Delaware
|
|
52-2091509
|
(State
or other jurisdiction ofincorporation
or organization)
|
|
(I.R.S.
EmployerIdentification
No.)
|
PART
I
|
|
FINANCIAL
INFORMATION
|
|
|
Item 1.
|
|
|
3
|
|
3
|
||||
|
|
4
|
||
|
|
5
|
||
|
|
|
6
|
|
Item 2.
|
|
|
14
|
|
Item 3.
|
|
|
25
|
|
Item 4.
|
|
|
25
|
|
PART
II
|
|
OTHER
INFORMATION
|
|
|
Item 1.
|
|
|
25
|
|
Item 1A.
|
26
|
|||
Item 2.
|
|
|
26
|
|
Item 3.
|
|
|
26
|
|
Item 4.
|
|
|
26
|
|
Item 5.
|
|
|
26
|
|
Item 6.
|
|
|
27
|
|
28
|
||||
|
||||
|
|
Item
1.
|
Financial
Statements
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Revenues
|
$ |
49,340
|
$ |
40,571
|
$ |
141,965
|
$ |
116,791
|
||||||||
Cost
of
revenues
|
19,551
|
14,005
|
56,695
|
39,537
|
||||||||||||
Gross
margin
|
29,789
|
26,566
|
85,270
|
77,254
|
||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
and
marketing
|
11,924
|
8,834
|
39,752
|
31,868
|
||||||||||||
Software
development
|
3,026
|
2,835
|
9,366
|
8,817
|
||||||||||||
General
and
administrative
|
9,674
|
7,985
|
26,826
|
23,187
|
||||||||||||
Purchase
amortization
|
1,328
|
1,076
|
3,807
|
3,300
|
||||||||||||
25,952
|
20,730
|
79,751
|
67,172
|
|||||||||||||
Income
from
operations
|
3,837
|
5,836
|
5,519
|
10,082
|
||||||||||||
Interest
and other income,
net
|
2,072
|
1,852
|
5,825
|
4,888
|
||||||||||||
Income
before income
taxes
|
5,909
|
7,688
|
11,344
|
14,970
|
||||||||||||
Income
tax expense,
net
|
2,659
|
2,990
|
5,105
|
6,108
|
||||||||||||
Net
income
|
$ |
3,250
|
$ |
4,698
|
$ |
6,239
|
$ |
8,862
|
||||||||
Net
income per share ¾
basic
|
$ |
0.17
|
$ |
0.25
|
$ |
0.33
|
$ |
0.47
|
||||||||
Net
income per share ¾
diluted
|
$ |
0.17
|
$ |
0.25
|
$ |
0.32
|
$ |
0.46
|
||||||||
Weighted
average outstanding shares ¾
basic
|
19,045
|
18,787
|
18,997
|
18,724
|
||||||||||||
Weighted
average outstanding shares ¾
diluted
|
19,475
|
19,130
|
19,362
|
19,176
|
September
30,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
ASSETS
|
(unaudited)
|
|||||||
Current
assets:
|
||||||||
Cash
and cash
equivalents
|
$ |
43,262
|
$ |
38,159
|
||||
Short-term
investments
|
120,981
|
119,989
|
||||||
Accounts
receivable, less allowance for doubtful accounts of
$2,774
and $1,966 as of September
30, 2007 and
December
31, 2006,
respectively
|
10,719
|
9,202
|
||||||
Deferred
income taxes, net
|
7,904
|
7,904
|
||||||
Prepaid
expenses and other current
assets
|
4,256
|
3,497
|
||||||
Total
current
assets
|
187,122
|
178,751
|
||||||
Deferred
income
taxes
|
494
|
6,973
|
||||||
Property
and equipment,
net
|
21,302
|
18,407
|
||||||
Goodwill,
net
|
63,328
|
46,497
|
||||||
Intangibles
and other assets,
net
|
27,157
|
23,172
|
||||||
Deposits
|
2,336
|
1,637
|
||||||
Total
assets
|
$ |
301,739
|
$ |
275,437
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and deferred
rent
|
$ |
3,785
|
$ |
3,212
|
||||
Accrued
wages and
commissions
|
7,951
|
6,018
|
||||||
Accrued
expenses
|
11,540
|
6,098
|
||||||
Deferred
revenue
|
10,594
|
8,817
|
||||||
Total
current
liabilities
|
33,870
|
24,145
|
||||||
Deferred
income
taxes
|
942
|
1,182
|
||||||
Total
stockholders’
equity
|
266,927
|
250,110
|
||||||
Total
liabilities and stockholders’
equity
|
$ |
301,739
|
$ |
275,437
|
||||
Nine
Months Ended
September
30,
|
||||||||
2007
|
2006
|
|||||||
Operating
activities:
|
||||||||
Net
income
|
$ |
6,239
|
$ |
8,862
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
5,699
|
4,091
|
||||||
Amortization
|
6,008
|
4,536
|
||||||
Stock-based
compensation expense related to stock options and restricted
stock
|
4,435
|
3,001
|
||||||
Deferred
income tax expense,
net
|
5,105
|
5,473
|
||||||
Provision
for losses on accounts
receivable
|
1,506
|
1,324
|
||||||
Changes
in operating assets and liabilities, net of acquisitions
|
(1,034 | ) | (2,864 | ) | ||||
Net
cash provided by operating
activities
|
27,958
|
24,423
|
||||||
Investing
activities:
|
||||||||
Purchases
of short-term
investments
|
(86,780 | ) | (82,205 | ) | ||||
Sales
of short-term
investments
|
85,826
|
66,343
|
||||||
Purchases
of property and equipment and other assets
|
(8,419 | ) | (8,959 | ) | ||||
Acquisition,
net of cash
acquired
|
(16,737 | ) |
-
|
|||||
Net
cash used in investing
activities
|
(26,110 | ) | (24,821 | ) | ||||
Financing
activities:
|
||||||||
Proceeds
from exercise of stock
options
|
2,946
|
4,974
|
||||||
Net
cash provided by financing
activities
|
2,946
|
4,974
|
||||||
Effect
of foreign currency exchange rates on cash and cash
equivalents
|
309
|
128
|
||||||
Net
increase in cash and cash
equivalents
|
5,103
|
4,704
|
||||||
Cash
and cash equivalents at the beginning of
period
|
38,159
|
28,065
|
||||||
Cash
and cash equivalents at the end of
period
|
$ |
43,262
|
$ |
32,769
|
||||
1.
|
ORGANIZATION
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES —
(CONTINUED)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Numerator: | ||||||||||||||||
Net
income
|
$ |
3,250
|
$ |
4,698
|
$ |
6,239
|
$ |
8,862
|
||||||||
Denominator: | ||||||||||||||||
Denominator
for basic net income per share ¾weighted-average
outstanding shares
|
19,045 | 18,787 | 18,997 | 18,724 | ||||||||||||
Effect
of dilutive securities:
|
|
|
|
|
||||||||||||
Stock
options and restricted stock
|
430
|
343
|
365
|
452
|
|
|||||||||||
Denominator
for diluted net income per share ¾weighted-average
outstanding shares
|
19,475 | 19,130 | 19,362 | 19,176 | ||||||||||||
Net income per share ¾ basic | $ |
0.17
|
$ | 0.25 | $ | 0.33 | $ | 0.47 | ||||||||
Net
income per share ¾
diluted
|
$ |
0.17
|
$ |
0.25
|
$ |
0.32
|
$ |
0.46
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES —
(CONTINUED)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Cost
of revenues
|
$ |
265
|
$ |
84
|
$ |
781
|
$ |
235
|
||||||||
Selling
and marketing
|
259
|
305
|
928
|
921
|
||||||||||||
Software
development
|
83
|
50
|
277
|
139
|
||||||||||||
General
and administrative
|
766
|
569
|
2,449
|
1,706
|
||||||||||||
Total
|
$ |
1,373
|
$ |
1,008
|
$ |
4,435
|
$ |
3,001
|
3.
|
ACQUISITIONS
|
4.
|
GOODWILL
|
September
30,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
(unaudited)
|
||||||||
Goodwill
|
$ |
74,551
|
$ |
57,720
|
||||
Accumulated
amortization
|
(11,223 | ) | (11,223 | ) | ||||
Goodwill,
net
|
$ |
63,328
|
$ |
46,497
|
5.
|
INTANGIBLES
AND OTHER ASSETS
|
September
30,
2007
|
December
31,
2006
|
Weighted-
Average Amortization Period (in years)
|
||||||||||
(unaudited)
|
||||||||||||
Building
photography
|
|
$ |
10,501
|
$ |
9,902
|
5
|
||||||
Accumulated
amortization
|
(6,427 | ) | (5,567 | ) | ||||||||
Building
photography, net
|
4,074
|
4,335
|
||||||||||
Acquired
database technology
|
21,405
|
22,101
|
4
|
|||||||||
Accumulated
amortization
|
(20,528 | ) | (20,107 | ) | ||||||||
Acquired
database technology, net
|
877
|
1,994
|
||||||||||
Acquired
customer base
|
51,212
|
44,949
|
10
|
|||||||||
Accumulated
amortization
|
(33,274 | ) | (29,414 | ) | ||||||||
Acquired
customer base, net
|
17,938
|
15,535
|
||||||||||
Acquired
trade names and other
|
8,416
|
4,198
|
6
|
|||||||||
Accumulated
amortization
|
(4,148 | ) | (2,890 | ) | ||||||||
Acquired
trade names and other, net
|
4,268
|
1,308
|
||||||||||
Intangibles
and other assets, net
|
$ |
27,157
|
$ |
23,172
|
6.
|
INCOME
TAXES
|
6.
|
INCOME
TAXES — (CONTINUED)
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
8.
|
SEGMENT
REPORTING
|
8.
|
SEGMENT
REPORTING — (CONTINUED)
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
|
September
30,
|
September
30,
|
||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
Revenues
|
||||||||||||||||
United
States
|
$ |
43,503
|
$ |
37,292
|
$ |
125,565
|
$ |
107,556
|
||||||||
International
|
5,837
|
3,279
|
16,400
|
9,235
|
||||||||||||
Total
revenues
|
$ |
49,340
|
$ |
40,571
|
$ |
141,965
|
$ |
116,791
|
||||||||
|
||||||||||||||||
EBITDA
|
||||||||||||||||
United
States
|
$ |
9,407
|
$ |
8,909
|
$ |
21,011
|
$ |
18,666
|
||||||||
International
|
(1,454 | ) | (124 | ) | (3,785 | ) |
39
|
|||||||||
Total
EBITDA
|
$ |
7,953
|
$ |
8,785
|
$ |
17,226
|
$ |
18,705
|
||||||||
|
||||||||||||||||
Reconciliation
of EBITDA to net income
|
||||||||||||||||
EBITDA
|
$ |
7,953
|
$ |
8,785
|
$ |
17,226
|
$ |
18,705
|
||||||||
Purchase
amortization in cost of revenues
|
(439 | ) | (264 | ) | (1,387 | ) | (781 | ) | ||||||||
Purchase
amortization in operating expenses
|
(1,328 | ) | (1,076 | ) | (3,807 | ) | (3,300 | ) | ||||||||
Depreciation
and other amortization
|
(2,349 | ) | (1,609 | ) | (6,513 | ) | (4,542 | ) | ||||||||
Interest
income, net
|
2,072
|
1,852
|
5,825
|
4,888
|
||||||||||||
Income
tax expense, net
|
(2,659 | ) | (2,990 | ) | (5,105 | ) | (6,108 | ) | ||||||||
Net
income
|
$ |
3,250
|
$ |
4,698
|
$ |
6,239
|
$ |
8,862
|
8.
|
SEGMENT
REPORTING — (CONTINUED)
|
|
September
30,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
(unaudited)
|
||||||||
Property
and equipment, net
|
||||||||
United
States
|
$ |
17,271
|
$ |
16,907
|
||||
International
|
4,031
|
1,500
|
||||||
Total
property and equipment, net
|
$ |
21,302
|
$ |
18,407
|
||||
|
||||||||
Assets
|
||||||||
United
States
|
$ |
293,309
|
$ |
271,179
|
||||
International
|
65,554
|
33,718
|
||||||
Total
segment assets
|
$ |
358,863
|
$ |
304,897
|
||||
|
||||||||
Reconciliation
of segment assets to total assets
|
||||||||
Total
segment assets
|
$ |
358,863
|
$ |
304,897
|
||||
Investment
in subsidiaries
|
(18,343 | ) | (18,343 | ) | ||||
Intercompany
receivables
|
(38,781 | ) | (11,117 | ) | ||||
Total
assets
|
$ |
301,739
|
$ |
275,437
|
Item
2.
|
Management’s
Discussion and Analysis of Financial
Condition and Results of
Operations
|
|
•
|
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.
|
·
|
Purchase
amortization in cost of revenues may be useful for investors to
consider
because it represents the use of our acquired database technology,
which
is one of the sources of information for our database of commercial
real
estate information. We do not believe these charges reflect the
current
and ongoing cash charges related to our operating cost
structure.
|
·
|
Purchase
amortization in operating expenses may be useful for investors
to consider
because it represents the estimated attrition of our acquired customer
base and the diminishing value of any acquired trade names. 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 net interest income we generate may be useful for investors
to
consider and may result in current cash inflows or outflows. However,
we
do not consider the amount of net interest income to be a representative
component of the day-to-day operating performance of our
business.
|
·
|
Net
income tax expense may be useful for investors to consider because
it
generally represents the taxes that 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 net income tax expense to be a
representative component of the day-to-day operating performance
of our
business.
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
income
|
$ |
3,250
|
$ |
4,698
|
$ |
6,239
|
$ |
8,862
|
||||||||
Purchase
amortization in cost of revenues
|
439
|
264
|
1,387
|
781
|
||||||||||||
Purchase
amortization in operating expenses
|
1,328
|
1,076
|
3,807
|
3,300
|
||||||||||||
Depreciation
and other amortization
|
2,349
|
1,609
|
6,513
|
4,542
|
||||||||||||
Interest
income, net
|
(2,072 | ) | (1,852 | ) | (5,825 | ) | (4,888 | ) | ||||||||
Income
tax expense, net
|
2,659
|
2,990
|
5,105
|
6,108
|
||||||||||||
EBITDA
|
$ |
7,953
|
$ |
8,785
|
$ |
17,226
|
$ |
18,705
|
||||||||
Cash
flows provided by (used in)
|
||||||||||||||||
Operating
activities
|
$ |
11,174
|
$ |
8,622
|
$ |
27,958
|
$ |
24,423
|
||||||||
Investing
activities
|
(6,294 | ) | (13,792 | ) | (26,110 | ) | (24,821 | ) | ||||||||
Financing
activities
|
1,734
|
633
|
2,946
|
4,974
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Item
4.
|
Controls
and
Procedures
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
Item
2.
|
Unregistered
Sales of Equity in Securities and Use of
Proceeds
|
Month
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans
or
Programs
|
||||||||||||
July
1 through 31, 2007
|
--
|
--
|
||||||||||||||
August
1 through 31, 2007
|
--
|
--
|
||||||||||||||
September
1 through 30, 2007
|
5,361(
|
1) |
51.65
|
--
|
--
|
|||||||||||
Total
|
5,361(
|
1) |
51.65
|
--
|
--
|
Item
3.
|
Defaults
upon Senior
Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item
5.
|
Other
Information
|
Item
6.
|
3.1
|
Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 3.1 to
the Registration Statement on Form S-1 of the Registrant (Reg.
No.
333-47953) filed with the Commission on March 13, 1998 (the
“1998 Form
S-1”))
|
3.2
|
Certificate
of Amendment of Restated Certificate of Incorporation (Incorporated
by
reference to Exhibit 3.1 to the Registrant’s Report on Form 10-Q for the
period ended September 30,
1999)
|
3.3
|
Amended
and Restated By-Laws (Incorporated by reference to Exhibit
3.2 to the 1998
Form S-1)
|
10.1
|
Contract
for Sale and Purchase between Focus Information Limited and
Trafigura
Limited, dated September 14, 2007 (filed
herewith)
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed
herewith)
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed
herewith)
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
|
|
|
COSTAR
GROUP, INC.
|
||
|
Date:
November 7, 2007
|
By:
|
|
/s/
Brian J.
Radecki
|
|
|
|
Brian
J. Radecki
Chief
Financial Officer
(Principal
Financial and Accounting Officer and Duly Authorized
Officer)
|