Form 8-K ZILLOW GROUP, INC. For: Aug 07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 7, 2019
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)
Washington | 001-36853 | 47-1645716 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
1301 Second Avenue, Floor 31, Seattle, Washington | 98101 | |||
(Address of principal executive offices) | (Zip Code) | |||
(206) 470-7000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | |
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.0001 per share | ZG | The Nasdaq Global Select Market |
Class C Capital Stock, par value $0.0001 per share | Z | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 | Results of Operations and Financial Condition. |
Zillow Group, Inc. (“Zillow Group”) today issued a press release announcing its financial results for the fiscal quarter ended June 30, 2019. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 and accompanying supporting tables as Exhibit 99.2 to this Current Report on Form 8-K.
The information in this Item 2.02 and Exhibits 99.1 and 99.2 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 7, 2019 | ZILLOW GROUP, INC. | ||
By: | /s/ JENNIFER ROCK | ||
Name: | Jennifer Rock | ||
Title: | Chief Accounting Officer | ||
Exhibit 99.1
Contacts: |
Raymond Jones |
Investor Relations |
Emily Heffter |
Public Relations |
ZILLOW GROUP REPORTS SECOND QUARTER 2019 FINANCIAL RESULTS
Results Reflect Significant Momentum in Homes Segment; Stabilization in Premier Agent Business
SEATTLE - August 7, 2019 - Zillow Group, Inc. (NASDAQ: Z) (NASDAQ: ZG), which is transforming how people buy, sell, rent, and finance homes, today announced its consolidated financial results for the three months ended June 30, 2019. The company reported 84% year-over-year growth in total consolidated quarterly revenue, driven by demand for Zillow Offers as the company continues to accelerate growth into new markets.
Complete financial results and outlook can be found in the investor relations section of Zillow Group’s website at https://investors.zillowgroup.com/financials/quarterly-results/default.aspx.
“Our second quarter results reflect the momentum we are seeing across our businesses,” said Rich Barton, co-founder and CEO of Zillow Group, Inc. “The demand signal for Zillow Offers is incredibly impressive as seen in the annualized revenue run rate going from zero to $1 billion in just a year¹. Our Premier Agent business is performing well, and our partnerships with the highest performing and most client-focused agents position us well to deliver a truly seamless transaction experience for home buyers and sellers. We’re in the early stages of a bold expansion of our company that opens up exciting opportunities for our customers, partners, shareholders and employees. We are uniquely advantaged by our brand awareness, audience size, technology, data science, industry partnerships, and operational know-how and are well on our way to rewire real estate.”
Recent highlights include:
• | Total Q2 consolidated revenue grew 84% year over year to $599.6 million, driven primarily by significant growth in the Homes segment. |
• | Consumer awareness and demand for Zillow Offers is growing rapidly. More than 69,000 homeowners requested an offer from Zillow to purchase their home during Q2, up 94% sequentially from Q1. |
• | The addition of seven Zillow Offers markets since the end of Q1: Dallas-Fort Worth; Minneapolis; Orlando; Portland, Ore.; Nashville, Tenn.; and Colorado Springs and Fort Collins, Colo. |
• | Today, the company separately announced four new Zillow Offers markets expected to open in early to mid-2020: Cincinnati, Tucson, Ariz; Oklahoma City, and Jacksonville, Fla. |
• | Expanded testing of the Flex monetization model, which allows Premier Agents to pay a success fee only when they close a transaction with a consumer lead, in lieu of paying for advertising up front. |
• | Traffic to Zillow Group’s mobile apps and websites accelerated with more than 194 million average monthly unique users in Q2, an increase of 4% year over year, while visits reached a new high of nearly 2.2 billion, up 14% year over year. |
______________________________
¹Homes segment annualized revenue run rate is calculated by multiplying Homes segment revenue for the quarter by four.
Second Quarter 2019 Financial Highlights
The following table sets forth Zillow Group’s financial highlights for the periods presented (in thousands, unaudited):
Three Months Ended June 30, | 2018 to 2019 % Change | Six Months Ended June 30, | 2018 to 2019 % Change | ||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Revenue: | |||||||||||||||||||
IMT segment: | |||||||||||||||||||
Premier Agent | $ | 231,961 | $ | 230,885 | —% | $ | 449,696 | $ | 444,617 | 1% | |||||||||
Rentals | 42,670 | 33,288 | 28% | 80,508 | 62,351 | 29% | |||||||||||||
Other (1) | 49,038 | 41,768 | 17% | 91,737 | 79,829 | 15% | |||||||||||||
Total IMT segment revenue | 323,669 | 305,941 | 6% | 621,941 | 586,797 | 6% | |||||||||||||
Homes segment | 248,924 | — | N/A | 377,396 | — | N/A | |||||||||||||
Mortgages segment | 26,985 | 19,305 | 40% | 54,345 | 38,328 | 42% | |||||||||||||
Total revenue | $ | 599,578 | $ | 325,246 | 84% | $ | 1,053,682 | $ | 625,125 | 69% | |||||||||
Other Financial Data: | |||||||||||||||||||
Segment income (loss) before income taxes: | |||||||||||||||||||
IMT segment | $ | 13,238 | $ | 110 | $ | 1,786 | $ | (6,506 | ) | ||||||||||
Homes segment | $ | (71,122 | ) | $ | (10,061 | ) | $ | (116,327 | ) | $ | (14,451 | ) | |||||||
Mortgages segment | $ | (10,438 | ) | $ | 356 | $ | (20,054 | ) | $ | (2 | ) | ||||||||
Net loss | $ | (71,977 | ) | $ | (3,093 | ) | $ | (139,502 | ) | $ | (21,684 | ) | |||||||
Adjusted EBITDA (2): | |||||||||||||||||||
IMT segment | $ | 64,055 | $ | 59,718 | $ | 125,102 | $ | 106,401 | |||||||||||
Homes segment | (56,452 | ) | (8,352 | ) | (90,976 | ) | (11,865 | ) | |||||||||||
Mortgages segment | (5,306 | ) | 4,634 | (7,907 | ) | 7,774 | |||||||||||||
Total Adjusted EBITDA | $ | 2,297 | $ | 56,000 | $ | 26,219 | $ | 102,310 | |||||||||||
Percentage of Revenue: | |||||||||||||||||||
Segment income (loss) before income taxes: | |||||||||||||||||||
IMT segment | 4 | % | — | % | — | % | (1 | )% | |||||||||||
Homes segment | (29 | )% | N/A | (31 | )% | N/A | |||||||||||||
Mortgages segment | (39 | )% | 2 | % | (37 | )% | — | % | |||||||||||
Net loss | (12 | )% | (1 | )% | (13 | )% | (3 | )% | |||||||||||
Adjusted EBITDA: | |||||||||||||||||||
IMT segment | 20 | % | 20 | % | 20 | % | 18 | % | |||||||||||
Homes segment | (23 | )% | N/A | (24 | )% | N/A | |||||||||||||
Mortgages segment | (20 | )% | 24 | % | (15 | )% | 20 | % | |||||||||||
Total Adjusted EBITDA | — | % | 17 | % | 2 | % | 16 | % | |||||||||||
(1) Other revenue primarily includes revenue generated by new construction and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals. (2) Adjusted EBITDA is a non-GAAP financial measure; it is not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP. See below for more information regarding our presentation of Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and loss before income taxes for each segment, for each of the periods presented. | |||||||||||||||||||
Conference Call and Webcast Information
Zillow Group Co-founder & CEO Rich Barton and CFO Allen Parker will host a live conference call and webcast to discuss the results today at 2 p.m. Pacific Time (5 p.m. Eastern Time). They will be joined by Zillow Brand President and Co-head of Zillow Offers Jeremy Wacksman, and President of Media & Marketplaces Greg Schwartz. A Quarterly Shareholder Letter is available on the Quarterly Results section of Zillow Group’s investor relations website at https://investors.zillowgroup.com/financials/quarterly-results/default.aspx prior to the live conference call and webcast.
A link to the live webcast and recorded replay of the conference call will be available on the investor relations section of Zillow Group’s website. The live call may also be accessed via phone (866) 270-1533 toll-free domestically and at (412) 317-0797 internationally.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, without limitation, statements regarding our operational plans for Zillow Offers, Premier Agent, Zillow Home Loans and other parts of our business in 2019 and 2020. Statements containing words such as “may,” “intend,” “plan,” “will,” “continue,” “outlook,” or similar expressions constitute forward-looking statements. Differences in Zillow Group’s actual results from those described in these forward-looking statements may result from actions taken by Zillow Group as well as from risks and uncertainties beyond Zillow Group’s control. Factors that may contribute to such differences include, but are not limited to, Zillow Group’s ability to maintain and effectively manage an adequate rate of growth; Zillow Group’s ability to innovate and provide products and services that are attractive to its users and advertisers; Zillow Group’s ability to compete successfully against existing or future competitors; Zillow Group’s investment of resources to pursue strategies that may not prove effective; the impact of the real estate industry on Zillow Group’s business; the impact of pending litigation and other legal and regulatory matters; Zillow Group’s ability to increase awareness of the Zillow Group brands in a cost-effective manner; Zillow Group’s ability to attract consumers to Zillow Group’s mobile applications and websites; Zillow Group’s ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; the reliable performance of Zillow Group’s network infrastructure and content delivery processes; and Zillow Group’s ability to protect its intellectual property. The foregoing list of risks and uncertainties is illustrative, but is not exhaustive. For more information about potential factors that could affect Zillow Group’s business and financial results, please review the “Risk Factors” described in Zillow Group’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission, or SEC, and in Zillow Group’s other filings with the SEC. Except as may be required by law, Zillow Group does not intend, and undertakes no duty to update this information to reflect future events or circumstances.
Use of Non-GAAP Financial Measure
To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, which is a non-GAAP financial measure. We have provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and income (loss) before income taxes for each segment, within this earnings release.
Adjusted EBITDA is a key metric used by our management and board of directors to measure operating performance and trends, and to prepare and approve our annual budget. The exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
▪ | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
▪ | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
▪ | Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation; |
▪ | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
▪ | Adjusted EBITDA does not reflect acquisition-related costs; |
▪ | Adjusted EBITDA does not reflect interest expense or other income; |
▪ | Adjusted EBITDA does not reflect income taxes; and |
▪ | Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and income (loss) before income taxes and our other GAAP results. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP.
About Zillow Group, Inc.
Zillow Group, Inc. (NASDAQ: Z) (NASDAQ: ZG) houses one of the largest portfolios of real estate brands on mobile and the web that attracted 194 million average monthly unique users during Q2 2019. Zillow Group is committed to leveraging its proprietary data, technology and innovations to make home buying, selling, financing and renting a seamless, on-demand experience for consumers. As its flagship brand, Zillow® now offers a fully integrated home shopping experience that includes access to for sale and rental listings, Zillow Offers™, which provides a new, hassle-free way to buy and sell homes directly through Zillow; and Zillow Home Loans, Zillow’s affiliated lender that provides an easy way to receive mortgage pre-approvals and financing. Other consumer brands include Trulia®, StreetEasy®, HotPads®, Naked Apartments®, RealEstate.com and Out East®. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate professionals maximize business opportunities and connect with millions of consumers. Zillow Group business brands for real estate, rental and mortgage professionals, include Mortech®, dotloop®, Bridge Interactive® and New Home Feed®. The company is headquartered in Seattle, Washington.
Please visit http://investors.zillowgroup.com,www.zillowgroup.com/ir-blog, and www.twitter.com/zillowgroup, where Zillow Group discloses information about the company, its financial information, and its business which may be deemed material.
The Zillow Group logo is available at http://zillowgroup.mediaroom.com/logos-photos.
Zillow, Premier Agent, Mortech, Bridge Interactive, StreetEasy, HotPads, Out East and New Home Feed are registered trademarks of Zillow, Inc. Zillow Offers is a trademark of Zillow, Inc. Trulia is a registered trademark of Trulia, LLC. dotloop is a registered trademark of DotLoop, LLC. Naked Apartments is a registered trademark of Naked Apartments, LLC. Zillow Home Loans, LLC is an Equal Housing Lender; NMLS #10287.
(ZFIN)
Adjusted EBITDA
The following tables set forth a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and income (loss) before income taxes for each segment, for each of the periods presented (in thousands, unaudited):
Three Months Ended June 30, 2019 | |||||||||||||||||||
IMT | Homes | Mortgages | Corporate Items (2) | Consolidated | |||||||||||||||
Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) Before Income Taxes: | |||||||||||||||||||
Net loss (1) | N/A | N/A | N/A | N/A | $ | (71,977 | ) | ||||||||||||
Income tax benefit | N/A | N/A | N/A | N/A | — | ||||||||||||||
Income (loss) before income taxes | $ | 13,238 | $ | (71,122 | ) | $ | (10,438 | ) | $ | (3,655 | ) | $ | (71,977 | ) | |||||
Other income | — | — | (402 | ) | (9,056 | ) | (9,458 | ) | |||||||||||
Depreciation and amortization expense | 18,308 | 1,732 | 1,163 | — | 21,203 | ||||||||||||||
Share-based compensation expense | 32,509 | 7,039 | 4,084 | — | 43,632 | ||||||||||||||
Interest expense | — | 5,899 | 287 | 12,711 | 18,897 | ||||||||||||||
Adjusted EBITDA | $ | 64,055 | $ | (56,452 | ) | $ | (5,306 | ) | $ | — | $ | 2,297 | |||||||
Three Months Ended June 30, 2018 | |||||||||||||||||||
IMT | Homes | Mortgages | Corporate Items (2) | Consolidated | |||||||||||||||
Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) Before Income Taxes: | |||||||||||||||||||
Net loss (1) | N/A | N/A | N/A | N/A | $ | (3,093 | ) | ||||||||||||
Income tax benefit | N/A | N/A | N/A | N/A | (10,600 | ) | |||||||||||||
Income (loss) before income taxes | $ | 110 | $ | (10,061 | ) | $ | 356 | $ | (4,098 | ) | $ | (13,693 | ) | ||||||
Other income | — | — | — | (3,089 | ) | (3,089 | ) | ||||||||||||
Depreciation and amortization expense | 24,650 | 181 | 1,189 | — | 26,020 | ||||||||||||||
Share-based compensation expense | 34,958 | 1,528 | 2,457 | — | 38,943 | ||||||||||||||
Acquisition-related costs | — | — | 632 | — | 632 | ||||||||||||||
Interest expense | — | — | — | 7,187 | 7,187 | ||||||||||||||
Adjusted EBITDA | $ | 59,718 | $ | (8,352 | ) | $ | 4,634 | $ | — | $ | 56,000 | ||||||||
Six Months Ended June 30, 2019 | |||||||||||||||||||
IMT | Homes | Mortgages | Corporate Items (2) | Consolidated | |||||||||||||||
Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) Before Income Taxes: | |||||||||||||||||||
Net loss (1) | N/A | N/A | N/A | N/A | $ | (139,502 | ) | ||||||||||||
Income tax benefit | N/A | N/A | N/A | N/A | (2,500 | ) | |||||||||||||
Income (loss) before income taxes | $ | 1,786 | $ | (116,327 | ) | $ | (20,054 | ) | $ | (7,407 | ) | $ | (142,002 | ) | |||||
Other income | — | — | (715 | ) | (17,911 | ) | (18,626 | ) | |||||||||||
Depreciation and amortization expense | 35,902 | 3,053 | 2,773 | — | 41,728 | ||||||||||||||
Share-based compensation expense | 87,414 | 12,641 | 9,701 | — | 109,756 | ||||||||||||||
Interest expense | — | 9,657 | 388 | 25,318 | 35,363 | ||||||||||||||
Adjusted EBITDA | $ | 125,102 | $ | (90,976 | ) | $ | (7,907 | ) | $ | — | $ | 26,219 | |||||||
Six Months Ended June 30, 2018 | |||||||||||||||||||
IMT | Homes | Mortgages | Corporate Items (2) | Consolidated | |||||||||||||||
Reconciliation of Adjusted EBITDA to Net Loss and Loss Before Income Taxes: | |||||||||||||||||||
Net loss (1) | N/A | N/A | N/A | N/A | $ | (21,684 | ) | ||||||||||||
Income tax benefit | N/A | N/A | N/A | N/A | (8,000 | ) | |||||||||||||
Loss before income taxes | $ | (6,506 | ) | $ | (14,451 | ) | $ | (2 | ) | $ | (8,725 | ) | $ | (29,684 | ) | ||||
Other income | — | — | — | (5,535 | ) | (5,535 | ) | ||||||||||||
Depreciation and amortization expense | 50,115 | 240 | 2,571 | — | 52,926 | ||||||||||||||
Share-based compensation expense | 62,765 | 2,346 | 4,573 | — | 69,684 | ||||||||||||||
Acquisition-related costs | 27 | — | 632 | — | 659 | ||||||||||||||
Interest expense | — | — | — | 14,260 | 14,260 | ||||||||||||||
Adjusted EBITDA | $ | 106,401 | $ | (11,865 | ) | $ | 7,774 | $ | — | $ | 102,310 | ||||||||
(1) We use income (loss) before income taxes as our profitability measure in making operating decisions and assessing the performance of our segments, therefore, net loss and income tax benefit are calculated and presented only on a consolidated basis within our financial statements.
(2) Certain corporate items are not directly attributable to any of our segments, including interest income earned on our short-term investments included in Other income and interest costs on our convertible senior notes included in Interest expense.
Exhibit 99.2
Reported Consolidated Results
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 766,698 | $ | 651,058 | |||
Short-term investments | 673,029 | 903,867 | |||||
Accounts receivable, net | 82,261 | 66,083 | |||||
Mortgage loans held for sale | 38,653 | 35,409 | |||||
Inventory | 552,823 | 162,829 | |||||
Prepaid expenses and other current assets | 62,062 | 61,067 | |||||
Restricted cash | 43,882 | 12,385 | |||||
Total current assets | 2,219,408 | 1,892,698 | |||||
Contract cost assets | 46,271 | 45,819 | |||||
Property and equipment, net | 145,932 | 135,172 | |||||
Right of use assets | 210,080 | — | |||||
Goodwill | 1,984,907 | 1,984,907 | |||||
Intangible assets, net | 202,824 | 215,904 | |||||
Other assets | 16,498 | 16,616 | |||||
Total assets | $ | 4,825,920 | $ | 4,291,116 | |||
Liabilities and shareholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 8,028 | $ | 7,471 | |||
Accrued expenses and other current liabilities | 68,520 | 63,101 | |||||
Accrued compensation and benefits | 32,001 | 31,388 | |||||
Revolving credit facilities | 409,799 | 116,700 | |||||
Warehouse lines of credit | 30,057 | 33,018 | |||||
Deferred revenue | 37,080 | 34,080 | |||||
Deferred rent, current portion | — | 1,740 | |||||
Lease liabilities, current portion | 18,794 | — | |||||
Total current liabilities | 604,279 | 287,498 | |||||
Deferred rent, net of current portion | — | 19,945 | |||||
Lease liabilities, net of current portion | 211,593 | — | |||||
Long-term debt | 716,819 | 699,020 | |||||
Deferred tax liabilities and other long-term liabilities | 15,123 | 17,474 | |||||
Total liabilities | 1,547,814 | 1,023,937 | |||||
Shareholders’ equity: | |||||||
Class A common stock | 6 | 6 | |||||
Class B common stock | 1 | 1 | |||||
Class C capital stock | 14 | 14 | |||||
Additional paid-in capital | 4,088,470 | 3,939,842 | |||||
Accumulated other comprehensive income (loss) | 896 | (905 | ) | ||||
Accumulated deficit | (811,281 | ) | (671,779 | ) | |||
Total shareholders’ equity | 3,278,106 | 3,267,179 | |||||
Total liabilities and shareholders’ equity | $ | 4,825,920 | $ | 4,291,116 | |||
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue: | |||||||||||||||
IMT | $ | 323,669 | $ | 305,941 | $ | 621,941 | $ | 586,797 | |||||||
Homes | 248,924 | — | 377,396 | — | |||||||||||
Mortgages | 26,985 | 19,305 | 54,345 | 38,328 | |||||||||||
Total revenue | 599,578 | 325,246 | 1,053,682 | 625,125 | |||||||||||
Cost of revenue (exclusive of amortization) (1)(2): | |||||||||||||||
IMT | 26,059 | 24,290 | 50,310 | 46,884 | |||||||||||
Homes | 240,732 | — | 363,151 | 86 | |||||||||||
Mortgages | 4,430 | 1,237 | 9,108 | 2,476 | |||||||||||
Total cost of revenue | 271,221 | 25,527 | 422,569 | 49,446 | |||||||||||
Sales and marketing (2) | 187,433 | 147,727 | 349,020 | 285,018 | |||||||||||
Technology and development (2) | 120,330 | 100,376 | 228,100 | 194,309 | |||||||||||
General and administrative (2) | 82,839 | 60,579 | 178,613 | 116,652 | |||||||||||
Acquisition-related costs | — | 632 | — | 659 | |||||||||||
Integration costs | 293 | — | 645 | — | |||||||||||
Total costs and expenses | 662,116 | 334,841 | 1,178,947 | 646,084 | |||||||||||
Loss from operations | (62,538 | ) | (9,595 | ) | (125,265 | ) | (20,959 | ) | |||||||
Other income | 9,458 | 3,089 | 18,626 | 5,535 | |||||||||||
Interest expense | (18,897 | ) | (7,187 | ) | (35,363 | ) | (14,260 | ) | |||||||
Loss before income taxes | (71,977 | ) | (13,693 | ) | (142,002 | ) | (29,684 | ) | |||||||
Income tax benefit | — | 10,600 | 2,500 | 8,000 | |||||||||||
Net loss | $ | (71,977 | ) | $ | (3,093 | ) | $ | (139,502 | ) | $ | (21,684 | ) | |||
Net loss per share — basic and diluted | $ | (0.35 | ) | $ | (0.02 | ) | $ | (0.68 | ) | $ | (0.11 | ) | |||
Weighted-average shares outstanding — basic and diluted | 205,754 | 194,155 | 205,137 | 192,807 | |||||||||||
_________________ (1) Amortization of website development costs and intangible assets included in technology and development | $ | 14,656 | $ | 21,020 | $ | 29,056 | $ | 43,569 | |||||||
(2) Includes share-based compensation expense as follows: | |||||||||||||||
Cost of revenue | $ | 936 | $ | 1,256 | $ | 1,816 | $ | 2,211 | |||||||
Sales and marketing | 6,801 | 6,340 | 12,451 | 11,502 | |||||||||||
Technology and development | 18,399 | 14,347 | 33,908 | 25,889 | |||||||||||
General and administrative | 17,496 | 17,000 | 61,581 | 30,082 | |||||||||||
Total | $ | 43,632 | $ | 38,943 | $ | 109,756 | $ | 69,684 | |||||||
Other Financial Data: | |||||||||||||||
Adjusted EBITDA (3) | $ | 2,297 | $ | 56,000 | $ | 26,219 | $ | 102,310 | |||||||
(3) Adjusted EBITDA is a non-GAAP financial measure; it is not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP. See Exhibit 99.1 for more information regarding our presentation of Adjusted EBITDA and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, for each of the periods presented. | |||||||||||||||
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Operating activities | |||||||
Net loss | $ | (139,502 | ) | $ | (21,684 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 41,728 | 52,926 | |||||
Share-based compensation expense | 109,756 | 69,684 | |||||
Amortization of right of use assets | 10,572 | — | |||||
Amortization of contract cost assets | 17,880 | 18,309 | |||||
Amortization of discount and issuance costs on convertible notes maturing in 2023 and 2021 | 17,799 | 9,504 | |||||
Deferred income taxes | (2,500 | ) | (8,000 | ) | |||
Loss on disposal of property and equipment | 3,878 | 2,106 | |||||
Bad debt expense | 706 | (352 | ) | ||||
Deferred rent | — | (2,845 | ) | ||||
Accretion of bond discount | (3,695 | ) | (504 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (16,884 | ) | (9,335 | ) | |||
Mortgage loans held for sale | (3,244 | ) | — | ||||
Inventory | (389,994 | ) | (5,666 | ) | |||
Prepaid expenses and other assets | (2,015 | ) | (14,697 | ) | |||
Lease liabilities | (11,946 | ) | — | ||||
Contract cost assets | (18,332 | ) | (21,371 | ) | |||
Accounts payable | 1,256 | 1,855 | |||||
Accrued expenses and other current liabilities | 6,952 | (5,189 | ) | ||||
Accrued compensation and benefits | 613 | 4,309 | |||||
Deferred revenue | 3,000 | 4,002 | |||||
Other long-term liabilities | 149 | — | |||||
Net cash provided by (used in) operating activities | (373,823 | ) | 73,052 | ||||
Investing activities | |||||||
Proceeds from maturities of investments | 539,312 | 172,573 | |||||
Purchases of investments | (302,891 | ) | (230,276 | ) | |||
Purchases of property and equipment | (29,672 | ) | (31,212 | ) | |||
Purchases of intangible assets | (8,927 | ) | (4,777 | ) | |||
Net cash provided by (used in) investing activities | 197,822 | (93,692 | ) | ||||
Financing activities | |||||||
Proceeds from borrowing on revolving credit facility | 293,099 | — | |||||
Net repayments on warehouse lines of credit | (2,961 | ) | — | ||||
Proceeds from exercise of stock options | 32,997 | 99,656 | |||||
Value of equity awards withheld for tax liability | 3 | (66 | ) | ||||
Net cash provided by financing activities | 323,138 | 99,590 | |||||
Net increase in cash, cash equivalents and restricted cash during period | 147,137 | 78,950 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 663,443 | 352,095 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 810,580 | $ | 431,045 | |||
Supplemental disclosures of cash flow information | |||||||
Cash paid for interest | $ | 16,616 | $ | 4,733 | |||
Noncash transactions: | |||||||
Capitalized share-based compensation | $ | 5,878 | $ | 4,623 | |||
Write-off of fully depreciated property and equipment | $ | 9,867 | $ | 13,293 | |||
Write-off of fully amortized intangible assets | $ | 3,311 | $ | 10,797 | |||
Non-GAAP Net Income (Loss) per Share
Our presentation of non-GAAP net income (loss) per share excludes the impact of share-based compensation expense, acquisition-related costs and income taxes. This measure is not a key metric used by our management and board of directors to measure operating performance or otherwise manage the business. However, we provide non-GAAP net income (loss) per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, acquisition-related costs and income taxes facilitates investors’ operating performance comparisons on a period-to-period basis. You should not consider non-GAAP income (loss) per share in isolation or as a substitute for analysis of our results as reported under GAAP.
The following table sets forth a reconciliation of net income (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculation of non-GAAP income (loss) per share - basic and diluted, for each of the periods presented (in thousands, except per share data, unaudited):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net loss, as reported | $ | (71,977 | ) | $ | (3,093 | ) | $ | (139,502 | ) | $ | (21,684 | ) | |||
Share-based compensation expense | 43,632 | 38,943 | 109,756 | 69,684 | |||||||||||
Acquisition-related costs | — | 632 | — | 659 | |||||||||||
Income tax benefit | — | (10,600 | ) | (2,500 | ) | (8,000 | ) | ||||||||
Net income (loss), adjusted | $ | (28,345 | ) | $ | 25,882 | $ | (32,246 | ) | $ | 40,659 | |||||
Non-GAAP net income (loss) per share — basic | $ | (0.14 | ) | $ | 0.13 | $ | (0.16 | ) | $ | 0.21 | |||||
Non-GAAP net income (loss) per share — diluted | $ | (0.14 | ) | $ | 0.13 | $ | (0.16 | ) | $ | 0.20 | |||||
Weighted-average shares outstanding — basic | 205,754 | 194,155 | 205,137 | 192,807 | |||||||||||
Weighted-average shares outstanding — diluted | 205,754 | 205,830 | 205,137 | 203,923 | |||||||||||
Non-GAAP net income (loss) per share - diluted for the periods presented is calculated using weighted-average shares outstanding - diluted, which includes potential shares of Class A common stock and Class C capital stock for the periods in which their effect would have been dilutive. The potential shares of Class A common stock and Class C capital stock were excluded from the calculation of non-GAAP net loss per share for the periods presented because their effect would have been antidilutive as a result of the non-GAAP net loss incurred in such periods. The following table reconciles the denominators used in the basic and diluted non-GAAP net income (loss) per share calculations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Denominator for basic calculation | 205,754 | 194,155 | 205,137 | 192,807 | |||||||
Effect of dilutive securities: | |||||||||||
Option awards | — | 9,070 | — | 8,656 | |||||||
Unvested restricted stock units | — | 1,608 | — | 1,463 | |||||||
Class C capital stock issuable upon conversion of the convertible notes maturing in 2021 | — | 997 | — | 997 | |||||||
Denominator for dilutive calculation | 205,754 | 205,830 | 205,137 | 203,923 | |||||||
Segment Results of Operations
The following table presents our segment results for the periods presented (in thousands, unaudited):
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | ||||||||||||||||||||||
IMT | Homes | Mortgages | IMT | Homes | Mortgages | ||||||||||||||||||
Revenue | $ | 323,669 | $ | 248,924 | $ | 26,985 | $ | 305,941 | $ | — | $ | 19,305 | |||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of revenue | 26,059 | 240,732 | 4,430 | 24,290 | — | 1,237 | |||||||||||||||||
Sales and marketing | 135,440 | 37,409 | 14,584 | 137,972 | 2,095 | 7,660 | |||||||||||||||||
Technology and development | 94,261 | 18,198 | 7,871 | 91,131 | 3,790 | 5,455 | |||||||||||||||||
General and administrative | 54,671 | 17,808 | 10,360 | 52,438 | 4,176 | 3,965 | |||||||||||||||||
Acquisition-related costs | — | — | — | — | — | 632 | |||||||||||||||||
Integration costs | — | — | 293 | — | — | — | |||||||||||||||||
Total costs and expenses | 310,431 | 314,147 | 37,538 | 305,831 | 10,061 | 18,949 | |||||||||||||||||
Income (loss) from operations | 13,238 | (65,223 | ) | (10,553 | ) | 110 | (10,061 | ) | 356 | ||||||||||||||
Segment other income | — | — | 402 | — | — | — | |||||||||||||||||
Segment interest expense | — | (5,899 | ) | (287 | ) | — | — | — | |||||||||||||||
Income (loss) before income taxes (1) | $ | 13,238 | $ | (71,122 | ) | $ | (10,438 | ) | $ | 110 | $ | (10,061 | ) | $ | 356 | ||||||||
Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | ||||||||||||||||||||||
IMT | Homes | Mortgages | IMT | Homes | Mortgages | ||||||||||||||||||
Revenue: | $ | 621,941 | $ | 377,396 | $ | 54,345 | $ | 586,797 | $ | — | $ | 38,328 | |||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of revenue | 50,310 | 363,151 | 9,108 | 46,884 | 86 | 2,476 | |||||||||||||||||
Sales and marketing | 262,094 | 58,271 | 28,655 | 266,719 | 2,385 | 15,914 | |||||||||||||||||
Technology and development | 182,230 | 30,479 | 15,391 | 177,048 | 6,026 | 11,235 | |||||||||||||||||
General and administrative | 125,521 | 32,165 | 20,927 | 102,625 | 5,954 | 8,073 | |||||||||||||||||
Acquisition-related costs | — | — | — | 27 | — | 632 | |||||||||||||||||
Integration costs | — | — | 645 | — | — | — | |||||||||||||||||
Total costs and expenses | 620,155 | 484,066 | 74,726 | 593,303 | 14,451 | 38,330 | |||||||||||||||||
Income (loss) from operations | 1,786 | (106,670 | ) | (20,381 | ) | (6,506 | ) | (14,451 | ) | (2 | ) | ||||||||||||
Segment other income | — | — | 715 | — | — | — | |||||||||||||||||
Segment interest expense | — | (9,657 | ) | (388 | ) | — | — | — | |||||||||||||||
Income (loss) before income taxes (1) | $ | 1,786 | $ | (116,327 | ) | $ | (20,054 | ) | $ | (6,506 | ) | $ | (14,451 | ) | $ | (2 | ) | ||||||
(1) The following table presents the reconciliation of total segment loss before income taxes to consolidated loss before income taxes for the periods presented (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Total segment loss before income taxes | $ | (68,322 | ) | $ | (9,595 | ) | $ | (134,595 | ) | $ | (20,959 | ) | |||
Corporate interest expense | (12,711 | ) | (7,187 | ) | (25,318 | ) | (14,260 | ) | |||||||
Corporate other income | 9,056 | 3,089 | 17,911 | 5,535 | |||||||||||
Consolidated loss before income taxes | $ | (71,977 | ) | $ | (13,693 | ) | $ | (142,002 | ) | $ | (29,684 | ) | |||
Key Metrics
The following table sets forth our key metrics for each of the periods presented:
Three Months Ended June 30, | 2018 to 2019 % Change | |||||||
2019 | 2018 | |||||||
(in millions) | ||||||||
Average Monthly Unique Users (1) | 194.3 | 186.1 | 4 | % | ||||
Visits (2) | 2,181.4 | 1,920.6 | 14 | % | ||||
(1) | Zillow, StreetEasy, HotPads, Naked Apartments and RealEstate.com measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics. |
(2) | Visits includes visits to the Zillow, Trulia, StreetEasy and RealEstate.com mobile apps and websites. We measure Zillow, StreetEasy and RealEstate.com visits with Google Analytics and Trulia visits with Adobe Analytics. |
Non-GAAP Return on Homes Sold After Interest Expense
To provide investors with additional information regarding our Homes segment financial results, this Exhibit includes a calculation of Return on Homes Sold After Interest Expense, which is a non-GAAP financial measure. We have provided a reconciliation of Return on Homes Sold After Interest Expense to the most directly comparable GAAP financial measure, which is loss before income taxes for the Homes segment.
We believe that Return on Homes Sold After Interest Expense is a useful financial measure to investors as it is one of the primary measures used by management in making investment decisions, measuring unit level economics and evaluating operating performance for the Zillow Offers business. The measure is intended to convey the unit level economics of homes sold during the period by presenting the revenue and associated expenses directly attributed to the homes sold, both in total and on a per home basis. We believe this per unit measure facilitates meaningful period over period comparisons notwithstanding variability in the number of homes sold during a period and indicates ability to generate returns on assets sold after considering home purchase costs, renovation costs, holding costs and selling costs.
We calculate Return on Homes Sold After Interest Expense in total and on a per home basis as revenue associated with homes sold during the period less direct costs attributable to those homes. Specifically, direct costs include, with respect to each home sold during the period (1) home acquisition and renovation costs, which in turn include certain labor costs directly associated with these activities; (2) holding and selling costs; and (3) interest costs incurred.
Included in direct holding and interest expense amounts for the three and six month periods ended June 30, 2019 are holding and interest costs recorded as period expenses in prior periods associated with homes sold in the current period, which are not calculated in accordance with, or an alternative for, GAAP and should not be considered in isolation or as a substitute for results reported under GAAP. Excluded from certain of these direct cost amounts are costs recorded in the current period related to homes that remain in inventory at the end of the period, as shown in the tables below. We make these period adjustments because we believe presenting Return on Homes Sold After Interest Expense in this manner provides a focused view on a subset of our assets - homes sold during the period - and reflecting costs associated with those homes sold from the time we acquire to the time we sell the home, which may be useful to investors.
Return on Homes Sold After Interest Expense is intended to illustrate the performance of homes sold during the period and is not intended to be a segment or company performance metric. Return on Homes Sold After Interest Expense is a supplemental measure of operating performance for a subset of assets and has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Return on Homes Sold After Interest Expense does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements; |
• | Return on Homes Sold After Interest Expense does not consider the potentially dilutive impact of share-based compensation; |
• | Return on Homes Sold After Interest Expense does not include period costs that were not eligible for inventory capitalization associated with homes held in inventory at the end of the period; |
• | Return on Homes Sold After Interest Expense does not reflect indirect expenses included in cost of revenue, sales and marketing, technology and development, or general and administrative expenses, some of which are recurring cash expenditures necessary to operate the business; and |
• | Return on Homes Sold After Interest Expense does not reflect income taxes. |
Because of these limitations, you should consider Return on Homes Sold After Interest Expense alongside other financial performance measures, including various cash flow metrics, loss before income taxes and our other GAAP results.
On a GAAP basis, per home loss before income taxes for the Homes segment was $90,486 and $96,939 for the three and six month periods ended June 30, 2019, respectively.
The following table presents the Return on Homes Sold After Interest Expense for the period presented (in thousands, except home and per home amounts, unaudited):
Three Months Ended June 30, 2019 | |||||||||
Total | Per Home | ||||||||
Homes sold | 786 | ||||||||
Homes revenue | $ | 248,924 | $ | 316,697 | |||||
Operating costs: | |||||||||
Home acquisition costs (1) | 224,955 | $ | 286,202 | ||||||
Renovation costs (1) | 9,484 | 12,066 | |||||||
Holding costs (1)(2) | 2,569 | 3,268 | |||||||
Selling costs | 10,676 | 13,583 | |||||||
Total operating costs | 247,684 | 315,119 | |||||||
Interest expense (1)(2) | 3,532 | 4,494 | |||||||
Return on Homes Sold After Interest | $ | (2,292 | ) | $ | (2,916 | ) | |||
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period. (2) Holding costs and interest expense include $1.1 million and $1.6 million, respectively, of costs incurred in prior quarters associated with homes sold during the three months ended June 30, 2019. | |||||||||
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure: | Three Months Ended June 30, 2019 | ||
Loss before income taxes | $ | (71,122 | ) |
Homes sold | 786 | ||
Per home loss before income taxes | $ | (90,486 | ) |
Loss before income taxes | $ | (71,122 | ) |
Depreciation and amortization | 1,732 | ||
Share-based compensation expense | 7,039 | ||
Costs incurred in prior periods associated with homes sold in the current period (1) | (2,337 | ) | |
Costs incurred in current period related to homes not sold in the current period (2) | 8,652 | ||
Indirect expenses included in cost of revenue (3) | 5,309 | ||
Indirect marketing and advertising costs included in sales and marketing (4) | 19,588 | ||
Indirect costs included in technology and development expense (5) | 14,025 | ||
Indirect costs included in general and administrative expense (6) | 14,822 | ||
Return on Homes Sold After Interest | $ | (2,292 | ) |
Homes sold | 786 | ||
Per home Return on Homes Sold After Interest | $ | (2,916 | ) |
(1) Amount represents costs incurred in prior periods associated with homes sold in the current period that were not eligible for inventory capitalization and were therefore expensed as period costs. (2) Amount represents costs ineligible for inventory capitalization that were expensed as period costs during the three months ended June 30, 2019 associated with homes that remain in inventory as of June 30, 2019. (3) Includes allocated segment costs that were recorded to cost of revenue within the Homes segment during the three months ended June 30, 2019. (4) Includes marketing and advertising expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. (5) Includes technology and development expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. (6) Includes general and administration expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. | |||
The following table presents the Return on Homes Sold After Interest Expense for the period presented (in thousands, except per home amounts, unaudited):
Six Months Ended June 30, 2019 | |||||||||
Total | Per Home | ||||||||
Homes sold | 1,200 | ||||||||
Homes revenue | $ | 377,396 | $ | 314,497 | |||||
Operating costs: | |||||||||
Home acquisition costs (1) | 341,664 | 284,720 | |||||||
Renovation costs (1) | 14,165 | 11,804 | |||||||
Holding costs (1)(2) | 3,807 | 3,173 | |||||||
Selling costs | 16,218 | 13,515 | |||||||
Total operating costs | 375,854 | 313,212 | |||||||
Interest expense (1)(2) | 5,187 | 4,323 | |||||||
Return on Homes Sold After Interest | $ | (3,645 | ) | $ | (3,038 | ) | |||
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period. (2) Holding costs and interest expense include $0.9 million and $0.9 million, respectively, of costs incurred in prior quarters associated with homes sold during the six months ended June 30, 2019. | |||||||||
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure: | Six Months Ended June 30, 2019 | ||
Loss before income taxes | $ | (116,327 | ) |
Homes sold | 1,200 | ||
Per home loss before income taxes | $ | (96,939 | ) |
Loss before income taxes | $ | (116,327 | ) |
Depreciation and amortization | 3,053 | ||
Share-based compensation expense | 12,641 | ||
Costs incurred in prior periods associated with homes sold in the current period (1) | (1,860 | ) | |
Costs incurred in current period related to homes not sold in the current period (2) | 11,823 | ||
Indirect expenses included in cost of revenue (3) | 5,730 | ||
Indirect marketing and advertising costs included in sales and marketing (4) | 31,813 | ||
Indirect costs included in technology and development expense (5) | 23,351 | ||
Indirect costs included in general and administrative expense (6) | 26,131 | ||
Return on Homes Sold After Interest | $ | (3,645 | ) |
Homes sold | 1,200 | ||
Per home Return on Homes Sold After Interest | $ | (3,038 | ) |
(1) Amount represents costs ineligible for inventory capitalization and expensed as period costs prior to the six months ended June 30, 2019 associated with homes sold during the six months ended June 30, 2019. (2) Amount represents costs ineligible for inventory capitalization and expensed during the six months ended June 30, 2019 associated with homes that remained in inventory as of June 30, 2019. (3) Includes allocated segment costs which were recorded to cost of revenue within the Homes segment during the six months ended June 30, 2019. (4) Includes marketing and advertising expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. (5) Includes technology and development expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. (6) Includes general and administration expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes. | |||