ZILLOW GROUP, INC. - FORM 8-K - EX-99.2 - EXHIBIT 99.2

Attached files

file	filename
EX-99.1 - EXHIBIT 99.1 - ZILLOW GROUP, INC.	q318ex-991.htm
EX-10.1 - EXHIBIT 10.1 - ZILLOW GROUP, INC.	q318ex-101.htm
8-K - 8-K - ZILLOW GROUP, INC.	q318earningsrelease8-k.htm

Exhibit 99.2

Reported Consolidated Results

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



	September 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	643,792		$	352,095
Short-term investments	999,241			410,444
Accounts receivable, net	66,337			54,396
Inventory	43,257			—
Prepaid expenses and other current assets	38,904			24,590
Restricted cash	3,203			—
Total current assets	1,794,734			841,525
Contract cost assets	45,238			—
Property and equipment, net	124,281			112,271
Goodwill	1,931,076			1,931,076
Intangible assets, net	290,887			319,711
Other assets	16,241			25,934
Total assets	$	4,202,457		$	3,230,517
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	5,846		$	3,587
Accrued expenses and other current liabilities	58,533			61,373
Accrued compensation and benefits	25,612			19,109
Revolving credit facility	24,674			—
Deferred revenue	35,959			31,918
Deferred rent, current portion	2,566			2,400
Total current liabilities	153,190			118,387
Deferred rent, net of current portion	18,049			21,330
Long-term debt	690,338			385,416
Deferred tax liabilities and other long-term liabilities	21,861			44,561
Total liabilities	883,438			569,694
Shareholders’ equity:
Class A common stock	6			6
Class B common stock	1			1
Class C capital stock	13			13
Additional paid-in capital	3,894,757			3,254,146
Accumulated other comprehensive loss	(1,661		)	(1,100		)
Accumulated deficit	(574,097		)	(592,243		)
Total shareholders’ equity	3,319,019			2,660,823
Total liabilities and shareholders’ equity	$	4,202,457		$	3,230,517

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue:
IMT	$	332,076		$	281,839		$	957,201		$	794,464
Homes	11,018			—			11,018			—
Total revenue	343,094			281,839			968,219			794,464
Cost of revenue (exclusive of amortization) (1):
IMT	26,386			22,152			75,832			62,644
Homes	10,286			—			10,286			—
Total cost of revenue	36,672			22,152			86,118			62,644
Sales and marketing	128,734			107,108			413,752			344,266
Technology and development	105,314			83,389			299,623			234,798
General and administrative	70,743			54,226			187,395			153,038
Impairment costs	10,000			—			10,000			—
Acquisition-related costs	1,405			218			2,064			366
Integration costs	523			—			523			—
Total costs and expenses	353,391			267,093			999,475			795,112
Income (loss) from operations	(10,297		)	14,746			(31,256		)	(648		)
Other income	7,773			1,407			13,308			3,970
Interest expense	(12,668		)	(6,906		)	(26,928		)	(20,526		)
Income (loss) before income taxes	(15,192		)	9,247			(44,876		)	(17,204		)
Income tax benefit (expense)	14,700			(41		)	22,700			(41		)
Net income (loss)	$	(492	)	$	9,206		$	(22,176	)	$	(17,245	)
Net income (loss) per share — basic and diluted	$	—		$	0.05		$	(0.11	)	$	(0.09	)
Weighted-average shares outstanding — basic	202,416			187,692			195,208			185,447
Weighted-average shares outstanding — diluted	202,416			196,425			195,208			185,447
____________________ (1) Amortization of website development costs and intangible assets included in technology and development	$	18,165		$	23,537		$	61,735		$	69,957
(2) Includes share-based compensation expense as follows:
Cost of revenue	$	969		$	1,014		$	3,180		$	2,942
Sales and marketing	5,911			5,914			17,413			17,694
Technology and development	15,031			10,438			40,920			29,329
General and administrative	19,771			11,208			49,853			34,197
Total	$	41,682		$	28,574		$	111,366		$	84,162
Other Financial Data:
Adjusted EBITDA (3)	$	66,165		$	70,957		$	168,475		$	165,456
(3) See Exhibit 99.1 for more information regarding our presentation of Adjusted EBITDA and for a reconciliation of Adjusted EBITDA to net income (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)



	Nine Months Ended September 30,
	2018			2017
Operating activities
Net loss	$	(22,176	)	$	(17,245	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	76,301			81,576
Share-based compensation expense	111,366			84,162
Amortization of contract cost assets	27,227			—
Amortization of discount and issuance costs on 2021 and 2023 Notes	17,990			13,391
Impairment costs	10,000			—
Deferred income taxes	(22,700		)	—
Loss on disposal of property and equipment	3,129			4,085
Bad debt expense	1,053			5,861
Deferred rent	(3,116		)	3,072
Amortization (accretion) of bond premium (discount)	(2,172		)	451
Changes in operating assets and liabilities:
Accounts receivable	(12,994		)	(19,272		)
Inventory	(43,257		)	—
Prepaid expenses and other assets	(15,012		)	4,434
Contract cost assets	(32,143		)	—
Accounts payable	2,254			224
Accrued expenses and other current liabilities	(3,751		)	13,174
Accrued compensation and benefits	6,503			1,194
Deferred revenue	4,041			1,775
Other long-term liabilities	—			41
Net cash provided by operating activities	102,543			176,923
Investing activities
Proceeds from maturities of investments	261,675			204,520
Purchases of investments	(848,838		)	(303,241		)
Purchases of property and equipment	(44,482		)	(51,580		)
Purchases of intangible assets	(8,179		)	(9,377		)
Purchase of equity investment	—			(10,000		)
Proceeds from divestiture of a business	—			579
Cash paid for acquisition, net	(2,000		)	(11,147		)
Net cash used in investing activities	(641,824		)	(180,246		)
Financing activities
Proceeds from issuance of 2023 Notes, net of issuance costs	364,020			—
Premiums paid for Capped Call Confirmations	(29,414		)	—
Proceeds from issuance of Class C Capital Stock, net of issuance costs	360,345			—
Proceeds from borrowing on revolving credit facility	24,674			—
Proceeds from exercise of stock options	114,623			80,010
Value of equity awards withheld for tax liability	(67		)	(337		)
Net cash provided by financing activities	834,181			79,673
Net increase in cash, cash equivalents and restricted cash during period	294,900			76,350
Cash, cash equivalents and restricted cash at beginning of period	352,095			243,592
Cash, cash equivalents and restricted cash at end of period	$	646,995		$	319,942
Supplemental disclosures of cash flow information
Cash paid for interest	$	4,800		$	4,458
Noncash transactions:
Capitalized share-based compensation	$	6,674		$	8,915
Write-off of fully depreciated property and equipment	$	18,687		$	12,685
Write-off of fully amortized intangible assets	$	10,797		$	5,454

Non-GAAP Net Income per Share

Our presentation of non-GAAP net income per share excludes the impact of share-based compensation expense, impairment costs, 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 per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, impairment costs, acquisition-related costs and income taxes facilitates investors’ operating performance comparisons on a period-to-period basis. You should not consider non-GAAP net income 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, adjusted, to net income (loss), as reported on a GAAP basis, and the calculation of non-GAAP net income per share - basic and diluted, for each of the periods presented (in thousands, except per share data, unaudited):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Net income (loss), as reported	$	(492	)	$	9,206	$	(22,176	)	$	(17,245	)
Share-based compensation expense	41,682			28,574		111,366			84,162
Impairment costs	10,000			—		10,000			—
Acquisition-related costs	1,405			218		2,064			366
Income tax (benefit) expense	(14,700		)	41		(22,700		)	41
Net income, adjusted	$	37,895		$	38,039	$	78,554		$	67,324
Non-GAAP net income per share — basic	$	0.19		$	0.20	$	0.40		$	0.36
Non-GAAP net income per share — diluted	$	0.18		$	0.19	$	0.38		$	0.35
Weighted-average shares outstanding — basic	202,416			187,692		195,208			185,447
Weighted-average shares outstanding — diluted	211,746			196,863		204,926			194,605

Segment Results of Operations

The following tables present our segment results for the periods presented (in thousands, unaudited):



	Three Months Ended September 30, 2018									Three Months Ended September 30, 2017
	IMT			Homes			Consolidated			IMT			Homes		Consolidated
Revenue	$	332,076		$	11,018		$	343,094		$	281,839		$	—	$	281,839
Costs and expenses:
Cost of revenue	26,386			10,286			36,672			22,152			—		22,152
Sales and marketing	123,755			4,979			128,734			107,108			—		107,108
Technology and development	99,570			5,744			105,314			83,389			—		83,389
General and administrative	65,156			5,587			70,743			54,226			—		54,226
Impairment costs	10,000			—			10,000			—			—		—
Acquisition-related costs	1,405			—			1,405			218			—		218
Integration costs	523			—			523			—			—		—
Total costs and expenses	326,795			26,596			353,391			267,093			—		267,093
Income (loss) from operations	5,281			(15,578		)	(10,297		)	14,746			—		14,746
Other income	7,773			—			7,773			1,407			—		1,407
Interest expense	(12,236		)	(432		)	(12,668		)	(6,906		)	—		(6,906		)
Income (loss) before income taxes	$	818		$	(16,010	)	$	(15,192	)	$	9,247		$	—	$	9,247



	Nine Months Ended September 30, 2018									Nine Months Ended September 30, 2017
	IMT			Homes			Consolidated			IMT			Homes		Consolidated
Revenue	$	957,201		$	11,018		$	968,219		$	794,464		$	—	$	794,464
Costs and expenses:
Cost of revenue	75,832			10,286			86,118			62,644			—		62,644
Sales and marketing	405,525			8,227			413,752			344,266			—		344,266
Technology and development	286,983			12,640			299,623			234,798			—		234,798
General and administrative	172,756			14,639			187,395			153,038			—		153,038
Impairment costs	10,000			—			10,000			—			—		—
Acquisition-related costs	2,064			—			2,064			366			—		366
Integration costs	523			—			523			—			—		—
Total costs and expenses	953,683			45,792			999,475			795,112			—		795,112
Loss from operations	3,518			(34,774		)	(31,256		)	(648		)	—		(648		)
Other income	13,308			—			13,308			3,970			—		3,970
Interest expense	(26,496		)	(432		)	(26,928		)	(20,526		)	—		(20,526		)
Loss before income taxes	$	(9,670	)	$	(35,206	)	$	(44,876	)	$	(17,204	)	$	—	$	(17,204	)

Key Metrics

The following table sets forth our key metrics for each of the periods presented:



	Three Months Ended September 30,		2017 to 2018 % Change
	2018	2017	2017 to 2018 % Change
	(in millions)
Average Monthly Unique Users (1)	186.6	175.2	7	%
Visits (2)	1,888.9	1,667.1	13	%


(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.

ZILLOW GROUP, INC. - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - November 6, 2018

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ZILLOW GROUP, INC. Reports