Expense related to stock options settled

COSTAR GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSconsiders the impact of potentially dilutive securities except when the inclusion of the potentially dilutive securities would have an anti-dilutive effect. See Note 16 for further discussion of the Company's calculation of net income per share.  
  
Stock-Based Compensation  
Equity instruments issued in exchange for services performed by officers, employees and directors of the Company are accounted for using a fair-value based method and the fair value of such equity instruments is recognized as expense in the consolidated statements of operations.  
For stock-based awards that vest over a specific service period, compensation expense is measured based on the fair value of the awards at the grant date and is recognized on a straight-line basis over the service period of the awards, net of an estimated forfeiture rate. For equity instruments that vest based on achievement of both a performance and market condition, stock-based compensation expense is recognized over the service period of the awards based on the expected achievement of the related performance conditions at the end of each reporting period. If the Company's initial estimates of the achievement of the performance conditions change, the related stock-based compensation expense and timing may fluctuate from period to period based on those estimates. If the performance conditions are not met, no stock-based compensation expense will be recognized and any previously recognized stock-based compensation expense will be reversed. For awards with both a performance and a market condition, the Company estimates the fair value of each equity instrument granted on the date of grant using a Monte-Carlo simulation model. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards.  
Stock-based compensation expense for stock options, restricted stock awards and restricted stock units issued under equity incentive plans, stock purchases under the Employee Stock Purchase Plan, Deferred Stock Units ("DSUs") and Matching RSUs awarded under the MSPP included in the Company’s statement of operations were as follows (in thousands):

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   | Year Ended December 31, |
|   | 2021 |  | 2020 |  | 2019 |
| Cost of revenues                                                                                        | $ | 11,165  |  |  | $ | 10,879  |  |  | $ | 9,273  |  |
| Selling and marketing (excluding customer base amortization)  | 6,314  |  |  | 5,194  |  |  | 6,809  |  |
| Software development | 12,544  |  |  | 10,325  |  |  | 8,985  |  |
| General and administrative | 33,686  |  |  | 27,706  |  |  | 27,188  |  |
| Total stock-based compensation expense(1) | $ | 63,709  |  |  | $ | 54,104  |  |  | $ | 52,255  |  |
| \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ |  |  |  |  |  |

(1) Stock-based compensation expense for the year ended December 31, 2020 includes $0.7 million of expense related to the cash settlement of stock options in connection with the acquisition of Ten-X. See Note 5 for further discussion.  
Cash, Cash Equivalents and Restricted Cash  
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash, cash equivalents, and restricted cash consisted of the following as of December 31, 2021 and 2020 (in thousands):  


|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|   | As of December 31, |
|   | 2021 |  | 2020 |
| Cash and cash equivalents | $ | 3,827,126  |  |  | $ | 3,693,813  |  |
| Restricted cash: |  |  |  |
| RentPath break fee held in escrow under the terms of the Asset Purchase Agreement | —  |  |  | 58,750  |  |
| Other restricted cash related to acquisitions | —  |  |  | 3,349  |  |
|  |  |  |  |
|  |  |  |  |
| Total restricted cash | —  |  |  | 62,099  |  |
| Cash, cash equivalents and restricted cash | $ | 3,827,126  |  |  | $ | 3,755,912  |  |

  
F-14
