Zillow Group, Inc.
Nov 3, 2015

Zillow Group Reports Third Quarter 2015 Results

Trulia Integration Completed Four Months Ahead of Schedule; Sets Up Zillow Group for Robust Sustainable Growth

SEATTLE, Nov. 3, 2015 (GLOBE NEWSWIRE) -- Zillow® Group, Inc. (NASDAQ:Z) (NASDAQ:ZG), 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 September 30, 2015.

Zillow Group logo


"The third quarter was a remarkable one for Zillow Group, exceeding EBITDA expectations significantly. We also completed the unification of Zillow's and Trulia's ad platforms, marking the end of our major transition period of integration," said Zillow Group CEO Spencer Rascoff. "We finished this integration four months ahead of schedule, and are ending 2015 in tremendous shape. Zillow Group will enter 2016 with the potential for robust sustainable growth in the years ahead."

Third 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) unless otherwise noted. 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 September 30, 2015 are presented in this release on an as reported basis. All share and per share amounts have been retroactively adjusted to give effect to the August 2015 Class C stock split.

Operating and Business Highlights

Quarterly Conference Call

A quarterly conference call to discuss Zillow Group, Inc.'s third 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# 45148557. Callers outside the United States may dial 443-863-7921 with conference ID# 45148557. 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 business outlook and future operational plans. 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 and our August 2015 acquisition of DotLoop; 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 June 30, 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 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, adjusted, to net loss, as reported on a GAAP basis, and the calculations of non-GAAP net income 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 February 2015 acquisition of Trulia 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 per share excludes the impact of share-based compensation expense, acquisition-related costs, restructuring costs and the loss on divestiture of business. 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, acquisition-related costs, restructuring costs and the loss on divestiture of business 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) (NASDAQ:ZG) 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 DotLoop®, Postlets®, Mortech®, Diverse Solutions® 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, Retsly, StreetEasy, and HotPads are registered trademarks of Zillow, Inc. Trulia is a registered trademark of Trulia, 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 September 30, 2015, which are presented on an as reported basis) (in thousands, unaudited):

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 (1) 2014 (2) 2015 (3) 2014 (4)
         
Pro forma revenue  $ 176,765  $ 155,790  $ 510,565  $ 419,283
Pro forma net loss  $ (21,393)  $ (18,616)  $ (65,978)  $ (72,070)
Pro forma net loss per share — basic and diluted  $ (0.12)  $ (0.11)  $ (0.38)  $ (0.42)
Pro forma weighted-average shares outstanding — basic and diluted  177,098  172,668  175,900  171,210
_________        
         
Other Financial Data:        
Pro forma Adjusted EBITDA (5)  $ 29,477  $ 19,511  $ 75,017  $ 36,448

(1) The three months ended September 30, 2015 includes pro forma adjustments for $3.4 million to eliminate restructuring costs associated with the acquisition of Trulia reflected in the historical financial statements and $1.2 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements.

(2) The three months ended September 30, 2014 includes pro forma adjustments for $24.0 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements, $4.7 million to record additional amortization expense for acquired intangible assets, $1.8 million to eliminate Trulia's historical amortization of capitalized website development costs, $0.7 million to record additional rent expense and $0.6 million to eliminate share-based compensation expense attributable to substituted equity awards.

(3) The nine months ended September 30, 2015 includes pro forma adjustments for $49.1 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, $35.3 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 nine months ended September 30, 2014 includes pro forma adjustments for $14.0 million to record additional amortization expense for acquired intangible assets, $5.9 million to eliminate Trulia's historical amortization of capitalized website development costs, $3.4 million to eliminate share-based compensation expense attributable to substituted equity awards and $2.5 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, unaudited):

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
         
Weighted-average shares outstanding — basic and diluted (1) 125,318 120,888 124,120 119,430
Class A common stock issued in connection with the acquisition of Trulia 51,780 51,780 51,780 51,780
Pro forma weighted-average shares outstanding — basic and diluted 177,098 172,668 175,900 171,210
         
(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 September 30, 2015, which is presented on an as reported basis) (in thousands, unaudited):

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Loss:        
Pro forma net loss  $ (21,393)  $ (18,616)  $ (65,978)  $ (72,070)
Pro forma other income (366) (374) (1,118) (1,168)
Pro forma depreciation and amortization expense 19,584 19,642 59,865 54,696
Pro forma share-based compensation expense 28,015 17,203 75,472 49,883
Pro forma acquisition-related costs 757  -- 757  --
Loss on divestiture of business  4,143  --  4,143  --
Pro forma interest expense 1,590 1,589 4,729 4,744
Pro forma income tax provision (benefit) (2,853) 67 (2,853) 363
Pro forma Adjusted EBITDA  $ 29,477  $ 19,511  $ 75,017  $ 36,448

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

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
Pro Forma Revenue:        
Pro forma Marketplace revenue:        
Real estate  $ 129,662  $ 102,038  $ 365,616  $ 264,763
Mortgages 12,624 7,869 32,967 22,577
Market Leader 10,957 15,493 37,068 46,697
Total pro forma Marketplace revenue 153,243 125,400 435,651 334,037
Pro forma Display revenue 23,522 30,390 74,914 85,246
Total pro forma revenue  $ 176,765  $ 155,790  $ 510,565  $ 419,283
 
Reported Consolidated Results
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
  September 30, 2015 December 31, 2014
Assets    
Current assets:    
Cash and cash equivalents  $ 233,539  $ 125,765
Short-term investments  303,220  246,829
Accounts receivable, net  33,568  18,684
Prepaid expenses and other current assets  25,205  10,059
Total current assets  595,532  401,337
Restricted cash  6,739  --
Long-term investments  --  83,326
Property and equipment, net  85,745  41,600
Goodwill  1,909,820  96,352
Intangible assets, net  563,540  26,757
Other assets  1,073  358
Total assets  $ 3,162,449  $ 649,730
     
Liabilities and shareholders' equity    
Current liabilities:    
Accounts payable  $ 6,124  $ 9,358
Accrued expenses and other current liabilities  67,449  16,883
Accrued compensation and benefits  12,430  6,735
Deferred revenue  19,820  15,356
Deferred rent, current portion  1,160  864
Total current liabilities  106,983  49,196
Deferred rent, net of current portion  13,836  11,755
Long-term debt  230,000  --
Deferred tax liabilities and other long-term liabilities  138,189  --
Total liabilities  489,008  60,951
Shareholders' equity:    
Class A common stock  5  3
Class B common stock  1  1
Class C capital stock  12  8
Additional paid-in capital  2,924,038  716,498
Accumulated other comprehensive income  270  --
Accumulated deficit  (250,885)  (127,731)
Total shareholders' equity  2,673,441  588,779
Total liabilities and shareholders' equity  $ 3,162,449  $ 649,730
     
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
         
Revenue  $ 176,765  $ 88,646  $ 475,307  $ 233,564
Costs and expenses:        
Cost of revenue (exclusive of amortization) (1) (2) 16,453 7,679 46,509 20,636
Sales and marketing (2) 82,044 47,463 229,272 131,025
Technology and development (2) 53,718 20,789 142,783 57,032
General and administrative (2) 42,672 15,757 124,506 44,968
Acquisition-related costs 1,988 13,200 16,144 13,384
Restructuring costs (2)  3,425  --   35,142  -- 
Loss on divestiture of business  4,143  --   4,143  -- 
Total costs and expenses 204,443 104,888 598,499 267,045
Loss from operations  (27,678)  (16,242)  (123,192)  (33,481)
Other income  366 265  1,085  768
Interest expense  (1,590)  --  (3,900)  --
Loss before income taxes  (28,902)  (15,977)  (126,007)  (32,713)
Income tax benefit  2,853  --   2,853  -- 
Net loss  $ (26,049)  $ (15,977)  $(123,154)  $ (32,713)
Net loss per share — basic and diluted  $ (0.15)  $ (0.13)  $ (0.74)  $ (0.27)
Weighted-average shares outstanding — basic and diluted 177,098 120,888 166,986 119,430
_________        
(1) Amortization of website development costs and intangible assets included in technology and development  $ 16,405  $ 7,472  $ 45,304  $ 21,113
         
(2) Includes share-based compensation expense as follows:        
Cost of revenue  $ 1,378  $ 489  $ 3,440  $ 1,280
Sales and marketing  7,446  1,885  20,439  4,886
Technology and development  7,642  2,748  20,413  7,829
General and administrative  11,549  3,512  36,610  10,181
Restructuring costs  1,059  --  15,063  --
Total  $ 29,074  $ 8,634  $ 95,965  $ 24,176
         
Other Financial Data:        
Adjusted EBITDA (3)  $ 29,477  $ 14,631  $ 67,170  $ 29,788
         
(3) See above for more information regarding our presentation of Adjusted EBITDA.
 
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
     
  Nine Months Ended
  September 30,
  2015 2014
Operating activities    
Net loss  $ (123,154)  $ (32,713)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 54,031  25,709
Share-based compensation expense 80,902  24,176
Restructuring costs 19,206  --
Release of valuation allowance on certain deferred tax assets (2,853)  --
Loss on disposal of property and equipment 1,007  456
Loss on divestiture of businesses 3,690  --
Bad debt expense 2,414  1,699
Deferred rent 2,635  3,179
Amortization of bond premium 2,090  2,628
Changes in operating assets and liabilities:    
Accounts receivable (4,009)  (8,259)
Prepaid expenses and other assets 7,849  (4,082)
Accounts payable (8,394)  8,642
Accrued expenses and other current liabilities 6,132  7,155
Accrued compensation and benefits (2,982)  2,344
Deferred revenue (4,064)  2,423
Other long-term liabilities 4,088  --
Net cash provided by operating activities  38,588  33,357
     
Investing activities    
Proceeds from maturities of investments 244,079 109,912
Purchases of investments (227,223)  (212,259)
Proceeds from sales of investments 8,260  --
Decrease in restricted cash 207  --
Purchases of property and equipment (42,391)  (24,279)
Purchases of intangible assets (11,114)  (3,170)
Proceeds from divestiture of businesses 17,600  --
Cash acquired in acquisition, net 173,406  --
Cash paid for acquisitions, net (104,192)  (3,500)
Net cash provided by (used in) investing activities  58,632  (133,296)
     
Financing activities    
Proceeds from exercise of stock options 18,499 20,944
Value of equity awards withheld for tax liability (7,945)  --
Net cash provided by financing activities  10,554  20,944
Net increase (decrease) in cash and cash equivalents during period  107,774  (78,995)
Cash and cash equivalents at beginning of period  125,765  201,760
Cash and cash equivalents at end of period  $ 233,539  $ 122,765
     
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  $ 8,071  $ 4,996
Write-off of fully depreciated property and equipment  $ 24,899  $ 3,252
 

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 Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
Reconciliation of Adjusted EBITDA to Net Loss:        
Net loss  $ (26,049)  $ (15,977)  $ (123,154)  $ (32,713)
Other income  (366)  (265)  (1,085)  (768)
Depreciation and amortization expense  19,584  9,039  54,031  25,709
Share-based compensation expense  28,015  8,634  80,902  24,176
Acquisition-related costs  1,988  13,200  16,144  13,384
Restructuring costs  3,425  --  35,142  --
Loss on divestiture of business  4,143  --  4,143  --
Interest expense  1,590  --  3,900  --
Income tax benefit  (2,853)  --  (2,853)  --
Adjusted EBITDA  $ 29,477  $ 14,631  $ 67,170  $ 29,788
         

Non-GAAP Net Income per Share

The following table presents a reconciliation of net income, adjusted, to net 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 Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
         
Net loss, as reported  $ (26,049)  $ (15,977)  $ (123,154)  $ (32,713)
Share-based compensation expense  28,015  8,634  80,902  24,176
Acquisition-related costs  1,988  13,200  16,144  13,384
Restructuring costs  3,425  --  35,142  --
Loss on divestiture of business  4,143  --  4,143  --
Net income, adjusted  $ 11,522  $ 5,857  $ 13,177  $ 4,847
         
Weighted-average shares outstanding - basic  177,098  120,888  166,986  119,430
Weighted-average shares outstanding - diluted  193,399  130,617  184,443  128,904
Non-GAAP net income per share - basic  $ 0.07  $ 0.05  $ 0.08  $ 0.04
Non-GAAP net income per share - diluted  $ 0.07  $ 0.04  $ 0.09  $ 0.04

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 Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
Revenue:        
Marketplace revenue:        
Real estate  $ 129,662  $ 65,586  $ 345,532  $ 168,232
Mortgages  12,624  7,106  32,575  20,800
Market Leader  10,957  --   29,544  -- 
Total Marketplace revenue  153,243  72,692  407,651  189,032
Display revenue  23,522  15,954  67,656  44,532
Total revenue  $ 176,765  $ 88,646  $ 475,307  $ 233,564
         
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
Percentage of Total Revenue:        
Marketplace revenue:        
Real estate 73% 74% 73% 72%
Mortgages 7% 8% 7% 9%
Market Leader 6% 0% 6% 0%
Total Marketplace revenue 87% 82% 86% 81%
Display revenue 13% 18% 14% 19%
Total revenue 100% 100% 100% 100%
         

Key Growth Drivers

The following tables set forth our key growth drivers for each of the periods presented. Zillow Group's strategy is to focus on growing revenue from high-producing agents, and not by increasing the overall number of new advertisers. Real Estate Revenue increased 27% year-over-year on a pro forma basis in the third quarter to $129.7 million.

  Average Monthly Unique Users for the
Three Months Ended September 30,

2014 to 2015
  2015 2014 % Change
  (in thousands)  
Unique Users 142,121 85,979 65%

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 September 30, 2014 to 2015 
  2015 2014 % Change
Agent Advertisers 96,965 60,877 59%

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

CONTACT: Raymond Jones

         Investor Relations

         206-470-7137

         ir@zillow.com



         Katie Curnutte

         Public Relations

         206-757-2701

         press@zillow.com

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