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CoStar Group Inc. Reports Operating Results (10-Q)

October 27, 2011 | About:
10qk

10qk

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CoStar Group Inc. (CSGP) filed Quarterly Report for the period ended 2011-09-30.

Costar Group Inc. has a market cap of $1.47 billion; its shares were traded at around $58.03 with a P/E ratio of 71.6 and P/S ratio of 6.5. Costar Group Inc. had an annual average earning growth of 15.9% over the past 5 years.

Highlight of Business Operations:

Segment EBITDA. U.S. EBITDA decreased to $6.8 million in the third quarter of 2011 from $9.5 million in the third quarter of 2010. The decrease in U.S. EBITDA was due primarily to approximately $5.8 million in acquisition related costs in the third quarter of 2011 as a result of the pending LoopNet acquisition as well as an increase in marketing costs of approximately $3.4 million related to the launch of CoStarGo, partially offset by an approximate $6.6 million increase in revenues in the third quarter of 2011 from the third quarter of 2010. International EBITDA decreased to a higher loss of approximately $800,000 in the third quarter of 2011 from a loss of approximately $100,000 in the third quarter of 2010. This higher loss was primarily due to increased personnel costs. International EBITDA includes a corporate allocation of approximately $100,000 for each of the three months ended September 30, 2011 and 2010. The corporate allocation represents costs incurred for U.S. employees involved in international management and expansion activities.

General and Administrative Expenses. General and administrative expenses increased to $16.6 million in the third quarter of 2011 from $12.4 million in the third quarter of 2010, and increased as a percentage of revenues to 26.1% in the third quarter of 2011 compared to 21.8% in the third quarter of 2010. The increase in the amount and percentage of general and administrative expenses was primarily due to the incurrence of approximately $5.8 million in acquisition related costs in connection with the pending LoopNet acquisition and approximately $1.5 million in lease restructuring charges related to the consolidation of our White Marsh, Maryland office. These increases are partially offset by the deferred consideration adjustment of approximately $1.2 million in September 2011 related to the October 19, 2009 acquisition of Resolve Technology. Additionally, during the three months ended September 30, 2010, we incurred expenses that did not recur in 2011, including the lease restructuring charges related to the consolidation of our Boston, Massachusetts office of approximately $1.3 million in September 2010 as well as approximately $600,000 for other general and administrative costs.

Segment EBITDA. U.S. EBITDA decreased to $26.5 million for the nine months ended September 30, 2011, from $29.1 million for the nine months ended September 30, 2010. The decrease in U.S. EBITDA was due primarily to approximately $11.1 million in acquisition related costs for the nine months ended September 30, 2011 as a result of the pending LoopNet acquisition as well as to increased personnel costs of approximately $8.7 million, partially offset by an approximate $17.0 million increase in revenues for the nine months ended September 30, 2011 from the nine months ended September 30, 2010. International EBITDA increased to a lower loss of approximately $2.8 million for the nine months ended September 30, 2011, from a loss of approximately $3.1 million for the nine months ended September 30, 2010. This lower loss was primarily due to the $2.0 million settlement of our litigation with Nokia U.K. Limited in July 2010 that did not recur in 2011, partially offset by increased personnel costs for the nine months ended September 30, 2011. International EBITDA includes a corporate allocation of approximately $200,000 and $400,000 for each of the nine months ended September 30, 2011 and 2010, respectively. The corporate allocation represents costs incurred for U.S. employees involved in international management and expansion activities.

General and Administrative Expenses. General and administrative expenses increased to $43.4 million for the nine months ended September 30, 2011, from $37.2 million for the nine months ended September 30, 2010, and increased as a percentage of revenues to 23.4% for the nine months ended September 30, 2011, compared to 22.1% for the nine months ended September 30, 2010. The increase in the amount and percentage of general and administrative expenses was primarily due to the incurrence of approximately $11.1 million in acquisition related costs in connection with the pending LoopNet acquisition and approximately $1.5 million in lease restructuring charges related to the consolidation of our White Marsh, Maryland office. These increases are partially offset by the deferred consideration adjustment of approximately $1.2 million in September 2011 related to the October 19, 2009 acquisition of Resolve Technology. Additionally, during the nine months ended September 30, 2010, we incurred expenses that did not recur in 2011, including the $2.0 million accrual of our litigation with Nokia U.K. Limited in June 2010, approximately $800,000 accrued in anticipation of the settlement of the litigation in the United States District Court for the Southern District of California in June 2010, the lease restructuring charges related to the consolidation of our Boston, Massachusetts office of approximately $1.3 million in September 2010, as well as approximately $1.1 million for other legal costs associated with litigation.

On April 27, 2011, we signed a definitive agreement to acquire LoopNet. Pursuant to the merger agreement, LoopNet stockholders will receive $16.50 in cash and 0.03702 shares of CoStar common stock for each share of LoopNet common stock, representing a total equity value of approximately $860.0 million and an enterprise value of $762.0 million. We have received a commitment letter from J.P. Morgan Bank for a fully committed term loan of $415.0 million and a $50.0 million revolving credit facility, of which $37.5 million are committed, which will be available, subject to customary conditions, to fund the acquisition and the ongoing working capital needs following the transaction. In June 2011, we also completed an equity offering and received net proceeds of approximately $247.9 million. We intend to use these proceeds to fund a portion of the cash consideration payable in connection with the acquisition of LoopNet. The transaction is subject to customary closing conditions, including antitrust clearance. We have incurred approximately $11.1 million in acquisition related costs for the nine months ended September 30, 2011 as a result of the pending LoopNet acquisition, of which we have paid approximately $4.8 million and expect to pay the remaining balance in the fourth quarter of 2011 and into 2012. We expect to incur approximately $5.0 million to $6.0 million in additional acquisition related costs. The holders of a majority of the outstanding shares of LoopNet s common stock and Series A Preferred Stock, voting together as a single class on an as-converted basis, approved the adoption of the merger agreement on July 11, 2011. The transaction is not subject to a financing condition. In certain circumstances set forth in the merger agreement, if the merger is not consummated or the agreement is terminated, LoopNet may be obligated to pay us a termination fee of $25.8 million. Similarly, in certain circumstances set forth in the merger agreement, if the merger is not consummated or the agreement is terminated, we may be obligated to pay LoopNet a termination fee of $51.6 million. We are not in a position yet to estimate the financial impact the proposed merger will have on our operations.

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