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Zillow Group Reports Third Quarter 2016 Results

- Record Revenue of $224.6 million increased 35% year-over-year, excluding revenue from Market Leader, which was divested in the third quarter of 2015.

- Marketplace Revenue of $206.9 million increased 45% year-over-year, excluding revenue from Market Leader.

- Record GAAP net income of $6.8 million increased 126% year-over-year; Adjusted EBITDA of $59.5 million increased 102% year-over-year.

- More than 164 million average monthly unique users visited Zillow Group consumer brands Zillow®, Trulia®, StreetEasy®, HotPads® and Naked Apartments® during the quarter.

- Zillow Group captured nearly three quarters of total market share for the mobile-only real estate category.

Nov 1, 2016

SEATTLENov. 01, 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 September 30, 2016.

"Our third-quarter performance was terrific," said Zillow Group CEO Spencer Rascoff. "We delivered another quarter of record revenue, and Adjusted EBITDA exceeded our expectations. Traffic to Zillow Group's mobile apps and websites increased year-over-year and revenue growth in our Premier Agent marketplace accelerated. With all of our marketplaces performing strongly, we expect to end 2016 in a strong position to continue executing on our strategic priorities."

Third Quarter 2016 Financial Highlights

  • Revenue increased 35% to $224.6 million from $165.8 million in the third quarter of 2015, excluding revenue from Market Leader, which was divested in the third quarter of 2015.

    • Marketplace Revenue increased 45% to $206.9 million from $142.3 million in the third quarter of 2015, excluding revenue from Market Leader.

      • Premier Agent Revenue increased 33% to $158.3 million from $119.4 million in the third quarter of 2015.

      • Other Real Estate Revenue1 increased 182% to $28.8 million from $10.2 million in the third quarter of 2015.

      • Mortgages Revenue increased 57% to $19.8 million from $12.6 million in the third quarter of 2015.

    • Display Revenue decreased 25% to $17.7 million from $23.5 million in the third quarter of 2015. The decrease is primarily a result of the company's strategy to deemphasize display advertising and improve the user experience.

  • Record GAAP net income was $6.8 million, or 3% of Revenue, in the third quarter of 2016, compared to GAAP net loss of $26.0 million, or 15% of Revenue, in the same period last year.

  • Adjusted EBITDA was $59.5 million in the third quarter of 2016, or 26% of Revenue, which was an increase from $29.5 million, or 17% of Revenue, in the third quarter of 2015.

Operating and Business Highlights

  • More than 164 million average monthly unique users visited Zillow Group consumer brands ZillowTrulia, StreetEasy, HotPads and Naked Apartments during the third quarter of 2016, an increase of 16% year-over-year.

    • Zillow Group's market share in September 2016 was nearly two-thirds of the total online real estate category.2

    • Zillow Group's mobile-only market share is even larger, capturing nearly three quarters of the category.2

  • Leads to Zillow Group Premier Agent® Advertisers for the third quarter of 2016 grew nearly 40% year-over-year to 4.6 million.

  • The Premier Agent marketplace continues to accelerate as top performing agents realize the benefits of advertising on Zillow Group's mobile applications and websites.

    • Total sales to Premier Agent Advertisers who have been customers for more than one year increased 59% year-over-year.

    • Sales to existing Premier Agent Advertisers accounted for 71% of total bookings.

    • Premier Agent Advertisers who spend more than $5,000 per month:

      • Increased 80% year-over-year on a total dollar basis.

      • Increased 79% year-over-year in the number of agent advertisers.

1 Other Real Estate Revenue includes agent services, dotloop, StreetEasy, Naked Apartments, rentals and other offerings to endemic advertisers that are not traditional display advertising.

2 comScore Media Metrix Multi-Platform, September 2016U.S.

Business Outlook - Fourth Quarter and Full Year 2016

For full year 2016, Zillow Group is raising its Revenue outlook to the range of $837 million to $842 million. The 2016 Revenue outlook represents a 30% year-over-year increase at the midpoint of the guidance range, compared to a 24% increase from 2014 to 2015, on a pro forma basis and excluding revenue from Market Leader, which was divested in 2015. For full year 2016, Zillow Group is raising its Adjusted EBITDA outlook to the range of $136 million to $141 million (excluding the impact of a $130.0 million litigation settlement), which represents 16% of Revenue at the midpoint of the guidance range.

The following table presents Zillow Group's business outlook for the periods presented (in millions):

 

 

Three Months Ending

 

Year Ending

Zillow Group Outlook as of November 1, 2016

 

December 31, 2016

 

December 31, 2016

(in millions)

 

 

 

 

 

 

 

 

Revenue

 

$

218

 

to

$

223

 

 

$

837

 

to

$

842

 

Premier Agent revenue

 

$

161

 

to

$

163

 

 

$

601

 

to

$

603

 

Display revenue

 

$

14

 

to

$

15

 

 

$

66

 

to

$

67

 

Operating expenses

 

$

225

 

to

$

230

 

 

 

***

 

Adjusted EBITDA (1)

 

$

46

 

to

$

51

 

 

$

136

 

to

$

141

 

Depreciation and amortization

 

$

27

 

to

$

29

 

 

$

102

 

to

$

104

 

Share-based compensation expense

 

$

25

 

to

$

27

 

 

$

106

 

to

$

108

 

Capital expenditures

 

 

***

 

 

$

46

 

to

$

48

 

Weighted average shares outstanding — basic 

 

 

180.5

 

to

 

182.5

 

 

 

179.5

 

to

 

181.5

 

Weighted average shares outstanding — diluted

 

 

189.5

 

to

 

191.5

 

 

 

188.5

 

to

 

190.5

 

 

 

 

 

 

 

 

 

 

*** Outlook not provided 

(1)  Forecasted Adjusted EBITDA for the year ending December 31, 2016 in the table above excludes the impact of a $130.0 million litigation settlement. Including the impact of the $130.0 million litigation settlement, forecasted Adjusted EBITDA for the year ending December 31, 2016 is $8.5 million at the midpoint of the guidance range. A reconciliation of forecasted Adjusted EBITDA (including the impact of the $130.0 million litigation settlement) to forecasted net loss is provided below in this press release.

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/results.cfm prior to the live conference call and webcast to allow analysts and investors additional time to review the details of the results.

Zillow Group's management will first read the prepared remarks and then answer questions from dialed-in participants, in addition to those submitted via Twitter® during the live conference call. 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/results.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# 90568270. 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; 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, 2015filed 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 income (loss), Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and a reconciliation of net income (loss), adjusted, to net income (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:

  • 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 restructuring costs;

  • Adjusted EBITDA does not reflect the loss (gain) on divestiture of businesses;

  • 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 income (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, income taxes and the loss (gain) on divestiture of businesses. 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, income taxes and the loss (gain) on divestiture of businesses 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®, dotloop®, Bridge Interactive™ and Retsly®. The company is headquartered in Seattle.

Please visit http://investors.zillowgroup.comwww.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, 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. Bridge Interactive is a trademark of Bridge Interactive Group, LLC.

Twitter is a registered trademark of Twitter, Inc.

(ZFIN)

Pro Forma Financial Information

Certain financial information for the three and nine month periods ended September 30, 2015 is presented below 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. Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

The following table presents certain prior period pro forma financial information with the as-reported financial information for the three and nine month periods ended September 30, 2016 (in thousands, except per share data, unaudited):

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2016 (1)

 

2015 (2)

 

2016 (1)

 

2015 (3)

 

 

 

 

 

 

 

 

Pro forma revenue

$

  224,592

 

 

$

  176,765

 

 

$

  618,977

 

 

$

  510,565

 

Pro forma net income (loss)

$

  6,807

 

 

$

  (21,393

)

 

$

  (196,947

)

 

$

  (65,978

)

Pro forma net income (loss) per share — basic and diluted

$

  0.04

 

 

$

  (0.12

)

 

$

  (1.10

)

 

$

  (0.38

)

Pro forma weighted-average shares outstanding — basic

 

  180,583

 

 

 

  177,098

 

 

 

  179,577

 

 

 

  175,900

 

Pro forma weighted-average shares outstanding — diluted

 

  189,661

 

 

 

  177,098

 

 

 

  179,577

 

 

 

  175,900

 

_________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

Pro forma Adjusted EBITDA (4)

$

  59,463

 

 

$

  29,477

 

 

$

  (39,923

)

 

$

  75,017

 

(1)  The financial information for the three and nine month periods ended September 30, 2016 is presented on an as-reported basis.

(2)  The pro forma net loss for 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.

(3)  The pro forma net loss for 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)  See below for a reconciliation of pro forma Adjusted EBITDA to pro forma net income (loss). For the nine month period ended September 30, 2016, Adjusted EBITDA includes the impact of a $130.0 million litigation settlement. Adjusted EBITDA for the nine month period ended September 30, 2016 also includes $28.8 million in related legal costs.

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

 

Nine Months Ended

 

September 30, 2015

 

September 30, 2015

 

 

 

 

Weighted-average shares outstanding — basic and diluted (1)

125,318

 

124,120

Class A common stock issued in connection with the acquisition of Trulia

51,780

 

51,780

Pro forma weighted-average shares outstanding — basic and diluted

177,098

 

175,900

 

 

 

 

(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 and nine month periods ended September 30, 2015. For ease of year-over-year comparison, this pro forma financial information is presented with financial information for the three and nine month periods ended September 30, 2016, which is presented on an as-reported basis (in thousands, unaudited):

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016 (1)

 

 2015

 

2016 (1)

 

2015

Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Income (Loss):

 

 

 

 

 

 

 

 

Pro forma net income (loss)

 

$

  6,807

 

 

$

  (21,393

)

 

$

  (196,947

)

 

$

  (65,978

)

Pro forma other income

 

 

  (561

)

 

 

  (366

)

 

 

  (1,995

)

 

 

  (1,118

)

Pro forma depreciation and amortization expense

 

 

  25,495

 

 

 

  19,584

 

 

 

  74,852

 

 

 

  59,865

 

Pro forma share-based compensation expense

 

 

  27,285

 

 

 

  28,015

 

 

 

  81,152

 

 

 

  75,472

 

Pro forma acquisition-related costs

 

 

  93

 

 

 

  757

 

 

 

  890

 

 

 

  757

 

Loss (gain) on divestiture of businesses

 

 

  (1,251

)

 

 

  4,143

 

 

 

  (1,251

)

 

 

  4,143

 

Pro forma interest expense

 

 

  1,595

 

 

 

  1,590

 

 

 

  4,740

 

 

 

  4,729

 

Pro forma income tax benefit

 

 

  -

 

 

 

  (2,853

)

 

 

  (1,364

)

 

 

  (2,853

)

Pro forma Adjusted EBITDA

 

$

 59,463

 

 

$

  29,477

 

 

$

  (39,923

)

 

$

  75,017

 

(1)  The financial information for the three and nine month periods ended September 30, 2016 is presented on an as-reported basis. For the nine month period ended September 30, 2016, Adjusted EBITDA includes the impact of a $130.0 million litigation settlement. Adjusted EBITDA for the nine month period ended September 30, 2016 also includes $28.8 million in related legal costs.

The following table presents our pro forma revenue by type for the nine months ended September 30, 2015. For ease of year-over-year comparison, the pro forma financial information is presented with financial information for the three and nine month periods ended September 30, 2016, which is presented on an as-reported basis (in thousands, unaudited):

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2016 (1)

 

2015 (1)

 

2016 (1)

 

2015

Pro Forma Revenue:

 

 

 

 

 

 

 

Pro forma Marketplace revenue:

 

 

 

 

 

 

 

Premier Agent

$

  158,322

 

 

$

  119,448

 

 

$

  439,957

 

 

$

  341,790

 

Other real estate 

 

  28,799

 

 

 

  10,214

 

 

 

  72,847

 

 

 

  23,826

 

Mortgages

 

  19,775

 

 

 

  12,624

 

 

 

  54,621

 

 

 

  32,967

 

Market Leader

 

  -

 

 

 

  10,957

 

 

 

  -

 

 

 

  37,068

 

Total pro forma Marketplace revenue

 

  206,896

 

 

 

  153,243

 

 

 

  567,425

 

 

 

  435,651

 

Pro forma Display revenue

 

  17,696

 

 

 

  23,522

 

 

 

  51,552

 

 

 

  74,914

 

Total pro forma revenue

$

  224,592

 

 

$

  176,765

 

 

$

  618,977

 

 

$

  510,565

 

(1)  The financial information for the three months ended September 30, 2015 and for the three and nine month periods ended September 30, 2016 is presented on an as-reported basis.

Reported Consolidated Results

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 

(in thousands)

 

 

 

September 30, 2016

 

December 31, 2015

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

  190,760

 

 

$

  229,138

 

Short-term investments

 

 

  253,845

 

 

 

  291,151

 

Accounts receivable, net 

 

 

  39,939

 

 

 

  29,789

 

Prepaid expenses and other current assets

 

 

  17,238

 

 

 

  24,016

 

Total current assets

 

 

  501,782

 

 

 

  574,094

 

Restricted cash

 

 

  1,053

 

 

 

  3,015

 

Property and equipment, net

 

 

  94,045

 

 

 

  85,523

 

Goodwill

 

 

  1,923,480

 

 

 

  1,909,167

 

Intangible assets, net

 

 

  537,177

 

 

 

  558,881

 

Other assets

 

 

  6,967

 

 

 

  5,020

 

Total assets

 

$

  3,064,504

 

 

$

  3,135,700

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

  6,697

 

 

$

  3,361

 

Accrued expenses and other current liabilities

 

 

  34,745

 

 

 

  43,047

 

Accrued compensation and benefits

 

 

  24,611

 

 

 

  11,392

 

Deferred revenue

 

 

  27,005

 

 

 

  21,450

 

Deferred rent, current portion

 

 

  1,236

 

 

 

  1,172

 

Total current liabilities

 

 

  94,294

 

 

 

  80,422

 

Deferred rent, net of current portion

 

 

  13,991

 

 

 

  13,743

 

Long-term debt

 

 

  230,000

 

 

 

  230,000

 

Deferred tax liabilities and other long-term liabilities

 

 

  134,513

 

 

 

  132,482

 

Total liabilities

 

 

  472,798

 

 

 

  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

 

 

  3,065,042

 

 

 

  2,956,111

 

Accumulated other comprehensive income (loss)

 

 

  198

 

 

 

  (471

)

Accumulated deficit

 

 

  (473,552

)

 

 

  (276,605

)

Total shareholders' equity

 

 

  2,591,706

 

 

 

  2,679,053

 

Total liabilities and shareholders' equity

 

$

  3,064,504

 

 

$

  3,135,700

 

 

 

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,

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

Revenue

$

  224,592

 

 

$

  176,765

 

 

$

  618,977

 

 

$

  475,307

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenue (exclusive of amortization) (1)(2)

 

  18,254

 

 

 

  16,453

 

 

 

  51,926

 

 

 

  46,509

 

Sales and marketing (2)

 

  92,794

 

 

 

  82,044

 

 

 

  290,810

 

 

 

  229,272

 

Technology and development (2)

 

  69,171

 

 

 

  53,718

 

 

 

  201,009

 

 

 

  142,783

 

General and administrative (2)

 

  37,690

 

 

 

  42,672

 

 

 

  271,159

 

 

 

  124,506

 

Acquisition-related costs

 

  93

 

 

 

  1,988

 

 

 

  890

 

 

 

  16,144

 

Restructuring costs (2)

 

  -

 

 

 

  3,425

 

 

 

  -

 

 

 

  35,142

 

Loss (gain) on divestiture of businesses

 

  (1,251

)

 

 

  4,143

 

 

 

  (1,251

)

 

 

  4,143

 

Total costs and expenses

 

  216,751

 

 

 

  204,443

 

 

 

  814,543

 

 

 

  598,499

 

Income (loss) from operations

 

  7,841

 

 

 

  (27,678

)

 

 

  (195,566

)

 

 

  (123,192

)

Other income

 

  561

 

 

 

  366

 

 

 

  1,995

 

 

 

  1,085

 

Interest expense

 

  (1,595

)

 

 

  (1,590

)

 

 

  (4,740

)

 

 

  (3,900

)

Income (loss) before income taxes

 

  6,807

 

 

 

  (28,902

)

 

 

  (198,311

)

 

 

  (126,007

)

Income tax benefit

 

  -

 

 

 

  2,853

 

 

 

  1,364

 

 

 

  2,853

 

Net income (loss)

$

  6,807

 

 

$

  (26,049

)

 

$

  (196,947

)

 

$

  (123,154

)

Net income (loss) per share — basic and diluted

$

  0.04

 

 

$

  (0.15

)

 

$

  (1.10

)

 

$

  (0.74

)

Weighted-average shares outstanding — basic 

 

  180,583

 

 

 

  177,098

 

 

 

  179,577

 

 

 

  166,986

 

Weighted-average shares outstanding — diluted

 

  189,661

 

 

 

  177,098

 

 

 

  179,577

 

 

 

  166,986

 

_________

 

 

 

 

 

 

 

(1) Amortization of website development costs and intangible assets included in technology and development

$

  21,917

 

 

$

  16,405

 

 

$

  62,821

 

 

$

  45,304

 

 

 

 

 

 

 

 

 

(2)  Includes share-based compensation expense as follows:

 

 

 

 

 

 

 

Cost of revenue

$

  1,524

 

 

$

  1,378

 

 

$

  4,370

 

 

$

  3,440

 

Sales and marketing

 

  5,968

 

 

 

  7,446

 

 

 

  17,566

 

 

 

  20,439

 

Technology and development

 

  8,035

 

 

 

  7,642

 

 

 

  23,160

 

 

 

  20,413

 

General and administrative

 

  11,758

 

 

 

  11,549

 

 

 

  36,056

 

 

 

  36,610

 

Restructuring costs

 

  -

 

 

 

  1,059

 

 

 

  -

 

 

 

  15,063

 

Total

$

  27,285

 

 

$

  29,074

 

 

$

  81,152

 

 

$

  95,965

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

Adjusted EBITDA (3)

$

  59,463

 

 

$

  29,477

 

 

$

  (39,923

)

 

$

  67,170

 

 

 

 

 

 

 

 

 

(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,

 

 

2016

 

2015

Operating activities

 

 

 

 

Net loss

 

$

  (196,947

)

 

$

  (123,154

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of amounts assumed in connection with acquisitions:

 

 

 

 

Depreciation and amortization

 

 

  74,852

 

 

 

  54,031

 

Share-based compensation expense

 

 

  81,152

 

 

 

  80,902

 

Restructuring costs

 

 

  -

 

 

 

  19,206

 

Release of valuation allowance on certain deferred tax assets

 

 

  (1,364

)

 

 

  (2,853

)

Loss on disposal of property and equipment

 

 

  3,416

 

 

 

  1,007

 

Loss (gain) on divestiture of businesses

 

 

  (1,360

)

 

 

  3,690

 

Bad debt expense

 

 

  1,715

 

 

 

  2,414

 

Deferred rent

 

 

  312

 

 

 

  2,635

 

Amortization of bond premium

 

 

  1,171

 

 

 

  2,090

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

  (11,770

)

 

 

  (4,009

)

Prepaid expenses and other assets

 

 

  5,197

 

 

 

  7,849

 

Accounts payable

 

 

  3,296

 

 

 

  (8,394

)

Accrued expenses and other current liabilities

 

 

  (8,746

)

 

 

  6,132

 

Accrued compensation and benefits

 

 

  13,016

 

 

 

  (2,982

)

Deferred revenue

 

 

  5,645

 

 

 

  (4,064

)

Other long-term liabilities

 

 

  (21

)

 

 

  4,088

 

Net cash provided by (used in) operating activities

 

 

  (30,436

)

 

 

  38,588

 

 

 

 

 

 

Investing activities

 

 

 

 

Proceeds from maturities of investments

 

 

  158,828

 

 

 

  244,079

 

Purchases of investments

 

 

  (126,986

)

 

 

  (227,223

)

Proceeds from sales of investments

 

 

  4,963

 

 

 

  8,260

 

Decrease in restricted cash, net of amounts assumed in connection with an acquisition

 

 

  1,962

 

 

 

  207

 

Purchases of property and equipment

 

 

  (45,732

)

 

 

  (39,594

)

Purchases of intangible assets

 

 

  (7,827

)

 

 

  (13,911

)

Proceeds from divestiture of businesses

 

 

  3,200

 

 

 

  17,600

 

Cash acquired in acquisition, net

 

 

  -

 

 

 

  173,406

 

Cash paid for acquisitions, net

 

 

  (16,319

)

 

 

  (104,192

)

Net cash provided by (used in) investing activities

 

 

  (27,911

)

 

 

  58,632

 

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from exercise of stock options

 

 

  20,461

 

 

 

  18,499

 

Value of equity awards withheld for tax liability

 

 

  (492

)

 

 

  (7,945

)

Net cash provided by financing activities

 

 

  19,969

 

 

 

  10,554

 

Net increase (decrease) in cash and cash equivalents during period

 

 

  (38,378

)

 

 

  107,774

 

Cash and cash equivalents at beginning of period

 

 

  229,138

 

 

 

  125,765

 

Cash and cash equivalents at end of period

 

$

  190,760

 

 

$

  233,539

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid for interest

 

$

  3,163

 

 

$

  3,163

 

Noncash transactions:

 

 

 

 

Value of Class A common stock issued in connection with an acquisition

 

$

  -

 

 

$

  1,883,728

 

Capitalized share-based compensation

 

$

  7,809

 

 

$

  8,071

 

Write-off of fully depreciated property and equipment

 

$

  11,585

 

 

$

  24,899

 

 

Adjusted EBITDA

The following table presents a reconciliation of Adjusted EBITDA to net income (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,

 

 

2016

 

2015

 

2016

 

2015

Reconciliation of Adjusted EBITDA to Net Income (Loss):

 

 

 

 

 

 

 

 

Net income (loss)

 

$

  6,807

 

 

$

  (26,049

)

 

$

  (196,947

)

 

$

  (123,154

)

Other income

 

 

  (561

)

 

 

  (366

)

 

 

  (1,995

)

 

 

  (1,085

)

Depreciation and amortization expense

 

 

  25,495

 

 

 

  19,584

 

 

 

  74,852

 

 

 

  54,031

 

Share-based compensation expense

 

 

  27,285

 

 

 

  28,015

 

 

 

  81,152

 

 

 

  80,902

 

Acquisition-related costs

 

 

  93

 

 

 

  1,988

 

 

 

  890

 

 

 

  16,144

 

Restructuring costs

 

 

  -

 

 

 

  3,425

 

 

 

  -

 

 

 

  35,142

 

Loss (gain) on divestiture of businesses

 

 

  (1,251

)

 

 

  4,143

 

 

 

  (1,251

)

 

 

  4,143

 

Interest expense

 

 

  1,595

 

 

 

  1,590

 

 

 

  4,740

 

 

 

  3,900

 

Income tax benefit

 

 

  -

 

 

 

  (2,853

)

 

 

  (1,364

)

 

 

  (2,853

)

Adjusted EBITDA (1)

 

$

  59,463

 

 

$

  29,477

 

 

$

  (39,923

)

 

$

  67,170

 

(1)  For the nine month period ended September 30, 2016, Adjusted EBITDA includes the impact of a $130.0 million litigation settlement. Adjusted EBITDA for the nine month period ended September 30, 2016 also includes $28.8 millionin related legal costs.

The following table presents a reconciliation of forecasted Adjusted EBITDA to forecasted net loss for each of the periods presented (in thousands, unaudited):

 

 

Three Months Ending

 

Year Ending

 

 

December 31, 2016

 

December 31, 2016

Reconciliation of Forecasted Adjusted EBITDA to Forecasted Net Loss:

 

 

 

 

Forecasted Net loss

 

$

  (6,400

)

 

$

  (203,276

)

Forecasted Other income

 

 

(700

)

 

 

(2,800

)

Forecasted Depreciation and amortization expense

 

 

28,000

 

 

 

103,000

 

Forecasted Share-based compensation expense

 

 

26,000

 

 

 

107,000

 

Forecasted Acquisition-related costs

 

 

  -

 

 

 

890

 

Forecasted Loss (gain) on divestiture of businesses

 

 

  -

 

 

 

(1,250

)

Forecasted Interest expense

 

 

1,600

 

 

 

6,300

 

Forecasted Income tax expense (benefit)

 

 

  -

 

 

 

(1,364

)

Forecasted Adjusted EBITDA

 

$

  48,500

 

 

$

  8,500

 

 

Non-GAAP Net Income (Loss) per Share

The following table presents a reconciliation of net income (loss), adjusted, to net income (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

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Net income (loss), as reported

 

$

  6,807

 

 

$

  (26,049

)

 

$

  (196,947

)

 

$

  (123,154

)

Share-based compensation expense

 

 

  27,285

 

 

 

  28,015

 

 

 

  81,152

 

 

 

  80,902

 

Acquisition-related costs

 

 

  93

 

 

 

  1,988

 

 

 

  890

 

 

 

  16,144

 

Restructuring costs

 

 

  -

 

 

 

  3,425

 

 

 

  -

 

 

 

  35,142

 

Income tax benefit

 

 

  -

 

 

 

  (2,853

)

 

 

  (1,364

)

 

 

  (2,853

)

Loss (gain) on divestiture of businesses

 

 

  (1,251

)

 

 

  4,143

 

 

 

  (1,251

)

 

 

  4,143

 

Net income (loss), adjusted

 

$

  32,934

 

 

$

  8,669

 

 

$

  (117,520

)

 

$

  10,324

 

 

 

 

 

 

 

 

 

 

Non-GAAP net income (loss) per share - basic

 

$

  0.18

 

 

$

  0.05

 

 

$

  (0.65

)

 

$

  0.06

 

Non-GAAP net income (loss) per share - diluted

 

$

  0.17

 

 

$

  0.05

 

 

$

  (0.65

)

 

$

  0.06

 

Weighted-average shares outstanding - basic

 

 

  180,583

 

 

 

  177,098

 

 

 

  179,577

 

 

 

  166,986

 

Weighted-average shares outstanding - diluted

 

 

  199,687

 

 

 

  183,864

 

 

 

  179,577

 

 

 

  174,909

 

 

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,

 

2016

 

2015

 

2016

 

2015

Revenue:

 

 

 

 

 

 

 

Marketplace revenue:

 

 

 

 

 

 

 

Premier Agent

$

  158,322

 

 

$

  119,448

 

 

$

  439,957

 

 

$

  322,526

 

Other real estate

 

  28,799

 

 

 

  10,214

 

 

 

  72,847

 

 

 

  23,006

 

Mortgages

 

  19,775

 

 

 

  12,624

 

 

 

  54,621

 

 

 

  32,575

 

Market Leader

 

  - 

 

 

 

  10,957

 

 

 

  - 

 

 

 

  29,544

 

Total Marketplace revenue

 

  206,896

 

 

 

  153,243

 

 

 

  567,425

 

 

 

  407,651

 

Display revenue

 

  17,696

 

 

 

  23,522

 

 

 

  51,552

 

 

 

  67,656

 

Total revenue

$

  224,592

 

 

$

  176,765

 

 

$

  618,977

 

 

$

  475,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2016

 

2015

 

2016

 

2015

Percentage of Total Revenue:

 

 

 

 

 

 

 

Marketplace revenue:

 

 

 

 

 

 

 

Premier Agent

 

70

%

 

 

68

%

 

 

71

%

 

 

68

%

Other real estate

 

13

%

 

 

6

%

 

 

12

%

 

 

5

%

Mortgages

 

9

%

 

 

7

%

 

 

9

%

 

 

7

%

Market Leader

 

  - 

 

 

 

6

%

 

 

  - 

 

 

 

6

%

Total Marketplace revenue

 

92

%

 

 

87

%

 

 

92

%

 

 

86

%

Display revenue

 

8

%

 

 

13

%

 

 

8

%

 

 

14

%

Total revenue

 

100

%

 

 

100

%

 

 

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 September 30,

 

2015 to 2016

 

2016

 

2015

 

% Change

 

(in thousands)

 

 

Unique Users

164,526

 

142,121

 

 

16

%

 

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

For further information: Raymond Jones Investor Relations 206-470-7137 ir@zillow.com Katie Curnutte Public Relations press@zillow.com