higher percentage of transaction-based revenue than our legacy businesses, as well as, increases in our sales of shorter term advertising products.

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Impact of the COVID-19 Pandemic

While the impact of the COVID-19 pandemic continues to evolve, it did not materially affect our consolidated financial statements during 2020 or 2021. We are closely and continually monitoring the impact of the COVID-19 pandemic on our business, employees, customers and communities. We continue to monitor the guidelines and mandates provided by governmental and health authorities and plan to continue adapting our business operations when and as deemed appropriate to comply with these guidelines and mandates and to respond to changing circumstances. Most of our workforce has been fully vaccinated against COVID-19 and, where permitted, has returned to the office. We have resumed in-person marketing events and some business travel. The global workforce has been operating in an extraordinary and mostly digital and remote manner as the world adapted during the COVID-19 pandemic. During this time, many working adults moved to different locations and adjusted to a different way of living. As we transitioned our employees back to the office, we experienced, and we expect to continue to experience, attrition among our workforce resulting in increased costs. Continued attrition or the inability to replenish and grow our work force may result in work disruptions in the future. Overall, the increased direct spend related to the COVID-19 pandemic, including office reconfiguration to enable social distancing and employee hiring and retention programs, has not been material to date and has had minimal impact on our financial position and operating results.

It is currently unclear how the commercial real estate industry will ultimately be impacted by the COVID-19 pandemic as businesses formulate and execute plans for employees to return to the office, implement hybrid work arrangements – allowing work from the office or home, or switch to all work from home. If the demand for office space decreases significantly, there could be a downturn in the commercial real estate market which may materially adversely affect many of our clients. A depressed commercial real estate market would have a negative impact on our core customer base, which could impact our customers’ ability to subscribe and pay for our services and reduce demand for our services. Reduced demand and increased cancellations could cause our revenues or our revenue growth rates to decline and reduce our profitability.

During 2021, excluding our multifamily service offering, which is discussed under Service Offerings above, our company-wide net new bookings and renewal rates for subscription-based services have returned to pre-pandemic levels. In addition, we saw improvements in collection trends along with improvements in the economy which led us to reduce our allowance for credit losses previously taken. Due to the uncertainty associated with the COVID-19 pandemic and any resulting economic impacts, we will continue to monitor these trends and the effect on our results of operations. Any anticipated changes in financial performance discussed in this report are based on our current observations and experience and involve estimates and assumptions. As the future extent and duration of the effects of the COVID-19 pandemic remain unclear, our estimates and assumptions may evolve as conditions change and actual results may vary.

The effects of the pandemic have not affected our ability to date to access funding on reasonably similar terms as were available to us prior to March 2020.We strengthened our liquidity position through an equity offering of common stock in May 2020 and an offering of Senior Notes and amendment and restatement of our credit facility in early July 2020. See Note 11 and Note 15 in this Annual Report on Form 10-K for further discussion of our equity and Senior Notes offerings in 2020 and the 2020 Credit Agreement.

Development, Investments and Expansion

We plan to continue to invest in our business and our services, evaluate strategic growth opportunities, and pursue our key priorities as described below, while we closely monitor the economic developments from the COVID-19 pandemic and manage our response to such developments. We are committed to supporting, improving and enhancing our information, analytics and online marketplace solutions, including expanding and improving our offerings for our client base and site users, including property owners, property managers, buyers, commercial tenants and residential renters and buyers. We expect to continue our software development efforts to improve existing services, introduce new services, integrate and cross-sell services, integrate recently completed acquisitions and expand and develop supporting technologies for our research, sales and marketing organizations. We may reevaluate our priorities as the COVID-19 pandemic and its economic impact continues to evolve.

Our key priorities for 2022 currently include:

•Continuing to develop and invest in residential marketplaces. Our residential team is creating new and improved tools to help consumers have a highly contextual experience when searching for homes supported by high quality media and in-depth attributes of homes and details of the surrounding neighborhoods, parks and schools and to help consumers collaborate with their agent and other consumers. We are also creating new and improved tools to help agents promote their residential listings, connect with buyers and sellers and streamline their daily workflow. In October 2021, we reached an agreement to create, maintain and market a consumer-facing search website and mobile app for the Real Estate Board of New York's Residential Listing Service. In accordance with that agreement, we are developing a

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custom version of the Homesnap platform, branded as Citysnap™, specifically for the five boroughs of New York City. To support the expanded product offering, we expect to increase our investment in residential products in 2022 by approximately $200 million. The most significant components of our investment are expected to be content development, marketing costs and technology resources.The increase in our investment in residential products in 2022 is expected to reduce our results of operations and cash flow from operations for the year ended December 31, 2022. We plan to continue to monitor and evaluate these investments and adjust our residential business strategy and level of investment as we determine appropriate.

•Continuing to invest in CoStar, including:

◦Enhancing benchmarking capabilities. We integrated STR's data into CoStar in 2021 and continue to develop dynamic analytics for and additional coverage of hospitality properties. We plan to apply STR's benchmarking capabilities within CoStar;

◦Developing CMBS Analytics, which will aggregate loan and property data across covered markets. The initial CMBS Analytics release is expected to include loan origination metrics, distressed loan levels and maturity volumes, as well as detailed revenue and expense information. In later releases of this solution, we plan to include detailed prepayment information on disposed loans;

◦Continuing to develop a solution for lenders that leverages CoStar's Risk Analytics capabilities to support lenders with risk management, underwriting, surveillance and compliance reporting. Lender was released in beta in February 2022 and provides a focus on portfolio risk analytics and surveillance to help lenders meet regulatory and accounting requirements. Subsequent releases are expected to focus on loan origination and underwriting; and

◦Expanding our international presence by hiring managers and teams of field researchers in European markets.

•Continuing to improve and market our Apartments.com service offerings to create the best and most comprehensive consumer rental search experience as well as continuing to advance the digital rental experience that allows renters to apply for leases and make rent payments, and for landlords to receive and assess tenant applications online through a single platform. We seek user feedback as we work to improve our services and continue to aggressively market our multifamily listing services in an effort to attract consumers and, in turn, provide more value to advertisers. Our Apartments.com marketing spending is focused on enhanced brand awareness and search engine marketing. As we continue to assess the success and effectiveness of our marketing campaign, we will continue to work to determine the optimal level and focus of our marketing investment for our multifamily listing services for future periods and may adjust our marketing spend and focus as we deem appropriate. Apartments.com has been successful in generating increased traffic to the network and as a result is delivering increased leads per ad to customers. We have implemented a new pricing strategy to align the product level prices with the value of the leads generated. We intend to monitor our new pricing strategy to determine whether current pricing reflects the increased lead generation we are delivering to our customers.

•Continuing to invest in the LoopNet marketplaces. To support the LoopNet marketplaces, we implemented training and incentive programs for our existing sales team to increase sales of LoopNet advertisements, with a focus on brokers and property owners. We have enhanced the content on LoopNet.com (including high-quality imagery), seeking targeted advertisements and are providing premium marketing services (such as LoopNet Diamond, Platinum and Gold Ads) that increase a property listing’s exposure, and adding more content for premium listings to better meet the needs of a broader cross section of the commercial real estate industry. We are continuing our plans to recruit and develop a dedicated LoopNet sales team to help support and grow the business. To generate brand awareness and site traffic for the LoopNet.com network, we expect to continue to incur costs in a multi-media marketing campaign, reinforced with search engine optimization efforts and will continue to work to determine the optimal level and focus of this marketing effort for future periods and may adjust the spend and focus as deemed appropriate.

•Continuing to invest in the Ten-X auction platform. We have integrated the Ten-X platform with both CoStar and LoopNet to expand the audience for Ten-X auctions to include our commercial real estate users. We also plan to enhance access to Ten-X's data room information from CoStar and LoopNet. To increase exposure of properties to be auctioned on Ten-X, we are allocating banner space on both our CoStar and LoopNet sites for advertising for Ten-X properties. We continue to execute our plan to expand the Ten-X sales force and focus on increasing the number of qualified bidders and the number of owners bringing properties to the site. To generate brand awareness and site traffic for the Ten-X platform, we expect to continue to incur costs in a multi-media marketing campaign, reinforced with search engine optimization efforts and will continue to work to determine the optimal level and focus of this marketing effort for future periods and may adjust the spend and focus as deemed appropriate.

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We intend to continue to assess the need for additional investments in our business in order to develop and distribute new services and functionality within our current platform or expand the reach of, or otherwise improve, our current service offerings. Any future product development or expansion of services, combination and coordination of services or elimination of services or corporate expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures. Any new investments, changes to our service offerings or other unforeseen events could cause us to experience reduced revenues or generate losses and negative cash flow from operations in the future. Any development efforts must comply with our credit facility, which contains restrictive covenants that restrict our operations and use of our cash flow and may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Annual Report on Form 10-K.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles (“GAAP”). We also disclose and discuss certain non-GAAP financial measures in our public releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we may disclose include net income before interest (expense) income, other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share. EBITDA is our net income before interest (expense) income, other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. We typically disclose EBITDA on a consolidated and an operating segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs and settlements and impairments incurred outside our ordinary course of business. Adjusted EBITDA margin represents adjusted EBITDA divided by revenues for the period. Non-GAAP net income is determined by adjusting our net income for stock-based compensation expense, acquisition- and integration-related costs, restructuring costs, settlement and impairment costs incurred outside our ordinary course of business and loss on debt extinguishment, as well as amortization of acquired intangible assets and other related costs, and then subtracting an assumed provision for income taxes. Non-GAAP net income per diluted share is a non-GAAP financial measure that represents non-GAAP net income divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income per diluted share.

We may disclose adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share on a consolidated basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry.

We view EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as operating performance measures. We believe that the most directly comparable GAAP financial measure to EBITDA, adjusted EBITDA and non-GAAP net income is net income. We believe the most directly comparable GAAP financial measures to non-GAAP net income per diluted share and adjusted EBITDA margin are net income per diluted share and net income divided by revenue, respectively. In calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share as a substitute for any GAAP financial measure, including net income and net income per diluted share. In addition, we urge investors and potential investors in our securities to carefully review the GAAP financial information included as part of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial information with our EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share.

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EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share may be used by management to internally measure our operating and management performance and may be used by investors as supplemental financial measures to evaluate the performance of our business. We believe that these non-GAAP measures, when viewed with our GAAP results and accompanying reconciliations, provide additional information to investors that is useful to understand the factors and trends affecting our business without the impact of certain acquisition-related items. We have spent more than 30 years building our database of commercial real estate information and expanding our markets and services partially through acquisitions of complementary businesses. Due to these acquisitions, our net income has included significant charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs and loss on debt extinguishment. Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per diluted share exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for amortization of acquired intangible assets, depreciation and other amortization, acquisition- and integration-related costs, restructuring costs; settlement and impairment costs incurred outside our ordinary course of business. We believe the disclosure of non-GAAP measures can help investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year without the impact of these items. We also believe the non-GAAP measures we disclose are measures of our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest (expense) income, other (expense) income, income taxes, stock-based compensation expenses, acquisition- and integration-related costs, restructuring costs, loss on debt extinguishment and settlement and impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on EBITDA and may rely on adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income or non-GAAP net income per diluted share to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of financial items that have been excluded from net income to calculate EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

•Amortization of acquired intangible assets in cost of revenues may be useful for investors to consider because it represents the diminishing value of any acquired trade names and other intangible assets and the use of our acquired technology, which is one of the sources of information for our database of commercial real estate information. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Amortization of acquired intangible assets in operating expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of interest (expense) income and other (expense) income we generate and incur may be useful for investors to consider and may result in current cash inflows and outflows. However, we do not consider the amount of interest (expense) income and other (expense) income to be a representative component of the day-to-day operating performance of our business.

•Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

•The amount of loss on our debt extinguishment may be useful for investors to consider because it generally represents losses from the early extinguishment of debt. However, we do not consider the amount of the loss on debt extinguishment to be a representative component of the day-to-day operating performance of our business.

Set forth below are descriptions of additional financial items that have been excluded from EBITDA to calculate adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

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•Stock-based compensation expense may be useful for investors to consider because it represents a portion of the compensation of our employees and executives. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business.

•The amount of acquisition- and integration-related costs incurred may be useful for investors to consider because such costs generally represent professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

•The amount of settlement and impairment costs incurred outside of our ordinary course of business may be useful for investors to consider because they generally represent gains or losses from the settlement of litigation matters or impairments on acquired intangible assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

•The amount of restructuring costs incurred may be useful for investors to consider because they generally represent costs incurred in connection with a change in a contract or a change in the makeup of our properties or personnel. We do not consider the amount of restructuring related costs to be a representative component of the day-to-day operating performance of our business.

The financial items that have been excluded from our net income to calculate non-GAAP net income and non-GAAP net income per diluted share are amortization of acquired intangible assets and other related costs, stock-based compensation, acquisition- and integration-related costs, restructuring and related costs and settlement and impairment costs incurred outside our ordinary course of business. These items are discussed above with respect to the calculation of adjusted EBITDA together with the material limitations associated with using this non-GAAP financial measure as compared to net income. In addition to these exclusions from net income, we subtract an assumed provision for income taxes to calculate non-GAAP net income. We assume a 25% tax rate, which approximated our historical long-term statutory corporate tax rate, excluding the impact of discrete items.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to investors to understand the factors and trends affecting our business.

The following table shows our net income reconciled to our EBITDA and our net cash flows from operating, investing and financing activities for the indicated periods (in thousands):

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Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in thousands and as a percentage of total revenue):

The following table provides our revenues by type of service (in thousands and as a percentage of total revenue):

(1)As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

(2)For further discussion of our Company, strategy and products, see our business overview set forth in "Item 1. Business" in this Annual Report on Form 10-K.

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Comparison of Year Ended December 31, 2021 and Year Ended December 31, 2020

The following table provides a comparison of our selected consolidated results of operations for the years ended December 31, 2021 and 2020 (in thousands):

(1) As of September 30, 2021, Commercial Property and Land revenue has been further disaggregated into LoopNet, Residential and Other Marketplaces. Prior period amounts have been adjusted to reflect this presentation.

Revenues. Revenues increased to $1.9 billion in 2021, from $1.7 billion in 2020. The $285 million increase was attributable to increases across all of our primary service offerings, led by an $80 million, or 13%, increase in multifamily revenue. The multifamily increase was due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues were $75 million, and were solely comprised of operations from the acquisitions of Homesnap and Homes.com, which contributed revenues of $61 million and $14 million, respectively. CoStar revenues increased $58 million, or 9%, primarily due to higher sales volume driven by an increase in subscribers, as well as, subscribers upgrading their subscriptions, and the resumption of annual price increases for contract renewals that began in September 2021. Other marketplaces revenue increased $33 million, or 38%, primarily driven by Ten-X, which had an increase of $26 million due to two additional quarters of revenue compared to the prior year. LoopNet revenues increased $28 million, or 15%, as a result of stronger site traffic which drove an increase in the price per advertisement as compared to the prior year. Information services revenue increased $12 million, or 9%, primarily due to increases of $6 million and $4 million in revenue for our CoStar Real Estate Manager and STR service offerings, respectively.

Gross Profit. Gross profit increased to $1.6 billion in 2021, from $1.4 billion in 2020. The gross profit percentage was 82% for 2021 compared to 81% for 2020. The increase in gross profit was due to higher revenues partially impacted by an increase in cost of revenues of $48 million, or 16%, primarily due to an increase of $48 million due to the acquisitions of Homesnap, Homes.com and Ten-X. These additional costs primarily consisted of personnel and data costs, and to a lesser extent, amortization, software and equipment costs and bank and merchant fees.

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Selling and Marketing Expenses. Selling and marketing expenses increased to $622 million in 2021, from $536 million in 2020. The $86 million increase was attributable to a $46 million increase in marketing expenses, primarily driven by a $32 million increase in marketing agency spending, primarily for LoopNet and Ten-X, and to a lesser extent, increases in events, digital and other forms of marketing, partially offset by decreases in multifamily agency spending and search engine marketing. There was also a $34 million increase in personnel costs, primarily attributable to the acquisitions of Homesnap, Homes.com and Ten-X, and to a lesser extent, an increase in commissions expense for other products of $7 million, partially offset by a $4 million decrease in bonus expense.

Software Development Expenses. Software development expenses increased to $201 million in 2021, from $163 million in 2020, and remained consistent as a percentage of revenues at 10% in 2021 and 2020. The $38 million increase in the amount of software development expense was primarily due to a $33 million increase in personnel costs driven by the acquisitions of Homesnap, Homes.com and Ten-X, as well as, increased headcount to support the development of our products, and to a lesser extent, a $3 million increase in software equipment expense.

General and Administrative Expenses. General and administrative expenses decreased to $257 million in 2021, from $300 million in 2020, and decreased as a percentage of revenues to 13% in 2021 from 18% in 2020. The $43 million decrease in general and administrative expenses was primarily attributable to the $52 million break fee and $8 million in extension payments that were recognized in the prior year in connection with the Asset Purchase Agreement with RentPath, which was terminated in December 2020. In addition, there was a $14 million decrease in credit loss expense due to better than expected collections, resulting in updated assumptions regarding credit losses and a decrease in reserves previously increased due to uncertainty about the economic effects of COVID-19 pandemic. These decreases were partially offset by an increase of $13 million in general and administrative expenses due to the acquisitions of Homesnap, Homes.com and Ten-X, as well as, increases of $6 million in software and equipment expense, $3 million in personnel costs, $2 million each in depreciation, professional services, occupancy and travel costs.

Customer Base Amortization Expense. Customer base amortization expense increased to $75 million in 2021, from $62 million in 2020, and remained consistent as a percentage of revenues at 4% in 2021 and 2020. The increase in customer base amortization expense was primarily due to the acquisitions of Homesnap, Homes.com and Ten-X.

Interest Expense, net. Interest expense, net was $32 million in 2021, as compared to interest expense, net of $17 million in 2020. The increase of $14 million in 2021 was primarily due to interest expense of $28 million recognized during 2021 on our Senior Notes issued on July 1, 2020 as compared to $14 million in 2020. In addition, there was a decrease of $4 million in interest income caused by lower rates of return on our cash and cash equivalent balances compared to the prior year, partially offset by interest earned on higher average cash balances. These changes were partially offset by prior year interest expense of $5 million incurred on the $745 million draw on our revolving credit facility in the first quarter of 2020.

Other Income (Expense), net. Other income (expense), net was a net income of $3 million in 2021, as compared to net expense of $1 million in 2020. The increase in other income was due to rental income on the Richmond building, which was acquired in 2021, and to a lesser extent, increases in foreign exchange gains due to rate fluctuations.

Income Tax Expense. Income tax expense increased to $111 million in 2021, from $44 million in 2020, as a result of higher income before taxes and an increase in the effective tax rate for 2021 to 28%, compared to 16% in 2020. The increase in the effective tax rate was due to a tax restructuring gain, as well as, a decrease in excess tax benefits. These increases were partially offset by a reduction of reserves for uncertain tax positions previously recognized.

For a comparison of our results of operations for the fiscal year ended December 31, 2020 to the year ended December 31, 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission on February 24, 2021.

Comparison of Business Segment Results for Year Ended December 31, 2021 and Year Ended December 31, 2020

We manage our 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, which is our net income before interest (expense) income and other (expense) income, loss on debt extinguishment, income taxes, depreciation and amortization. Management believes that operating segment EBITDA is an appropriate measure for evaluating the operational performance of our operating segments. EBITDA is used by management to internally measure operating and management performance and to evaluate the performance of the business. However, this

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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.

Segment Revenues. North America revenues increased to $1.9 billion for the year ended December 31, 2021, from $1.6 billion for the year ended December 31, 2020. The $276 million increase in North America revenues was attributable to increases in revenues for several of our services. Multifamily revenues increased $80 million due to higher sales volume and upgrades of existing customers to higher value advertising packages earlier in 2021. Residential revenues increased $75 million due to the acquisitions of Homesnap and Homes.com, which contributed revenues of $61 million and $14 million, respectively. CoStar revenues increased $53 million, primarily due to higher sales volume driven by an increase in customers, as well as, customers upgrading their subscriptions, and the resumption of annual price increases for contract renewals that began in September 2021. Other marketplaces revenue increased $33 million, primarily driven by Ten-X, which had an increase of $26 million due to two additional quarters of revenue compared to the prior year. LoopNet revenues increased $25 million as a result of stronger site traffic which drove an increase in the price per advertisement as compared to the prior year. Information services revenue increased $10 million due to increases of $6 million and $2 million in revenue for our CoStar Real Estate Manager and STR service offerings, respectively. International revenues increased to $67 million in 2021, from $57 million in 2020. The $10 million increase in International revenues was driven by growth in CoStar and STR, which were partially due to favorable changes in foreign exchange rates, and to a lesser extent, increases in LoopNet products, including the acquisition of BureauxLocaux.

Segment EBITDA. North America EBITDA increased to $557 million for the year ended December 31, 2021, from $411 million for the year ended December 31, 2020. The increase in North America EBITDA was primarily due to an increase in revenue, partially offset by increases in personnel, marketing and general and administrative costs. International EBITDA increased to income of $8 million for the year ended December 31, 2021 from a loss of $5 million for the year ended December 31, 2020. The increase was due to increased revenue and lower general and administrative costs, partially offset by increases in personnel and marketing costs.

For a comparison of our business segment results of operations for the fiscal year ended December 31, 2020 to the year ended December 31, 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission on February 24, 2021.

Liquidity and Capital Resources

We believe the balance of cash, cash equivalents and restricted cash, which was $3.8 billion as of December 31, 2021, along with cash generated by ongoing operations and continued access to capital markets, will be sufficient to satisfy the Company's cash requirements over the next 12 months and beyond. The Company’s material cash requirements include the following contractual and other obligations.

Debt. As of December 31, 2021, the Company had outstanding an aggregate principal amount of $1.0 billion of 2.800% Senior Notes due July 15, 2030. Future interest payments associated with the Senior Notes are $252 million, with $28 million payable within 12 months.

Leases. The Company has lease arrangements for office facilities, data centers and certain vehicles. As of December 31, 2021, the Company had fixed lease payment obligations of $134 million, with $30 million payable within 12 months.

Purchase Obligations. The Company’s purchase obligations are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction and have an original term greater than one year. The services acquired under these agreements primarily relate to web hosting, third party data or listings and software subscriptions. As of December 31, 2021, the Company had purchase obligations of $95 million, with $40 million payable within 12 months.

Our future capital requirements will depend on many factors, including, among others, our operating results, expansion and integration efforts and our level of acquisition activity or other strategic transactions. To date, we have grown in part by acquiring other companies, and we expect to continue to make acquisitions.

We currently plan to expand our Richmond, Virginia campus which may result in a material cash requirement in 2022 and beyond. We continue to assess financing options for the project.

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Cash, cash equivalents and restricted cash for the year ended December 31, 2021 increased $71 million to $3.8 billion primarily due to cash generated from operations of $470 million and proceeds from the exercise of stock options and participation in our employee stock purchase plan of $18 million, partially offset by, cash paid for acquisitions of $193 million, purchases of property and equipment and other intangibles of $189 million, including $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia and corporate aircraft for $40 million, as well as, $33 million of repurchases of common stock from employees to satisfy the employees' minimum tax withholding obligations upon the vesting of restricted stock grants.

Net cash provided by operating activities for the year ended December 31, 2021 was $470 million compared to $486 million for the year ended December 31, 2020. The $16 million decrease was due to a decrease in working capital of $141 million driven by payment of the $52 million termination fee pursuant to the Asset Purchase Agreement with RentPath in the first quarter of 2021, partially offset by an increase in net income excluding certain non-cash expenses such as depreciation and amortization and deferred income taxes. We expect to increase our investment in residential products in 2022 by approximately $200 million, which is expected to reduce our cash flow from operations for the year ended December 31, 2022.

Net cash used in investing activities for the year ended December 31, 2021 was $381 million compared to $464 million for the year ended December 31, 2020. The $83 million decrease in cash used in investing activities was primarily due to a decrease in cash paid for acquisitions of $233 million, partially offset by an increase in purchases of property, equipment and other assets which included $123 million for the purchase of an office building and the underlying land located in Richmond, Virginia and corporate aircraft for $40 million, and proceeds from the sale of our ARS investments of $10 million received during 2020.

Net cash used in financing activities for the year ended December 31, 2021 was $15.7 million compared to net cash provided by financing activities of $2.7 billion for the year ended December 31, 2020. This decrease in cash provided by financing activities is primarily due to proceeds from our May 2020 equity offering, net of transaction costs, of $1.7 billion, as well as, proceeds from the issuance of our Senior Notes, net of transaction costs, of $983 million during 2020.

As permitted under the Coronavirus Aid, Relief and Economic Security Act, we deferred payroll taxes due in 2020; all amounts deferred were paid during the year ended December 31, 2021.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We consider policies relating to the following matters to be critical accounting policies:

•Long-lived assets, intangible assets and goodwill;

•Income taxes;

•Revenue recognition; and

•Business combinations.

With respect to our accounting policy for long-lived assets, intangible assets and goodwill, we further supplement in Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K with the following:

We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of long-lived assets and our ability to recover the carrying value of such assets. The accuracy of these judgments may be adversely affected by several factors, including the factors listed below:

•Significant underperformance relative to historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•Significant negative industry or economic trends; or

•Significant decline in our market capitalization relative to net book value for a sustained period.

When we determine that the carrying value of long-lived and identifiable intangible assets may not be recovered based upon the existence of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets that are not subject to amortization are tested annually for impairment by each reporting unit on October 1 of each year and are also tested for impairment more frequently based upon the existence of one or more of the above indicators.

Goodwill represents the future economic benefits arising from a business combination and is calculated as the excess of purchase consideration paid in a business combination over the fair value of assets of the net identifiable assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually by each reporting unit, or more frequently if an event or other circumstance indicates that the fair value of a reporting unit may be below its carrying amount. We 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 we elect to bypass such assessment, we then determine the fair value of each reporting unit. We estimate the fair value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including our discount rate, growth rate and future financial performance. Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies and determined by management to be commensurate with the risk in our current business model. Assumptions about the growth rate and future financial performance of a reporting unit are based on our forecasts, business plans, economic projections and anticipated future cash flows. These assumptions are subject to change from period to period and could be adversely impacted by the uncertainty surrounding global market conditions, commercial real estate conditions and the competitive environment in which we operate. Changes in these or other factors could negatively affect our reporting units' fair value and potentially result in impairment charges. Such impairment charges could have an adverse effect on our results of operations. 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.

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As of October 1, 2021, we performed an assessment of the relevant qualitative factors for our North America and International reporting units and concluded that it was not more likely than not that the fair value of each reporting unit was less than its respective carrying amounts. There have been no events or changes in circumstances as a result of our qualitative impairment analysis on October 1, 2021, that would indicate that the carrying value of each reporting unit may not be recoverable.

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 2 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for further discussion of recent accounting pronouncements, including the expected dates of adoption.