Attached files
| file | filename |
|---|---|
| EX-99.3 - EX-99.3 - ZILLOW GROUP, INC. | a993.htm |
| EX-99.1 - EX-99.1 - ZILLOW GROUP, INC. | a991.htm |
| 8-K - 8-K - ZILLOW GROUP, INC. | z-20200219.htm |
Exhibit 99.2
Reported Consolidated Results
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,141,263 | $ | 651,058 | |||||||
Short-term investments | 1,280,989 | 903,867 | |||||||||
Accounts receivable, net | 67,005 | 66,083 | |||||||||
| Mortgage loans held for sale | 36,507 | 35,409 | |||||||||
| Inventory | 836,627 | 162,829 | |||||||||
| Prepaid expenses and other current assets | 58,117 | 61,067 | |||||||||
| Restricted cash | 89,646 | 12,385 | |||||||||
| Total current assets | 3,510,154 | 1,892,698 | |||||||||
| Contract cost assets | 45,209 | 45,819 | |||||||||
| Property and equipment, net | 170,489 | 135,172 | |||||||||
| Right of use assets | 212,153 | — | |||||||||
| Goodwill | 1,984,907 | 1,984,907 | |||||||||
| Intangible assets, net | 190,567 | 215,904 | |||||||||
| Other assets | 18,494 | 16,616 | |||||||||
| Total assets | $ | 6,131,973 | $ | 4,291,116 | |||||||
| Liabilities and shareholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 8,343 | $ | 7,471 | |||||||
| Accrued expenses and other current liabilities | 85,442 | 63,101 | |||||||||
| Accrued compensation and benefits | 37,805 | 31,388 | |||||||||
| Borrowings under credit facilities | 721,951 | 149,718 | |||||||||
| Deferred revenue | 39,747 | 34,080 | |||||||||
| Deferred rent, current portion | — | 1,740 | |||||||||
| Lease liabilities, current portion | 17,592 | — | |||||||||
| Convertible senior notes, current portion | 9,637 | — | |||||||||
| Total current liabilities | 920,517 | 287,498 | |||||||||
| Deferred rent, net of current portion | — | 19,945 | |||||||||
| Lease liabilities, net of current portion | 220,445 | — | |||||||||
| Long-term debt | 1,543,402 | 699,020 | |||||||||
| Deferred tax liabilities and other long-term liabilities | 12,188 | 17,474 | |||||||||
| Total liabilities | 2,696,552 | 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 | 4,412,200 | 3,939,842 | |||||||||
| Accumulated other comprehensive income (loss) | 340 | (905) | |||||||||
| Accumulated deficit | (977,140) | (671,779) | |||||||||
| Total shareholders’ equity | 3,435,421 | 3,267,179 | |||||||||
| Total liabilities and shareholders’ equity | $ | 6,131,973 | $ | 4,291,116 | |||||||
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Homes | $ | 603,228 | $ | 41,347 | $ | 1,365,250 | $ | 52,365 | |||||||||||||||
| IMT | 319,665 | 300,708 | 1,276,896 | 1,201,143 | |||||||||||||||||||
| Mortgages | 21,054 | 23,280 | 100,691 | 80,046 | |||||||||||||||||||
| Total revenue | 943,947 | 365,335 | 2,742,837 | 1,333,554 | |||||||||||||||||||
| Cost of revenue (exclusive of amortization) (1)(2): | |||||||||||||||||||||||
| Homes | 581,398 | 39,080 | 1,315,345 | 49,392 | |||||||||||||||||||
| IMT | 23,894 | 24,623 | 98,522 | 96,693 | |||||||||||||||||||
| Mortgages | 4,325 | 3,769 | 18,154 | 7,505 | |||||||||||||||||||
| Total cost of revenue | 609,617 | 67,472 | 1,432,021 | 153,590 | |||||||||||||||||||
| Sales and marketing (2) | 183,761 | 138,869 | 714,128 | 552,621 | |||||||||||||||||||
| Technology and development (2) | 125,273 | 111,195 | 477,347 | 410,818 | |||||||||||||||||||
| General and administrative (2) | 99,070 | 74,758 | 366,176 | 262,153 | |||||||||||||||||||
| Impairment costs | — | 69,000 | — | 79,000 | |||||||||||||||||||
| Acquisition-related costs | — | 268 | — | 2,332 | |||||||||||||||||||
| Integration costs | — | 1,492 | 650 | 2,015 | |||||||||||||||||||
| Total costs and expenses | 1,017,721 | 463,054 | 2,990,322 | 1,462,529 | |||||||||||||||||||
| Loss from operations | (73,774) | (97,719) | (247,485) | (128,975) | |||||||||||||||||||
| Other income | 12,033 | 5,962 | 39,658 | 19,270 | |||||||||||||||||||
| Interest expense | (39,927) | (14,327) | (101,792) | (41,255) | |||||||||||||||||||
| Loss before income taxes | (101,668) | (106,084) | (309,619) | (150,960) | |||||||||||||||||||
| Income tax benefit | 458 | 8,402 | 4,258 | 31,102 | |||||||||||||||||||
| Net loss | $ | (101,210) | $ | (97,682) | $ | (305,361) | $ | (119,858) | |||||||||||||||
| Net loss per share — basic and diluted | $ | (0.49) | $ | (0.48) | $ | (1.48) | $ | (0.61) | |||||||||||||||
| Weighted-average shares outstanding — basic and diluted | 208,204 | 203,561 | 206,380 | 197,944 | |||||||||||||||||||
| _________________ (1) Amortization of website development costs and intangible assets included in technology and development | $ | 17,046 | $ | 17,575 | $ | 61,937 | $ | 79,309 | |||||||||||||||
| (2) Includes share-based compensation expense as follows: | |||||||||||||||||||||||
| Cost of revenue | $ | 1,099 | $ | 947 | $ | 3,978 | $ | 4,127 | |||||||||||||||
| Sales and marketing | 6,087 | 5,529 | 25,126 | 22,942 | |||||||||||||||||||
| Technology and development | 17,980 | 15,753 | 69,921 | 56,673 | |||||||||||||||||||
| General and administrative | 21,852 | 15,489 | 99,877 | 65,342 | |||||||||||||||||||
| Total | $ | 47,018 | $ | 37,718 | $ | 198,902 | $ | 149,084 | |||||||||||||||
| Other Financial Data: | |||||||||||||||||||||||
| Segment income (loss) before income taxes: | |||||||||||||||||||||||
| Homes segment | $ | (107,923) | $ | (28,812) | $ | (312,120) | $ | (59,691) | |||||||||||||||
| IMT segment | $ | 36,221 | $ | (57,454) | $ | 80,060 | $ | (57,638) | |||||||||||||||
| Mortgages segment | $ | (12,654) | $ | (13,086) | $ | (44,962) | $ | (13,711) | |||||||||||||||
| Adjusted EBITDA (3): | |||||||||||||||||||||||
| Homes segment | $ | (82,525) | $ | (23,186) | $ | (241,326) | $ | (48,460) | |||||||||||||||
| IMT segment | 87,659 | 58,261 | 303,863 | 240,025 | |||||||||||||||||||
| Mortgages segment | (8,311) | (2,718) | (23,653) | 9,267 | |||||||||||||||||||
| Total Adjusted EBITDA | $ | (3,177) | $ | 32,357 | $ | 38,884 | $ | 200,832 | |||||||||||||||
| (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 on a consolidated basis and income (loss) before income taxes for each segment, the most directly comparable GAAP financial measures, for each of the periods presented. | |||||||||||||||||||||||
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| Operating activities | |||||||||||
| Net loss | $ | (305,361) | $ | (119,858) | |||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 87,467 | 99,391 | |||||||||
| Share-based compensation expense | 198,902 | 149,084 | |||||||||
| Amortization of right of use assets | 23,142 | — | |||||||||
| Amortization of contract cost assets | 35,323 | 36,013 | |||||||||
| Amortization of discount and issuance costs on convertible senior notes maturing in 2021, 2023, 2024 and 2026 | 52,097 | 26,672 | |||||||||
| Impairment costs | — | 79,000 | |||||||||
| Deferred income taxes | (4,258) | (31,102) | |||||||||
| Loss on disposal of property and equipment and other assets | 7,174 | 3,617 | |||||||||
| Bad debt expense | 2,772 | 869 | |||||||||
| Deferred rent | — | (2,045) | |||||||||
| Accretion of bond discount | (6,344) | (4,313) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (3,694) | (12,556) | |||||||||
| Mortgage loans held for sale | (1,098) | (1,161) | |||||||||
| Inventory | (673,798) | (162,829) | |||||||||
| Prepaid expenses and other assets | (978) | (34,068) | |||||||||
| Lease liabilities | (18,940) | — | |||||||||
| Contract cost assets | (34,713) | (41,510) | |||||||||
| Accounts payable | (496) | 1,311 | |||||||||
| Accrued expenses and other current liabilities | 19,573 | 1,920 | |||||||||
| Accrued compensation and benefits | 6,417 | 11,291 | |||||||||
| Deferred revenue | 5,667 | 2,162 | |||||||||
| Other long-term liabilities | (1,028) | 1,962 | |||||||||
| Net cash provided by (used in) operating activities | (612,174) | 3,850 | |||||||||
| Investing activities | |||||||||||
| Proceeds from maturities of investments | 1,126,058 | 399,228 | |||||||||
| Purchases of investments | (1,495,477) | (901,761) | |||||||||
| Proceeds from sales of investments | — | 13,567 | |||||||||
| Purchases of property and equipment | (67,044) | (66,054) | |||||||||
| Purchases of intangible assets | (19,591) | (12,481) | |||||||||
| Cash paid for acquisitions, net | — | (55,138) | |||||||||
| Net cash used in investing activities | (456,054) | (622,639) | |||||||||
| Financing activities | |||||||||||
| Proceeds from issuance of convertible notes, net of issuance costs | 1,157,675 | 364,020 | |||||||||
| Premiums paid for capped call confirmations | (159,677) | (29,414) | |||||||||
| Proceeds from issuance of Class C capital stock, net of issuance costs | — | 360,345 | |||||||||
| Proceeds from borrowings on credit facilities | 688,489 | 116,700 | |||||||||
| Repayments of borrowings on credit facilities | (113,665) | — | |||||||||
| Net borrowings (repayments) on warehouse lines of credit and repurchase agreement | (2,590) | 482 | |||||||||
| Proceeds from exercise of stock options | 65,465 | 120,074 | |||||||||
| Value of equity awards withheld for tax liability | (3) | (70) | |||||||||
| Contingent merger consideration | — | (2,000) | |||||||||
| Net cash provided by financing activities | 1,635,694 | 930,137 | |||||||||
| Net increase in cash, cash equivalents and restricted cash during period | 567,466 | 311,348 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 663,443 | 352,095 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,230,909 | $ | 663,443 | |||||||
| Supplemental disclosures of cash flow information | |||||||||||
| Cash paid for interest | $ | 42,156 | $ | 15,473 | |||||||
| Noncash transactions: | |||||||||||
| Capitalized share-based compensation | $ | 11,947 | $ | 8,590 | |||||||
| Write-off of fully depreciated property and equipment | $ | 36,159 | $ | 22,364 | |||||||
| Write-off of fully amortized intangible assets | $ | 9,999 | $ | 12,999 | |||||||
| Property and equipment purchased on account | $ | 8,775 | $ | 3,844 | |||||||
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, 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 (loss) 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 (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 non-GAAP net income (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculation of non-GAAP net income (loss) per share - basic and diluted, for each of the periods presented (in thousands, except per share data, unaudited):
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
| Net loss, as reported | $ | (101,210) | $ | (97,682) | $ | (305,361) | $ | (119,858) | |||||||||||||||
| Share-based compensation expense | 47,018 | 37,718 | 198,902 | 149,084 | |||||||||||||||||||
| Impairment costs | — | 69,000 | — | 79,000 | |||||||||||||||||||
| Acquisition-related costs | — | 268 | — | 2,332 | |||||||||||||||||||
| Income tax benefit | (458) | (8,402) | (4,258) | (31,102) | |||||||||||||||||||
| Net income (loss), adjusted | $ | (54,650) | $ | 902 | $ | (110,717) | $ | 79,456 | |||||||||||||||
| Non-GAAP net income (loss) per share — basic | $ | (0.26) | $ | — | $ | (0.54) | $ | 0.40 | |||||||||||||||
| Non-GAAP net income (loss) per share — diluted | $ | (0.26) | $ | — | $ | (0.54) | $ | 0.39 | |||||||||||||||
| Weighted-average shares outstanding — basic | 208,204 | 203,561 | 206,380 | 197,944 | |||||||||||||||||||
| Weighted-average shares outstanding — diluted | 208,204 | 207,271 | 206,380 | 206,067 | |||||||||||||||||||
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 December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
| Denominator for basic calculation | 208,204 | 203,561 | 206,380 | 197,944 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Option awards | — | 3,370 | — | 6,967 | |||||||||||||||||||
| Unvested restricted stock units | — | 340 | — | 1,156 | |||||||||||||||||||
| Denominator for dilutive calculation | 208,204 | 207,271 | 206,380 | 206,067 | |||||||||||||||||||
Segment Results of Operations
The following tables present our segment results for the periods presented (in thousands, unaudited):
| Three Months Ended December 31, 2019 | Three Months Ended December 31, 2018 | ||||||||||||||||||||||||||||||||||
| Homes | IMT | Mortgages | Homes | IMT | Mortgages | ||||||||||||||||||||||||||||||
| Revenue | $ | 603,228 | $ | 319,665 | $ | 21,054 | $ | 41,347 | $ | 300,708 | $ | 23,280 | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||
| Cost of revenue | 581,398 | 23,894 | 4,325 | 39,080 | 24,623 | 3,769 | |||||||||||||||||||||||||||||
| Sales and marketing | 64,177 | 108,301 | 11,283 | 10,099 | 118,544 | 10,226 | |||||||||||||||||||||||||||||
| Technology and development | 27,864 | 88,883 | 8,526 | 9,197 | 92,734 | 9,264 | |||||||||||||||||||||||||||||
| General and administrative | 27,068 | 62,366 | 9,636 | 10,038 | 57,261 | 7,459 | |||||||||||||||||||||||||||||
| Impairment costs | — | — | — | — | 65,000 | 4,000 | |||||||||||||||||||||||||||||
| Acquisition-related costs | — | — | — | — | — | 268 | |||||||||||||||||||||||||||||
| Integration costs | — | — | — | — | — | 1,492 | |||||||||||||||||||||||||||||
| Total costs and expenses | 700,507 | 283,444 | 33,770 | 68,414 | 358,162 | 36,478 | |||||||||||||||||||||||||||||
| Income (loss) from operations | (97,279) | 36,221 | (12,716) | (27,067) | (57,454) | (13,198) | |||||||||||||||||||||||||||||
| Segment other income | — | — | 350 | — | — | 244 | |||||||||||||||||||||||||||||
| Segment interest expense | (10,644) | — | (288) | (1,745) | — | (132) | |||||||||||||||||||||||||||||
| Income (loss) before income taxes (1) | $ | (107,923) | $ | 36,221 | $ | (12,654) | $ | (28,812) | $ | (57,454) | $ | (13,086) | |||||||||||||||||||||||
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||||||||||||||||||||||||||||||
| Homes | IMT | Mortgages | Homes | IMT | Mortgages | ||||||||||||||||||||||||||||||
| Revenue | $ | 1,365,250 | $ | 1,276,896 | $ | 100,691 | $ | 52,365 | $ | 1,201,143 | $ | 80,046 | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||
| Cost of revenue | 1,315,345 | 98,522 | 18,154 | 49,392 | 96,693 | 7,505 | |||||||||||||||||||||||||||||
| Sales and marketing | 171,634 | 488,909 | 53,585 | 17,134 | 502,785 | 32,702 | |||||||||||||||||||||||||||||
| Technology and development | 78,994 | 365,769 | 32,584 | 21,351 | 363,712 | 25,755 | |||||||||||||||||||||||||||||
| General and administrative | 81,407 | 243,636 | 41,133 | 22,002 | 220,564 | 19,587 | |||||||||||||||||||||||||||||
| Impairment costs | — | — | — | — | 75,000 | 4,000 | |||||||||||||||||||||||||||||
| Acquisition-related costs | — | — | — | — | 27 | 2,305 | |||||||||||||||||||||||||||||
| Integration costs | — | — | 650 | — | — | 2,015 | |||||||||||||||||||||||||||||
| Total costs and expenses | 1,647,380 | 1,196,836 | 146,106 | 109,879 | 1,258,781 | 93,869 | |||||||||||||||||||||||||||||
| Income (loss) from operations | (282,130) | 80,060 | (45,415) | (57,514) | (57,638) | (13,823) | |||||||||||||||||||||||||||||
| Segment other income | — | — | 1,409 | — | — | 244 | |||||||||||||||||||||||||||||
| Segment interest expense | (29,990) | — | (956) | (2,177) | — | (132) | |||||||||||||||||||||||||||||
| Income (loss) before income taxes (1) | $ | (312,120) | $ | 80,060 | $ | (44,962) | $ | (59,691) | $ | (57,638) | $ | (13,711) | |||||||||||||||||||||||
(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 December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
| Total segment loss before income taxes | $ | (84,356) | $ | (99,352) | $ | (277,022) | $ | (131,040) | |||||||||||||||
| Corporate interest expense | (28,995) | (12,450) | (70,846) | (38,946) | |||||||||||||||||||
| Corporate other income | 11,683 | 5,718 | 38,249 | 19,026 | |||||||||||||||||||
| Consolidated loss before income taxes | $ | (101,668) | $ | (106,084) | $ | (309,619) | $ | (150,960) | |||||||||||||||
Key Metrics
The following table sets forth our key metrics for each of the periods presented (in millions):
| Three Months Ended December 31, | 2018 to 2019 % Change | ||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Visits (1) | 1,759.5 | 1,607.8 | 9 | % | |||||||||||||
| Average Monthly Unique Users (2) | 172.6 | 157.2 | 10 | % | |||||||||||||
(1)Visits includes visits to the Zillow, Trulia and StreetEasy mobile apps and websites. We measure Zillow and StreetEasy visits with Google Analytics and Trulia visits with Adobe Analytics.
(2)Zillow, StreetEasy, HotPads and Naked Apartments measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.
Non-GAAP Average 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 Average Return on Homes Sold After Interest Expense, which is a non-GAAP financial measure. We have provided a reconciliation of Average Return on Homes Sold After Interest Expense to the most directly comparable GAAP financial measure, which is average gross profit per home for the Homes segment.
We believe that Average 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 average revenue and associated expenses directly attributed to the homes sold. We believe this average 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 average returns on assets sold after considering home purchase costs, renovation costs, holding costs and selling costs.
We calculate the average return on homes sold after interest expense as revenue associated with homes sold during the period less direct costs attributable to those homes divided by the number of homes sold during the period. 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 periods presented are holding and interest costs recorded as period expenses in prior periods associated with homes sold in the presented period, which are not calculated in accordance with, or as 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 presented 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 Average 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.
Average 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. Average 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 Average Return on Homes Sold After Interest Expense does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Average Return on Homes Sold After Interest Expense does not consider the potentially dilutive impact of share-based compensation;
•Average 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;
•Average 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
•Average Return on Homes Sold After Interest Expense does not reflect income taxes.
On a GAAP basis, Homes segment average gross profit per home was $11,477 and $16,078, respectively, for the three months ended December 31, 2019 and 2018.
The following table presents the total return on homes sold after interest expense and the Average Return on Homes Sold After Interest Expense for the periods presented (unaudited):
| Three Months Ended December 31, 2019 | Three Months Ended December 31, 2018 | ||||||||||||||||||||||
| Total | Average Per Home | Total | Average Per Home | ||||||||||||||||||||
| Homes sold | 1,902 | 141 | |||||||||||||||||||||
| Homes revenue | $ | 603,228,000 | $ | 317,155 | $ | 41,347,000 | $ | 293,241 | |||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Home acquisition costs (1) | 544,291,000 | 286,168 | 37,243,000 | 264,134 | |||||||||||||||||||
| Renovation costs (1) | 28,264,000 | 14,860 | 1,286,000 | 9,121 | |||||||||||||||||||
| Holding costs (1)(2) | 7,424,000 | 3,903 | 365,000 | 2,589 | |||||||||||||||||||
| Selling costs | 26,125,000 | 13,736 | 1,839,000 | 13,043 | |||||||||||||||||||
| Total operating costs | 606,104,000 | 318,667 | 40,733,000 | 288,887 | |||||||||||||||||||
| Interest expense (1)(2) | 9,310,000 | 4,895 | 371,000 | 2,631 | |||||||||||||||||||
| Return on homes sold after interest expense | $ | (12,186,000) | $ | (6,407) | $ | 243,000 | $ | 1,723 | |||||||||||||||
| (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 $4.4 million and $5.1 million, respectively, of costs incurred in prior periods associated with homes sold in the fourth quarter of 2019 and $0.1 million and $0.3 million, respectively, of costs incurred in prior periods associated with homes sold in the fourth quarter of 2018. | |||||||||||||||||||||||
The calculation of Average Return on Homes Sold After Interest Expense includes only those expenses directly attributed to the homes sold during the period. To arrive at return on homes sold after interest expense, the Company deducts from Homes segment gross profit (1) holding costs incurred in the presented period and prior periods for homes sold during the presented period that are included in sales and marketing expense, (2) selling costs incurred in the presented period for homes sold during the presented period that are included in sales and marketing expense and (3) interest expense incurred in the presented period and prior periods for homes sold during the presented period. The Company adds to Homes segment gross profit (1) inventory valuation adjustments recorded during the presented period associated with homes that remain in inventory at period end, net of inventory valuation adjustments recorded in prior periods related to homes sold in the presented period, and indirect expenses included in cost of revenue and (2) share-based compensation expense and depreciation and amortization expense included in cost of revenue. The following table presents the calculation of Homes segment average gross profit per home and Average Return on Homes Sold After Interest Expense and a reconciliation of return on homes sold after interest expense to Homes segment gross profit for the periods presented (unaudited):
| Three Months Ended December 31, | |||||||||||
| Calculation of Average Gross Profit per Home | 2019 | 2018 | |||||||||
| Homes segment revenue | $ | 603,228,000 | $ | 41,347,000 | |||||||
| Homes segment cost of revenue | 581,398,000 | 39,080,000 | |||||||||
| Homes segment gross profit | $ | 21,830,000 | $ | 2,267,000 | |||||||
| Homes sold | 1,902 | 141 | |||||||||
| Average gross profit per home | $ | 11,477 | $ | 16,078 | |||||||
| Reconciliation of Non-GAAP Measure to Nearest GAAP Measure | |||||||||||
| Homes segment gross profit | $ | 21,830,000 | $ | 2,267,000 | |||||||
| Holding costs included in sales and marketing (1) | (7,424,000) | (365,000) | |||||||||
| Selling costs included in sales and marketing (2) | (26,125,000) | (1,839,000) | |||||||||
| Interest expense (3) | (9,310,000) | (371,000) | |||||||||
| Direct and indirect expenses included in cost of revenue (4) | 8,339,000 | 507,000 | |||||||||
| Share-based compensation expense and depreciation and amortization expense included in cost of revenue | 504,000 | 44,000 | |||||||||
| Return on homes sold after interest expense | $ | (12,186,000) | $ | 243,000 | |||||||
| Homes sold | 1,902 | 141 | |||||||||
| Average return on homes sold after interest expense | $ | (6,407) | $ | 1,723 | |||||||
| (1) Amount represents holding costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period and prior periods. These costs primarily include homeowners association dues, property taxes, insurance, utilities, and cleaning and maintenance costs incurred during the time a home is held for sale after the renovation period is complete. On a GAAP basis, the Company incurred a total of $8.3 million and $1.0 million of holding costs included in sales and marketing expense for the three months ended December 31, 2019 and 2018, respectively. (2) Amount represents selling costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period. These costs primarily include agent commissions paid upon the sale of a home. (3) Amount represents interest expense incurred related to homes sold in the presented period that was not eligible for inventory capitalization and was therefore expensed as a period cost in the presented period and prior periods. (4) Amount includes inventory valuation adjustments recorded during the period associated with homes that remain in inventory at period end, net of inventory valuation adjustments recorded in prior periods related to homes sold in the presented period, as well as corporate costs allocated to the Homes segment such as headcount expenses and hosting-related costs related to the operation of our website. | |||||||||||
On a GAAP basis, Homes segment average gross profit per home was $11,571 and $16,797, respectively, for the years ended December 31, 2019 and 2018.
The following table presents the total return on homes sold after interest expense and the Average Return on Homes Sold After Interest Expense for the periods presented (unaudited):
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||||||||||||||||||
| Total | Average Per Home | Total | Average Per Home | ||||||||||||||||||||
| Homes sold | 4,313 | 177 | |||||||||||||||||||||
| Homes revenue | $ | 1,365,250,000 | $ | 316,543 | $ | 52,365,000 | $ | 295,847 | |||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Home acquisition costs (1) | 1,233,799,000 | 286,065 | 47,143,000 | 266,345 | |||||||||||||||||||
| Renovation costs (1) | 57,878,000 | 13,419 | 1,566,000 | 8,847 | |||||||||||||||||||
| Holding costs (1)(2) | 15,865,000 | 3,678 | 446,000 | 2,520 | |||||||||||||||||||
| Selling costs | 59,178,000 | 13,722 | 2,347,000 | 13,260 | |||||||||||||||||||
| Total operating costs | 1,366,720,000 | 316,884 | 51,502,000 | 290,972 | |||||||||||||||||||
| Interest expense (1)(2) | 20,205,000 | 4,685 | 423,000 | 2,389 | |||||||||||||||||||
| Return on homes sold after interest expense | $ | (21,675,000) | $ | (5,026) | $ | 440,000 | $ | 2,486 | |||||||||||||||
| (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 $1.0 million, respectively, of costs incurred in prior periods associated with homes sold in the year ended December 31, 2019. We did not incur any costs in prior periods associated with homes sold in the year ended December 31, 2018. | |||||||||||||||||||||||
The following table presents the calculation of Homes segment average gross profit per home and Average Return on Homes Sold After Interest Expense and a reconciliation of return on homes sold after interest expense to Homes segment gross profit for the periods presented (unaudited):
| Year Ended December 31, | |||||||||||
| Calculation of Average Gross Profit per Home | 2019 | 2018 | |||||||||
| Homes segment revenue | $ | 1,365,250,000 | $ | 52,365,000 | |||||||
| Homes segment cost of revenue | 1,315,345,000 | 49,392,000 | |||||||||
| Homes segment gross profit | $ | 49,905,000 | $ | 2,973,000 | |||||||
| Homes sold | 4,313 | 177 | |||||||||
| Average gross profit per home | $ | 11,571 | $ | 16,797 | |||||||
| Reconciliation of Non-GAAP Measure to Nearest GAAP Measure | |||||||||||
| Homes segment gross profit | $ | 49,905,000 | $ | 2,973,000 | |||||||
| Holding costs included in sales and marketing (1) | (15,865,000) | (446,000) | |||||||||
| Selling costs included in sales and marketing (2) | (59,178,000) | (2,347,000) | |||||||||
| Interest expense (3) | (20,205,000) | (423,000) | |||||||||
| Direct and indirect expenses included in cost of revenue (4) | 22,513,000 | 525,000 | |||||||||
| Share-based compensation expense and depreciation and amortization expense included in cost of revenue | 1,155,000 | 158,000 | |||||||||
| Return on homes sold after interest expense | $ | (21,675,000) | $ | 440,000 | |||||||
| Homes sold | 4,313 | 177 | |||||||||
| Average return on homes sold after interest expense | $ | (5,026) | $ | 2,486 | |||||||
| (1) Amount represents holding costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period and prior periods. These costs primarily include homeowners association dues, property taxes, insurance, utilities, and cleaning and maintenance costs incurred during the time a home is held for sale after the renovation period is complete. On a GAAP basis, the Company incurred a total of $22.6 million and $1.3 million of holding costs included in sales and marketing expense for the years ended December 31, 2019 and 2018, respectively. (2) Amount represents selling costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period. These costs primarily include agent commissions paid upon the sale of a home. (3) Amount represents interest expense incurred related to homes sold in the presented period that was not eligible for inventory capitalization and was therefore expensed as a period cost in the presented period and prior periods. (4) Amount includes inventory valuation adjustments recorded during the period associated with homes that remain in inventory at period end, as well as corporate costs allocated to the Homes segment such as headcount expenses and hosting-related costs related to the operation of our website. | |||||||||||