COSTAR GROUP, INC. Q2 2026 earnings call

Thank you, Josh. Hello, and thank you all for joining us to discuss the second quarter 2026 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar CEO and Founder, and Chris Lown, our CFO, I'd like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements. The company's outlook and expectations are based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates, and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's press release issued earlier today in our filings with the SEC. All forward-looking statements are based on the information available to CoStar on the date of this call.

CoStar assumes no obligation to update these statements, whether because of new information, future events, or otherwise. Reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measure discussed on this call are shown in detail in our press release, along with the definitions for those terms. Press release is available on our website located at costargroup.com under Press Room. You've joined us via webcast. Please refer to the press release today to see how to access the replay of this call. Remember, we want to give everybody a chance to ask questions, so please limit your question to one question to start off, and you can re-queue and, time permitting, ask a second question. With that, I'd like to turn the call over to our Founder and CEO, Andy Florance. Andy?

Again, thank you for joining us today. Our second quarter 2026 financial results marked a profitability inflection point for CoStar Group as adjusted EBITDA more than doubled year-over-year to $184 million. This is the second highest quarterly level in company history. We generated $925 million of revenue in the second quarter, an 18% increase year-over-year. That is our 61st consecutive quarter of double-digit revenue growth. Net income increased by 817%, and EBITDA rose 441%. We held our increase in operating costs to just 2% year-over-year, all while continuing to invest in numerous long-term growth initiatives. We expect to deliver the highest full-year adjusted EBITDA in CoStar Group's history in 2026, and we're confirming our full-year guidance range of $780 million-$820 million. Along the way, we expect to deliver two consecutive quarters of our highest ever adjusted EBITDA.

Net new bookings for the quarter were $69 million, up 3% from the first quarter. Our commercial real estate business generated $481 million of revenue in Q2, an increase of 8% year-over-year, and it generated adjusted EBITDA of $172 million, up 7% year-over-year. CoStar revenue was $337 million, up 9% year-over-year, and net new bookings accelerated up 24%. Renewal rates remained an impressive 93%, and NPS held historically strong at 68. Net new bookings to brokers increased 48% year-over-year, including a multi-year renewal of our largest brokerage client. Subscribers on the CoStar platform grew 19% year-over-year to 327,000. That subscriber base creates a powerful demand for commercial property sale and lease listings, and it makes the platform extremely valuable to the brokers and owners who list with us.

CoStar Debt Solutions delivers differentiated risk analytics to commercial real estate lenders by intelligently combining CoStar's information resources with each lender's own proprietary loan data. It delivered its best quarter ever with over $4 million in net new monthly bookings, up 96% year-over-year. We are now applying the benchmarking expertise we developed with STR to debt solutions. 300 lender clients are contributing information on over 100,000 active loans, over $1.2 trillion in outstanding debt, and this is on an anonymized and aggregate basis. The product will give lenders unprecedent visibility to improve decisions across origination, portfolio risk, and compliance. As an example of this value, a lender might discover his or her office loan book is at 80% loan-to-value ratio, while peers are at a more conservative 60%.

That insight would provide and prompt a consideration of a significant risk premium or perhaps a shift to a more conservative lending policy going forward. Clearly, it's a game changer in the lending world. Overall, commercial revenue accelerating growth was partly offset by Ten-X, where we have been restructuring the business for future growth and cost control, and it enabled us to reduce costs by $7 million year-to-date. During this restructuring, revenue declined by $4 million. Going forward, Ten-X will be separated from LoopNet with dedicated sales, marketing, and leadership to more effectively drive growth. We launched four major product initiatives on the core CoStar platform in the second quarter. First, in June, we released CoStar Rent Benchmark, a first-of-its-kind data set built from 4 million AI-abstracted actual leases and lease documents. Rather than using less reliable asking rents or broker report information, this is real data.

Today, we present actual rent benchmark data, and over time, we plan to add modeled rents derived from that information. We have plans to build similar high-quality rent solutions in Australia and the United Kingdom. Secondly, we launched CoStar in France in Q2, building on our Brio Local and Business Immo acquisitions and significant proprietary local research. The platform covers office logistics and hospitality across Paris, Lyon, Marseille, and more than 290,000 properties, 385,000 commercial tenants, 90,000 availabilities, and 75,000 lease and sales comparables. It is one of the deepest CRE databases in the country. Over the next two years, we plan to migrate and upgrade roughly 1,100 Business Immo subscribers to CoStar. Early customer response has been very encouraging.

Within days of launch, we signed our first major global brokerage customer's French business, and a major global investor told us this was their first time they'd ever been able to get an absorption number for Paris. That's a KPI their investment board requires that, until now, was not readily available in France. For our third CoStar product launch in Q2, we launched public record search in the U.K., providing extensive transparency into 6.9 million freehold and leasehold ownership titles and 6.8 million properties and parcel groups. Fourth, we extended our AI-powered lease abstraction engine into CoStar Real Estate Manager. It converts complex lease documents into structured audible records and significantly reduces the time clients spend onboarding and managing leases. We remain focused on launching CoStar in Australia in the second half of this year.

We now have 124 researchers and photographers deployed on the ground in Australia, covering 30,000 listings, 23,000 property profiles, and more than 10,000 sale and lease transactions. Matterport performed well in the second quarter. Subscription revenue grew 16% year-over-year, and we achieved Matterport's all-time best month of enterprise customer acquisition in June. Tomorrow, we will deploy a new pricing plan that reduces the price of the Matterport 3 camera and shifts more of the revenue into SaaS. We believe this will accelerate both adoption and subscription revenue growth. We continue to advance the product roadmap. We fully released E57 import, strengthening Matterport's position as a unified platform for storing, managing, and using multiple sources of 3D spatial data in one spot. The team also released a more powerful digital twin experience.

It presents a home's exterior through a Gaussian splat, lets viewers rotate and fly around the house, and then moves seamlessly inside to experience the home in high-resolution panoramas. Or they can virtually remove the floor and various floors for a true dollhouse view of the home from the sky. This capability was on our acquisition rationale roadmap, and it's really exciting to see it successfully deliver. The Matterport 3 camera has proven a highly efficient, reliable capture device, and post-acquisition, we have restarted hardware development. We have now produced the first prototypes of the next generation Matterport 4, which offers higher measurement location accuracy and higher resolution panoramas, which is particularly valuable to architecture and construction uses. We anticipate delivering the Matterport 4 in late 2027. LoopNet generated $87 million of revenue in Q2, up 14% year-over-year.

Paid listings increased 9% year-over-year in the U.S. to 220,000 and grew 24% in Canada and 52% in the U.K. year-over-year. We expanded the LoopNet sales force to 225 reps, up from 191 a year ago. Asset-based pricing is driving adoption among lower-value listings while capturing more value from higher-value listings. This is contributing to sequential acceleration of net new bookings from Q1 to Q2. LoopNet's European revenue grew 10% year-over-year, with average monthly unique visitors up 88%. Our investment of Wikicasa in Italy creates the opportunity to add Italian coverage to LoopNet. We are now partnered with dozens of Italy's largest brokerage firms, and Wikicasa lists over 100,000 commercial real estate listings from more than 12,000 broker branches. Our Australian CRE marketing platform, commercialrealestate.com.au, continues to grow, with Q2 visits up 76% year-over-year.

We have decided to shift the release of LoopNet in Australia to late 2027, prioritizing instead releasing residential integration first to achieve significant potential margin enhancements sooner. STR delivered a strong Q2 with nearly 70% of its net new revenue coming from brand new logo sales, a clear signal that growth is being driven by market expansion, not just pricing. We landed 261 new logos globally with U.S. headliners Nobu Hospitality and Baywood Hotels, alongside a standout Japan cohort in Kajima and UDS. Even with the Iran conflict weighing on the Middle East, we continued expanding with Alistithmar in Saudi Arabia and secured a significant Indian win with Samhi Hotel Investments. BizBuySell revenue grew a moderate 5% year-over-year. We're expanding the business with benchmarking tools that help buyers and sellers understand business value and evaluate opportunities while partnering with SBA lenders to embed financing into the marketplace.

Nearly one in three buyers now complete a robust buyer profile in BizBuySell and an NDA to speed the deal process. There's over 32,000 profiles in total, including 8,700 added in Q2 alone. Residential revenue was $440 million in Q2, up 33% year-over-year. Second quarter adjusted EBITDA grew $41 million over the first quarter, bringing our residential segment to a positive adjusted EBITDA in Q2. Apartments.com delivered $318 million of revenue in the second quarter, up 9% year-over-year. June's gross sales were the third-highest sales month in Apartments.com history. Apartments entered the quarter with nearly 93,000 paid properties, up 12% year-over-year, sustaining 18 months of adding approximately 1,000 paid properties each month, with monthly renewal rates holding strong at 99%. Average revenue per property was largely flat, just down about 3.6% year-over-year.

The decline was primarily due to a mix change in sales to smaller communities, which carry a lower average pricing. We're holding firm on price integrity while a competitor discounts aggressively to buy a share because their quality gap is measurable. PERQ, a leading digital marketing analytics firm, analyzed lead-to-lease conversion across more than 1,000 properties and found that Apartments.com leads convert at 2.5x the rate of the next closest competitor. Entrata data shows Apartments lead-to-lease conversion rose 14% year-over-year through May, and a leading national property manager reports an 18% improvement. We believe that the ROI of our product will win out over the medium term. Our sales organization, the largest and most active in the industry, conducted 196,000 quality meetings in Q2 and maintained an industry-leading Net Promoter Score of 88.

Thank you, Andy. For the second quarter of 2026, we generated revenue of $925 million, an 18% increase year-over-year, and in line with our guidance range. Adjusted EBITDA was $184 million for the quarter, above the high end of our guidance range, and represented a 20% adjusted EBITDA margin. This is an impressive 900 basis point increase year-over-year. Commercial revenue was $481 million, up 8% year-over-year, and in line with our guidance. Residential revenue was $444 million, up 33% year-over-year, and also within our guidance range. Adjusted EBITDA for the commercial segment was $172 million, up 7% year-over-year, and above the high end of guidance, with a 36% adjusted EBITDA margin. Our residential segment generated a record adjusted EBITDA of $12 million, marking its first quarter of profit since we launched Homes in Q1 2024.

We expect this to continue to grow as we focus on monetizing our investments and driving profitable growth and margin expansion. The outperformance in adjusted EBITDA overall was driven by actions to reduce personnel costs and continued operating efficiencies. We are particularly pleased that we delivered a 20% adjusted EBITDA margin, a full quarter ahead of our expectations. Net new bookings in the second quarter of 2026 were $69 million. Within our commercial segment, CoStar revenue grew 9% year-over-year in the second quarter to $337 million. Subscriber counts increased an impressive 19% versus the second quarter of 2025, and CoStar Debt Solutions delivered its second consecutive record sales quarter. LoopNet revenue increased 14% to $87 million, supported by continued momentum in paid listings as we continue to build the only global commercial real estate marketplace. Other commercial revenue was $57 million, down 5% year-over-year.

This was primarily driven by lower transaction volumes at Ten-X. Matterport continued to outperform with subscription revenue growth rates in the high teens versus high single-digit growth prior to the acquisition. Residential revenue was $444 million, up 33% year-over-year and up $19 million sequentially. The sequential growth primarily resulted from continued strong revenue from Domain, as well as increases in Apartments and Homes that exceeded their sequential increases in Q1 2026. Adjusted EBITDA increased to 39% sequentially from $132 million in 1Q 2026 to $184 million this quarter. Our focus on disciplined expense management, particularly in personnel and operating expenses, as well as continued efficiency gains across the business, including early benefits from AI and other expense initiatives, contributed to the increased profitability in Q2 2026.

Importantly, proactive expense management from the first half of the year has established a new baseline for expenses that will continue to benefit us moving forward. Year-to-date, revenue was $1.82 billion, up 20% year-over-year, with approximately half of the revenue growth coming organically. Commercial revenue was $953 million, up 11% year-over-year, and residential revenue was $869 million, up 32% year-over-year. Turning to operational metrics. Sales headcount at June 30th was 1,975, up 8% year-over-year and roughly flat on an organic basis. Increases in LoopNet and Apartments sales staff were offset by the strategic reduction of Homes sales reps as we focus on productivity and efficiency at Homes.com. Our contract renewal rate remains strong at 89%, with customers of five years or more renewing at 94%.

Subscription revenue on annual contracts was 72% for the second quarter, consistent with post-Domain acquisition subscription rates. We repurchased 2.4 million shares for $82.1 million in the second quarter, which brings our total share repurchases in 2026 to 13.75 million shares for a total cost of $587 million. Since the beginning of 2025, we have repurchased nearly 21 million shares for approximately $1.1 billion. We expect to continue our open market repurchases throughout the remainder of 2026 and expect a total of $700 million in share repurchases for 2026. For Zonda, we are still in the regulatory approval process. We are excited to welcome the talented Zonda team to CoStar Group and expect to close in the second half of 2026. We will provide an update on the accreted financial impact of this transaction in the earnings release after the deal closes. Turning to guidance.

To be clear, we have not included any financial impact from the expected closing of the Zonda acquisition in our 2026 guidance. For the third quarter of 2026, we are guiding revenue to range between $935 million and $945 million, representing a 13% year-over-year increase at the midpoint. Commercial revenue is expected to range from $489 million-$494 million, 7% growth at the midpoint, with residential revenue expected to range from $446 million-$451 million, a 20% increase at the midpoint. Adjusted EBITDA is expected to range from $190 million-$210 million, an adjusted EBITDA margin of 21% at the midpoint. This is over 700 basis points higher than Q3 2025's adjusted EBITDA margin. We are guiding commercial adjusted EBITDA to range between $162 million and $172 million, with residential adjusted EBITDA of $28 million-$38 million.

We are providing adjusted EPS guidance of $0.31-$0.34 for the third quarter, which assumes 403 million weighted average shares outstanding. For the full year of 2026, we are revising our previous revenue guidance range to $3.715 billion-$3.755 billion, representing a 15% year-over-year increase at the midpoint. Commercial revenue is expected to range from $1.94 billion-$1.96 billion, a 9% increase at the midpoint, while residential revenue is expected to range from $1.775 billion-$1.795 billion, a 22% year-over-year increase at the midpoint. Our revised revenue outlook reflects a series of recent operating decisions designed to drive profitable growth over the long term. The key drivers of the revision include Ten-X, where we restructure the business to improve profitability.

Homes.com, where we optimize our sales organization for productivity, reducing average sales headcount by 21% sequentially while still delivering similar total net new bookings compared to Q1. Apartments.com, where we chose to retain price integrity based on our confidence that we deliver the best ROI to our customers. Taken together, these actions moderated near-term revenue growth, but we believe they position our businesses to generate increased revenue growth over time, leading to better long-term profitability. As a result of our stringent focus on expense management, we are affirming the adjusted EBITDA guidance that we provided last quarter, which calls for adjusted EBITDA to range from $780 million-$820 million. This is an increase at the midpoint of $30 million from our 2026 guidance provided on our February earnings call. We are also affirming our full-year adjusted EPS guidance range of $1.32-$1.39.

This range is $0.08 or 6% higher than our guidance provided in February of this year. We remain committed to achieving our long-term range EBITDA targets laid out earlier this year. With that, I'll turn the call back over to Andy Florance.

Thank you, Chris. As announced, this is Chris' last earnings call in our CFO seat. On behalf of the Board of Directors and our colleagues, I want to thank him deeply for his many contributions to the company over the past two years. We wish him Godspeed as he heads to Allstate to take the CFO seat there. Allstate will be in good hands. As Chris departs, we congratulate Robin Rossmann on his promotion to CoStar Group's new Chief Financial Officer. Robin brings more than two decades of financial, operational, and strategic leadership, including over a decade at Deloitte and more than a decade successfully running CoStar Group's businesses around the world. He has proven he can drive margin expansion and profitable growth.

Over the past two years, he dramatically improved the margins of our European business, eliminating approximately $50 million in costs, roughly 25% of the European cost structure, while still delivering double-digit revenue growth. Anecdotally last week, Rob and I enjoyed dinner with CoStar Group's three former CFOs, Carchedi, who served nine years enjoying a 489% stock appreciation, Radecki, who served for eight years with only a 270% stock increase, and Wheeler, who served eight years with a solid 300% stock appreciation. They each challenged Robin to beat their stellar performances. Given the fact that Robin's got talent, it should be no problem. Chris could have given these guys a run for their money if Allstate hadn't recruited him, but Robin's up at bat. On behalf of our shareholders, our Board, and our 8,000 colleagues, welcome Robin.

In conclusion, CoStar Group is off to a strong start in 2026 with solid revenue and EBITDA growth. During the roadshow earlier this year, where I met with most of our investors and analysts, I emphasized that we're fully committed to the adjusted EBITDA targets we provided for 2026 through 2030. This year, we have reduced our projected 2026 expense base by roughly $100 million. This active cost management gives us a headstart on delivering our 2026 through 2030 adjusted EBITDA targets. With that, we'll turn the call over to questions.