CoStar Group Inc (CSGP) 2022 Q2 法說會逐字稿

Good afternoon, and thank you for attending today's CoStar Group Second Quarter Earnings Call. My name is Austin, and I will be your moderator for today. (Operator Instructions) I would now like to pass the conference over to our host, Cyndi Eakin with CoStar. Cyndi , please proceed.

Thank you, operator. Good evening, and thank you all for joining us to discuss the second quarter 2022 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO; and Scott Wheeler, our CFO, I'd like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements, including the company's outlook and expectations for the third quarter and full year 2022 based on current beliefs and assumptions. Forward-looking statements involve any risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from forward-looking 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 and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q under the heading Risk Factors.

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 as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of non-GAAP financial measures discussed on this call, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per diluted share and forward-looking non-GAAP guidance are also shown in detail in our press release issued today, along with the definition for those terms.

The press release is available on our website located at costargroup.com under Press Room. As a reminder, today's conference call is being webcast, and the link is also available on our website under Investors. Please refer to today's press release on how to access the replay of this call.

And with that, I would like to turn the call over to our Founder and CEO, Andy Florance.

Thank you, Cyndi . Good evening, everyone, and thank you for joining us for CoStar Group's Second Quarter 2022 Earnings Call. Cyndi and Scott are in our Washington, D.C. office tonight, and I'm joining you from our London office, a little bit later in the evening.

We delivered outstanding results in the second quarter, setting our third quarterly sales record in a row. Annualized net new sales bookings were $84 million in the second quarter, a 66% increase over the same quarter in 2021. Our 3 main products, CoStar, Apartments.com and LoopNet all have exceptional sales quarters, growing a combined 81% on a year-over-year basis.

Total revenue for the second quarter of '22 was $536 million, growing 12% year-over-year and coming in above the high end of our guidance range of consensus estimates. Our subscription revenue in the quarter grew to $428 million and clients subscribing for 5 years or more renewed at 97.8%.

As we ramp up our investment in our residential product strategies, we continue to deliver strong profit results, with adjusted EBITDA of $159 million in the second quarter, well above the high end of our guidance range and consensus. As a result, we will raise our full year 2022 revenue, adjusted EBITDA and adjusted EPS guidance.

Revenue for our CoStar product was $207 million in the second quarter, representing a 17% increase over the same quarter a year ago. CoStar net new sales bookings increased by 60% in the second quarter, making the last 4 quarters the highest sales quarters on record. The trailing 12-month sales level as of June 30 is 145% greater than the same period 12 months prior.

Our consistent strong revenue and sales performance for CoStar is the result of a steady stream of product innovations that deliver expanded capabilities and increased customer value. Over the past few years, we've added hospitality data, integrated CMBS data and analytics, launched a new lender product and opened up full multinational reach for our CoStar customers. We continue to grow our subscriber base and now have 177,000 CoStar professional users. This quarter, we crossed over 40,000 subscribing sites. CoStar's ASP continues to climb as we transition more and more of our customers to our global solutions.

Overall, I'm very confident in our ability to sustain our current levels of strong double-digit revenue growth for CoStar Group. I think I've been saying that for 30 years.

Apartments.com turned in an outstanding performance in the second quarter with net new sales bookings up 138% compared to the second quarter of last year. This is the second highest quarterly sales ever for Apartments.com. Sequential growth in sales was 35% in the second quarter of this year, which makes this the third quarter in a row of improving sales results.

Apartment vacancy rates have increased at a rapid pace throughout the first half of 2022, climbing -- quickly climbing from the all-time low vacancy rates for the third quarter of '21 that were suppressing demand for apartment advertising. Vacancy rates for 3-, 4- and 5-star properties were up 60 basis points to 5.7% in the second quarter from that all-time low of 5.1% in the third quarter of '21. We're now only 80 basis points below the historic pre-pandemic vacancy rate average for that class of properties.

We believe we'll be back to historic average vacancy rates in the next several quarters. One of the drivers there is demand for apartments has stalled in the second quarter of '22, with absorption of only 67,000 units. That is a dramatic 74% drop from the 260,000 unit absorption level in the second quarter of '21. New apartment construction deliveries are expected to reach record levels this year. The forecasted 415,000 unit deliveries are on par with the highest levels recorded since the mid-'80s. Tampa and Phoenix, for example, will add over 25,000 units while absorption in these markets is projected to be 1/3 of new supply. The need to fill these newly constructed apartments building clearly increases demand for Apartments.com.

With raising vacancy rates, the number of properties advertising on Apartments.com increased sequentially in the second quarter of '22, continuing the positive trend that began in March of this year. In addition, cancellation rates have improved by approximately 20 basis points since the end of last year.

Our Apartments.com sales force delivered outstanding results in the second quarter. Sales productivity per person increased 64% year-over-year and is at an all-time high. With post-pandemic restrictions behind us, we're once again focused on in-person meetings with our customers and our prospects.

In the second quarter of '22, our field sales team conducted an impressive 55,000 in-person meetings with our clients, and that's up 35% from the first quarter of this year. This has always been a relationship-based industry and our in-person meetings are the most effective way to build customer satisfaction and demonstrate the value of our products.

Traffic to our Apartments.com network improved sequentially as we ramped up our advertising campaign, starring Jeff Goldblum as Brad Bellflower, which delivered over 4 billion impressions in the second quarter alone. I am very happy with the outstanding results our Apartments.com team is turning in, and I'm increasingly confident that our positive sales momentum will result in double-digit revenue growth in the second half of this year.

Turning to CoStar Real Estate Manager. The product line continues to grow the Fortune 2000 and global customer base of CoStar adding 23 major new customers in Q2. Subscription revenue grew 15% in the first half of 2022 over the same period in '21. We're on path to have the Real Estate Manager product integrating to CoStar by 2023. This will significantly increase revenue opportunity for CoStar by connecting the Fortune 2000 tenant organic customer base of Real Estate Manager with the power of the CoStar network.

LandsofAmerica, our rural land marketplace, is focusing on 3 key growth initiatives. These initiatives include growing the field sales team, introducing Signature ads and launching Land.com. We've grown our sales force at Lands by 16% year-to-date. Last year, LandsofAmerica began offering gold at Signature ads similar to the differentiated Signature ads at Apartments.com and LoopNet offer. This quarter, Lands launched platinum Signature ads. Our standard ads cost $22.75 per month on average. Our gold ads average much higher number at $359 per month and the platinum ads averaged $599 per month.

Since the recent launch, we sold 932 Signature ads.

Growing the sales force and introducing premium exposure listings helped drive 34% year-over-year revenue growth this quarter in the LandsofAmerica business. Later this quarter, we will redirect LandsofAmerica.com to our URL Land.com to harness the power of the simple, memorable and valuable domain. Lands.com will then join category definers like Apartments.com and Homes.com.

LoopNet had the strongest sales quarter in years, with net new sales bookings growing 43% of the same quarter last year. Second quarter revenue was $56 million, up 10% over the prior year. I'm encouraged to see our efforts to build a LoopNet sales force are progressing well. Year-to-date, we've grown the dedicated LoopNet sales team by 95%. We've built a strong infrastructure with regional sales management team and a strong training program.

Our training and onboarding process is much more effective now that we're able to train and onboard together in person. As a result, our new sales team is delivering 100% more sales in their 6 months in production than when compared to the LoopNet sales team we onboard remotely during the pandemic.

Traffic to our LoopNet network of sites remained strong in the second quarter, averaging approximately 12 million unique visitors per month. We have an order of magnitude more traffic than our closest competitor. That gap between LoopNet and our next closer traffic competitor widened by 1 million unique visitors during the second quarter. So we're pulling away even further.

This demonstrates the effectiveness of our SEO, the quality of our content, the strength of our brand, the quality of site design, the performance of the site and the impact of our Space for Dreams advertising campaign, which generated 253 million impressions in the second quarter.

We believe that LoopNet will deliver significantly more value to customers, users and shareholders as an international platform. Trillions of dollars cross many borders to invest in commercial real estate. An international platform has significant scale advantages in software development, both in functionality and cost per user efficiency. We recently invested to relaunch LoopNet in Canada under LoopNet.ca. The number of monthly unique visitors on the Canadian LoopNet network has surged 45% year-over-year. That investment has significantly widened our competitive lead in Canada against the next closest CRE site Spacelist.ca.

According to Semrush, in June of '21, the LoopNet network had 48% more traffic than did Spacelist.ca. This June, the LoopNet network has pulled away and has 233% more traffic than the Spacelist.ca. So a 4, 5x advantage. We're now investing significant energy into launching LoopNet in the U.K., France, Spain and Germany and the rest of Europe in that order. In fact, I believe our President of LoopNet, I just saw him on the video screen in France just now.

We currently own leading CRE marketplaces across the U.K., Europe, with Realla in the U.K. and BureauxLocaux in France and Belbex in Spain. When we compete, we will have one code base for LoopNet globally and redirect when we're complete with the integration. We'll have one code base for LoopNet globally and we'll redirect traffic from our family of European platforms into LoopNet. Users will build and use LoopNet to search for investments or properties to lease from Madrid to Paris or London to New York or San Francisco or Vancouver or more.

A property owner with an industrial facility at Heathrow will be able to appropriately market to robust audience as it may need that warehouse from around the world with just one placement on LoopNet.com. Conventional wisdom is that real estate marketplaces are local product and lack cross-border value or synergy. I believe this couldn't be further from the truth. It is just assumed because few have made the effort to try and do it.

When we released CoStar in the U.K. in 2012 and rolled our predecessor offering focus into CoStar, our revenues in the U.K. doubled in the years that followed. About half of CoStar users today now have global subscriptions that can easily access data across borders. 15,800 U.S. users accessed data in Canadian properties this year, 1,200 Canadian users are accessing data in U.S. properties. 7,600 U.S. users are accessing information on U.K. properties and 2,300 U.K. users are accessing data on U.S. properties. In total, just under 20% of all users have accessed tens of millions of property views across borders with CoStar. We intend to release international LoopNet in the U.K. in the fourth quarter.

I'm grateful to be a small part of such an exciting and challenging product with a great team executing this work.

Our CoStar Risk Analytics business continued to gain momentum with strong growth driven by the recently released CoStar for Lenders solution. Since release in February, we signed 66 clients, of which 42 were added in Q2. We believe this growth rate will continue to accelerate with investment in our dedicated sales team, the next phase of product innovation and marketing. The strategy behind CoStar for Lenders is to offer a highly scalable, fully integrated solution that is essential to market participants by supporting their risk management, regulatory requirements, loan production, strategic decision-making.

The CoStar lender value proposition meets the requirements of our initial client base, which are diverse, including banks, credit units, dust lenders, private lenders and life insurance companies, of which the CRE portfolios range from as small as $10 million up to huge $50 billion portfolios.

BizBuySell, our leading business for selling marketplace is having a great year. Revenue grew 27% year-over-year with investments in sales and marketing, driving strong increases in listing supply and buyer demand. We are realizing tremendous synergy between LoopNet and BizBuySell. Visits to BizBuySell subscriber listings displayed on LoopNet increased 54% in the first half of the year. Reported sold business comps increased 19% in the first half to 4,754 business comps. Thousands of business owners leverage these comps every month to get an estimate of their businesses' value.

BizBuySell counts some of the largest franchise brands among its customers, including 7-Eleven, [Lincoln Mufflers], the UPS Store, Jiffy Lube, Checkers, Jackson Hewitt and many more, open the door to deeper relationships across other CoStar Real Estate products.

STR continues to grow revenue and add new hotels contributing data, while the hotel industry recovers from the global pandemic. STR now has an all-time high of almost 75,000 hotels contributing data on a monthly basis. There are still 1,500 hotels that previously participated and are currently closed due to COVID and half of those are in Asia. STR revenues year-to-date are up 10% year-over-year.

When CoStar acquired STR at the end of 2019, subscription revenue was 60% of total revenues. With focused effort, subscription revenue year-to-date is now 77% of total revenues. STR is currently migrating its benchmarking product into the CoStar platform. Customer migration will begin at the start of 2023. At the conclusion of the product rollout, the expectation is to be in a position to double STR revenue through sales of benchmarking to new customers and upgrade existing customers. STR will also be better positioned to introduce CoStar to new hospitality customers once the benchmarking product is in the CoStar platform. That introduction has already begun with STR selling CoStar to hospitalities companies such as Sonder, Hopper, Vista Indianapolis, Atrium Hospitality and Highgate Hotels.

Ten-X continues to perform with high volume of assets being brought to the platform, which exceeded $2 billion in the first half of 2022 or 33% over the first half of '21, and the highest level of activity since '15, 2015. As mentioned last quarter, we launched our Ten-X marketing program for '22 called Battle of the Bids, which is a gamification of the Ten-X bidding process, in which people can guess the price at which a real estate property will be sold on Ten-X and have a chance to win millions of dollars in cash prizes. Nearly 13,000 brokers and owners have played the game, adding approximately 12,000 new Ten-X accounts.

The bidding power on Ten-X is reaching record levels. When a potential bidder registers to bid on Ten-X, we check to ensure that they have sufficient funds to buy the properties they bid on. The amount we prove for them is their proof of funds. In the second quarter of '22, total proof of funds reached $11.7 billion, up 144% from $4.8 billion in the second quarter of '20 when we acquired Ten-X.

Our residential business continues to perform very well. Second quarter revenue in residential was $20 million, an increase of 40% on an organic basis compared to the second quarter of '21. Our Homesnap business continues to focus on expanding age engagement and sales of our Pro+ products while we develop our Homes.com marketplace. Registered agents for our Homesnap Pro product totaled 880,000 at the end of the second quarter, an increase of 17% over the same quarter last year. Revenue from our Pro+ product grew an impressive 46% year-over-year, while our Concierge Pro+ product grew 175% versus the second quarter of last year.

Agents continue to spend more and more in our residential products, with average agent spend increasing 42% on a year-over-year basis. It's important that we continue to grow our sales force to reach more agents and prepare for the launch of our Homes.com product next year. We've successfully established our direct sales force to support the Pro+ product, and I'm encouraged by the initial sales productivity of that team. We have plans to expand this team to over 100 dedicated sales representatives by the end of '22. In the second quarter, we grew that team by almost 50%, including adding field-based sales agents who are having some real success.

Our research efforts are off to a good start as we build proprietary content for Homes.com around playgrounds, neighborhood schools and other features that are important to consumers. From a standing start, we have successfully engaged over 1,000 photographers, writers, editors, voice talent and video editors across the country. So far, we have produced content on over 70% of the largest residential markets in the U.S. We expect our rich original data and media content will produce significant organic search results that will be a product differentiator from our competitors.

We successfully launched Citysnap in June in coordination with our partners at the Real Estate Board of New York. For the first time, New York renters, buyers and brokers now have a single real-time source for all available Real Estate Board of New York listings. Better yet, all of an agent's listings appear for free on Citysnap. The launch of Citysnap was well received by the agent community in New York City and in only a few short weeks, over 37% of the Real Estate Board of New York agents have registered to use Citysnap.

Citysnap reached the #1 spot on the top new category in Google Play and is off to a strong start. As with any new product launch, this is only the beginning, version 1.0. We're planning a regular pace of product releases, focusing on optimizing the user experience and adding more valuable content, which we feel is the key differentiator for CoStar Group. Yesterday marked the formal launch of our Citysnap consumer marketing campaign. Our marketing campaigns are designed to deliver hundreds of millions of media impressions across streaming video, audio, digital, social and out-of-home media. Just before this call began, I got a word that we reached our first 1 million users of Citysnap.

To realize our many growth initiatives, it's imperative that we continue to attract and retain the best talent for CoStar Group, even Scott Wheeler. We've had tremendous headcount growth -- I was just checking to make sure Scott is still listening. We've had tremendous headcount growth over the past 6 months, surpassing 5,400 team members for the first time in our company history.

Our strategic goals of building our residential platform, international expansion and growing our sales teams have been extremely successful. Over the first half of the year, we've welcomed more than 1,000 new team members across multiple areas and around the globe. A big contributor to our increased headcount is the creation of hundreds of new jobs in our residential business. Thousands of skilled photographers, drone pilots and content writers have applied to CoStar Group with hopes of being able to take part in documenting their cities, park, schools and neighborhoods and beautiful homes as we prepare our Homes.com relaunch later this year.

Our new team members have listed a variety of reasons that they decided to come to CoStar Group, including our positioning as an innovative industry leader, our high-performing and fast-paced work environment, the opportunity to build new businesses and products and services for our customers. However, the top reason most new hires mentioned when joining CoStar is the people they get to work with and learn with here. While CoStar offers flexibility to our colleagues, we predominantly work on our mission together in the office, and we thrive in that environment. We believe that working together, rather than on a broad screen, is becoming competitive edge.

For example, and an example of many, the very talented and valuable new colleague, Leslie Hall joined CoStar Group in May to grow our HR business partner function after a successful 26-year career at another very well-known and respected Washington-area company, that is still all remote despite maintaining millions of square feet of empty premium office space. She said, "I've built a career in HR because I love partnering with people solving business problems."

She goes on to say, "After 2.5 years of remote working on Zoom, I missed the in-person collaboration in connection with business leaders and employees. You simply cannot maintain meaningful and sustainable relationships virtually over the long term." She was impressed with the caliber of people she met during the interview process and their commitment and enthusiasm for CoStar. We are thrilled to welcome Leslie and 1,000 other new colleagues to CoStar this year.

When we first returned to the office last year, that was difficult for some of our colleagues and initially our retention rate dropped. But surprisingly, now that we're back together in the office, our retention rates are climbing to some of the highest levels we've ever seen. According to Kastle Security, while many workers in the U.S. have returned to working together in the office, most have not, many think that workers and companies that do not work with their colleagues in person do not form meaningful connections to their companies.

According to the Bureau of Labor Statistics, this pandemic induced great resignation. Overall private industry attrition trends remain very elevated, 3.1%. Real estate attrition is slightly lower, 2.8%.

I'm pleased to report that we are experiencing the opposite. Our attrition rates continue to improve and are now the best they've been in years. In fact, our attrition rate is now less than half of the private sector's turnover rate. In the most recent 60-day trending, employee retention rate is an impressive 98.5%. We are retaining the best talent at CoStar Group. The average tenure for technology companies is 3 years. CoStar Group is a clear leader with an average tenure well above both -- well above tech or real estate or private sector and is approaching an impressive 5 years, so 5 years compared to tech average 3 years. We're retaining employees 60% longer than the average company.

We've been deliberate in our execution of employee retention initiatives, including leadership development programs, management training, career mobility and promotions. In addition, we've enhanced our already strong suite of employee benefit offerings to adapt the needs of our people in the current environment. Our approach is proving particularly successful with regard to our sales force as we are simultaneously growing 5 different sales teams, all of which have the potential to add significant growth capability to the company.

For the first half, we've grown our sales team by a net 150 sellers. That's the fastest we've ever grown, an increase of 18% since the end of '21 or the beginning of '22. This is the largest half year organic growth in sales resources we've ever achieved. I'm carefully watching the growing productivity of these new salespeople we're onboarding. We have invested carefully in our training programs with talented and committed trainers.

I'm pleased to report that while it does take time to ramp up these new salespeople to full productivity, we're exceeding our historic ramp-up success rate. Our commitment to in-person collaboration, coupled with our investments and our people have us well positioned to continue to grow the business as well as execute our strategic objectives.

The commercial real estate markets are entering a period of potential disruption as the U.S. economy adjusts to these higher levels of inflation, raising interest rates and lingering pandemic effects. With office vacancy rates climbing to 14%, we're now observing the highest nationwide vacancy rates in 30 years. The gap between future availability rate and current vacancy is growing, suggesting a bit more pain ahead in vacancy.

Office leasing continues to lag precrisis levels, central business districts are particularly challenged as more office space is being returned, contributing to slower recoveries. According to Kastle Systems, the percentage of people returning to office has remained at around 40% with only modest increases in recent months. During this persistent softness in the office market, CoStar continues to outperform and our LoopNet, Ten-X products are countercyclical should the office market deteriorate further.

Industrial properties are experiencing the opposite of office properties. Industrial properties are maintaining record occupancy, double-digit rent growth and booming construction. Retail leasing held steady near post-pandemic highs in the second quarter, while new development remains sparse. The retail now -- market is now reporting tighter conditions than prior to the pandemic as the amount of retail space available for lease fell to the lowest level in over a decade. Store openings remaining -- are remaining on pace to significantly eclipse store closures this year.

Transaction volumes for commercial real estate properties continue to reach new highs over $216 billion traded during the second quarter, leading to a second quarter record and a record-breaking first half of the year. Price depreciation continues across all asset classes with industrial multifamily leading and retail and office lagging. So far this year, distressed commercial property sales remain low, encompassing only 1,300 assets representing less than 1.5% of all sales.

CMBS delinquencies at 30, 60 and 90 days continue to decline in the second quarter. We anticipate that the rise in interest rates will create difficulties with loan maturities and refinancing in the months and years ahead. According to a leading CMBS mortgage servicer, request for loan extensions increased 38%, request for loan restructuring to increase 21% in the second quarter. An increase in delinquencies could represent a significant revenue opportunity for Ten-X.

Well, after those brief remarks, I'm going to turn the call over to our Chief Financial Officer, Scott Wheeler.

Thank you, Andy. I love those brief remarks, and I'm happy to report to everyone on the call that I'm still retained with CoStar even after that script, and I'm awake and listening. Part of the statistics.

Interesting that 5-year retention on customers is 98%. And we have a retention rate of our employees, 98% with an average tenure of 5 years. Is that art imitating life in CoStar? Was that what you would say? I know that's fascinating.

Hotel California you can check in, but you can never leave.

That's why I stay around here. Facts are amazing. All right. Let's talk about our revenue by our services. And Andy reported, CoStar is growing 17% in the second quarter. Price and new sales volumes each are contributing roughly half of that revenue growth. So we expect revenue growth in the 16% to 17% range in the third and fourth quarters, and the lower end of the range is really a result of some negative FX movements as the dollar strengthened around 10% to 15% over the past year against the pound. So on an organic currency adjusted basis, we're going to keep that 17% going in the second half.

Our second quarter multifamily revenue grew 6% in [last] guidance, and that most definitely represents the turning point for Apartments.com. Revenue growth will increase going forward. The sales levels have continued to improve in each quarter since the third quarter of 2021. And the total number of properties advertising on our network increased sequentially in the second quarter compared to the first quarter this year. We expect third quarter revenue growth of 11% and fourth quarter growth of 14% in multifamily. This increase to our prior full year revenue estimate, we now have full year revenue growth of 9% in multifamily.

LoopNet revenue grew 10% in the second quarter, also in line with our expectations. The net new bookings increased 43% year-over-year as we've increased both our LoopNet and our CoStar sales staff, both of which sell LoopNet very effectively. We expect this trend to continue through the remainder of the year, increasing our third quarter revenue growth to 13%. This results in an increase in our full year revenue growth estimate to a range of 11% to 12%.

Information Services revenue grew 10% in the second quarter, a little ahead of our guidance. Real Estate Manager continues to post solid double-digit growth, and STR is now back to double-digit revenue on a constant currency basis, which is really a great recovery news for STR even before global hotels have all recovered from the pandemic. In addition, we added Business Immo to our Info Services revenue, which we acquired at the beginning of the second quarter. For the third quarter, we expect revenue growth of 11%, and we're increasing our full year expectation for Information Services revenue growth to 10%.

Residential revenue increased 11% over the second quarter of last year. And organically, excluding the effect of the wind down of the [nonstrategic] revenue from Homes.com, revenue grew around 40% in the second quarter on a like-for-like basis, as Andy mentioned. We now expect full year 2022 revenue of $73 million in residential, which is above our prior guidance of $70 million. Revenue growth for the second half of the year will be down 20% to 25%, again as a result of the Homes.com revenue in the second half of 2021 that was wound down and no longer exists in the second half of 2022.

Putting that aside, the year-over-year growth in our Pro+ subscription product is expected to be around 35% in the second half of the year, which is where we remain our focus in growing our sales force. The other market revenue grew [17%] in the second quarter of 2022 as expected, with lands and business for sale marketplaces posting growth rates of 25% or more. Ten-X performed well in the quarter against our strategic [goals], increasing the volume of assets as well as the bidding power on the demand side of the marketplace. We expect the other marketplace to grow around 18% for the full year of 2022.

Adjusted EBITDA for the second quarter was $159 million, $31 million above the high end of second quarter guidance range. Our adjusted EBITDA margin was 30% compared to 31% in the second quarter of '21. Approximately 10% of the favorable adjusted EBITDA is from revenue outperformance, while 90% was from comparability, primarily all of which relates to the timing of our investments in content development for our residential product.

We're off to a good start mobilizing our content teams across the country, and they're going to produce tens and thousands of pieces of proprietary content. Our initial second quarter spending forecast on this effort contemplated a very steep spending ramp in the second quarter, which in hindsight, I must say, too aggressive.

Accordingly, we've shifted around [$50 million] of our second quarter cost favorability to the second half of the year. The ramp up in content development will continue. Also, our existing field research team is doing a great job contributing more residential content than we had anticipated. This is much more efficient outcome and it lowers our incremental costs. If this trend continues, we could even see additional investment favorability in the second half of the year. So overall, we estimate our 2022 residential investment levels now in the $180 million to $200 million range.

Our sales force totaled approximately 975 people in -- on June 30, an increase of [105] sales reps from the end of last quarter and an increase of only 150 reps from where we began the year. It is the largest increase our sales force in a quarter or a half year. And it's a well-balanced increase across all of our major product areas.

Contract renewal rate was 91% for the second quarter of 2022, similar to the 91% renewal rate in the first quarter of this year. Subscription revenue on annual contracts was 80% for the second quarter of 2022, compared to 77% this time last year and consistent with the first quarter of this year.

Turning to the outlook, we expect full year 2022 revenues to range from $2.165 billion to $2.18 billion, an increase of approximately $12.5 million at the midpoint of the range, implying an annual growth rate of 12% at the midpoint. Organic growth, excluding the revenue runoff from the Homes.com products, is expected to be 13%.

Third quarter 2022 revenue expected in a range from $552 million to $557 million, representing growth of 11% year-over-year at the mid. Once again, organic growth, excluding those pesky running off Homes.com legacy revenues, is expected at 12%. The 2022 full year adjusted EBITDA is expected now to be in the range of $610 million to $630 million, which is an increase of $20 million from our previous guidance. Roughly half of the increase is improvement in our revenue outlook with the other half the result of lower forecasted residential levels that I just mentioned.

For the third quarter 2022, adjusted EBITDA is expected to be in the range of $130 million to $140 million, indicating a margin of 24% at the midpoint. With regards to capital allocation, our strategy remains unchanged. With interest rates on the rise and economic uncertainty and market volatility, we see valuations moderating with regards to acquisition opportunities. Our balance sheet is in great shape, and we are well positioned to take advantage of opportunities should they arise in the near future.

With that, I'll turn the call back over to Cyndi to orchestrate the anxiously awaited Q&A session. Cyndi , back to you.

Thank you, Scott. I would like to ask participants to keep one question and one part, please. I'll turn it over to Austin, if you could please open up the line for questions.

(Operator Instructions) Our first question is with George Tong from Goldman Sachs.

You indicated that multifamily vacancy rates are improving. To what extent do vacancy rates need to reach historical levels before Apartments.com revenue growth can return to 20% organic? And what's the timing for this recovery?

Well, I think we're on the way to that, and you're already seeing our second best sales quarter ever. So I think it's just a question of continuing to do that for a year or so. And the trends appear to be clear and obvious and expected. So I think we're on our road to that result. Would you want to add anything there, Scott?

No, I've been encouraged that even as the industry recovers and the vacancies start to move up slightly, our sales performance is recovering faster than the industry, which speaks to the strength of the platform. So we definitely expect Apartments.com back up to that 20% that you alluded to, George. We haven't given any guidance or outlook into 2023 yet, but when we do, we'll be sure to let you know when that's expected. Thanks for the question.

Our next question is with Pete Christiansen from Citi.

Scott, I was wondering -- I just wanted to dig a little bit into the multifamily a little bit, break it apart in terms of you had a great sales quarter. How should we think about at least the glide path in terms of revenue per property versus new volumes coming on? Just generally, how do you see the next 2 or 3 quarters forming out after a big sales quarter?

Yes. Pete, thanks for the question. The revenue growth up to this point as the industry is still rebalancing a bit of where to place ads on the different levels that we offer is primarily in the price movements that we've put in place this year. So price is running ahead of 20% that we're talking about. We're starting to see sequential volumes move up, so I'd expect those to start moving as we annualize to the low to mid-single digits. And I would expect our pricing to stay in that high digit range that we're seeing now.

When the vacancy rates move up a little higher, we then start to see people moving up the ad stacks again as they need to create more leads for their vacancies. So I think it's when you add that positive mix shift on top of low to mid-single-digit volume and mid-single-digit pricing and then you start to add salespeople, all those will add up then to get back to that 20% that George referenced a bit earlier. So we expect those trends to continue through the rest of the year and then strong 2023.

Yes. I apologize, unfortunately, it looks like our D.C. line is cracking out a little bit there. So Scott is not trying to avoid the answer, but we will have a brand-new telephone line for the next earnings call. But the -- and I had to come all the way to London to find a good line.

But yes, I think one of the things that will really drive -- like there is tons of penetration opportunity in Apartments still. We are definitely in the early days of that opportunity, and we're adding salespeople at a great clip. And that will drive new account business and new units for sure. And I think we'll be able to continue to get price as people are advertising new construction and the like.

Our next question is with Jeff Meuler from Baird.

Curious of your views of how you're assessing your recent ad spend efficiency, spending a big budget, I guess, into a market where some other advertisers are pulling back for macro reasons? Just are you seeing lift? Are you reinvesting the lift? Just any comment on ad spend efficiency.

I think that the sales results in the quarter sort of speak for themselves. We're having tremendous growth across LoopNet traffic growth, revenue growth, Apartments is having tremendous sales growth. So I think that we're getting good results. I mean we're hearing all the concerns of doom and gloom that everyone else is talking about. But I have to say in our business, we simply are not seeing any of that, and we're watching for it. But it's not there. So we're continuing to invest in the opportunity and getting good results.

And I guess what I'm wondering is are you actually benefiting from advertisers pulling back in other channels that would otherwise compete with you for ad spend as you try to drive traffic to your sites?

I think we probably are. I mean obviously, one of the biggest single budgets is our SEM budgets. And it's a little difficult to -- like I think we've had a continuous progression of better and better efficiency, lower cost on our target keywords on SEM. It's tough to separate that continued gain efficiency from just the way we bid. And the way we get brand recognition, our click-through rates, it's tough to separate that from less congestion competition. So we are continuing to get efficiency but it's tough to suss out what component is less competition. I imagine going into 2023, we probably will see it like obviously and clearly.

Our next question is with Stephen Sheldon from William Blair.

So it sounds like you're making progress on the residential content build-out. So can you remind us when you plan to plug all that proprietary content back into Homes.com, how quickly that could potentially support stronger organic search traffic? And then I might get slapped on the wrist here for asking another part. But what did overall traffic to the residential assets look like in the second quarter? Apologies if I missed that.

Yes. So where we would expect to see that content really start to make a difference as you go into 2023, I have been sitting down with the content teams periodically, and I've been looking at the content we're building. And I have to say, I feel really good about the fact -- the potential of that content. I mean individually, the different things we're building look pretty powerful. When I think about it with my SEO hat on I think, in some across massive scale, it should be awesome.

But that we're not going to see any of that really impacting until, the earliest, the very end of this year and really the beginning of 2023. So right now, the traffic growth, I don't have the year-over-year traffic growth with me. Cyndi has it. You're not going to see major traffic growth until we relaunch the Homes platform and start to bring that content in.

Do you have a number there, Cyndi , for year-over-year Homes growth?

Yes, I think it's up slightly. But as you mentioned, we're really going to look to get that growth through the marketing and advertising campaign launch.

Yes. We were pretty much in line with where we were in the first quarter without spending any additional money on marketing.

Our next question is with Ryan Tomasello from KBW.

In terms of M&A and specifically regarding residential, I was wondering if you see an opportunity to execute a similar playbook as you did with Apartments.com in terms of consolidating the peer -- any peer residential portals to accelerate that time line around those consumer traffic as that you set out. I realize some of those peers operate with alternative revenue and business models, including in the brokerage space. How feasible do you think those types of deals could be if they were attractive?

Well, as usual, we don't comment anything specific. But I will say that I have been flying more in the last month than I've ever flown in my life. There's -- it's an interesting time. I mean we have a great balance sheet with a lot of cash. I think we've just turned in a really strong quarter. We've got strength in all of our businesses. And I believe that we're seeing valuations across half dozen, dozen interesting companies fall to become more and more attractive.

So we think that your question is not terribly far off of a range of opportunities we have out in the world. But it's just -- it's sort of obvious in the time we're in, a company like ours with a great balance sheet, super performance, a track record of M&A. And falling values, both in the United States and Europe, are interesting.

Our next question is with John Campbell from Stephens Inc.

Great work in the quarter. Scott, you briefly touched on this, but I think the original 2022 guidance called for I think it was $200 million to $220 million of step-up. In resi investment, it sounds like you're now expecting maybe $20 million less moving forward. So I guess, first, did I hear that right?

And then secondly, if you could maybe unpack how much of that hit in the first half versus what's expected in the second half, and then also just to refresh on the expected kind of breakdown in spend across content and marketing.

Yes. John, thanks for the question. Yes, we had initially estimated the $200 million to $220 million level of spend as you appreciate that was early in the year. We had a strong ramp-up in the second quarter in content, more aggressive, like I mentioned than we actually were able to achieve in the quarter. And we had better efficiency from our internal teams, which very positive sign.

So my current estimate puts us in about $20 million below where we were originally. About half of that is from efficiency, a little bit of it is from just making sure I have enough cost in there for my longer-term estimates, given the uncertainty you start off the year with. And then the rest with the timing of the ramp that some of that will push out of the year, given the amount of time left in the second half.

So we still [have] the same trick as we [did]. With half or a little less than half of that spend is going to be in content and probably about 45% of it's in marketing, which might be a little higher than we thought at first, given success of Citysnap and others are doing. And then the rest is technology and other costs. So we've probably got [$115 million] of it in the second half and probably around $35 million or a little more than that in the first half, if that helps with the pacing.

Our next question is with Ashish Sabadra from RBC.

I just wanted to focus on the CoStar Suite product, particularly the lender product. You talked about some pretty good traction there, signing up 66 new clients. I was just wondering, as you -- with this initial success, how do you think about the addressable market now. And yes, in terms of like how many clients are out there in total addressable market.

Yes. So I think -- I mean, again, the one other thing, it's 66 new customers, most of them in the last quarter. I think 40-some in the last quarter, great pace. We've got, I think, 12 to 14 dedicated sales reps on that right now. The addressable market is -- I'm going to do this from memory, but it is approximately 6,000 to 7,000 lenders who have portfolios. Again, we're selling to folks with very small portfolios and very large portfolios, then watching the gross margin of these implementations, they look reasonably good. So we believe that the opportunity is well north of $300 million on this product. And it's a wonderful addition to our growth drivers because it's all new opportunity.

Our next question is with Gustavo Gala from Truist.

Just wanted to ask on how the road map on -- so resi, just comparing it to the multifamily ramp, how traffic is doing this far along versus how it was doing for multifamily back in the day. That would be super helpful.

Yes. So I think it's very similar because back in the day, we picked up an Apartments.com from Classified Ventures, a consortium of newspapers. And we completely reimagined and rebuilt the site over the course of 270 days or so. This one is a little bit bigger-scale project. But you set a strategy, you have a talented team from both software and field research and content building this out. And you really see growth in traffic once you release the product and then once you begin to invest in SEM and in brand marketing.

So that's going to be the end of this year, beginning of next year. And so it's very similar. But I think you and I and everybody are impatient to see that story unfold over the next couple of years.

Our next question is with Mayank Tandon from Needham.

Andy, looking at CoStar Suite as a whole, can you remind us sort of where the penetration is with brokers? And outside the broker world where you obviously have a very strong presence, where are you seeing the best opportunities for growth looking out over the medium term?

I think the most exciting -- well, obviously, lender is very exciting, several hundred million of opportunity there. The owner sector remains very exciting to us because it's a huge market. It is a later-stage penetration market and its penetration rates there probably 1/3 or 1/4 of where the broker market penetration rates are. So that one is just the Goliath that just is -- we can keep on working for years.

One of the ones that I alluded to briefly in my comments about Real Estate Manager is the top 2,000 tenants in the United States, major corporations, folks who often are buying Real Estate Manager from us. They are an obvious potential market opportunity for us. Corporation with hundreds of facilities, it is a no-brainer to have access to CoStar Group and a good broker.

And then it depresses me a little bit when I look at the penetration rate for brokers because having been very successful at selling this product for many, many years, we still haven't penetrated all the broker opportunities out there. There's still hundreds of millions of potential penetration in brokers. So when you look at midsized smaller brokers and even some not-so-midsize, like upper midsize brokers, all the major guys do subscribe and rely on it. But there's a penetration opportunity across the board.

And Scott and I were joking before the call, someone is going to ask about can we sustain the growth rates on CoStar. And it really is something where I've answered that question for decades from the point at which we had $7 million of revenue to now. And one of the things I really look forward to is crossing through $1 billion in CoStar revenue and then talking to you guys about the story for $2 billion in CoStar revenue.

And by the way, I'm talking to you from London and we are working hard on beginning -- and continue to carry CoStar out throughout Europe and other markets. And I think there's a super exciting opportunity. CoStar changes its whole meaning to a lot of compliance when it allows people to see investment opportunities and asset classes across borders. So that's a whole another driver.

So my answer is yes, I'm very excited about growing CoStar. Huge numbers for a long, long time, and we're just beginning.

Our next question is with Joe Goodwin from JMP.

Great. Just curious, Andy, how are you thinking about price increases across the CoStar suite today as well as if you could comment on price increases on Apartments.com, the ad tiers, and if your approach to price increases is changing in the current environment at all?

Yes, it is. A company like ours must be disciplined and set our prices in real dollars, not nominal dollars. And so we are watching that closely with the sales force at renewals. And we're reminding people not just with the nominal dollar increases are, what the real dollar realities are. So that's very important with Apartments, especially with Apartments where our clients are overwhelmingly doing incredibly well right now. So we have discipline on that, and you can see that in our results.

On CoStar Suite, I think we're in a slightly different position. Yes, we are pushing our pricing to at least remain constant on a real dollar basis and a little bit more than that. And -- but the real story there is this upselling activity we're in the middle of, where we're reaching out to these tens of thousands of customers, who subscribe to a small piece of our product either in the modules they get or the geography they get. And we're upgrading them to our full all modules global suite because we want to see network effects grow across borders. And as I mentioned, we're seeing that happening. We're seeing tens of millions of searches across borders.

So in CoStar Suite, it is -- tens of millions of properties being viewed across borders. In CoStar Suite, the more powerful driver is this upgrading, not price increasing. On LoopNet -- on Ten-X, you don't have to move the pricing because in theory, it's a commission against the asset price and inflation. In theory, would move the asset price up. And Ten-X is more in a place of early days of penetration, it's like still 1% penetrating the opportunity.

On LoopNet, we are focused on variable silver ad or base ad pricing, which will be a more powerful revenue driver than just price increases. So that's the initiative where we'll begin baiting it out, in a couple of markets, pricing based on the market and on the asset value. So that will be a combination of lowering our prices for low-value assets in smaller markets to drive volume and revenue, overall revenue and increasing prices to recognize the value of the higher-end assets and bigger markets. That will dwarf surges, inflation, pricing increases.

So we're all over it. This is not our first rodeo. And the one thing I learned in my economics degree was the difference between real and nominal. I can't remember anything else, though.

At this time, there are no further questions. (Operator Instructions)

I think with that, we can wind it up. I want to congratulate Austin, our moderator, on her big news today. And thank you all for -- which I'm not going to disclose. And I want to thank you all for joining us for the second quarter '22 earnings call. And congratulations to all the sales leaders and product folks and developers who -- and the research teams that basically put in tremendous effort, which delivered such a great quarter this year, and we look forward to this quarter.

And we look forward to speaking with you again in the third quarter and giving you updates on all the various initiatives we've got going on. And we will get a new speaker phone in our Washington boardroom. I apologize for that. But thanks again for joining us.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.