Prepared remarks
Good day, and thank you for standing by. Welcome to the Q2 2026 CoStar Group Earnings Conference Call. Please be advised that today's conference is being recorded. After the speakers' presentation there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Rich Simonelli, Head of Investor Relations.
Thank you, Josh, and hello, and thank you all for joining us to discuss the second quarter 2026 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Chris Lown, our CFO, I'd like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements. The company's outlook and expectations are based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's press release issued earlier today and in our filings with the SEC. All forward-looking statements are based on the information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements, whether because of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measure discussed on this call are shown in detail in our press release, along with the definitions for those terms. Press release is available on our website located at costargroup.com under Press Room. You've joined us via webcast. Please refer to the press release today to see how to access the replay of this call. Remember, we want to give everybody a chance to ask questions, so please limit your question to one question to start off, and you can requeue and, time permitting, ask a second question. And with that, I'd like to turn the call over to our Founder and CEO, Andy Florance. Andy?
Again, thank you for joining us today. Our second quarter 2026 financial results marked a profitability inflection point for CoStar Group as adjusted EBITDA more than doubled year-over-year to $184 million. This is the second highest quarterly level in company history. We generated $925 million of revenue in the second quarter, an 18% increase year-over-year. That is our 61st consecutive quarter of double-digit revenue growth. Net income increased by 817% and EBITDA rose 441%. We held our increase in operating costs to just 2% year-over-year, all while continuing to invest in numerous long-term growth initiatives. We expect to deliver the highest full year adjusted EBITDA in CoStar Group's history in '26, and we're confirming our full year guidance range of $780 million to $820 million. Along the way, we expect to deliver two consecutive quarters of our highest ever adjusted EBITDA. Net new bookings for the quarter were $69 million, up 3% from the first quarter. Our commercial real estate business generated $481 million of revenue in Q2, an increase of 8% year-over-year and it generated adjusted EBITDA of $172 million, up 7% year-over-year. CoStar revenue was $337 million, up 9% year-over-year, and net new bookings accelerated up 24%. Renewal rates remained an impressive 93% and NPS held historically strong at 68%. Net new bookings to brokers increased 48% year-over-year, including a multiyear renewal of our largest brokerage client. Subscribers on the CoStar platform grew 19% year-over-year to 327,000. That subscriber base creates a powerful demand for commercial property sale and lease listings, and it makes the platform extremely valuable to the brokers and owners who list with us. CoStar Debt Solutions delivers differentiated risk analytics to commercial real estate lenders by intelligently combining CoStar's information resources with each lender's own proprietary loan data. It delivered its best quarter ever with over $4 million in net new monthly bookings, up 96% year-over-year. We are now applying the benchmarking expertise we developed with STR to Debt Solutions. 300 lender clients are contributing information on over 100,000 active loans, over $1.2 trillion in outstanding debt, and this is on an anonymized and aggregated basis. The product will give lenders unprecedented visibility to improve decisions across origination, portfolio risk and compliance. As an example of this value, a lender might discover his or her office loan book is at an 80% loan-to-value ratio, while peers are at a more conservative 60%. That insight would prompt the consideration of a significant risk premium or perhaps a shift to a more conservative lending policy going forward. Clearly, it's a game changer in the lending world. Overall, commercial revenue accelerating growth was partly offset by Ten-X, where we have been restructuring the business for future growth and cost control and enabled us to reduce costs by $7 million year-to-date. During this restructuring, revenue declined by $4 million. Going forward, Ten-X will be separated from LoopNet with dedicated sales, marketing and leadership to more effectively drive growth. We launched four major product initiatives on the core CoStar platform in the second quarter. First, in June, we released CoStar Rent Benchmark, a first-of-its-kind data set built from 4 million AI-abstracted actual leases and lease documents. Rather than using less reliable asking rents or broker report information, this is real data. Today, we present actual rents benchmark data and over time, we plan to add modeled rents derived from that information. We have plans to build similar high-quality rent solutions in Australia and the United Kingdom. Secondly, we launched CoStar in France in Q2, building on our BureauxLocaux and Business Immo acquisitions and significant proprietary local research. The platform covers office, logistics and hospitality across Paris, Lyon, Marseille and more than 290,000 properties, 385,000 commercial tenants, 90,000 availabilities and 75,000 lease and sales comparables. It is one of the deepest CRE databases in the country. Over the next two years, we plan to migrate and upgrade roughly 1,100 Business Immo subscribers to CoStar. Early customer response has been very encouraging. Within days of launch, we signed our first major global brokerage customer's French business. And a major global investor told us this was their first time they had ever been able to get an absorption number for Paris. That's a KPI their investment board requires that until now was not readily available in France. For our third CoStar product launch in Q2, we launched public record search in the U.K., providing extensive transparency into 6.9 million freehold and leasehold ownership titles and 6.8 million properties and parcel groups. Fourth, we extended our AI-powered lease abstraction engine into CoStar Real Estate Manager. It converts complex lease documents into structured, auditable records and significantly reduces the time clients spend onboarding and managing leases. We remain focused on launching CoStar in Australia in the second half of this year. We now have 124 researchers and photographers deployed on the ground in Australia, covering 30,000 listings, 23,000 property profiles and more than 10,000 sale and lease transactions. Matterport performed well in the second quarter. Subscription revenue grew 16% year-over-year, and we achieved Matterport's all-time best month of enterprise customer acquisition in June. Tomorrow, we will deploy a new pricing plan that reduces the price of the Matterport 3 camera and shifts more of the revenue into SaaS. We believe this will accelerate both adoption and subscription revenue growth. We continue to advance the product roadmap. We fully released E57 import, strengthening Matterport's position as a unified platform for storing, managing and using multiple sources of 3D spatial data in one spot. The team also released a more powerful digital twin experience. It presents a home's exterior through Gaussian splats, lets viewers rotate and fly around the house and then move seamlessly inside to experience the home in high-resolution panoramas or they can virtually remove various floors for a true dollhouse view of the home from the sky. This capability was on our acquisition rationale roadmap, and it's really exciting to see it successfully deliver. The Matterport 3 camera has proven a highly efficient, reliable capture device. And post-acquisition, we have restarted hardware development. We have now produced the first prototypes of the next-generation Matterport 4, which offers higher measurement location accuracy and higher resolution panoramas, which is particularly valuable to architecture and construction uses. We anticipate delivering the Matterport 4 in late '27. LoopNet generated $87 million of revenue in Q2, up 14% year-over-year. Paid listings increased 9% year-over-year in the U.S. to 220,000 and grew 24% in Canada and 52% in the U.K. year-over-year. We expanded the LoopNet sales force to 225 reps, up from 191 a year ago. Asset-based pricing is driving adoption among lower-value listings while capturing more value from higher-value listings. This is contributing to sequential acceleration of net new bookings from Q1 to Q2. LoopNet's European revenue grew 10% year-over-year with average monthly unique visitors up 88%. Our investment of Wikicasa in Italy creates the opportunity to add Italian coverage to LoopNet. We are now partnered with dozens of Italy's largest brokerage firms, and Wikicasa lists over 100,000 commercial real estate listings from more than 12,000 broker branches. Our Australian CRE marketing platform, commercialrealestate.com.au continues to grow with Q2 visits up 76% year-over-year. We have decided to shift the release of LoopNet in Australia to late 2027, prioritizing instead releasing residential integration first to achieve significant potential margin enhancements sooner. STR delivered a strong Q2 with nearly 70% of its net new revenue coming from brand-new logo sales, a clear signal that growth is being driven by market expansion, not just pricing. We landed 261 new logos globally with U.S. headliners, Nobu Hospitality and Baywood Hotels alongside a standout Japan cohort in Kajima and UDS. Even with the Iran conflict weighing on the Middle East, we continued expanding with Alistithmar in Saudi Arabia and secured a significant Indian win with Samhi Hotel Investments. BizBuySell revenue grew a moderate 5% year-over-year. We're expanding the business with benchmarking tools that help buyers and sellers understand business value and evaluate opportunities while partnering with SBA lenders to embed financing into the marketplace. Nearly one in three buyers now complete a robust buyer profile on BizBuySell and an NDA to speed the deal process. There's over 32,000 profiles in total, including 8,700 added in Q2 alone. Residential revenue was $440 million in Q2, up 33% year-over-year. Second quarter adjusted EBITDA grew $41 million over the first quarter, bringing our residential segment to a positive adjusted EBITDA in Q2. Apartments.com delivered $318 million of revenue in the second quarter, up 9% year-over-year. June's gross sales were the third highest sales month in Apartments.com history. Apartments ended the quarter with nearly 93,000 paid properties, up 12% year-over-year, sustaining 18 months of adding approximately 1,000 paid properties each month with monthly renewal rates holding strong at 99%. Average revenue per property was largely flat, just down about 3.6% year-over-year. The decline was primarily due to a mix change in sales to smaller communities, which carry a lower average pricing. We're holding firm on price integrity while a competitor discounts aggressively to buy share because their quality gap is measurable. PERQ, a leading digital marketing analytics firm, analyzed lead-to-lease conversion across more than 1,000 properties and found that Apartments.com leads convert at 2.5x the rate of the next closest competitor. Entrata data shows apartments lead-to-lease conversion rose 14% year-over-year through May and a leading national property manager reports an 18% improvement. We believe that the ROFR product will win out over the medium term. Our sales organization, the largest and most active in the industry, conducted 196,000 quality meetings in Q2 and maintained an industry-leading Net Promoter Score of 88. Apartments.com delivered more than 228 million highly engaged renter visits in the quarter with traffic up 7% year-over-year in June according to Google Analytics. By contrast, comScore reports that June visits to Zillow's network declined 35% year-over-year. Apartments.com remains the most recognizable brand in apartment search with 66% unaided consumer awareness among apartment seekers as 25 points ahead of our nearest competitor according to Dynata. We have continued to grow despite competitive distortions in the multifamily rental marketplace. The FTC and multiple state attorneys general have sued Zillow for allegedly entering an unlawful agreement that reduced competition in multifamily rental advertising and CoStar Group has separately sued Zillow for the unauthorized use of tens of thousands of CoStar-owned copyright apartment photographs that it used to build its rental marketplace. While these cases are pending, together, they raise a broader question whether Zillow's rental expansion was built through lawful competition or through shortcuts that regulators and rights holders are now challenging in court, conduct that may result in significant setbacks for them. At June's NAA Apartmentalize, the multifamily industry's largest event, we confirmed our leadership position and innovation roadmap. Our team conducted 728 sales appointments and welcomed more than 3,000 visitors to our booth with 1,500 attendees visiting the Apartments.com Innovation Lab for demonstrations of Apartments.com AI, Matterport and our ChatGPT app. To date, the sales leads generated from the conference resulted in more than $7 million in new annualized sales, up $1 million from last year. Leveraging our successful Homes AI technology, we introduced Apartments.com AI at the event, an immersive conversational search experience that helps renters find, understand, compare and contact properties through natural dialogue or text. It supports the full apartment search journey and combines AI with Apartments.com's unmatched property data and media, so renters arrive better informed and more prepared when they reach out to leasing teams. Early engagement has been extremely encouraging. In just a few weeks, users completed approximately 0.5 million AI sessions. Apartments.com AI users spend 3x longer on the site than non-AI renters, averaging 20 minutes per session. They viewed twice as many listings and spend 40% more time on each listing. 3D tour usage is up 225% and traffic-to-lead conversion is up 256%. Based on these early results, we expect AI to meaningfully improve lead-to-lease conversion over time. Homes.com rentals were showcased at the all-new Homes.com rental experience at Apartmentalize. Homes.com is the natural place to find a single-family home, townhouse or condominium to rent and has become an important extension of the Apartments.com network. Through Q2, Homes.com rentals drove more than 11% of Apartments.com's traffic, making Homes.com its largest single syndication partner. And leads from Homes.com to Apartments.com increased 162% year-over-year. By the end of '26, we expect every tool that independent owners use on Apartments.com to also be available on Homes.com. We just released upgraded native Apartments.com apps for both iOS and Android. Apartments.com is the industry's highest-rated rental app, and both these apps are off to a strong start with leads up 10% year-over-year in the first month. Our Q2 marketing generated more than 2.2 billion media impressions; co-branded Homes.com campaigns produced approximately 11 million views across YouTube and other outlets and targeted digital campaigns, including World Cup YouTube placements. In April, Apartments.com launched a ChatGPT partnership in 100 markets and have since expanded to 500. According to Criteo, Apartments.com has greater visibility in ChatGPT than any other competitor. The U.S. multifamily market is stressed and continues to work through elevated supply, making owners more price sensitive. Q2 absorption remained strong at approximately 139,000 units, down 3% year-over-year, while 2026 deliveries are projected to decline 23%. The concessions remain widespread with roughly 40% of communities offering incentives. In this environment, property owners are increasingly focused on lead quality and leasing efficiency, exactly where Apartments.com differentiates. Homes.com revenue grew 66% year-over-year to $28.5 million in Q2, and the annualized run rate reached $116 million at the quarter end, up 78% year-over-year. We now have over 36,000 agent subscribers, up 107% from a year ago. 12-month trailing ARPU is approximately $265 and the average subscriber price rose to $305 in June. We expect average pricing to continue to rise as we use learnings from our growing subscriber base to optimize pricing. Subscribers paid to promote close to 305,000 active listings in Q2. That's 9.3% of the 3.2 million homes for sale in the U.S., and Homes member agents' listings increased 92% year-over-year. We believe agent subscribers are earning an 11x return on investment based on the first-year commission data we shared last quarter. That positive result shows up in lower cancellations. Our monthly cancel rate dropped again to just 2.4% in June, our lowest yet, down from 6.5% in June of '25. Homes.com organic traffic is up 115% year-to-date. Average session duration hit an all-time high in Q2, up 52% year-over-year in June. Bounce rates hit an all-time low of 34%. In the third quarter, we plan to roll out our platinum marketing tier, Homes.com's first step advertising offering. Platinum listings will receive enhanced placement in search results and across key neighborhood and community pages, enhanced social marketing and the full range of Homes.com still and drone photography and Matterport tours. We expect Platinum ads to be priced at multiples over standard listings. Most revenue on most real estate portals around the world comes not from the base subscriptions we've sold to date, but from enhanced depth advertising sales we're about to begin selling. 70% of Apartments.com customers buy depth advertising and 91% of Domain's total revenue is generated by it. We believe that in the future, the majority of Homes.com revenue will be generated by depth advertising. So it's an important milestone to begin selling it this upcoming quarter. Homes AI continues to drive exceptional engagement. Homes AI users spend more than 17 minutes on site. They conduct 3x as many searches, favorite 5x as many properties, share listings 6x more often and are 48% more likely to return to Homes.com within the week. Consistent with managing our Homes.com investment, we are optimizing our sales force for efficiency and productivity, reducing inside sales reps from 660 at the end of Q4 '25 to about 400 today, while retaining the top producers who generate an outsized share of the revenue. We always believe that a field organization would be the most productive, consistent with our experience at Apartments.com, LoopNet and CoStar, but it takes years to build a good one. So we initially built an inside team for speed to market. It worked as we achieved over $100 million of organic revenue in the first two years. But as expected, our small field team is delivering higher productivity. So we're expanding that field team to 50 reps focused on five major metros: Washington D.C., Tampa, Atlanta, Dallas and Chicago and plan to expand further as successful performance warrants. Even as we reduced the sales force, Homes.com net new bookings were consistent with Q1 and production per rep increased 19%. Domain in Australia delivered a strong Q2, growing revenue 9% year-over-year on a pro forma basis. Strong agent engagement with Domain's growing audience, the rollout of Matterport-enabled premium packages and increased industry presence drove record upgrade activity. Core residential revenue, excluding developers, agent solutions and print, increased 15% year-over-year on higher listing volumes. We launched Matterport integrated with Domain in Australia on July 1. We've had very positive response in the first several weeks, driving significant uptake of Platinum ads on Domain. We believe Domain is Australia's fastest-growing property brand with average monthly visits reaching 41 million in Q2, up 35% year-over-year. We are narrowing the audience gap in this market by delivering a differentiated, better user experience. Our program to divest noncore software assets in Australia is progressing as expected, which will enable management to concentrate on the most important residential and commercial objectives and will improve overall profitability. We expect to finalize all divestitures by the end of 2026. Q2 was another strong quarter for onthemarket, our U.K. residential portal. Total property inventory increased 12%, surpassing Zoopla and now, for the first time, making onthemarket the second largest property portal in the U.K. by inventory. We achieved our 26th consecutive month of positive net new bookings with leads up 14% in the first half. Average engagement increased 43% year-over-year in Q2. Pages viewed per active user rose 64% and total time on the site grew 16%. Turning to Land.com. Revenue grew 9% year-over-year. First half sales net new bookings increased 22% and signature ads grew 55% year-over-year. This month, we delivered our consolidated headquarters campus in Richmond, Virginia, on schedule and under budget. A decade ago, we chose Richmond for its ability to attract and retain in a low-cost market the highly skilled talent needed to build and scale CoStar's business. The new campus consolidates nearly a dozen scattered spaces and buildings into one facility and allows us to scale from 2,500 employees today to 4,000 with limited capital cost and no additional construction. The campus pairs a premier 21-story office tower with a mass timber amenity building and our original nine-story office building. It's LED-embedded glazing that displays generative AI art by Refik Anadol built from our own real estate data and imagery, appropriately keeping us focused on our AI future. The campus is tracking toward LEED Platinum and WELL Platinum certifications and slated to achieve net zero through 100% renewable energy. Financially, this is a highly strategic deployment of capital. Centralizing operations eliminates fragmented lease costs and directly enhances employee efficiency, accelerating product cycle sales and client retention. Because we own this premier trophy asset entirely on our balance sheet, we have created substantial equity value and positioned ourselves for a future sale-leaseback that could unlock hundreds of millions in liquid capital for acquisitions or share buybacks, while retaining uninterrupted operational control. We hope to replicate the playbook from our former D.C. headquarters where we achieved a 145% value gain in one year. In May, we announced our agreement to acquire Zonda, a leading provider of new home construction data, analytics software and online marketplaces. Zonda's comprehensive data set covers land development, construction activity, home sales, community performance and builder operations, serving more than 3,000 builders, developers, lenders, manufacturers and suppliers across North America. We expect the transaction to close in the second half of this year. At this point, I'll turn the call over to our CFO, Mr. Christian Lown.
Thank you, Andy. For the second quarter of 2026, we generated revenue of $925 million, an 18% increase year-over-year and in line with our guidance range. Adjusted EBITDA was $184 million for the quarter, above the high end of our guidance range and represented a 20% adjusted EBITDA margin. This is an impressive 900 basis point increase year-over-year. Commercial revenue was $481 million, up 8% year-over-year and in line with our guidance. Residential revenue was $444 million, up 33% year-over-year and also within our guidance range. Adjusted EBITDA for the Commercial segment was $172 million, up 7% year-over-year and above the high end of guidance with a 36% adjusted EBITDA margin. Our Residential segment generated a record adjusted EBITDA of $12 million, marking its first quarter of profit since we launched Homes in Q1 2024. We expect this to continue to grow as we focus on monetizing our investments and driving profitable growth and margin expansion. The outperformance in adjusted EBITDA overall was driven by actions to reduce personnel costs and continued operating efficiencies. We are particularly pleased that we delivered a 20% adjusted EBITDA margin, a full quarter ahead of our expectations. Net new bookings in the second quarter of 2026 were $69 million. Within our Commercial segment, CoStar revenue grew 9% year-over-year in the second quarter to $337 million. Subscriber counts increased an impressive 19% versus the second quarter of 2025, and CoStar Debt Solutions delivered its second consecutive record sales quarter. LoopNet revenue increased 14% to $87 million, supported by continued momentum in paid listings as we continue to build the only global commercial real estate marketplace. Other commercial revenue was $57 million, down 5% year-over-year. This was primarily driven by lower transaction volumes at 1x. Matterport continued to outperform with subscription revenue growth rates in the high teens versus high single-digit growth prior to the acquisition. Residential revenue was $444 million, up 33% year-over-year and up $19 million sequentially. The sequential growth primarily resulted from continued strong revenue from Domain as well as increases in apartments and homes that exceeded their sequential increases in Q1 2026. Adjusted EBITDA increased 39% sequentially from $132 million in 1Q 2026 to $184 million this quarter. Our focus on disciplined expense management, particularly in personnel and operating expenses as well as continued efficiency gains across the business, including early benefits from AI and other expense initiatives contributed to the increased profitability in Q2 2026. Importantly, proactive expense management from the first half of the year has established a new baseline for expenses that will continue to benefit us moving forward. Year-to-date, revenue was $1.82 billion, up 20% year-over-year, with approximately half of the revenue growth coming organically. Commercial revenue was $953 million, up 11% year-over-year, and residential revenue was $869 million, up 32% year-over-year. Turning to operational metrics. Sales headcount at June 30 was 1,975, up 8% year-over-year and roughly flat on an organic basis. Increases in LoopNet and apartment sales staff were offset by the strategic reduction of home sales reps as we focus on productivity and efficiency at Homes.com. Our contract renewal rate remains strong at 89%, with customers of five years or more renewing at 94%. Subscription revenue on annual contracts was 72% for the second quarter, consistent with post-Domain acquisition subscription rates. We repurchased 2.4 million shares for $82.1 million in the second quarter, which brings our total share repurchases in 2026 to 13.75 million shares for a total cost of $587 million. Since the beginning of 2025, we have repurchased nearly 21 million shares for approximately $1.1 billion. We expect to continue our open market repurchases throughout the remainder of 2026 and expect a total of $700 million in share repurchases for 2026. For Zonda, we are still in the regulatory approval process. We are excited to welcome the talented Zonda team to CoStar Group and expect to close in the second half of 2026. We will provide an update on the accretive financial impact of this transaction in the earnings release after the deal closes. Turning to guidance. To be clear, we have not included any financial impact from the expected closing of the Zonda acquisition in our 2026 guidance. For the third quarter of 2026, we are guiding revenue to range between $935 million and $945 million, representing a 13% year-over-year increase at the midpoint. Commercial revenue is expected to range from $489 million to $494 million, 7% growth at the midpoint, with residential revenue expected to range from $446 million to $451 million, a 20% increase at the midpoint. Adjusted EBITDA is expected to range from $190 million to $210 million and adjusted EBITDA margin of 21% at the midpoint. This is over 700 basis points higher than Q3 2025's adjusted EBITDA margin. We are guiding commercial adjusted EBITDA to range between $162 million and $172 million with residential adjusted EBITDA of $28 million to $38 million. We are providing adjusted EPS guidance of $0.31 to $0.34 for the third quarter, which assumes 403 million weighted average shares outstanding. For the full year of 2026, we are revising our previous revenue guidance range to $3.715 billion to $3.755 billion, representing a 15% year-over-year increase at the midpoint. Commercial revenue is expected to range from $1.94 billion to $1.96 billion, a 9% increase at the midpoint while residential revenue is expected to range from $1.775 billion to $1.795 billion, a 22% year-over-year increase at the midpoint. Our revised revenue outlook reflects a series of recent operating decisions designed to drive profitable growth over the long term. The key drivers of the revision include Ten-X, where we restructured the business to improve profitability; Homes.com, where we optimized our sales organization for productivity, reducing average sales headcount by 21% sequentially while still delivering similar total net new bookings compared to Q1; and Apartments.com, where we chose to retain price integrity based on our confidence that we deliver the best ROI to our customers. Taken together, these actions moderated near-term revenue growth, but we believe they position our businesses to generate increased revenue growth over time, leading to better long-term profitability. As a result of our stringent focus on expense management, we are affirming the adjusted EBITDA guidance that we provided last quarter, which calls for adjusted EBITDA to range from $780 million to $820 million. This is an increase at the midpoint of $30 million from our 2026 guidance provided on our February earnings call. We are also affirming our full year adjusted EPS guidance range of $1.32 to $1.39. This range is $0.08 or 6% higher than our guidance provided in February of this year, and we remain committed to achieving our long-term adjusted EBITDA targets laid out earlier this year. With that, I'll turn the call back over to Andy Florance.
Thank you, Chris. As announced, this is Chris' last earnings call in our CFO seat. On behalf of the Board of Directors and our colleagues, I want to thank him deeply for his many contributions to the company over the past two years. We wish him Godspeed as he heads to Allstate to take the CFO seat there. Allstate will be in good hands. As Chris departs, we congratulate Robin Rossmann on his promotion to CoStar Group's new Chief Financial Officer. Robin brings more than two decades of financial, operational and strategic leadership, including over a decade at Deloitte and more than a decade successfully running CoStar Group's businesses around the world. He has proven he can drive margin expansion and profitable growth. Over the past two years, he dramatically improved the margins of our European business, eliminating approximately $50 million in cost, roughly 25% of the European cost structure while still delivering double-digit revenue growth. Last week, Robin and I enjoyed dinner with CoStar Group's three former CFOs: Carchedi, who served nine years with a 489% stock appreciation; Radecki, who served for eight years with a 270% stock increase; and Wheeler, who served eight years with a solid 300% stock appreciation. They each challenged Robin to beat their stellar performances. Given the fact that Robin's got talent, it should be no problem. Chris could have given these guys a run for their money if Allstate hadn't recruited him, but Robin's up at bat. On behalf of our shareholders, our Board and our 8,000 colleagues, welcome Robin. In conclusion, CoStar Group is off to a strong start in '26 with solid revenue and EBITDA growth. During the roadshow earlier this year, where I met with most of our investors and analysts, I emphasized that we're fully committed to adjusted EBITDA targets we provided for '26 through '30. This year, we have reduced our projected '26 expense base by roughly $100 million. This active cost management gives us a head start on delivering our '26 through '30 adjusted EBITDA targets. With that, we'll turn the call over to questions.
Questions and answers
Our first question comes from George Tong with Goldman Sachs. Off to a strong start in '26 with solid revenue and EBITDA growth. During the roadshow earlier this year, where I met with most of our investors and analysts, I emphasized that we're fully committed to adjusted EBITDA targets we provided for '26 through '30. This year, we have reduced our projected '26 expense base by roughly $100 million. This active cost management gives us a head start on delivering our '26 through '30 adjusted EBITDA targets. With that, we'll turn the call over to questions.
Net new bookings were $69 million in the quarter. That was up 3% sequentially, but down roughly 26% year-over-year. Given the reduction in the revenue guide for the full year, can you help us understand the primary drivers of the year-over-year decline in bookings? Was the softness concentrated in any particular product line or end market? And what gives you confidence that bookings growth can improve from here?
Thanks, George. I think a couple of things. As was mentioned, we gave you net new bookings for Homes.com. We continue to scale that business. We made a very strategic decision to drive efficiencies and improve profitability and performance of that sales force. So that will continue to grow. And I think as Andy mentioned, we're very excited about the metrics we're seeing and the uptake and the launch of depth advertising there. The commercial side performed well, and we feel good about those businesses. We talked about Ten-X. Ten-X is a transactional business, and it's a business we continue to work on and focus on. We're making some changes, but that did represent roughly 25% of the revenue guidance change. And then on apartments, I think what you saw there is strong continued performance, a great NAA event, but we continue to face competition. But I think what you see is when the market looks at our customers' ROI, we get through the one-year anniversary of the transaction they did and they see the benefits, we believe we will continue to win the day purely based on our performance and the superior product that we have. Andy, anything else you'd add?
I would concur with that, and we continue to invest in optimized sales force growth. Obviously, we've gone from a zero to a roughly 660-person sales team. We are now focusing more on the productivity of each of these salespeople, including shifting to more field salespeople in both Homes and Apartments, which we think will have a benefit. And again, to reiterate what Chris said, as we move into depth advertising, it's a pretty important new offering in Homes.com, which we think will drive some good revenue pickup there. So we do remain confident that we can accelerate revenue.
And George, I'd add two other things as I thought through the question. One, we're excited about additional product launches and the investments we've made on the commercial side primarily that are coming in the next four to six quarters. We think those take-up will be fantastic. And we continue to expand our sales force. While some of our sales forces have reached our objectives, we're still a little behind in some of them. So we think that as we catch up with those sales forces and drive productivity, we'll be able to get that as well. So I think both of those also give us a lot of comfort in being able to achieve our growth objectives.
Our next question comes from Stephen Sheldon with William Blair.
Can you talk a bit about what the updated revenue guidance assumes in terms of organic growth in the back half of the year? I think the full-year guide was assuming close to 10% organic revenue growth before. Should we be thinking it's more like 8% organic for the full year now and below that in the back half? And given what you're seeing in the booking trajectory, and I know it's early and you're still a ways away from giving guidance for next year, but with the trends we're seeing, what does this imply about the pace of revenue growth heading into 2027?
Yes. On your second question, as you know, we don't give guidance for net bookings, and we haven't given out a 2027 forecast. So nothing to add on that question. Remind me what your first question was?
The pace of organic revenue growth that you're embedding in the updated guidance for the back half of the year?
You have the roll forward, you know the net bookings. And as we mentioned, we said that it was 10% organic growth for the first half. So somewhere inside of that by 1 to 1.5 points is sort of what we're looking at for the second half of the year.
Our next question comes from Ryan Tomasello with KBW.
On multifamily, the growth deceleration there suggests pressure on pricing per community, which I know you've called out mix shift to smaller rooftops. But the extent of the decline also seems to suggest pressure on outright tier downgrades. So can you talk about to what extent that's been a factor and how you would weigh the tier downgrade pressure between macro-driven budget tightening versus competition? If there's any signs of that downgrade pressure abating, that would be helpful.
Yes. So I think that it's a combination of both the macro environment and competition. We're in an elevated vacancy environment, and that is stressful to the apartment owners and property managers, making them more price sensitive. And then there is enhanced competition with a competitor trying to buy share with aggressive pricing. We're maintaining our pricing integrity successfully. You see us maintaining the average ARPU roughly at about the same level, including with a share mix. And what we see is that with a 2.5x lead-to-lease conversion rate, we recapture a lot of business that cycles away choosing a lower price point. They tend to come back through time, but it just puts a lot more work on the sales force to cycle through it. So there's nothing wrong with competition. We've had a lot of competition through time. We started out with 8 to 10 competitors in the space. We're now down to two that the FTC thinks there should be more than two. We feel very good about where we are and the advantages we offer in ROI, and we continue to lead with the best lead-to-lease quality.
I'd add on top of that, property growth was up 12% year-over-year. So we continue to grow rooftops at an attractive level, and we held pricing basically flat at the package level. So bring on the competition, but we continue to grow and expand our business, which we're excited about.
Our next question comes from Pete Christiansen with Citi.
Andy, with the productivity efficiency change there on the residential side, just curious if it's changed your time-to-scale expectations? Or I mean, is this initiative effectively lengthening that? Or do you still think you can reach your internal expectations longer term to scale this business with these new efficiency measures?
Yes, I think it remains very similar. You really prefer to have people in the field meeting with your clients. We see about 2x the productivity with Apartments.com field staff compared to inside sales staff. With CoStar, we see a similar significant advantage for field staff versus inside. And the same thing is typically true with LoopNet. But you don't have that choice when you're starting out a major new sales force because in order to build a sales force quickly, you really have to keep them concentrated in one location. Now we're two years in or really a year into having a full-size scale sales force, and we have the optionality to now begin to put more people in the field. We'll be cycling through that over time; it takes several years to build out a full national field sales team. The inside sales team continues to mature and get better. Remember, this is a very rookie sales team at this point, but you saw fewer people sell the same amount with about a 20% productivity increase by focusing on the better sellers. So what we'll do is continue to optimize the go-to-market. I feel very good about being able to go out there and bring out the depth advertising for the first time. I think we have a strong offering. Our clients are seeing a very strong ROI that is demonstrable, and that shows up in really good renewal rates and very low cancellation rates now. So we're achieving a lot of our goals, and I feel very good about where we are and getting very good feedback from clients.
Our next question comes from Surinder Thind with Jefferies.
Just following up on the Homes.com strategy at this point. Is the idea the same as where you were at the beginning of the year in terms of how you thought you'd move forward with the sales force and everything, that there's a certain level of productivity or end-market demand that you can fulfill right now in the marketplace? And so that's why we kind of have the size of the sales force that we do and then ultimately the realization that you need a field sales force. Does that raise the cost of customer acquisition with more field sales reps? How did your assumptions change over the course of the last six months?
Well, the fundamental strategy remains the same. When you build out a sales force quickly, you initially use inside sales because you can't train field sales in 50 cities simultaneously. So you start inside and then, over time, evaluate productivity. Some people are very productive and others are not. What we're seeing is our small field team is producing at a much higher level, which is not a surprise. There is not a material cost differential between centralized and field reps. We already have field offices and infrastructure in many of these major cities. It's a question of being methodical: cycle up five cities and 50 salespeople, let that set, build additional management, then go to the next wave. It's also a shift from prioritizing revenue growth as the first priority to committing to hitting our EBITDA goals. So we're not going to sacrifice one for the other.
Our next question comes from Curtis Nagle with Bank of America.
Maybe just talk through the bridge to get to the residential EBITDA guide for the year. I understand that things like the sales force changes, but it does imply a fairly steep step-up between 3Q to 4Q, with lower revenues, I think, on the quarter there. But just walk through the pieces. What's driving that inflection between the two quarters?
Let us come back to you. I don't have that bridge in front of me, so we'll come back to you after the call. Apologies. Let us come back to you. I don't have that bridge in front of me, but we'll follow up after the call.
That's a follow-up. And just for the other CRE segment—Ten-X—it looks like if you strip that out it implies basically flat growth. So what's going on there?
If you strip Ten-X out, it's the primary delta between the change in guidance. We still feel really good about the growth in those businesses and where they're heading, especially with the launch of the new products. The change in guidance was primarily driven by Ten-X, which as you know is a transaction business.
And the core business is accelerating.
Our next question comes from Brett Huff with Stephens.
Welcome, Robin. Nice to speak with you. Question, a follow-up on the residential business, less about the numbers and more about how the sales pitch is going. Given the really strong 10 or 11x ROI, which is super compelling, what's our rate-limiting step in getting folks to believe or understand that? Is it education? How are you bridging that as you rejigger the sales force?
In June, our demo-to-close rate was about 45%. That's an incredible close rate. The story is very compelling: people who hear it subscribe, and those who subscribe are renewing. We're getting lower cancellation rates and higher renewal rates. With hundreds of inside salespeople it's challenging to get the demos and at-bats you need. You have an advantage in the field because you attend industry events, show up at open houses, and visit offices where you encounter multiple potential customers. Anecdotally, we're getting positive referrals now, which helps a lot. The combination of performance management inside and moving to the field should keep us on track.
Our next question comes from Faiza Alwy with Deutsche Bank.
I wanted to follow up on the apartments question and your desire to maintain pricing. Are you seeing macro pressures and competitive pressures build over time? What phase are we in for both of those? And how confident are you that you can maintain your price integrity?
We are maintaining our price integrity because third-party sources show about a 2.5x lead-to-lease conversion. If you have a dedicated rental site with high-quality information and a good experience, you get a higher conversion rate, which makes it more valuable to customers. You need to communicate that repeatedly. This competitive environment is combined with adverse market conditions, which is stressful for multifamily owners. In competitive games like this, there's often a run where a competitor acquires a company and tries to expand aggressively. Whether or not they can sustain that is uncertain. Ultimately, the value we provide supports the pricing we charge. The evidence is in the numbers: ARPU is roughly the same despite fast growth at the lower end, and we're retaining leadership with major players.
June was the third best month in Apartments.com's history on gross sales. That demonstrates continued interest and desire to be part of the Apartments.com network and use the capability. We face a competitive environment, but even so, we had one of the best sales months in the company's history. That gives us a lot of confidence in the road ahead.
Our next question comes from Andrew Boone with Citizens.
I wanted to go back to Homes.com again and ask about advertising spend. Andy, I understood the optimization of the sales force. But can you help us understand how you guys are thinking about marketing? What happened in 2Q? And what's the expectation for the back half of the year?
You've seen a shift in marketing for Homes.com. We moved away from expensive celebrity productions to newer, less expensive ads that focus on product functionality and advantages, especially our AI capabilities. We're shifting more to SEM and digital and going further down the funnel to tactics that more directly convert to leads. We're maintaining an aggressive SEM profile for the rest of the year. We have a solid customer base now—about 9% of U.S. listings marketed or enhanced on the platform and 36,000 customers in two years. By focusing on ROI for those customers, renewal rates are improving. We'll also pursue more tactics to get sales at-bats and demos over the next year.
It's also important to remind everyone there's seasonality. We have lower marketing spend in our residential marketplaces in the second half of the year, and all this is within our plan.
Our next question comes from Scott Wurtzel with Wolfe Research.
Just on the change in the sales force at Homes.com. How long would you expect it to take for new field sales reps to ramp to full productivity, and how would that compare to the ramp time for some of your stronger inside sales reps?
Ramp time is similar, but the profile we can hire in the field is better suited to the task. When you're hiring hundreds in one location, you often hire entry-level people. In the field, you can hire folks with real estate, portal or advertising sales experience. I've reviewed many resumes coming into the field sales team, and it's a much higher-quality profile. We also slowed recruiting until we moved into the new facility, and now we can recruit more effectively. Building a national field team takes time, but we have the advantage of a better hiring pool in the field, which should improve productivity over time.
Our next question comes from Nick Jones with BNP Paribas.
On AI initiatives, can you talk about how you're balancing AI investments as you target your midterm EBITDA 2030 targets? As you deploy AI to more users, are token costs something we should be thinking about as you try to drive more engagement and maintain this AI platform?
So far, we have more cost savings from AI than cost increases from token usage. For things like rent benchmarking or lease ingestion, you're saving a ton of labor. We also see the opportunity to generate content using our proprietary data and expert models and then resell that expertise broadly, which yields high gross margins. We haven't seen unpleasant token consumption costs on our current platforms. We're getting significant coding efficiencies through LLMs as well. Providers are shifting pricing, but we expect efficiency gains in labor to offset that. It's a competitive market, and pricing dynamics may change, but we believe we're in a good position.
I'd add that we're currently below budget on token consumption costs for 2026, even with the initiatives we've undertaken. We're creating optimization engines within our AI infrastructure to seek out the best pricing on tokens. Given token pricing trends and the advent of additional models with cost differentiation, I think we're in a good position. We also haven't yet captured a lot of cost savings that will accrue as we drive more AI internally. Overall, I see AI as a real positive story for us: costs are under budget, and we expect continued benefits.
Did we mention that Robin Rossmann is just an LLM model?
Our next question comes from Jason Haas with Wells Fargo.
I'm curious about the Apartments.com ChatGPT partnership and how this relationship is mutually beneficial. Are you considering launching something like that for Homes.com and maybe even for CoStar Suite?
Starting from CoStar Suite, there's a lot of potential because of the breadth of data and modules, but that is a much more in-depth customer need and not necessarily a ChatGPT module for general usage. With Homes.com, we are very prevalent on ChatGPT; we have more visibility there than competitors for generative optimization. We believe the integrated AI experience on Homes.com is more powerful than a standalone ChatGPT module. For Apartments.com, we're doing both: integrated UX AI and a ChatGPT module. Right now traffic coming from ChatGPT is still single-digit, so it's more of an additional channel. We'll keep an eye on it as one of many options to create front doors that bring traffic in.
Our next question comes from Ashish Sabadra with RBC Capital Markets.
I had a quick clarifying question on the residential guidance. The updated guidance is $50 million below the prior guidance. I wanted to better understand how much of that was due to Homes.com versus multifamily. Any color would be helpful.
On the revenue side, roughly one-quarter of the change came from Ten-X and the remainder was primarily in the residential side. We don't give net new bookings guidance by each segment, but we did mention that Q2 net new bookings for Homes.com were similar to the first quarter, so you can draw conclusions based on the published numbers.
I would now like to turn the call back over to Andrew Florance for any closing remarks.
Well, I think we did a decent job of keeping the prepared remarks section reasonably brief and having an extended Q&A. Thank you, everyone, for joining, and we look forward to updating you next quarter.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.