Zillow Group, Inc.
ZILLOW GROUP, INC. (Form: 8-K, Received: 08/06/2018 16:09:36)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 2, 2018
 
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)

 

Washington
 
001-36853
 
47-1645716
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
1301 Second Avenue, Floor 31, Seattle, Washington
 
98101
(Address of principal executive offices)
 
(Zip Code)
(206) 470-7000
(Registrant’s telephone number, including area code)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company     ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
 






Item 2.02
Results of Operations and Financial Condition.
Zillow Group, Inc. (“Zillow Group”) today issued a press release announcing its financial results for the fiscal quarter ended June 30, 2018 . The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 and accompanying supporting tables as Exhibit 99.2 to this Current Report on Form 8-K.
The information in this Item 2.02 and Exhibits 99.1 and 99.2 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 8.01
Other Events
On August 6, 2018, Zillow Group announced that its wholly owned subsidiary, ZGM Holdco, Inc., has entered into a definitive agreement to acquire Mortgage Lenders of America, L.L.C. (“MLOA”), a national mortgage lender headquartered in Overland Park, Kansas. The purchase agreement contains customary representations, warranties and covenants of the parties as well as conditions to closing, including, among other things, the receipt of certain third-party consents and governmental approvals and the absence of a material adverse effect on MLOA. Zillow Group currently expects the transaction to close in the fourth quarter of 2018. Financial terms of the deal were not disclosed.

Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” or the negative or plural of these words or similar expressions. Differences may result from actions taken by Zillow Group, as well as from risks and uncertainties beyond the company’s control, including the satisfaction of conditions precedent to the closing of Zillow Group’s acquisition of MLOA. Additional factors that could cause results to differ materially from those anticipated in forward-looking statements can be found under the caption “Risk Factors” in Zillow Group, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 and in the company’s other filings with the Securities and Exchange Commission. Except as may be required by law, Zillow Group does not intend, nor undertake any duty, to update this information to reflect future events or circumstances.

Item 9.01
Financial Statements and Exhibits.
(d) Exhibits.
 

    






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Dated: August 6, 2018
 
ZILLOW GROUP, INC.
 
 
 
 
 
By:
/s/ S PENCER  M. R ASCOFF
 
 
Name:
Spencer M. Rascoff
 
 
Title:
Chief Executive Officer




Exhibit 99.1
 
  ZGLOGOFINAL.JPG
Contacts:
 
 
Raymond Jones
 
Katie Curnutte
Investor Relations
 
Public Relations
ir@zillowgroup.com
 
press@zillow.com
ZILLOW GROUP SECOND QUARTER 2018 REVENUE INCREASED 22% YEAR-OVER-YEAR
 

Premier Agent Revenue increased 22% year-over-year to $230.9 million.
Purchased 19 homes in Phoenix through Zillow Offers.
Traffic to Zillow Group brands’ mobile apps and websites reached an all-time high of more than 188 million unique users in April 2018.
Visits to Zillow Group brands’ mobile apps and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 14% year-over-year to approximately 1.9 billion.

SEATTLE - August 6, 2018 - 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 the web, today announced its consolidated financial results for the three months ended June 30, 2018. In a separate news release, Zillow Group announced that it has entered into a definitive agreement to acquire Mortgage Lenders of America, L.L.C., a national mortgage lender headquartered in Overland Park, Kansas.
“Zillow Group’s second quarter 2018 year-over-year revenue growth of 22% was driven primarily by our Premier Agent, Rentals and New Construction marketplaces,” said Zillow Group CEO Spencer Rascoff. “This quarter also marked a major milestone in Zillow Group’s history, as we launched our Homes business and began buying houses directly from homeowners in two cities through Zillow Offers™. At this exciting time in the real estate industry, Zillow Group is committed to developing innovative technology and services, like Zillow Offers and, with today’s announcement, potential for mortgage originations, that help our partners meet evolving consumer expectations, while generating more revenue opportunities.”
Complete financial results can be found in the investor relations section of Zillow Group’s website at http://investors.zillowgroup.com/results.cfm.
Second Quarter and Year to Date 2018 Financial Highlights
In the second quarter of 2018, Zillow Group began reporting financial results for its two reportable segments: the Internet, Media & Technology (“IMT”) segment and the Homes segment. The IMT segment includes the financial results for the Premier Agent, Rentals, Mortgages and new construction marketplaces, dotloop, and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals. The Homes segment includes the financial results from Zillow Group’s buying and selling of homes directly.
The following table sets forth our financial highlights for the periods presented (in thousands, unaudited):


1



 
Three Months Ended
June 30,
 
2017 to 2018
% Change
 
Six Months Ended
June 30,
 
2017 to 2018
% Change
 
2018
 
2017
 
 
2018
 
2017
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
IMT segment:
 
 
 
 
 
 
 
 
 
 
 
Premier Agent
$
230,885

 
$
189,725

 
22
 %
 
$
444,617

 
$
365,026

 
22
 %
Rentals
33,288

 
23,710

 
40
 %
 
62,351

 
45,255

 
38
 %
Mortgages
19,305

 
20,936

 
(8
)%
 
38,328

 
41,206

 
(7
)%
Other (1)
41,768

 
32,479

 
29
 %
 
79,829

 
61,138

 
31
 %
Total IMT segment revenue
325,246

 
266,850

 
22
 %
 
$
625,125

 
$
512,625

 
22
 %
Homes segment

 

 
N/A

 

 

 
N/A

Total revenue
$
325,246

 
$
266,850

 
22
 %
 
$
625,125

 
$
512,625

 
22
 %
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
 
Loss before income taxes:
 
 
 
 
 
 
 
 
 
 
 
IMT segment
$
(1,539
)
 
$
(21,845
)
 
 
 
$
(10,488
)
 
$
(26,451
)
 
 
Homes segment
(12,154
)
 

 
 
 
(19,196
)
 

 
 
Total loss before income taxes
$
(13,693
)
 
$
(21,845
)
 
 
 
$
(29,684
)
 
$
(26,451
)
 
 
Net loss
$
(3,093
)
 
$
(21,845
)
 
 
 
$
(21,684
)
 
$
(26,451
)
 
 
Adjusted EBITDA (2):
 
 
 
 
 
 
 
 
 
 
 
IMT segment
$
64,724

 
$
39,700

 
 
 
$
115,724

 
$
94,499

 
 
Homes segment
(8,724
)
 

 
 
 
(13,414
)
 

 
 
Total Adjusted EBITDA
$
56,000

 
$
39,700

 
 
 
$
102,310

 
$
94,499

 
 
Percentage of Revenue:
 
 
 
 
 
 
 
 
 
 
 
Loss before income taxes:
 
 
 
 
 
 
 
 
 
 
 
IMT segment
 %
 
(8
)%
 
 
 
(2
)%
 
(5
)%
 
 
Homes segment
N/A

 
N/A

 
 
 
N/A

 
N/A

 
 
Total loss before income taxes:
(4
)%
 
(8
)%
 
 
 
(5
)%
 
(5
)%
 
 
Net loss
(1
)%
 
(8
)%
 
 
 
(3
)%
 
(5
)%
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
IMT segment
20
 %
 
15
 %
 
 
 
19
 %
 
18
 %
 
 
Homes segment
N/A

 
N/A

 
 
 
N/A

 
N/A

 
 
Total Adjusted EBITDA
17
 %
 
15
 %
 
 
 
16
 %
 
18
 %
 
 
(1) Other Revenue primarily includes revenue generated by new construction and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals.

(2) See below for more information regarding our presentation of Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and loss before income taxes for each segment, for each of the periods presented.

Second Quarter 2018 Audience Highlights
More than 186 million average monthly unique users accessed Zillow Group brands’ mobile apps and websites, an increase of 4% year-over-year. Zillow Group brands’ mobile apps and websites reached an all-time high of more than 188 million unique users in April 2018, an increase of nearly 14 million unique users from the same period last year.
Visits to Zillow Group brands’ mobile apps and websites Zillow ® , Trulia ® , StreetEasy ® and RealEstate.com increased 14% year-over-year to approximately 1.9 billion.

Business Outlook - Third Quarter and Full Year 2018
The following table presents Zillow Group’s business outlook for the periods presented (in millions, unaudited):

2



Zillow Group Outlook as of August 6, 2018
 
Three Months Ending September 30, 2018
 
Year Ending December 31, 2018
 
 
 
 
 
Revenue:
 
 
 
 
IMT segment:
 
 
 
 
Premier Agent
 
$237 to $239
 
$921 to $927
Rentals
 
$37 to $38
 
$136 to $138
Mortgages
 
$18 to $19
 
$76 to $77
Other
 
$43 to $44
 
$167 to $168
Total IMT segment revenue
 
$335 to $340
 
$1,300 to $1,310
Homes segment
 
$2 to $7
 
$20 to $40
Total revenue
 
$337 to $347
 
$1,320 to $1,350
Adjusted EBITDA*:
 
 
 
 
IMT segment
 
$77 to $82
 
$276 to $286
Homes segment
 
$(12) to $(9)
 
$(39) to $(33)
Total Adjusted EBITDA
 
$65 to $73
 
$237 to $253
 
 
 
 
 
Weighted average shares outstanding — basic
 
202.0 to 204.0
 
197.5 to 199.5
Weighted average shares outstanding — diluted
 
212.5 to 214.5
 
208.0 to 210.0

In addition, Zillow Group expects to hold 300 to 550 homes in inventory as related to the Homes segment as of December 31, 2018.
* Zillow Group has not provided a quantitative reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net loss for total Adjusted EBITDA or to forecasted GAAP loss before income taxes for segment Adjusted EBITDA within this earnings release because the company is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. These items include, but are not limited to: income taxes which are directly impacted by unpredictable fluctuations in the market price of the company’s capital stock; depreciation and amortization expense from new acquisitions; impairments of assets; and acquisition-related costs. These items, which could materially affect the computation of forward-looking GAAP net loss and loss before income taxes, are inherently uncertain and depend on various factors, many of which are outside of Zillow Group’s control. For more information regarding the non-GAAP financial measure discussed in this release, please see “Use of Non-GAAP Financial Measure” below.

Conference Call and Webcast Information
Zillow Group CEO Spencer Rascoff and Interim CFO Jennifer Rock 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 Quarterly Update letter will be posted to the Quarterly Results section of Zillow Group’s investor relations website at http://investors.zillowgroup.com/results.cfm prior to the live conference call and webcast.
Zillow Group’s management will answer questions submitted via Slido, in addition to answering questions from dialed-in participants, during the live conference call. Questions may be submitted at www.slido.com using the event code #ZEarnings. 
A link to the live webcast and recorded replay of the conference call will be available on the investor relations section of Zillow Group’s website. The live call may also be accessed via phone at (877) 643-7152 toll-free domestically and at (443) 863-7921 internationally.

3



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 the proposed acquisition of Mortgage Lenders of America, L.L.C., our business outlook, and operational plans for 2018. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “will,” “projections,” “continue,” “business outlook,” “forecast,” “estimate,” “outlook,” “guidance,” 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, the satisfaction of conditions precedent to the closing of Zillow Group’s acquisition of Mortgage Lenders of America, L.L.C., Zillow Group’s ability to maintain and effectively manage an adequate rate of growth; Zillow Group’s ability to innovate and provide products and services that are attractive to its users and advertisers; Zillow Group’s ability to compete successfully against existing or future competitors; Zillow Group’s investment of resources to pursue strategies that may not prove effective; the impact of the real estate industry on Zillow Group’s business; the impact of pending litigation and other legal and regulatory matters; Zillow Group’s ability to increase awareness of the Zillow Group brands in a cost-effective manner; Zillow Group’s ability to attract consumers to Zillow Group’s mobile applications and websites; Zillow Group’s ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; 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 Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 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 Measure
To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, including forecasted Adjusted EBITDA, which is a non-GAAP financial measure. We have provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and loss before income taxes for each segment, within this earnings release.
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. 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:
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
Adjusted EBITDA does not reflect acquisition-related costs;
Adjusted EBITDA does not reflect interest expense or other income;
Adjusted EBITDA does not reflect income taxes; and
Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and loss before income taxes and our other GAAP results. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP.


4



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 which focus on all stages of the home lifecycle: renting, buying, selling and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with great real estate professionals. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow®, Trulia®, StreetEasy®, HotPads®, Naked Apartments®, RealEstate.com and Out East®. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate professionals maximize business opportunities and connect with millions of consumers. Zillow Offers™ provides homeowners in certain metropolitan areas with the opportunity to receive offers to purchase their home from Zillow. When Zillow buys a home, it will make necessary updates and list the home for resale on the open market. The company operates a number of business brands for real estate, rental and mortgage professionals, including Mortech®, dotloop®, Bridge Interactive® and New Home Feed®. Zillow Group is headquartered in Seattle, Washington.
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, Bridge Interactive, StreetEasy, HotPads, Out East and New Home Feed are registered trademarks of Zillow, Inc. Zillow Offers is a trademark 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, LLC.

(ZFIN)



5



Adjusted EBITDA
The following tables set forth a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss on a consolidated basis and loss before income taxes for each segment, for each of the periods presented (in thousands, unaudited):
 
Three Months Ended
June 30, 2018
 
Three Months Ended
June 30, 2017
 
IMT
 
Homes
 
Consolidated
 
IMT
 
Homes
 
Consolidated
Reconciliation of Adjusted EBITDA to Net Loss and Loss Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
Net loss (1)
N/A

 
N/A

 
$
(3,093
)
 
N/A

 
N/A

 
$
(21,845
)
Income tax benefit
N/A

 
N/A

 
(10,600
)
 
N/A

 
N/A

 

Loss before income taxes
$
(1,539
)
 
$
(12,154
)
 
$
(13,693
)
 
$
(21,845
)
 
$

 
$
(21,845
)
Other income
(3,089
)
 

 
(3,089
)
 
(1,610
)
 

 
(1,610
)
Depreciation and amortization expense
25,763

 
257

 
26,020

 
27,022

 

 
27,022

Share-based compensation expense
35,770

 
3,173

 
38,943

 
29,193

 

 
29,193

Acquisition-related costs
632

 

 
632

 
43

 

 
43

Interest expense
7,187

 

 
7,187

 
6,897

 

 
6,897

Adjusted EBITDA
$
64,724

 
$
(8,724
)
 
$
56,000

 
$
39,700

 
$

 
$
39,700


 
Six Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2017
 
IMT
 
Homes
 
Consolidated
 
IMT
 
Homes
 
Consolidated
Reconciliation of Adjusted EBITDA to Net Loss and Loss Before Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
Net loss (1)
N/A

 
N/A

 
$
(21,684
)
 
N/A

 
N/A

 
$
(26,451
)
Income tax benefit
N/A

 
N/A

 
(8,000
)
 
N/A

 
N/A

 

Loss before income taxes
$
(10,488
)
 
$
(19,196
)
 
$
(29,684
)
 
$
(26,451
)
 
$

 
$
(26,451
)
Other income
(5,535
)
 

 
(5,535
)
 
(2,563
)
 

 
(2,563
)
Depreciation and amortization expense
52,561

 
365

 
52,926

 
54,157

 

 
54,157

Share-based compensation expense
64,267

 
5,417

 
69,684

 
55,588

 

 
55,588

Acquisition-related costs
659

 

 
659

 
148

 

 
148

Interest expense
14,260

 

 
14,260

 
13,620

 

 
13,620

Adjusted EBITDA
$
115,724

 
$
(13,414
)
 
$
102,310

 
$
94,499

 
$

 
$
94,499


(1) We use loss before income taxes as our profitability measure in making operating decisions and assessing the performance of our segments, therefore, net loss is calculated and presented only on a consolidated basis within our financial statements.


6


Exhibit 99.2


Reported Consolidated Results
ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
June 30,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
431,045

 
$
352,095

Short-term investments
468,541

 
410,444

Accounts receivable, net
64,083

 
54,396

Inventory
5,666

 

Prepaid expenses and other current assets
38,169

 
24,590

Total current assets
1,007,504

 
841,525

Contract cost assets
43,384

 

Property and equipment, net
118,242

 
112,271

Goodwill
1,931,076

 
1,931,076

Intangible assets, net
299,228

 
319,711

Other assets
26,739

 
25,934

Total assets
$
3,426,173

 
$
3,230,517

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,928

 
$
3,587

Accrued expenses and other current liabilities
55,360

 
61,373

Accrued compensation and benefits
23,418

 
19,109

Deferred revenue
35,920

 
31,918

Deferred rent, current portion
2,622

 
2,400

Total current liabilities
123,248

 
118,387

Deferred rent, net of current portion
18,263

 
21,330

Long-term debt
394,420

 
385,416

Deferred tax liabilities and other long-term liabilities
36,561

 
44,561

Total liabilities
572,492

 
569,694

Shareholders’ equity:
 
 
 
Class A common stock
6

 
6

Class B common stock
1

 
1

Class C capital stock
13

 
13

Additional paid-in capital
3,428,541

 
3,254,146

Accumulated other comprehensive loss
(1,275
)
 
(1,100
)
Accumulated deficit
(573,605
)
 
(592,243
)
Total shareholders’ equity
2,853,681

 
2,660,823

Total liabilities and shareholders’ equity
$
3,426,173

 
$
3,230,517


1




ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
IMT
$
325,246

 
$
266,850

 
$
625,125

 
$
512,625

Homes

 

 

 

Total revenue
325,246

 
266,850

 
625,125

 
512,625

Cost of revenue (exclusive of amortization) (1)(2):
 
 
 
 
 
 
 
IMT
25,527

 
20,260

 
49,446

 
40,492

Homes

 

 

 

Total cost of revenue
25,527

 
20,260

 
49,446

 
40,492

Sales and marketing (2)
147,727

 
131,218

 
285,018

 
237,158

Technology and development (2)
100,376

 
78,541

 
194,309

 
151,409

General and administrative (2)
60,579

 
53,346

 
116,652

 
98,812

Acquisition-related costs
632

 
43

 
659

 
148

Total costs and expenses
334,841

 
283,408

 
646,084

 
528,019

Loss from operations
(9,595
)
 
(16,558
)
 
(20,959
)
 
(15,394
)
Other income
3,089

 
1,610

 
5,535

 
2,563

Interest expense
(7,187
)
 
(6,897
)
 
(14,260
)
 
(13,620
)
Loss before income taxes
(13,693
)
 
(21,845
)
 
(29,684
)
 
(26,451
)
Income tax benefit
10,600

 

 
8,000

 

Net loss
$
(3,093
)
 
$
(21,845
)
 
$
(21,684
)
 
$
(26,451
)
Net loss per share — basic and diluted
$
(0.02
)
 
$
(0.12
)
 
$
(0.11
)
 
$
(0.14
)
Weighted-average shares outstanding — basic and diluted
194,155

 
185,439

 
192,807

 
184,305

 ____________________
(1) Amortization of website development costs and intangible assets included in technology and development
$
21,020

 
$
23,159

 
$
43,569

 
$
46,420

(2) Includes share-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of revenue
$
1,256

 
$
1,025

 
$
2,211

 
$
1,928

Sales and marketing
6,340

 
6,250

 
11,502

 
11,780

Technology and development
14,347

 
10,400

 
25,889

 
18,891

General and administrative
17,000

 
11,518

 
30,082

 
22,989

Total
$
38,943

 
$
29,193

 
$
69,684

 
$
55,588

Other Financial Data:
 
 
 
 
 
 
 
Adjusted EBITDA (3)
$
56,000

 
$
39,700

 
$
102,310

 
$
94,499

(3) See Exhibit 99.1 for more information regarding our presentation of Adjusted EBITDA and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, for each of the periods presented.


2




ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended
June 30,
 
2018
 
2017
Operating activities
 
 
 
Net loss
$
(21,684
)
 
$
(26,451
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
52,926

 
54,157

Share-based compensation expense
69,684

 
55,588

Amortization of contract cost assets
18,309

 

Amortization of discount and issuance costs on 2021 Notes
9,504

 
8,855

Deferred income taxes
(8,000
)
 

Loss on disposal of property and equipment
2,106

 
2,024

Bad debt expense
(352
)
 
3,960

Deferred rent
(2,845
)
 
1,750

Amortization (accretion) of bond premium (discount)
(504
)
 
376

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(9,335
)
 
(11,149
)
Inventory
(5,666
)
 

Prepaid expenses and other assets
(14,697
)
 
(5,845
)
Contract cost assets
(21,371
)
 

Accounts payable
1,855

 
(1,714
)
Accrued expenses and other current liabilities
(5,189
)
 
1,203

Accrued compensation and benefits
4,309

 
503

Deferred revenue
4,002

 
1,635

Net cash provided by operating activities
73,052

 
84,892

Investing activities
 
 
 
Proceeds from maturities of investments
172,573

 
133,432

Purchases of investments
(230,276
)
 
(193,604
)
Purchases of property and equipment
(31,212
)
 
(31,608
)
Purchases of intangible assets
(4,777
)
 
(6,784
)
Purchase of equity method investment

 
(10,000
)
Proceeds from divestiture of a business

 
579

Cash paid for acquisition, net

 
(6,002
)
Net cash used in investing activities
(93,692
)
 
(113,987
)
Financing activities
 
 
 
Proceeds from exercise of stock options
99,656

 
62,263

Value of equity awards withheld for tax liability
(66
)
 
(295
)
Net cash provided by financing activities
99,590

 
61,968

Net increase in cash and cash equivalents during period
78,950

 
32,873

Cash and cash equivalents at beginning of period
352,095

 
243,592

Cash and cash equivalents at end of period
$
431,045

 
$
276,465

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
4,733

 
$
4,458

Noncash transactions:
 
 
 
Capitalized share-based compensation
$
4,623

 
$
5,289

Write-off of fully depreciated property and equipment
$
13,293

 
$
7,552

Write-off of fully amortized intangible assets
$
10,797

 
$
5,302


3





Non-GAAP Net Income per Share
Our presentation of non-GAAP net income per share excludes the impact of share-based compensation expense, acquisition-related costs and income taxes. This measure is not a key metric used by our management and board of directors to measure operating performance or otherwise manage the business. However, we provide non-GAAP net income per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, acquisition-related costs and income taxes facilitates investors’ operating performance comparisons on a period-to-period basis. You should not consider non-GAAP net income per share in isolation or as a substitute for analysis of our results as reported under GAAP.

The following table sets forth a reconciliation of net income, adjusted, to net 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
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Net loss, as reported
$
(3,093
)
 
$
(21,845
)
 
$
(21,684
)
 
$
(26,451
)
Share-based compensation expense
38,943

 
29,193

 
69,684

 
55,588

Acquisition-related costs
632

 
43

 
659

 
148

Income tax benefit
(10,600
)
 

 
(8,000
)
 

Net income, adjusted
$
25,882

 
$
7,391

 
$
40,659

 
$
29,285

Non-GAAP net income per share — basic
$
0.13

 
$
0.04

 
$
0.21

 
$
0.16

Non-GAAP net income per share — diluted
$
0.13

 
$
0.04

 
$
0.20

 
$
0.15

Weighted-average shares outstanding — basic
194,155

 
185,439

 
192,807

 
184,305

Weighted-average shares outstanding — diluted
205,830

 
195,021

 
203,923

 
193,119


Segment Results of Operations
The following tables present our segment results for the periods presented (in thousands, unaudited):
 
Three Months Ended
June 30, 2018
 
Three Months Ended
June 30, 2017
 
IMT
 
Homes
 
Consolidated
 
IMT
 
Homes
 
Consolidated
Revenue
$
325,246

 
$

 
$
325,246

 
$
266,850

 
$

 
$
266,850

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
25,527

 

 
25,527

 
20,260

 

 
20,260

Sales and marketing
145,177

 
2,550

 
147,727

 
131,218

 

 
131,218

Technology and development
95,967

 
4,409

 
100,376

 
78,541

 

 
78,541

General and administrative
55,384

 
5,195

 
60,579

 
53,346

 

 
53,346

Acquisition-related costs
632

 

 
632

 
43

 

 
43

Total costs and expenses
322,687

 
12,154

 
334,841

 
283,408

 

 
283,408

Income (loss) from operations
2,559

 
(12,154
)
 
(9,595
)
 
(16,558
)
 

 
(16,558
)
Other income
3,089

 

 
3,089

 
1,610

 

 
1,610

Interest expense
(7,187
)
 

 
(7,187
)
 
(6,897
)
 

 
(6,897
)
Loss before income taxes
$
(1,539
)
 
$
(12,154
)
 
$
(13,693
)
 
$
(21,845
)
 
$

 
$
(21,845
)


4



 
Six Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2017
 
IMT
 
Homes
 
Consolidated
 
IMT
 
Homes
 
Consolidated
Revenue
$
625,125

 
$

 
$
625,125

 
$
512,625

 
$

 
$
512,625

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
49,446

 

 
49,446

 
40,492

 

 
40,492

Sales and marketing
281,770

 
3,248

 
285,018

 
237,158

 

 
237,158

Technology and development
187,412

 
6,897

 
194,309

 
151,409

 

 
151,409

General and administrative
107,601

 
9,051

 
116,652

 
98,812

 

 
98,812

Acquisition-related costs
659

 

 
659

 
148

 

 
148

Total costs and expenses
626,888

 
19,196

 
646,084

 
528,019

 

 
528,019

Loss from operations
(1,763
)
 
(19,196
)
 
(20,959
)
 
(15,394
)
 

 
(15,394
)
Other income
5,535

 

 
5,535

 
2,563

 

 
2,563

Interest expense
(14,260
)
 

 
(14,260
)
 
(13,620
)
 

 
(13,620
)
Loss before income taxes
$
(10,488
)
 
$
(19,196
)
 
$
(29,684
)
 
$
(26,451
)
 
$

 
$
(26,451
)

Key Metrics
The following table sets forth our key metrics for each of the periods presented:
 
Three Months Ended
June 30,
 
2017 to 2018
% Change
 
2018
 
2017
 
 
(in millions)
 
 
Average Monthly Unique Users (1)
186.1

 
178.1

 
4
%
Visits (2)
1,920.6

 
1,678.7

 
14
%
(1)
Zillow, StreetEasy, HotPads, Naked Apartments and RealEstate.com (as of June 2017) measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.
(2)
Visits includes visits to the Zillow, Trulia, StreetEasy and RealEstate.com (as of June 2017) mobile apps and websites. We measure Zillow, StreetEasy and RealEstate.com visits with Google Analytics and Trulia visits with Adobe Analytics.

5