Zillow Group, Inc.
Aug 4, 2015
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Zillow Group Reports Second Quarter 2015 Results

Real Estate Revenue Up 37% Year-over-Year, Adjusted EBITDA of $21.0 Million

Zillow Group logo
   

 

SEATTLE, Aug. 4, 2015 (GLOBE NEWSWIRE) -- Zillow® Group, Inc. (NASDAQ:Z), which houses a portfolio of the largest and most vibrant real estate and home-related brands on mobile and Web, today announced its consolidated financial results for the quarter ended June 30, 2015.

"Zillow Group had a strong second quarter, beating our own expectations for revenue and EBITDA," said Zillow Group CEO Spencer Rascoff. "We've been very focused operationally on the integration of Trulia, and made great progress on a number of fronts. As with most mergers of any scale, it has required a great deal of time, attention and energy. We're pleased to share today that we will have successfully combined all advertising products by the end of the third quarter, well ahead of the timetable we shared on our May 12th conference call. Most importantly, we believe the strategic rationale for the combination remains extremely strong, as we are already realizing benefits of our combined audience scale."

Second Quarter 2015 Financial Highlights

Throughout this release, financial results are presented on both a reported and pro forma basis. Reported results were prepared in accordance with generally accepted accounting principles (GAAP). Pro forma results exclude items described in the reconciliation tables below and assume the February 2015 acquisition of Trulia occurred on January 1, 2014, the beginning of the comparable prior year reporting period. The pro forma results are presented in order to provide additional insights into the underlying trends in the business. Revenue and Adjusted EBITDA for the three months ended June 30, 2015 are presented in this release on an as reported basis.

Operating and Business Highlights

Quarterly Conference Call

A quarterly conference call to discuss Zillow Group, Inc.'s second quarter 2015 financial results and business outlook will occur today at 2 p.m. Pacific Time (5 p.m. Eastern Time) and will be webcast live. The live webcast of the conference call will be available on the investor relations section of Zillow Group, Inc.'s website at http://investors.zillowgroup.com. For those without access to the Internet, the call may be accessed toll-free via phone at 877-643-7152 with conference ID# 81815174. Callers outside the United States may dial 443-863-7921 with conference ID# 81815174. Questions submitted via Zillow Group, Inc.'s Twitter account (www.twitter.com/zillowgroup) using the hashtag #ZEarnings will be considered during the Q&A portion of the call, in addition to questions submitted by those dialed in. Following completion of the call, a recorded replay of the webcast will be available on the investor relations section of Zillow Group, Inc.'s website at http://investors.zillowgroup.com.

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 expectations related to integration of the Trulia acquisition and Zillow's and Trulia's agent advertising products. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "will," "projections," "continue," "business outlook," "estimate," "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 successfully integrate and realize the benefits of our past or future strategic acquisitions or investments, including our February 2015 acquisition of Trulia; Zillow Group's ability to maintain and effectively manage an adequate rate of growth; Zillow Group's ability to maintain or establish relationships with listings and data providers; the impact of the real estate industry on Zillow Group's business; Zillow Group's ability to innovate and provide products and services that are attractive to its users and advertisers; Zillow Group's ability to increase awareness of the Zillow Group brands; Zillow Group's ability to attract consumers to Zillow Group's mobile applications and websites; Zillow Group's ability to compete successfully against existing or future competitors; 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, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 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 Measures

To provide investors with additional information regarding our financial results, this press release includes references to certain pro forma financial results, Adjusted EBITDA and non-GAAP net income (loss) per share, all of which are non-GAAP financial measures. We have provided a reconciliation of pro forma Adjusted EBITDA to pro forma net loss, Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, and a reconciliation of net income (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculations of non-GAAP net income (loss) per share - basic and diluted and pro forma weighted-average shares outstanding - basic and diluted, within this earnings release.

The pro forma financial results included in this press release, although helpful in illustrating the financial characteristics of Zillow Group under one set of assumptions, are not true historical financial results. They are provided for informational purposes and do not attempt to represent Zillow Group's actual financial condition if the acquisition had been completed on the applicable dates of the financial statements presented herein or predict or suggest future results.

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. In particular, 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:

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

Our presentation of non-GAAP net income (loss) per share excludes the impact of share-based compensation expense, acquisition-related costs and restructuring costs. 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 restructuring costs facilitates investors' operating performance comparisons on a period-to-period basis. You should not consider these metrics in isolation or as substitutes for analysis of our results as reported under GAAP.

About Zillow Group

Zillow Group (NASDAQ:Z) houses a portfolio of the largest real estate and home-related brands on mobile and Web. The company's brands focus on all stages of the home lifecycle: renting, buying, selling, financing and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow®, Trulia®, StreetEasy® and HotPads®. In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Postlets®, Mortech®, Diverse Solutions®, Market Leader® and Retsly™. The company is headquartered in Seattle.

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, Postlets, Mortech, Diverse Solutions, StreetEasy, and HotPads are registered trademarks of Zillow, Inc. Retsly is a trademark of Zillow, Inc. Trulia is a registered trademark of Trulia, Inc. Market Leader is a registered trademark of Market Leader, Inc.

DotLoop is a registered trademark of DotLoop, Inc.

(ZFIN)

Pro Forma Financial Information

The following pro forma financial information gives effect to the February 2015 acquisition of Trulia as if it were consummated on January 1, 2014, the beginning of the comparable prior reporting period (except Revenue and Adjusted EBITDA for the three months ended June 30, 2015, which are presented on an as reported basis) (in thousands, unaudited):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 (1) 2014 (2) 2015 (3) 2014 (4)
         
Pro forma revenue  $ 171,269  $ 142,761  $ 333,800  $ 263,493
Pro forma net loss  $ (26,731)  $ (29,648)  $ (44,585)  $ (53,454)
Pro forma net loss per share — basic and diluted  $ (0.46)  $ (0.52)  $ (0.76)  $ (0.93)
Pro forma weighted-average shares outstanding — basic and diluted  58,714  57,060  58,430  57,574
_________        
         
Other Financial Data:        
Pro forma Adjusted EBITDA (5)  $ 21,039  $ 5,576  $ 45,540  $ 16,937
         
(1) The three months ended June 30, 2015 includes pro forma adjustments for $6.7 million to eliminate restructuring costs associated with the acquisition of Trulia reflected in the historical financial statements, $3.7 million to eliminate share-based compensation expense attributable to substituted equity awards and $1.7 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements.
         
(2) The three months ended June 30, 2014 includes pro forma adjustments for $4.7 million to record additional amortization expense for acquired intangible assets, $3.3 million to eliminate Trulia's historical amortization of capitalized website development costs, $1.6 million to record additional rent expense and $1.4 million to eliminate share-based compensation expense attributable to substituted equity awards. 
         
(3) The six months ended June 30, 2015 includes pro forma adjustments for $47.9 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements, $37.3 million to eliminate share-based compensation expense attributable to substituted equity awards and to record additional share-based compensation expense attributable to substituted equity awards, $31.9 million to eliminate restructuring costs associated with the acquisition of Trulia reflected in the historical financial statements, $2.4 million to record additional amortization expense for acquired intangible assets and $1.1 million to eliminate Trulia's historical amortization of capitalized website development costs. 
         
(4) The six months ended June 30, 2014 includes pro forma adjustments for $9.3 million to record additional amortization expense for acquired intangible assets, $4.1 million to eliminate Trulia's historical amortization of capitalized website development costs, $2.8 million to eliminate share-based compensation expense attributable to substituted equity awards and $1.8 million to record additional rent expense. 
         
(5) See below for a reconciliation of pro forma Adjusted EBITDA to pro forma net loss. 

The basic and diluted pro forma net loss per share is based on the weighted-average number of shares of Zillow Group common stock outstanding for the period presented and adjusted for the number of shares of Class A common stock issued in connection with the February 2015 acquisition of Trulia, assuming for the purposes of the unaudited pro forma condensed combined statements of operations that the closing date of the acquisition was January 1, 2014. The calculation of the number of shares used in the computation of pro forma basic and diluted net loss per share is as follows (in thousands):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
         
Weighted-average shares outstanding — basic and diluted (1)  41,454  39,800  41,170  40,314
Class A common stock issued in connection with the acquisition of Trulia  17,260  17,260  17,260  17,260
Pro forma weighted-average shares outstanding — basic and diluted  58,714  57,060  58,430  57,574
         
(1) Amounts exclude shares of Zillow Group Class A common stock issued in connection with the acquisition of Trulia.

The following table presents a reconciliation of pro forma Adjusted EBITDA to pro forma net loss for each of the periods presented (other than Adjusted EBITDA for the three months ended June 30, 2015, which is presented on an as reported basis) (in thousands, unaudited):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Loss:        
Pro forma net loss  $ (26,731)  $(29,648)  $ (44,585)  $(53,454)
Pro forma other income  (450)  (430)  (752)  (794)
Pro forma depreciation and amortization expense  20,419  16,895  40,281  35,054
Pro forma share-based compensation expense  26,221  16,979  47,457  32,680
Pro forma interest expense  1,580  1,582  3,139  3,155
Pro forma provision for income taxes  --  198  --  296
 Pro forma Adjusted EBITDA  $ 21,039  $ 5,576  $ 45,540  $ 16,937

The following table presents our pro forma revenue by type for each of the periods presented (other than revenue for the three months ended June 30, 2015, which is presented on an as reported basis) (in thousands, unaudited):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
Pro Forma Revenue:        
Pro forma Marketplace revenue:        
 Real estate  $ 122,558  $ 89,206  $ 235,954  $ 162,725
 Mortgages  10,393  7,212  20,343  14,708
 Market Leader  12,530  15,952  26,111  31,204
Total pro forma Marketplace revenue  145,481  112,370  282,408  208,637
Pro forma Display revenue  25,788  30,391  51,392  54,856
 Total pro forma revenue  $ 171,269  $ 142,761  $ 333,800  $ 263,493
 
Reported Consolidated Results
 
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands)
     
     
  June 30, 2015 December 31, 2014
Assets    
Current assets:    
 Cash and cash equivalents  $ 302,272  $ 125,765
 Short-term investments  322,695  246,829
 Accounts receivable, net   35,198  18,684
 Prepaid expenses and other current assets  21,888  10,059
Total current assets  682,053  401,337
Restricted cash  6,635  --
Long-term investments  --  83,326
Property and equipment, net  81,416  41,600
Goodwill  1,832,961  96,352
Intangible assets, net  565,345  26,757
Other assets  1,452  358
Total assets  $ 3,169,862  $ 649,730
     
Liabilities and shareholders' equity    
Current liabilities:    
 Accounts payable  $ 11,908  $ 9,358
 Accrued expenses and other current liabilities  60,134  16,883
 Accrued compensation and benefits  11,800  6,735
 Accrued restructuring costs  4,186  --
 Deferred revenue  23,199  15,356
 Deferred rent, current portion  1,148  864
Total current liabilities  112,375  49,196
Deferred rent, net of current portion  13,524  11,755
Long-term debt  230,000  --
Deferred tax liabilities and other long-term liabilities  143,521  --
Total liabilities  499,420  60,951
Shareholders' equity:    
 Class A common stock  5  3
 Class B common stock  1  1
 Additional paid-in capital  2,895,155  716,506
 Accumulated other comprehensive income   117  --
 Accumulated deficit  (224,836)  (127,731)
Total shareholders' equity  2,670,442  588,779
Total liabilities and shareholders' equity  $ 3,169,862  $ 649,730
 
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except per share data)
         
  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
         
Revenue  $ 171,269  $ 78,675  $ 298,542  $ 144,918
Costs and expenses:        
 Cost of revenue (exclusive of amortization) (1)(2)  17,037  6,793  30,056  12,957
 Sales and marketing (2)  87,942  48,429  147,228  83,562
 Technology and development (2)  51,740  19,508  89,065  36,243
 General and administrative (2)  43,810  14,522  81,834  29,211
 Acquisition-related costs  1,679  184  14,156  184
 Restructuring costs (2)  6,652  --  31,717  --
Total costs and expenses  208,860  89,436  394,056  162,157
Loss from operations  (37,591)  (10,761)  (95,514)  (17,239)
Other income  450  284  719  503
Interest expense  (1,580)  --  (2,310)  --
Net loss  $ (38,721)  $ (10,477)  $ (97,105)  $ (16,736)
Net loss per share — basic and diluted  $ (0.66)  $ (0.26)  $ (1.80)  $ (0.42)
Weighted-average shares outstanding — basic and diluted  58,714  39,800  53,949  40,314
_________        
(1) Amortization of website development costs and
 intangible assets included in technology and
 development
 $ 17,117  $ 6,857  $ 28,899  $ 13,641
         
(2) Includes share-based compensation expense as follows:        
 Cost of revenue  $ 1,110  $ 418  $ 2,062  $ 791
 Sales and marketing  8,784  1,698  12,993  3,001
 Technology and development  7,005  3,056  12,771  5,081
 General and administrative  12,981  3,238  25,061  6,669
 Restructuring costs  3,584  --  14,004  --
 Total   $ 33,464  $ 8,410  $ 66,891  $ 15,542
         
Other Financial Data:        
Adjusted EBITDA (3)  $ 21,039  $ 6,429  $ 37,693  $ 15,157
         
(3) See above for more information regarding our presentation of Adjusted EBITDA. 
 
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
     
  Six Months Ended
  June 30,
  2015 2014
Operating activities    
Net loss  $ (97,105)  $ (16,736)
Adjustments to reconcile net loss to net cash provided by operating activities:    
 Depreciation and amortization  34,447  16,670
 Share-based compensation expense  52,887  15,542
 Restructuring costs  18,147  --
 Loss on disposal of property and equipment  499  353
 Bad debt expense  1,605  1,225
 Deferred rent  2,310  2,779
 Amortization of bond premium  1,593  1,751
 Changes in operating assets and liabilities:    
 Accounts receivable  (5,026)  (5,876)
 Prepaid expenses and other assets  8,494  (1,565)
 Accounts payable  (2,516)  9,555
 Accrued expenses and other current liabilities  13  1,515
 Accrued compensation and benefits  (3,259)  1,923
 Accrued restructuring costs  1,425  --
 Deferred revenue  (366)  1,739
 Other long-term liabilities  2,998  --
Net cash provided by operating activities  16,146  28,875
     
Investing activities    
Proceeds from maturities of investments  165,723  73,885
Purchases of investments  (164,718)  (159,253)
Proceeds from sales of investments  4,979  --
Decrease in restricted cash  312  --
Purchases of property and equipment  (25,546)  (15,373)
Purchases of intangible assets  (8,006)  (2,132)
Cash acquired in acquisition, net  173,406  --
Cash paid for acquisition  --  (3,500)
Net cash provided by (used in) investing activities  146,150  (106,373)
     
Financing activities    
Proceeds from exercise of Class A common stock options  14,722  14,027
Value of equity awards withheld for tax liability  (511)  --
Net cash provided by financing activities  14,211  14,027
Net increase (decrease) in cash and cash equivalents during period  176,507  (63,471)
Cash and cash equivalents at beginning of period  125,765  201,760
Cash and cash equivalents at end of period  $ 302,272  $ 138,289
     
Supplemental disclosures of cash flow information    
 Cash paid for interest  $ 3,163  $ --
 Noncash transactions:    
 Value of Class A common stock issued in connection with an acquisition  $ 1,883,728  $ --
 Capitalized share-based compensation  $ 4,783  $ 3,086
 Write-off of fully depreciated property and equipment  $ 13,001  $ 3,017

Adjusted EBITDA

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, for each of the periods presented (in thousands, unaudited):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
Reconciliation of Adjusted EBITDA to Net Loss:        
Net loss  $ (38,721)  $(10,477)  $ (97,105)  $(16,736)
Other income  (450)  (284)  (719)  (503)
Depreciation and amortization expense  20,419  8,596  34,447  16,670
Share-based compensation expense  29,880  8,410  52,887  15,542
Acquisition-related costs  1,679  184  14,156  184
Restructuring costs  6,652  --  31,717  --
Interest expense  1,580  --  2,310  --
 Adjusted EBITDA  $ 21,039  $ 6,429  $ 37,693  $ 15,157

Non-GAAP Net Income (Loss) per Share

The following table presents a reconciliation of 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 Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
         
Net loss, as reported  $ (38,721)  $ (10,477)  $ (97,105)  $ (16,736)
Share-based compensation expense  29,880  8,410  52,887  15,542
Acquisition-related costs  1,679  184  14,156  184
Restructuring costs  6,652  --  31,717  --
 Net income (loss), adjusted  $ (510)  $ (1,883)  $ 1,655  $ (1,010)
         
Weighted-average shares outstanding - basic  58,714  39,800  53,949  40,314
Weighted-average shares outstanding - diluted  58,714  39,800  59,623  40,314
Non-GAAP net income (loss) per share - basic  $ (0.01)  $ (0.05)  $ 0.03  $ (0.03)
Non-GAAP net income (loss) per share - diluted  $ (0.01)  $ (0.05)  $ 0.07  $ (0.03)

Revenue by Type

The following tables present our revenue by type and as a percentage of total revenue for each of the periods presented (in thousands, unaudited):

  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
Revenue:        
Marketplace revenue:        
 Real estate  $ 122,558  $ 56,051  $ 215,870  $ 102,646
 Mortgages  10,393  6,565  19,951  13,694
 Market Leader  12,530  --   18,587  -- 
Total Marketplace revenue  145,481  62,616  254,408  116,340
Display revenue  25,788  16,059  44,134  28,578
 Total revenue  $ 171,269  $ 78,675  $ 298,542  $ 144,918
         
         
  Three Months Ended Six Months Ended
  June 30, June 30,
  2015 2014 2015 2014
Percentage of Total Revenue:        
Marketplace revenue:        
 Real estate 72% 71% 72% 71%
 Mortgages 6% 8% 7% 9%
 Market Leader 7% 0% 6% 0%
Total Marketplace revenue 85% 80% 85% 80%
Display revenue 15% 20% 15% 20%
 Total revenue 100% 100% 100% 100%

Key Growth Drivers

The following tables set forth our key growth drivers for each of the periods presented:

  Average Monthly Unique Users for the
Three Months Ended June 30,
2014 to 2015
  2015 2014 % Change
  (in thousands)  
Unique Users 140,959 81,108 74%

Unique users source: Zillow measures unique users with Google Analytics and Trulia measures unique users with Omniture analytical tools. Beginning on February 17, 2015, the reported monthly unique users reflect the effect of Zillow Group's February 17, 2015 acquisition of Trulia.

  At June 30, 2014 to 2015 
  2015 2014 % Change
Agent Advertisers 101,297 56,818 78%

1 Based on internal tracking and comScore Media Metrix Real Estate Category Ranking by Unique Visitors, April 2015, US Data.

CONTACT: Raymond Jones

         Investor Relations

         206-470-7137

         ir@zillow.com



         Camille Salama

         Public Relations

         206-757-2701

         press@zillow.com

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