CoStar Group, Inc. (CSGP) Q1 2022 Earnings Report, Transcript and Summary

Good day. Thank you for standing by, and welcome to the CoStar Group to report financial results for first quarter 2022. [Operator Instructions] I would now like to hand the conference over to Gene Boxer, General Counsel of CoStar Group. Thank you. Please go ahead.

Thank you, Blue. Good evening, and thank you all for joining us to discuss the first quarter 2022 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I would 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 second quarter and the full year 2022, based on current beliefs and assumptions. Forward-looking statements may 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 and in our filings with the SEC, including our most recent annual report on Form 10-Q -- 10-K under the heading Risk Factors. All forward-looking statements are based on 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 the 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 shown in detail in our press release issued today, along with definitions 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, Gene. You did that brilliantly. I think everyone on the call is left inspired. So good evening, everyone. And thank you for joining us for CoStar Group's First Quarter 2022 Earnings Call. We had a really strong start to 2022 with our highest ever quarterly sales booking at $68 million, which increased 31% year-over-year in the first quarter. Both revenue and profit are ahead of forecast. Our CoStar product turned in its best sales quarter ever, driving our overall outperformance and is expected to grow at or above 15% year-over-year for the rest of 2022. Apartments.com delivered great sales results with net new sales bookings up 36% compared to the fourth quarter of 2021. Total revenue for the first quarter of '22 was $516 million, representing a 13% year-over-year growth rate. Our profit performance was equally strong with adjusted EBITDA of $178 million in the first quarter, an increase of 12% year-over-year and $18 million above the high end of our February guidance. As a result, we are raising our full year '22 revenue, adjusted EBITDA and EPS guidance. Mr. Wheeler will give you more details on that. CoStar flagship product produced $199 million in revenue in the first quarter. The CoStar sales team grew annualized net sales 96% over the prior year. This latest sales performance makes the last 3 quarters of CoStar sales the top 3 sales quarters for CoStar on record. Our CoStar sales team has never been more productive. In the first quarter, we achieved the highest CoStar net sales output per person in our history. We added 20 new sellers to the team so far this year and intend to continue expanding our sales teams in the U.S., Canada and the United Kingdom. I look forward to the day when we'll be able to tell you about hiring CoStar sales people in Germany, space -- Spain and France, not space, before long. We are building dedicated industry experts within the broader CoStar sales group to focus exclusively on banking and hospitality clients, 2 sectors that each hold hundreds of millions of dollars of revenue potential. Our upgrade program to the full CoStar product continues to perform well, and we're now approximately 1/3 of the way through the campaign. We have completed approximately 7,100 customer upgrades, which we expect will generate about $22 million in annual revenue. We estimate the program has the potential to generate over $50 million in revenue and will continue for the next 18 months or so. We released our new CoStar lender product in February and are seeing a very positive response from the market. In the short time since we launched the product, we've added over $1 million in annual revenue, and the operating pipeline is building rapidly. I must modestly say our clients are referring to the solution in terms of best-in-class, the gold standard and, even modestly, the best product we've ever seen. The lender solution's early success can be attributed to its unique ability to connect the client's loan portfolio to CoStar's industry-leading property information, Market Analytics, and to COMPASS, one of the most mature credit default models in the industry. The system delivers a live look at institution's loan concentration risk, current expected credit losses and stress testing, among many other functions. The result is an unmatched, more efficient platform for strategic lending decisions and risk management. Our initial banking customers have found the product very straightforward, simple and easy to use. The ability to generate sophisticated stress testing results with just a few clicks saves almost a week of work. Customers tell us they love all the loan concentration charts because the analytics are so much better and fully automated when compared to lesser competitive products. Of course, we're in the very early days of introducing the lender product, but I'm very encouraged with the market reception results so far. We are currently operating with a dozen or so specialized dedicated sales team members, and we fully intend to expand our sales and product implementation teams in the months ahead. With at least 6,000 potential customers in the U.S. alone, we have a long way to go to realize what we see as a market opportunity for CoStar of well over $300 million. I believe our impressive CoStar results are built on a well-balanced combination of new product innovation, proprietary data and research and a highly productive sales team. Our customers are enjoying the expanded capabilities that we add to CoStar every year and continue to renew subscriptions at rates above our long-term historical averages. We continue to work hard on expanding our international business. Earlier this month, we completed the acquisition of Business Immo, France's premier real estate new service. In France, you say Business Immo. Business Immo is known for its impactful online real estate news that attracts over 300,000 unique visitors each month. The publication boasts over 2,000 subscribing companies and 100,000 followers on social media. Business Immo's product portfolio also includes training, education and industry conferences. Business Immo is an important addition to CoStar Group's growing global news team, which offers daily coverage across the United States, Canada, United Kingdom, Germany; and HotelNewsNow, our international hospitality industry news service. With over 235,000 subscribers and 19,000 articles published in 2021, CoStar's award-winning news is one of the largest international real estate news networks in the world. Business Immo reaches a large professional audience in France of brokers, developers, owners and the like, and BureauxLocaux reaches the tenant audience in France. By combining these 2 audiences into 1 premium media buy, we believe that we can capture a large and meaningful share of the properties -- property market's advertising spend in France. France is one of the most important real estate markets in the world with an estimated $40 billion in annual investment transaction value, and I believe the number will ultimately prove to be a lot larger than that. With the acquisition of Business Immo this year alongside the BureauxLocaux property marketplace, which we purchased last year, we're very excited about the potential this market holds for us. These 2 well-respected online property websites, combined with Belbex in Spain, Realla in the U.K., CoStar in the U.K. and Thomas Daily in Germany, directly support our goal of building out the premier online European marketing solutions and information solutions. We remain focused on offering both CoStar and LoopNet integrated and seamlessly across the U.K., Germany, France, Spain and eventually other European markets. In the first quarter, we launched the first international version of LoopNet, rolling out loopnet.ca in Canada. Loopnet.ca delivers a tailored and localized Canadian search experience, including custom Canadian content, French Canadian language capability and acceptance of Canadian currency -- most importantly, acceptance of Canadian currency. We are seeing strong traffic growth in Canada with LoopNet dossier reaching traffic levels almost twice that of the nearest competitive site after less than 2 months in the market. LoopNet in Canada is only the beginning as the site architecture and international capabilities of the Canadian version of LoopNet will be the foundation of a first-ever pan-European, pan-Americas commercial real estate marketplace. Apartments.com sales picked up strong momentum with bookings up 36% sequentially in the first quarter of '22. Revenue for Apartments.com was $175 million in the first quarter, growing 6% year-over-year with strong margins. Properties advertising on our platform increased in March over February, which is the first sequential increase in advertised property volumes since about the middle of '21. This increase, along with rising vacancies and improving pricing, makes me increasingly confident that we've turned the corner over last year's high occupancy headwinds. As you might recall, last year, we saw demand for apartment rental surge and then vacancy rates suddenly dropped to a 20-year low -- record low of just 4.8%. Absorption was 700,000 units in '21, which is extremely high and is more double the 5-year pre-pandemic average. The dramatic drop in vacancy rates pushed national rent growth to a record high of 11% on a year-over-year basis in '21, made it a tough environment to sell advertising, but we still sold a lot of advertising. In the first quarter, '22 absorption moderated dramatically from 187,000 units 12 months ago to 54,000 units during the first 3 months of this year. At the same time, deliveries of new units increased, resulting in the first quarter vacancy rates rising 10 basis points to 4.9%. Current projections for '22 show demand dropping to pre-pandemic levels with new rental unit deliveries expected to exceed demand. And vacancy is therefore expected to rise past 5% by the end of this year, resulting in more modest annual rent growth of about 6%, 7%. This is still elevated by historical standards, but we see the supply of new units continue to grow during the year in '23, which we expect will create excellent, high-value advertising opportunities for Apartments.com. Search activity on Apartments.com continues to trend near record levels, indicating a robust spring and summer rental season. Traffic in the first quarter increased 13% over the first quarter of last year, which is the strongest first quarter traffic on record for the Apartments.com network. Not only did traffic increase, but quality leads generated for advertising clients increased 18% on a year-over-year basis in the first quarter. Our sales team is doing a great job selling and renewing businesses at higher price levels, resulting in a cost per lead for the first quarter of '22 coming in at about the same level as it was in the first quarter of '21. Apartments.com continues to attract more and more renters, while our market data indicates the traffic declined year-over-year for a number of our competitors. With tighter market conditions putting pressure on revenue for our smaller competitors, we believe that the marketing budgets in SEM of those competitors are shrinking and will negatively impact their traffic. We believe this will result in fewer leads for their advertising customers, which will make Apartments.com a more attractive advertising alternative. In early April, we launched Apartments.com's most comprehensive marketing plan ever. Jeff Goldblum returns for his eighth year as the Apartminternet founder, Brad Ballflower, with great new TV and social video spots that play off of recent cultural headlines with themes such as billionaires going up in the space. Our ads also focus on what matters most to renters that want to add more space, change location or change lifestyle to fit their post-pandemic situations. In total, we expect the campaign will deliver over 10 billion media impressions. We'll run 20,000 commercials on top prime time shows, premieres and finales as well as major sporting events. Importantly, we know now more than ever that renters are consuming media primarily through streaming video and audio platforms, a little less on Netflix recently. As such, we are doubling our investment in video-on-demand, streaming audio and social media with a huge presence on top platforms such as HBO Max, Paramount, Hulu, Peacock, YouTube, iHeartRadio, Spotify, Pandora and many others. With the new campaign, Apartments.com will also connect with renters like never before through custom content and unique creative developed specifically for renters' favorite social and digital video platforms, including TikTok, Instagram, Snapchat, YouTube and Facebook. We plan to launch several new social series developed in partnership with top-tier influencers across all renting categories, including DIY projects, pet life, apartment tours, apartment living tips and tricks and more. Our advertising is increasing in its effectiveness as we are able to deliver our highest first quarter levels of traffic and unaided brand awareness while proactively managing our spend below prior year levels. In the first quarter of this year, our field sales team delivered their highest net sales productivity since the end of 2020 with our mid-market sales team also having their highest productivity on record in the first quarter. So the sales teams are doing really quite well. I mean very impressive work there. I believe our ability to once again meet safely with customers and prospects face-to-face is also fueling our sales success. In the first quarter of 2022, our field sales team conducted over 40,000 separate in-person meetings. With a great first quarter to start the year in Apartments.com, I believe the combination of our leading brand position, an improving market environment, better pricing and a growing productive sales force puts Apartments.com in great shape, delivered double-digit revenue growth in the second half of this year. And the fact that we have Paige Forrest makes it a slam dunk. LoopNet first quarter revenue was $54 million, up 11% over the prior year. We saw record traffic in the quarter with more than 11 million average monthly unique visitors to LoopNet network. March was our highest traffic month ever with 11.8 million unique visitors. User engagement on LoopNet is also increasing with users reading more than 250,000 articles on LoopNet in January, another new high-water mark. The continued increase in users and engagement on LoopNet demonstrates the value of the marketplace, the quality of our content and the effectiveness of our marketing programs. Our LoopNet marketing activities produced inbound sales leads up 76% in the first quarter compared to the fourth quarter '21. The Space for Dreams marketing campaign that we developed in '21 continues uninterrupted into '22. In the first quarter of '22, the campaign delivered an estimated 93 million impressions across linear TV, social media and direct digital channels. The Space for Dreams campaign runs through the end of September and is expected to deliver more than 400 million impressions. I'm confident our marketing program this year will keep LoopNet top of mind with tenants and investors when they search for a space, which underpins our substantial competitive traffic advantage. We continue to increase our dedicated LoopNet sales force, and we added 25 new sales professionals so far this year. Ten-X's revenue was up 42% year-over-year in the first quarter. Seasonally, the first quarter tends to be lower in terms of property transactions. However, this year, the value of properties brought to the platform was up over 90%. Ten-X sold approximately $575 million in assets in the first quarter of '22, the best first quarter performance in over 5 years. For the fifth quarter in a row, the critical trade rate, which is total assets sold as a percentage of total assets brought to the platform, came in an impressive 70%. One of the successful strategies contributing to the sales growth is the new pricing structure we introduced a little over a year ago. The new tiered pricing model lowered the transaction fee on asset sales as the value of assets increased but preserved strong margins. As a result, in the first quarter of this year, the average size of assets sold in the platform increased 32%, with the value of the properties sold at $10 million or more increasing 4x to the prior year level. In addition, the volume of assets sold on the platform increased 37% in the first quarter of '22. Together, the property size and volume improvements account for almost 70% of the traffic -- of the revenue growth. We continue to build out the Ten-X sales team with the number of sales reps increasing by 20% since the end of last year. Our goal is to grow the team by another 50% by the end of '22. We launched our Ten-X marketing program for '22 called Battle of the Bids in the first quarter. Battle of the Bids is a gamification of the Ten-X bidding process in which people can guess the price at which a real estate profit will be sold on the platform with a chance to win millions of dollars in cash prices. Our goal is to drive broad brand awareness and platform participation. The first round of competition was played during our April 11 to 13 Ten-X auction with 6,800 registered players participating. Since we launched marketing for the first round, active web sessions on Ten-X are up 22%. The promotional campaign generated 7.3 million impressions in a little over a month. New Ten-X accounts are up 32% year-over-year in the first quarter. With the round 2 starting tomorrow, registered participants are already 30% higher than round 1. Overall, we are well on our way to building a highly effective digital transaction capability with Ten-X that I believe will become the preeminent global digital trading platform. This year, we are on track to grow revenue by 20%. And we believe by the end of next quarter, we will have fully integrated the Ten-X platform into the CoStar environment, giving us additional scalability. Our Residential business is performing very well to start the year. We're successfully growing subscription sales and revenue and building out the residential products vision we shared with you earlier. First quarter revenue in Residential was $18 million, an increase of 63% compared to the first quarter of 2021. It's a small number, but you have to start somewhere, and we see growth in the future. Revenue from our Pro+ product increased approximately 60% year-over-year, while our Concierge Pro+ product was approximately 4x higher this year versus the first quarter of last year. The direct sales team selling our Pro+ product is delivering excellent results as our first quarter net new sales bookings for Pro+ subscription is up 120% over the first quarter '21. We intend to continue growing our Pro+ sales team to approximately 100 sales reps by the end of the year in order to increase our agent penetration and engagement on the Homesnap platform. Our product design and development teams are building the product capabilities that will, for the first time, directly connect homebuyers and sellers to their agents, enabling great online collaboration. Using the "your listing, your lead" approach, we are building tools that will directly connect interesting buyers to selling agents along with complete agent directory for potential homebuyers to use in selecting the right agent for them. Behind the scenes, we intend to relaunch the Homes.com website in June on top of a modern integrated technology platform. Although not directly visible to Homes.com users, this is an important step that brings the best technology for traffic scalability and speed to Homes.com. We are leveraging the success from Apartments.com and other high-performance marketplaces to make this possible. Our research team is busy building the proprietary content around neighborhoods, schools and parks and other features that consumers told us are important to them when they're shopping for the best place to live. So far, we've produced hundreds and hundreds of videos with tens of thousands of more in the works. We believe this rich content will produce significant organic search results and will be highly informative and engaging to consumers as they research the best place to live. Traffic to Homes.com improved significantly in the first quarter of '22, with monthly visitors growing 55% compared to the first quarter '21. Even more encouraging, site visits improved over 70% since we acquired Homes.com, increasing at a much faster rate than Apartments.com did during the same post-acquisition period. Unique visitors to our overall residential network, including both Homes.com and Homesnap, increased 125% from the first quarter of 2022 over the first quarter of '21. We are preparing to roll out Citysnap at the end of this year as part of our arrangement with the Real Estate Board of New York. Citysnap will provide consumers a powerful home search app and website customized for New York City, along with connectivity to our Homesnap suite of tools for property agents. For the first time, New York renters and buyers and their brokers will have a single real-time source for all available listings in the city. We have partnered with a leading New York advertising agency to develop a marketing campaign for Citysnap with messaging that will reinforce the unique joys of living in Manhattan and highlight how Citysnap addresses the pain points of finding a place to live in New York. You will soon see Citysnap all over New York City as we have designed our marketing plans to deliver hundreds of millions of media impressions across streaming video, audio, social and physical media. We anticipate millions of visits to Citysnap site and app as a result of our media campaign. Overall, I'm very happy with the progress of our residential initiatives, and we remain on track for a full launch of the new Homes.com marketplace in '23. Winding up by a quick look at the economy, the CRE economy. The office market does continue to struggle with vacancy rates at all-time highs, anemic absorption, rental rates at all-time real dollar lows. Sales volumes are low and cap rates are rising. It doesn't sound rosy, but our LoopNet product is well positioned to help owners and brokers reach tenants and buyers in this tough market. Ten-X is well positioned to help owners and lenders exit the investments they must exit in this tough market, and the new CoStar lender product is an excellent tool to help lenders navigate the risks they may encounter in this tough market. The apartment market is beginning to cool with demand moderating, vacancies rising. Rent growth is still strong, but with new construction booming, rent growth is going to slow into next year with further increases in vacancy rates, which sets a stage for a strong sales environment for Apartments.com. Retail leasing is rising as store openings are outpacing closures, allowing vacancy rates to compress to lower and lower levels. Retail property owners have much reason to remain confident as net absorption, rent growth and investment activity are building on momentum from last year. The national industrial vacancy rate fell to a record low in the first quarter, fueled by strong leasing activity as tenants rapidly expand their distribution networks to accommodate increasing consumer demand for faster home delivery. Speculative construction continues to rise and competition for limited space is driving record rent growth. The hefty construction pipeline offers fertile ground for additional LoopNet revenue as more developers seek to maximize their marketing exposure during lease-up. We set some of our highest price points ever for LoopNet marketing in '21 and '22 for industrial speculative properties. The industrial market right now is white hot. In the hospitality sector, leisure and weekend demand continue to act as the main drivers for the U.S. hotel sector recovery. Room rates are trending at an all-time high as occupancy and RevPAR are recovering. Business travel demand is gaining momentum. So with that, I'm going to turn the call over to our Chief Financial Officer, the man you all respect and rely on, Scott Wheeler.

Thank you, Andy.

You're welcome, Scott.

Excellent rendition to the script this evening. So another really strong financial quarter. Key metrics, net new bookings, revenue, adjusted EBITDA, all growing double digits, great start, and our outlook is improving. Now that's not bad considering that we're in a volatile economic environment. So it's great to have a high renewing subscription model to rely on when the global economy becomes a little less predictable. So revenue grew 13% in the first quarter versus the first quarter of 2021 with 4 of our 6 service categories growing in the strong double digits. CoStar revenue grew 15% in the first quarter, continuing its growth acceleration and consistent with our guidance. For context, CoStar revenue grew 10% in the third quarter of last year, 13% in the fourth quarter of 2021, 15% in the first quarter of 2022, and we expect CoStar revenue growth of 17% in the second quarter of 2022. This is a trend I really like. We now expect full year 2022 revenue growth of 16% for CoStar, up from our prior expectation of 15%. Multifamily revenue for the first quarter increased 6%, consistent with the fourth quarter last year and in line with our guidance. Revenue growth year-over-year is pretty much all price-driven as advertised property counts have moderated since the middle of last year, and ad level mix is a bit lower from the downgrades over the past few quarters, although in the recent quarter, the net upgrades have passed the net downgrades. So that's a positive sign for our outlook. We expect second quarter revenue growth to remain at 6%, and our full year revenue estimates remain unchanged at 8% to 9% range with double-digit growth expected in the second half of the year for multifamily. LoopNet revenue grew 11% in the first quarter, which was consistent with the guidance we provided in our last call. Second quarter revenue is expected to grow 10%, and our full year 2022 outlook remains unchanged at 10% to 11%. Revenue from Information Services grew 7% in the first quarter, also in line with our guidance. And for the second quarter, we expect revenue growth to approximate 8% as hospitality market conditions are improving. Full year expectation for Information Services has revised up slightly to the high end of our previous range at 9%. Residential revenue increased 63% over the first quarter of last year. Revenue from products that are expected to be part of our long-term strategy, like Pro+ subscriptions, grew 62% in the first quarter on a like-for-like basis. Additionally, first quarter subscription revenue doubled versus the year ago quarter. Very good and positive momentum for our new sales force in the residential sector. Our full year 2022 revenue expectation remains unchanged at $70 million. Other Marketplace revenue grew 31% in the first quarter of 2022, driven by the strong growth from Ten-X, and we expect revenue from these marketplaces to grow 20% in 2022 as we had easier comps in the first quarter of this year. On to profitability. Our net income was $89 million in the first quarter, an increase of 20% from the first quarter of 2021, and our effective tax rate was 26% for the first quarter. Adjusted EBITDA was $178 million, a 12% year-over-year increase, $18 million above the high end of our guidance. Our adjusted EBITDA margin was 34% compared to 35% in last year's first quarter. The outperformance in adjusted EBITDA compared to guidance was driven by lower personnel and marketing costs as well as a bit higher than projected revenue. Roughly 1/3 of the lower operating costs are timing-related with the rest flowing through to our increased guidance for 2022. We saw good productivity in our marketing costs, particularly as we leverage scale across our various platforms that are now marketing as we go into the new season. Our sales force totaled approximately 870 people on March 31, an increase of roughly 45 heads from the end of last year. The largest sales force increases this quarter were in LoopNet, followed by multifamily and Ten-X. We're focused on expanding our sales resources in all of our businesses and have doubled our number of sales recruiters since the beginning of this year. Our contract renewal rate was 91% for the first quarter of 2022, up from the 90% rate in the first quarter of last year and down slightly from the fourth quarter renewal rate of 92%. So this renewal rate fluctuated within this 90% to 92% range over really the last 5 quarters, and it changes slightly due to product mix and whether the growth rates of CoStar or Apartments are moving in different directions. The renewal rate for the first quarter of 2022 for customers who've been subscribers for 5 years or longer was a record 98%. Got to love that. Subscription revenue on annual contracts was 80% for the first quarter of 2022, which is the highest rate since the middle of 2020. The improvement in subscription revenue concentration is primarily from more multifamily customers committing to annual agreements. So for the outlook for 2022, we expect the full year revenue in a range of $2.15 billion to $2.17 billion, an increase of approximately $5 million at the midpoint of the range, implying an annual growth rate of 11%. Organic growth, excluding the revenue runoff from the legacy Homes.com product is expected to be 12%. Second quarter 2022 revenue is expected to range from $529 million to $534 million, representing revenue growth of 11% year-over-year at the midpoint. Full year adjusted EBITDA for 2022 is expected to range from $585 million to $615 million, which is an increase of $15 million from our prior guidance, with $5 million of the improvement from revenue and the rest from cost efficiencies, primarily from leveraging our scale across the marketing spend, as I mentioned earlier. For the second quarter of 2022, adjusted EBITDA is expected to be in the range of $123 million to $128 million, indicating a margin of 24% at the midpoint during the typical high point of our marketing spend for the quarters. Regarding our longer-term goals, for the great start to 2022 and our new residential investments progressing as planned, we remain confident in our ability to reach both the 2022 as well as the 2027 long-term financial goals that we announced at our last earnings call in February. So before I turn the call back over to our operator for this much anticipated Q&A session, I would like to remind everyone, our question-asking audience, that you'll get one question and one question only. So I know that you've been thinking about it long and hard, and you're going to make this question count. So with that, I will now turn the call back over to our operator to begin the questions.

[Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs.

Diving into multifamily, it looks like you're starting to see stabilization in top line growth in the mid-single-digit range. Could you talk a little bit about your latest expectations for growth in the back half of the year and then for 2023 as you approach run rate? And then what apartment market conditions are necessary to achieve these targets?

Sure, George. Thanks for the question. So yes, we were encouraged with where we're going with multifamily. We expect in the second half that will be in double-digit growth rates. That's going to range between 10% to 14% as we move through the second half of the year. 2023, we haven't set any rates off into 2023. But as you can see, the quarterly trend is moving upward. That should set expectations that 2023 will be ahead of 2022. Some of the things that we're seeing are more properties now advertising on the platform in March. So there's more properties being added than properties being taken away from the platform, and that's probably for the first time in the last 6 or 7 months. So that trend is encouraging. And the productivity of the sales force and the growth of the sales force are also encouraging advanced indicators on what we see in the second half. The price execution has been very good, building every month as the sales force gets more and more comfortable with that program. So we think that we're on a good track. We've confirmed that in the first quarter and looking forward to the seasonally high -- typically seasonally high second quarter, really give us a more firm indicator on the second half of the year.

I would also add that I was in Atlanta last week, and there were 25 people in the sales training class. So we are successfully adding a lot of additional incremental salespeople, and there's plenty for them to do because there are millions of prospects that we have yet to reach out to. I think that there are clear indications in the outlook for the apartment market, and you're going to see the sort of ultra-low vacancy rates moderating, and I would be surprised if that's not what happened. So high deliveries of inventory and moderating vacancy rates or normalizing vacancy rates or slightly more than -- like within the standard deviation ranges are really what we expect and what we would want to have as an environment.

Your next question comes from the line of Pete Christiansen from Citi.

Andy, can you -- or Scott, can you quantify at least on the multifamily side the mix between the different ad level packages, I guess platinum versus gold, all that kind of stuff? Just generally, where we are right now in that mix versus perhaps where normalized levels are. Just trying to get a sense of where we need to go to get back towards that normalized mix level.

Okay. Sure, Pete. Glad to help you with that. Our mix of ad platform levels have -- historically, the gold level platform is our largest mix. And it's been at about 40% since really the beginning of 2020. It remains roughly about there. You'll see diamonds have drifted down a couple of percentage points. They're just below 20%, so it hasn't moved a whole lot. The platinum is around 20%. That hasn't moved a whole lot. And you got a little bit more on the silvers, which has moved up a couple of points. So really, the platforms have stayed relatively stable since the beginning of 2020 with just a slight shift between diamond and silvers, which as you know, we've addressed with the adjustment in our rate card so that if you do plan to move down the level, especially if you're a large platform player, then you're going to pay a lot higher price at lower levels now for moving off of those diamond platforms. So that's about where we're seeing the mix right now.

I would also point out that another part of the story is the size of the ad sales force we've had is really working with our existing customer base as we add 50 or more incremental salespeople that are going to begin to be putting more focus on reaching out to folks that are not buying anything from us today, so as we grow share. And I do think firms like -- there's a lot of folks who are advertising on smaller platforms like software that we can offer a lot of advantage. I think we take a lot of share away from them.

Your next question comes from the line of Jeff Meuler from Baird.

I think we're continuing off that last line of thinking. But can you just give us a fuller update on kind of the down market Apartment's initiative? I guess you're kicking it off into the pandemic, and then you had a tough environment for a while, but it seems like we're maybe coming out of that. So just any update on how the down market initiative is performing? Any sort of strategic update since obviously Rent.com is not going to be utilized and you've since lost the Home strategy?

Yes. So we -- I would just go back to going into the pandemic. We -- going into the pandemic, we were just building that mid-market team to go after that down market opportunity, i.e. 25 or less units down to single unit rentals. The price points we were getting were fantastic and -- on a per unit basis, and we were successfully selling. But with the pandemic, building an inside -- large inside sales team got much more difficult. Again, last week, dropping in on the sales training in Atlanta, 25 people sitting in there in the sales training. We now have 7 recruiters going to 10. I believe we're going to see a lot of growth there. There is an unlimited -- effectively unlimited opportunity, so I'd expect for us to be able to start reporting some good progress there, and it's a very motivated group of salespeople that I got a chance to spend a fair amount of time with. So pretty optimistic there.

Yes. And when you look at the growth in advertised properties that took a pause, Jeff, in the middle of last year, they started growing pretty significantly in the first quarter of this year. And our mid-market sales team had their highest productivity level ever in the first quarter of 2022. So we stabilized a bit in the mid-2021 as the market adjusted, and now we're seeing growth pick up again in the under 100-unit section.

Your next question comes from the line of Andrew Jeffrey from Truist Securities.

It's Gus stepping on for Andrew. Looking at resi -- so looking at resi, you guys are able to ramp it faster than like internally planned. Are you willing to spend more behind it this year?

I think that it's going to be pretty predictable along the plan, the existing plan. We are engaged in a very ambitious scale software development effort, and that is not likely to go dramatically faster or slower than we anticipate as well as we're engaged in a scale collection of content. So there's well over 1,000 people working on the project right now. So it's going to be pretty predictable in 2022, I think. Where you begin to get optional variability where you would respond to successes in the market and potentially accelerate would be later 2023, and that's where you're just playing with acceleration around number of salespeople or SEM or marketing in response to success. So I think it's going to be very predictable in 2022 and through Q1 of 2023 and possibly Q2 of 2023. But if there's a change in later 2023, it will be done with a lot of communication with our investors as to why we think it's a high IRR.

Your next question comes from the line of Stephen Sheldon from William Blair.

On the -- maybe just a follow-up on the residential content investments and kind of 2 questions there. One, how is the cost efficiency for developing that content then relative to your expectations? And then two, I guess how far along are you now relative to what you planned for 2022 in terms of content breadth if there's a way to frame that?

Yes, it's a good question. I think that we are -- in our plans for '22, because we were trying to go from 0 to 100 miles an hour, we preplanned a very aggressive compensation program for the folks we're bringing in to do it. So we already planned -- we didn't expect to be able to accelerate super rapidly at super high efficiency. We could achieve efficiency in out years, so we're sort of right in the line of as expected. And the initial efforts -- a lot of the initial efforts are around building the systems to manage collecting the content efficiently, and we're on track with that. So there's no unpleasant surprises that we're aware of. We're just tracking along expectations. And was there a second part of that question? No? Okay.

Your next question comes from the line of Ryan Tomasello from KBW.

Following up on the residential strategy, can you give us your thoughts around the various lawsuits that are going on in the residential market focused on industry practices around commissions and the role of realtors, agents and the MLS? How do you think that plays out? Does any of that work in your favor? And what's the bigger picture relevance for those lawsuits with respect to CoStar's long-term strategy in residential?

So I think it's an interesting question. And for the first time in 5 years, we brought our General Counsel, and I don't think he's going to even comment. But the thing I would say is that we have not designed this like we are not in the business. We specifically have not designed Homes.com with a dependency on either the sell side or the buy side. There are a number of other U.S. residential real estate portals who work to monetize the buy side aggressively, and they rely on that dictated buyer split that is being attacked with some of these lawsuits. We're taking a completely different tech. We are focusing on selling the house and trying to market the house as effectively as possible. And there are no lawsuits out there saying that people can't sell their homes. So it doesn't really impact us. I -- also, where we are looking at generating revenue from agents, we are completely agnostic to whether or not it's buy side or sell side. So I think we can sit back and watch these lawsuits develop. It's just an academic interest. It doesn't really impact us.

Your next question comes from the line of Mayank Tandon from Needham.

Andy or Scott, I think one of you mentioned that the pricing impact was pretty much all of the multifamily this quarter, but just maybe more broadly your expectations on how much leverage now you have to increase pricing across the different product lines and how we should think about that impact versus growth from volumes or transactions or users. So pricing versus volume growth as we look out over the course of 2022.

Well, we operate in highly competitive markets, and we have really no pricing leverage anywhere. But if we did, we are focusing on making sure that all of our product managers and leads -- sales leads understand that in a highly inflationary environment, not to maintain price appreciation is to decrease your pricing. So we are keeping that out there, and we seem to be able to able to achieve pricing increases along those objectives of being mindful of inflation and perhaps a little bit more. Scott, you watch this pretty closely. Do you want to...

Yes. I think that's been our primary focus this year, is to make sure all of our platforms are keeping a close eye on our -- on the inflation numbers and then as our products annualize their contracts that we move our price up on the inflation curve, which is always part of the contracts that we enter into with customers. In addition to that, as we go into each of our platforms every year, like CoStar, for example, where we're adding lender, we've added hospitality, we've added CMBS data, we build out great value feature sets. We try and keep our annual renewals outside of inflation to a low modest few percentage points. So our customers always feel value ahead of where prices move for us. But certainly, you'll see overall that the percent from pricing will move up to more of about probably half of the revenue growth in general as in the past. It's typically about 1/3 in general, and the rest coming from volume and then people selecting to buy more and more products or increasing the mix of what they buy. So that's just a rough estimate, but I can give you some sense that it will play a little more important role, especially while we're in an inflationary environment.

Your next question comes from the line of Ashish Sabadra from RBC.

So pretty good momentum on the Pro+ and Concierge Pro+ products. Again, I understand it's a smaller base, but good traction there. I was wondering if you could comment on the feedback like. Where is the penetration for both the Pro+ and the Concierge Pro+ product? And also just the slowing home market and the tightening home market -- residential market, how does that affect your ability to sell in that market?

Sure. Thank you for the question. One of the wonderful things about being at the very early stages of entering the market with sub 1% penetration is contraction of the market, you can't feel it, like you're just -- you're moving into the market. So we're not feeling anything there. In the -- in terms of Pro+ and Concierge, the big factor there is it's -- we believe it's a really solid product that the agents like and regard highly. And when we acquired Homesnap, the biggest limitation or challenge they faced is they effectively had no salespeople. So by introducing salespeople and reaching out to realtors and telling them about what we had to offer, we were able to successfully sell the product. So the primary limiter is just the number of salespeople we bring in. The market is massive. And it's -- it could be a decade, and you wouldn't be able to penetrate the market fully. So -- and there's a balance between Pro+ and Concierge we're watching. I personally like -- both have advantages for us. Concierge has bigger dollars, but I think Pro+ has more strategic value. When a customer goes and when a realtor buys Pro+, they tend to use our platform dramatically more. We want them engaged as we release enhanced version of Homes.com. They're already in our environment regularly, and thereby, they're more likely to use our environment to collaborate with their buyers and their sellers. So it has -- Pro+ has a smaller revenue impact per unit. It's got a huge opportunity because the units are massive, but it has high strategic value. Concierge is fascinating. Concierge is fascinating because it's higher dollars, and it is a product where very often we are selling for hundreds of price point ASP of hundreds of dollars a month marketing opportunities to the agents for marketing the properties, which is the products we want to be focusing on down the road. So ultimately, you're asking me which of my children I like more. I like them both the same.

Now let me add some from a revenue projection. You may recall in the last call, we talked about the new sellers we're bringing on in the residential world are focused on Pro+, and so we are consciously not trying to grow the Concierge revenue on a dollar basis as we shift more and more sellers into Pro+ because Andy said the stickiness of the Pro+, the agent engagement is higher in the Pro+ product, and we are better off longer term doing that. So that's why you don't see as dramatic a revenue growth in our annual outlook as you'll see a mixing down in Concierge, the higher-priced product as we build the sales force that's bringing in more subscriptions on the Pro+. So more about that as we go forward, but that's what will play out in the financial dynamics.

But John Mazur keeps selling the Concierge.

I know. It's hard not to. The agents really like it.

Your next question comes from the line of Joe Goodwin from JMP.

I just wanted to ask about the new modern integrated technology platform for Homes.com. And then I guess just kind of what's going on there, what advantages that will launch you. And then any plans to actually connect the Homes.com data and port that into the CoStar back end so that will be available to your CoStar customers?

Yes. So it's a multistage process. The first stage is when you look at the Homes.com we acquired, it wasn't the high-performance environment you needed to be scalable up to 100 million uniques. Speed, performance, responsive mobile, all those things are essential to being able to build your traffic objectives and to get the SEO rankings you want. So what we're doing in Phase 1 is we are using the Homesnap back end, which is pretty robust. We are scaling that from single-serve to multiple -- with the cloud base that you can scale it infinitely in AWS. And then we're using the Apartments.com front-end tools against the Homesnap back-end tools, and that is our fastest path to market with high-performance scalability. After we release that version, we're going to come back and we're going to migrate the Homesnap back-ends into the -- what we call our enterprise back-ends, which is the core CoStar Group back-ends, which Apartments.com and LoopNet and the other systems work off of. Once we do that, the data will all then reside in the platform that is connected into CoStar. And subject to the license agreements with the MLSs and the use provisions, we would then be able to make that robust residential data or some of the Homesnap functionality available in the CoStar product to the people that were properly licensed. So there's a 3 -- I think that's a 3-step process there, but it will keep our development teams stably employed forever.

Your next question comes from the line of John Campbell from Stephens Inc.

Congrats on a great quarter. So on the incremental $100 million to $120 million of resi investment spend you guys have kind of planned for this year, how much of that hit in the quarter? And then also if you're able to share just the breakdown of that spend across content, software and marketing and maybe how that's going to look for the balance of the year.

It's all yours to comment.

Sure. So the incremental spend this year was $200 million to $220 million. So we had called about $210 million. $110 million of that was the content generation. About $65 million or so was for the marketing, and the rest was from technology spend as well as product and some other infrastructure that went into that. There wasn't a major amount of that timed in the first quarter, somewhere in the $10 million to $15 million range, probably incremental. Maybe it's a little higher than that. But the ramp-up really starts to come in the second quarter as we're adding the resources to the content collection. There's marketing that will pick up in the last quarter of the year, third and fourth quarter of the year as we get closer to launching. So it's heavily phased into the back half of the year. So really in the first quarter, it was really shifting resources. They're both product and product development resources over from our other businesses and some research folks. So not a whole lot in the first part of the year. Most will be coming in the last 3 quarters.

There are no further questions at this time. I would now like to turn the conference back to Andrew Florance.

Well, thank you for joining us today, Gene, as a special guest host. And I'd like to thank everyone for joining us for our first quarter '22 earnings call. We've come out of the gates this year with a real strong momentum across our commercial property platforms along our exciting, new investment opportunities in residential market and our European potential. We look forward to speaking to you all again in the second quarter call in July 26 at the same time and the same medium. Until then, stay safe, and thank you very much for participating. And thank you very much for any analyst who said great quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.