Zillow Group, Inc.
May 3, 2016

Zillow Group Reports First Quarter 2016 Results; Raises Full-Year Revenue Outlook

             
SEATTLE, May 03, 2016 (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 three months ended March 31, 2016.

"We are off to an incredible start in 2016," said Zillow Group CEO Spencer Rascoff. "We expected to accelerate revenue growth during the year, and we are already seeing this with only one quarter on the books. Growth across our brands continues to be strong, with Zillow Group as a whole seeing a record number of unique users in March. This will be an exciting year for Zillow Group."  

First Quarter 2016 Financial Highlights

Throughout this release, certain historical financial results and year-over-year comparisons are presented on a pro forma basis. 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 reporting period for the year prior to the year of acquisition. The pro forma results are presented in order to provide additional insights into the underlying trends in the business. Financial information for the three months ended March 31, 2016 is presented in this release on an as-reported basis. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Operating and Business Highlights

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1 comScore data, April 2016

             
Business Outlook - Second Quarter and Full Year 2016

For the second quarter of 2016, Zillow Group's Revenue is expected to be in the range of $203 million to $208 million. Adjusted EBITDA for the second quarter is expected to be $15 million to $20 million, and is affected by legal costs associated with the News Corp. and NATIONAL ASSOCIATION OF REALTORS® litigation, which are anticipated to be between $18 million and $20 million in the second quarter.

For full year 2016, Zillow Group is increasing its outlook for Revenue to a range of $825 million to $835 million, up from a range of $805 million to $815 million. The 2016 Revenue outlook represents a 29% year-over-year increase at the midpoint of the range, compared to a 24% increase from 2014 to 2015, on a pro forma basis and excluding revenue from MarketLeader, which was divested in 2015. Adjusted EBITDA outlook remains in the range of $115 million to $125 million, and is affected by legal costs associated with the News Corp. and NATIONAL ASSOCIATION OF REALTORS® litigation, which are anticipated to be between $50 million and $55 million in 2016.

  Three Months Ending Year Ending 
Zillow Group Outlook as of May 3, 2016 June 30, 2016 December 31, 2016 
(in millions)      
Revenue $203 to $208 $825 to $835 
Premier Agent revenue $146 to $148 $595 to $600 
Display revenue $16 to $17 $58 to $60 
Operating expenses $237 to $242 *** 
Adjusted EBITDA $15 to $20 $115 to $125 
Depreciation and amortization $24 to $26 $95 to $100 
Share-based compensation expense  $26 to $28  $105 to $110 
Capital expenditures *** $41 to $43 
Weighted average shares outstanding — basic  178.5 to 180.5 180.0 to 182.0 
Weighted average shares outstanding — diluted 193.5 to 195.5 194.5 to 196.5 
      
*** Outlook not provided         

Conference Call and Webcast Information

Zillow Group's CEO Spencer Rascoff and CFO Kathleen Philips will host a live conference call and webcast to discuss the results today at 2 p.m. Pacific Time (5 p.m. Eastern Time). A copy of management's prepared remarks will be made available on the investor relations section of Zillow Group, Inc.'s website at http://investors.zillowgroup.com/events.cfm prior to the live conference call and webcast to allow analysts and investors additional time to review the details of the results.

Similar to past quarters, Zillow Group's management will first read the prepared remarks and then answer questions submitted via Twitter® during the live conference call, in addition to answering questions from dialed-in participants. Questions can be submitted to the @ZillowGroup Twitter® handle using #ZEarnings. 

A link to 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/events.cfm. The live call may also be accessed via phone at (877) 643-7152 toll-free domestically and at (443) 863-7921 internationally, with conference ID# 92306284. 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.

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, strategic priorities, and operational plans for 2016. 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; 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; the impact of pending litigation described in Zillow Group's filings with the SEC; 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's Annual Report on Form 10-K for the year ended December 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 February 2015 acquisition of Trulia had been completed on the applicable dates of the financial statements presented herein, or to 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, restructuring costs and income taxes. This measure is not a key metric used by our management and board of directors to measure operating performance or otherwise manage the business. However, we provide non-GAAP net income (loss) per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, acquisition-related costs, restructuring costs and income taxes 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 the 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®, HotPads® and Naked Apartments®. 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 Mortech®, Diverse Solutions®, dotloop® 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, Premier Agent, Mortech, Diverse Solutions, StreetEasy, Retsly and HotPads are registered trademarks of Zillow, Inc. Trulia is a registered trademark of Trulia, LLC. dotloop is a registered trademark of DotLoop, LLC. Naked Apartments is a registered trademark of Naked Apartments, Inc.

Twitter is a registered trademark of Twitter, Inc.

(ZFIN)

Pro Forma Financial Information

The following financial information for the three months ended March 31, 2015 is presented on a pro forma basis and gives effect to the February 2015 acquisition of Trulia as if it were consummated on January 1, 2014, the beginning of the comparable reporting period for the year prior to the year of acquisition. For ease of year-over-year comparison, this pro forma financial information is presented with financial information for the three months ended March 31, 2016, which is presented on an as-reported basis (in thousands, except per share data, unaudited):

 Three Months Ended 
 March 31, 
 2016 (1) 2015 (2) 
     
Pro forma revenue$185,982  $162,531  
Pro forma net loss$(47,605) $(17,854) 
Pro forma net loss per share — basic and diluted$(0.27) $(0.10) 
Pro forma weighted-average shares outstanding — basic and diluted 178,686   174,429  
__________________    
     
Other Financial Data:     
Pro forma Adjusted EBITDA (3)$1,874  $24,501   
     
(1) The financial information for the three months ended March 31, 2016 is presented on an as-reported basis. 
  
(2) The three months ended March 31, 2015 includes pro forma adjustments for $46.2 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements, $33.7 million to eliminate one-time share-based compensation expense attributable to substituted equity awards and to record additional share-based compensation expense attributable to substituted equity awards, $25.3 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. 
     
(3) 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 and Class C capital 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 
  March 31, 
   2016 2015 
      
 Weighted-average shares outstanding — basic and diluted (1)126,906 122,649 
 Class A common stock issued in connection with the acquisition of Trulia51,780 51,780 
 Pro forma weighted-average shares outstanding — basic and diluted178,686 174,429 
      
 (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 the three months ended March 31, 2015. For ease of year-over-year comparison, this pro forma financial information is presented with financial information for the three months ended March 31, 2016, which is presented on an as-reported basis (in thousands, unaudited):

      
  Three Months Ended 
  March 31, 
  2016 (1) 2015  
Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Loss:      
Pro forma net loss $  (47,605) $ (17,854) 
Pro forma other income  (681)    (302) 
Pro forma depreciation and amortization expense  23,807     19,862  
Pro forma share-based compensation expense  25,551     21,236  
Pro forma acquisition-related costs  593     -  
Pro forma interest expense  1,573     1,559  
Pro forma income tax benefit  (1,364)    -  
Pro forma Adjusted EBITDA $  1,874  $  24,501  
       
(1) The financial information for the three months ended March 31, 2016 is presented on an as-reported basis.

The following table presents our pro forma revenue by type for the three months ended March 31, 2015. For ease of year-over-year comparison, this pro forma financial information is presented with financial information for the three months ended March 31, 2016, which is presented on an as-reported basis (in thousands, unaudited): 

     
 Three Months Ended 
 March 31, 
 2016 (1) 2015  
Pro Forma Revenue:    
Pro forma Marketplace revenue:    
  Real estate$  152,507  $  113,396  
  Mortgages   16,454     9,950  
  Market Leader   -      13,581  
Total pro forma Marketplace revenue   168,961     136,927  
Pro forma Display revenue   17,021     25,604  
  Total pro forma revenue$  185,982  $  162,531  
     
(1) The financial information for the three months ended March 31, 2016 is presented on an as-reported basis.


Reported Consolidated Results

 
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands)
   
    March 31, 2016   December 31, 2015
Assets    
Current assets:    
Cash and cash equivalents $  232,443  $  229,138 
Short-term investments    281,218     291,151 
Accounts receivable, net     32,270      29,789 
Prepaid expenses and other current assets    21,006     24,016 
Total current assets    566,937     574,094 
Restricted cash    1,053     3,015 
Property and equipment, net    92,839     89,639 
Goodwill    1,919,777     1,909,167  
Intangible assets, net    549,267     554,765 
Other assets    5,380     5,020 
Total assets $  3,135,253  $  3,135,700 
     
Liabilities and shareholders' equity    
Current liabilities:    
Accounts payable $  4,995  $  3,361 
Accrued expenses and other current liabilities    46,434     43,047 
Accrued compensation and benefits    20,185     11,392 
Deferred revenue    24,749     21,450 
Deferred rent, current portion    1,203      1,172 
Total current liabilities    97,566     80,422 
Deferred rent, net of current portion    13,704     13,743 
Long-term debt    230,000     230,000 
Deferred tax liabilities and other long-term liabilities    132,528     132,482 
Total liabilities    473,798     456,647 
Shareholders' equity:    
Class A common stock    5     5 
Class B common stock    1     1 
Class C capital stock    12     12 
Additional paid-in capital    2,985,478     2,956,111 
Accumulated other comprehensive income (loss)            169     (471)
Accumulated deficit    (324,210)    (276,605)
Total shareholders' equity    2,661,455     2,679,053 
Total liabilities and shareholders' equity $  3,135,253    $  3,135,700 
     

 

ZILLOW GROUP, INC. 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(in thousands, except per share data) 
     
 Three Months Ended 
 March 31, 
  2016   2015  
     
Revenue$  185,982    $  127,273  
Costs and expenses:     
Cost of revenue (exclusive of amortization) (1)(2)   16,452     13,019  
Sales and marketing (2)   98,760     59,286  
Technology and development (2)   64,417     37,325  
General and administrative (2)   53,837     38,024  
Acquisition-related costs   593     12,477  
Restructuring costs (2)   -     25,065  
Total costs and expenses   234,059     185,196  
Loss from operations   (48,077)    (57,923) 
Other income   681     269  
Interest expense   (1,573)    (730) 
Loss before income taxes   (48,969)    (58,384) 
Income tax benefit   1,364     -  
Net loss$  (47,605) $  (58,384) 
Net loss per share — basic and diluted$  (0.27) $  (0.40) 
Weighted-average shares outstanding — basic and diluted   178,686     147,390  
____________    
(1) Amortization of website development costs and intangible assets included in technology and development$  20,059  $  11,782  
     
(2)  Includes share-based compensation expense as follows:    
Cost of revenue$  1,219  $  952  
Sales and marketing   5,203     4,209  
Technology and development   6,759     5,766  
General and administrative   12,370      12,080  
Restructuring costs   -     10,420  
Total $  25,551  $  33,427  
     
Other Financial Data:    
Adjusted EBITDA (3)$  1,874  $  16,654  
     
(3)  See above for more information regarding our presentation of Adjusted EBITDA.  
      

 

ZILLOW GROUP, INC. 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 
      
  Three Months Ended 
   March 31, 
   2016   2015  
Operating activities     
Net loss $  (47,605) $(58,384) 
Adjustments to reconcile net loss to net cash provided by operating activities, net of amounts assumed in connection with acquisitions:     
Depreciation and amortization    23,807     14,028  
Share-based compensation expense    25,551     23,007  
Restructuring costs    -     21,702  
Release of valuation allowance on certain deferred tax assets    1,364     -  
Loss on disposal of property and equipment    1,436      87  
Bad debt expense    313     805  
Deferred rent    (7)    381  
Amortization of bond premium    430     849  
Changes in operating assets and liabilities:     
Accounts receivable    (2,770)    (296) 
Prepaid expenses and other assets    2,708     5,477  
Accounts payable    1,594     (763) 
Accrued expenses and other current liabilities    2,793     (7,652) 
Accrued compensation and benefits    8,759     1,727  
Deferred revenue    3,294     112  
Other long-term liabilities    (2,749)    375  
Net cash provided by operating activities    18,918     1,455  
      
Investing activities     
Proceeds from maturities of investments    44,108     63,780  
Purchases of investments     (38,760)    (59,896) 
Proceeds from sales of investments    4,795     4,979  
Decrease in restricted cash, net of amounts assumed in connection with an acquisition     1,962     147  
Purchases of property and equipment    (15,212)    (10,321) 
Purchases of intangible assets    (1,714)    (284) 
Cash acquired in acquisition, net    -      173,406  
Cash paid for acquisition, net    (12,357)    -  
Net cash provided by (used in) investing activities    (17,178)     171,811  
      
Financing activities     
Proceeds from exercise of stock options    1,682     9,124  
Value of equity awards withheld for tax liability    (117)    (303) 
Net cash provided by financing activities    1,565     8,821  
Net increase in cash and cash equivalents during period    3,305     182,087  
Cash and cash equivalents at beginning of period    229,138     125,765  
Cash and cash equivalents at end of period $  232,443  $  307,852  
      
Supplemental disclosures of cash flow information     
Noncash transactions:     
Value of Class A common stock issued in connection with an acquisition $  -  $  1,883,728  
Capitalized share-based compensation $  2,250  $  2,424  
Write-off of fully depreciated property and equipment $  6,834  $  11,759  
  


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 
  March 31, 
  2016  2015  
Reconciliation of Adjusted EBITDA to Net Loss:     
Net loss $  (47,605) $ (58,384) 
Other income    (681)    (269) 
Depreciation and amortization expense    23,807     14,028  
Share-based compensation expense    25,551     23,007  
Acquisition-related costs    593     12,477  
Restructuring costs    -     25,065  
Interest expense    1,573     730  
Income tax benefit    (1,364)    -  
Adjusted EBITDA $  1,874  $  16,654  
      

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 
  March 31, 
   2016   2015  
      
Net loss, as reported $  (47,605) $ (58,384) 
Share-based compensation expense    25,551     23,007  
Acquisition-related costs    593     12,477  
Restructuring costs    -     25,065  
Income tax benefit    (1,364)    -  
Net income (loss), adjusted $  (22,825) $  2,165  
      
Non-GAAP net income (loss) per share - basic $  (0.13) $  0.02  
Non-GAAP net income (loss) per share - diluted $  (0.13) $  0.02  
Weighted-average shares outstanding - basic    178,686     147,390  
Weighted-average shares outstanding - diluted    178,686     166,312  
       

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 
 March 31, 
 2016  2015   
Revenue:    
Marketplace revenue:    
Real estate$  152,507  $  93,312  
Mortgages   16,454     9,558  
Market Leader   -      6,057  
Total Marketplace revenue   168,961     108,927  
Display revenue   17,021     18,346  
Total revenue$  185,982  $  127,273  
     
      
     
 Three Months Ended 
 March 31, 
 2016  2015  
Percentage of Total Revenue:      
Marketplace revenue:    
Real estate 82%  73% 
Mortgages 9%  8% 
Market Leader  -    5% 
Total Marketplace revenue 91%  86% 
Display revenue 9%  14% 
Total revenue 100%  100% 
     

Unique Users

The following table sets forth our average monthly unique users for each of the periods presented:

       
 Average Monthly Unique Users for the
Three Months Ended March 31,
 2015 to 2016 
 2016 2015 % Change 
 (in thousands)   
Unique Users156,166 109,912  42% 
       

Unique users source: We measure Zillow unique users with Google Analytics and Trulia 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.

Contacts:



Raymond Jones

Investor Relations

206-470-7137

ir@zillow.com



Katie Curnutte

Public Relations

206-757-2701

press@zillow.com

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Source: Zillow Group, Inc.

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