EX-99.2 3 a992.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2


Reported Consolidated Results

ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
766,698

 
$
651,058

Short-term investments
673,029

 
903,867

Accounts receivable, net
82,261

 
66,083

Mortgage loans held for sale
38,653

 
35,409

Inventory
552,823

 
162,829

Prepaid expenses and other current assets
62,062

 
61,067

Restricted cash
43,882

 
12,385

Total current assets
2,219,408

 
1,892,698

Contract cost assets
46,271

 
45,819

Property and equipment, net
145,932

 
135,172

Right of use assets
210,080

 
—

Goodwill
1,984,907

 
1,984,907

Intangible assets, net
202,824

 
215,904

Other assets
16,498

 
16,616

Total assets
$
4,825,920

 
$
4,291,116

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,028

 
$
7,471

Accrued expenses and other current liabilities
68,520

 
63,101

Accrued compensation and benefits
32,001

 
31,388

Revolving credit facilities
409,799

 
116,700

Warehouse lines of credit
30,057

 
33,018

Deferred revenue
37,080

 
34,080

Deferred rent, current portion
—

 
1,740

       Lease liabilities, current portion
18,794

 
—

Total current liabilities
604,279

 
287,498

Deferred rent, net of current portion
—

 
19,945

Lease liabilities, net of current portion
211,593

 
—

Long-term debt
716,819

 
699,020

Deferred tax liabilities and other long-term liabilities
15,123

 
17,474

Total liabilities
1,547,814

 
1,023,937

Shareholders’ equity:
 
 
 
Class A common stock
6

 
6

Class B common stock
1

 
1

Class C capital stock
14

 
14

Additional paid-in capital
4,088,470

 
3,939,842

Accumulated other comprehensive income (loss)
896

 
(905
)
Accumulated deficit
(811,281
)
 
(671,779
)
Total shareholders’ equity
3,278,106

 
3,267,179

Total liabilities and shareholders’ equity
$
4,825,920

 
$
4,291,116





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,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
IMT
$
323,669

 
$
305,941

 
$
621,941

 
$
586,797

Homes
248,924

 
—

 
377,396

 
—

       Mortgages
26,985

 
19,305

 
54,345

 
38,328

Total revenue
599,578

 
325,246

 
1,053,682

 
625,125

Cost of revenue (exclusive of amortization) (1)(2):
 
 
 
 
 
 
 
IMT
26,059

 
24,290

 
50,310

 
46,884

Homes
240,732

 
—

 
363,151

 
86

       Mortgages
4,430

 
1,237

 
9,108

 
2,476

Total cost of revenue
271,221

 
25,527

 
422,569

 
49,446

Sales and marketing (2)
187,433

 
147,727

 
349,020

 
285,018

Technology and development (2)
120,330

 
100,376

 
228,100

 
194,309

General and administrative (2)
82,839

 
60,579

 
178,613

 
116,652

Acquisition-related costs
—

 
632

 
—

 
659

Integration costs
293

 
—

 
645

 
—

Total costs and expenses
662,116

 
334,841

 
1,178,947

 
646,084

Loss from operations
(62,538
)
 
(9,595
)
 
(125,265
)
 
(20,959
)
Other income
9,458

 
3,089

 
18,626

 
5,535

Interest expense
(18,897
)
 
(7,187
)
 
(35,363
)
 
(14,260
)
Loss before income taxes
(71,977
)
 
(13,693
)
 
(142,002
)
 
(29,684
)
Income tax benefit
—

 
10,600

 
2,500

 
8,000

Net loss
$
(71,977
)
 
$
(3,093
)
 
$
(139,502
)
 
$
(21,684
)
Net loss per share — basic and diluted
$
(0.35
)
 
$
(0.02
)
 
$
(0.68
)
 
$
(0.11
)
Weighted-average shares outstanding — basic and diluted
205,754

 
194,155

 
205,137

 
192,807

_________________
(1) Amortization of website development costs and intangible assets included in technology and development
$
14,656

 
$
21,020

 
$
29,056

 
$
43,569

(2) Includes share-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of revenue
$
936

 
$
1,256

 
$
1,816

 
$
2,211

Sales and marketing
6,801

 
6,340

 
12,451

 
11,502

Technology and development
18,399

 
14,347

 
33,908

 
25,889

General and administrative
17,496

 
17,000

 
61,581

 
30,082

Total
$
43,632

 
$
38,943

 
$
109,756

 
$
69,684

Other Financial Data:
 
 
 
 
 
 
 
Adjusted EBITDA (3)
$
2,297

 
$
56,000

 
$
26,219

 
$
102,310

(3) Adjusted EBITDA is a non-GAAP financial measure; it is not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP. 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.




ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(139,502
)
 
$
(21,684
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
41,728

 
52,926

Share-based compensation expense
109,756

 
69,684

Amortization of right of use assets
10,572

 
—

Amortization of contract cost assets
17,880

 
18,309

Amortization of discount and issuance costs on convertible notes maturing in 2023 and 2021
17,799

 
9,504

Deferred income taxes
(2,500
)
 
(8,000
)
Loss on disposal of property and equipment
3,878

 
2,106

Bad debt expense
706

 
(352
)
Deferred rent
—

 
(2,845
)
Accretion of bond discount
(3,695
)
 
(504
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(16,884
)
 
(9,335
)
Mortgage loans held for sale
(3,244
)
 
—

Inventory
(389,994
)
 
(5,666
)
Prepaid expenses and other assets
(2,015
)
 
(14,697
)
Lease liabilities
(11,946
)
 
—

Contract cost assets
(18,332
)
 
(21,371
)
Accounts payable
1,256

 
1,855

Accrued expenses and other current liabilities
6,952

 
(5,189
)
Accrued compensation and benefits
613

 
4,309

Deferred revenue
3,000

 
4,002

Other long-term liabilities
149

 
—

Net cash provided by (used in) operating activities
(373,823
)
 
73,052

Investing activities
 
 
 
Proceeds from maturities of investments
539,312

 
172,573

Purchases of investments
(302,891
)
 
(230,276
)
Purchases of property and equipment
(29,672
)
 
(31,212
)
Purchases of intangible assets
(8,927
)
 
(4,777
)
Net cash provided by (used in) investing activities
197,822

 
(93,692
)
Financing activities
 
 
 
Proceeds from borrowing on revolving credit facility
293,099

 
—

Net repayments on warehouse lines of credit
(2,961
)
 
—

Proceeds from exercise of stock options
32,997

 
99,656

Value of equity awards withheld for tax liability
3

 
(66
)
Net cash provided by financing activities
323,138

 
99,590

Net increase in cash, cash equivalents and restricted cash during period
147,137

 
78,950

Cash, cash equivalents and restricted cash at beginning of period
663,443

 
352,095

Cash, cash equivalents and restricted cash at end of period
$
810,580

 
$
431,045

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
16,616

 
$
4,733

Noncash transactions:
 
 
 
Capitalized share-based compensation
$
5,878

 
$
4,623

Write-off of fully depreciated property and equipment
$
9,867

 
$
13,293

Write-off of fully amortized intangible assets
$
3,311

 
$
10,797





Non-GAAP Net Income (Loss) per Share
Our presentation of non-GAAP net income (loss) 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 (loss) 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 income (loss) 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 (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculation of non-GAAP income (loss) 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,
 
2019
 
2018
 
2019
 
2018
Net loss, as reported
$
(71,977
)
 
$
(3,093
)
 
$
(139,502
)
 
$
(21,684
)
Share-based compensation expense
43,632

 
38,943

 
109,756

 
69,684

Acquisition-related costs
—

 
632

 
—

 
659

Income tax benefit
—

 
(10,600
)
 
(2,500
)
 
(8,000
)
Net income (loss), adjusted
$
(28,345
)
 
$
25,882

 
$
(32,246
)
 
$
40,659

Non-GAAP net income (loss) per share — basic
$
(0.14
)
 
$
0.13

 
$
(0.16
)
 
$
0.21

Non-GAAP net income (loss) per share — diluted
$
(0.14
)
 
$
0.13

 
$
(0.16
)
 
$
0.20

Weighted-average shares outstanding — basic
205,754

 
194,155

 
205,137

 
192,807

Weighted-average shares outstanding — diluted
205,754

 
205,830

 
205,137

 
203,923


Non-GAAP net income (loss) per share - diluted for the periods presented is calculated using weighted-average shares outstanding - diluted, which includes potential shares of Class A common stock and Class C capital stock for the periods in which their effect would have been dilutive. The potential shares of Class A common stock and Class C capital stock were excluded from the calculation of non-GAAP net loss per share for the periods presented because their effect would have been antidilutive as a result of the non-GAAP net loss incurred in such periods. The following table reconciles the denominators used in the basic and diluted non-GAAP net income (loss) per share calculations (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Denominator for basic calculation
205,754

 
194,155

 
205,137

 
192,807

Effect of dilutive securities:
 
 
 
 
 
 
 
     Option awards
—

 
9,070

 
—

 
8,656

     Unvested restricted stock units
—

 
1,608

 
—

 
1,463

Class C capital stock issuable upon conversion of the convertible notes maturing in 2021
—

 
997

 
—

 
997

          Denominator for dilutive calculation
205,754

 
205,830

 
205,137

 
203,923





Segment Results of Operations
The following table presents our segment results for the periods presented (in thousands, unaudited):
 
Three Months Ended
June 30, 2019
 
Three Months Ended
June 30, 2018
 
IMT
 
Homes
 
Mortgages
 
IMT
 
Homes
 
Mortgages
Revenue
$
323,669

 
$
248,924

 
$
26,985

 
$
305,941

 
$
—

 
$
19,305

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
26,059

 
240,732

 
4,430

 
24,290

 
—

 
1,237

Sales and marketing
135,440

 
37,409

 
14,584

 
137,972

 
2,095

 
7,660

Technology and development
94,261

 
18,198

 
7,871

 
91,131

 
3,790

 
5,455

General and administrative
54,671

 
17,808

 
10,360

 
52,438

 
4,176

 
3,965

Acquisition-related costs
—

 
—

 
—

 
—

 
—

 
632

Integration costs
—

 
—

 
293

 
—

 
—

 
—

Total costs and expenses
310,431

 
314,147

 
37,538

 
305,831

 
10,061

 
18,949

Income (loss) from operations
13,238

 
(65,223
)
 
(10,553
)
 
110

 
(10,061
)
 
356

Segment other income
—

 
—

 
402

 
—

 
—

 
—

Segment interest expense
—

 
(5,899
)
 
(287
)
 
—

 
—

 
—

Income (loss) before income taxes (1)
$
13,238

 
$
(71,122
)
 
$
(10,438
)
 
$
110

 
$
(10,061
)
 
$
356

 
Six Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2018
 
IMT
 
Homes
 
Mortgages
 
IMT
 
Homes
 
Mortgages
Revenue:
$
621,941

 
$
377,396

 
$
54,345

 
$
586,797

 
$
—

 
$
38,328

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
50,310

 
363,151

 
9,108

 
46,884

 
86

 
2,476

Sales and marketing
262,094

 
58,271

 
28,655

 
266,719

 
2,385

 
15,914

Technology and development
182,230

 
30,479

 
15,391

 
177,048

 
6,026

 
11,235

General and administrative
125,521

 
32,165

 
20,927

 
102,625

 
5,954

 
8,073

Acquisition-related costs
—

 
—

 
—

 
27

 
—

 
632

Integration costs
—

 
—

 
645

 
—

 
—

 
—

Total costs and expenses
620,155

 
484,066

 
74,726

 
593,303

 
14,451

 
38,330

Income (loss) from operations
1,786

 
(106,670
)
 
(20,381
)
 
(6,506
)
 
(14,451
)
 
(2
)
Segment other income
—

 
—

 
715

 
—

 
—

 
—

Segment interest expense
—

 
(9,657
)
 
(388
)
 
—

 
—

 
—

Income (loss) before income taxes (1)
$
1,786

 
$
(116,327
)
 
$
(20,054
)
 
$
(6,506
)
 
$
(14,451
)
 
$
(2
)
(1) The following table presents the reconciliation of total segment loss before income taxes to consolidated loss before income taxes for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Total segment loss before income taxes
$
(68,322
)
 
$
(9,595
)
 
$
(134,595
)
 
$
(20,959
)
Corporate interest expense
(12,711
)
 
(7,187
)
 
(25,318
)
 
(14,260
)
Corporate other income
9,056

 
3,089

 
17,911

 
5,535

Consolidated loss before income taxes
$
(71,977
)
 
$
(13,693
)
 
$
(142,002
)
 
$
(29,684
)





Key Metrics
The following table sets forth our key metrics for each of the periods presented:
 
Three Months Ended
June 30,
 
2018 to 2019
% Change
 
2019
 
2018
 
 
(in millions)
 
 
Average Monthly Unique Users (1)
194.3

 
186.1

 
4
%
Visits (2)
2,181.4

 
1,920.6

 
14
%
(1)
Zillow, StreetEasy, HotPads, Naked Apartments and RealEstate.com 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 mobile apps and websites. We measure Zillow, StreetEasy and RealEstate.com visits with Google Analytics and Trulia visits with Adobe Analytics.

Non-GAAP Return on Homes Sold After Interest Expense
To provide investors with additional information regarding our Homes segment financial results, this Exhibit includes a calculation of Return on Homes Sold After Interest Expense, which is a non-GAAP financial measure. We have provided a reconciliation of Return on Homes Sold After Interest Expense to the most directly comparable GAAP financial measure, which is loss before income taxes for the Homes segment.
We believe that Return on Homes Sold After Interest Expense is a useful financial measure to investors as it is one of the primary measures used by management in making investment decisions, measuring unit level economics and evaluating operating performance for the Zillow Offers business. The measure is intended to convey the unit level economics of homes sold during the period by presenting the revenue and associated expenses directly attributed to the homes sold, both in total and on a per home basis. We believe this per unit measure facilitates meaningful period over period comparisons notwithstanding variability in the number of homes sold during a period and indicates ability to generate returns on assets sold after considering home purchase costs, renovation costs, holding costs and selling costs.
We calculate Return on Homes Sold After Interest Expense in total and on a per home basis as revenue associated with homes sold during the period less direct costs attributable to those homes. Specifically, direct costs include, with respect to each home sold during the period (1) home acquisition and renovation costs, which in turn include certain labor costs directly associated with these activities; (2) holding and selling costs; and (3) interest costs incurred.
Included in direct holding and interest expense amounts for the three and six month periods ended June 30, 2019 are holding and interest costs recorded as period expenses in prior periods associated with homes sold in the current period, which are not calculated in accordance with, or an alternative for, GAAP and should not be considered in isolation or as a substitute for results reported under GAAP. Excluded from certain of these direct cost amounts are costs recorded in the current period related to homes that remain in inventory at the end of the period, as shown in the tables below. We make these period adjustments because we believe presenting Return on Homes Sold After Interest Expense in this manner provides a focused view on a subset of our assets - homes sold during the period - and reflecting costs associated with those homes sold from the time we acquire to the time we sell the home, which may be useful to investors.
Return on Homes Sold After Interest Expense is intended to illustrate the performance of homes sold during the period and is not intended to be a segment or company performance metric. Return on Homes Sold After Interest Expense is a supplemental measure of operating performance for a subset of assets and 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:
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Return on Homes Sold After Interest Expense does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements;
•
Return on Homes Sold After Interest Expense does not consider the potentially dilutive impact of share-based compensation;
•
Return on Homes Sold After Interest Expense does not include period costs that were not eligible for inventory capitalization associated with homes held in inventory at the end of the period;




•
Return on Homes Sold After Interest Expense does not reflect indirect expenses included in cost of revenue, sales and marketing, technology and development, or general and administrative expenses, some of which are recurring cash expenditures necessary to operate the business; and
•
Return on Homes Sold After Interest Expense does not reflect income taxes.

Because of these limitations, you should consider Return on Homes Sold After Interest Expense alongside other financial performance measures, including various cash flow metrics, loss before income taxes and our other GAAP results.
On a GAAP basis, per home loss before income taxes for the Homes segment was $90,486 and $96,939 for the three and six month periods ended June 30, 2019, respectively.
The following table presents the Return on Homes Sold After Interest Expense for the period presented (in thousands, except home and per home amounts, unaudited):
 
 
 
Three Months Ended
June 30, 2019
 
 
 
Total
 
Per Home
Homes sold
 
 
786

 
 
Homes revenue
 
 
$
248,924

 
$
316,697

Operating costs:
 
 
 
 
 
Home acquisition costs (1)
 
 
224,955

 
$
286,202

Renovation costs (1)
 
 
9,484

 
12,066

Holding costs (1)(2)
 
 
2,569

 
3,268

Selling costs
 
 
10,676

 
13,583

Total operating costs
 
 
247,684

 
315,119

Interest expense (1)(2)
 
 
3,532

 
4,494

Return on Homes Sold After Interest
 
 
$
(2,292
)
 
$
(2,916
)
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period.
(2) Holding costs and interest expense include $1.1 million and $1.6 million, respectively, of costs incurred in prior quarters associated with homes sold during the three months ended June 30, 2019.





Reconciliation of Non-GAAP Measure to Nearest GAAP Measure:
Three Months Ended
June 30, 2019
Loss before income taxes
$
(71,122
)
Homes sold
786

Per home loss before income taxes
$
(90,486
)
 
 
Loss before income taxes
$
(71,122
)
Depreciation and amortization
1,732

Share-based compensation expense
7,039

Costs incurred in prior periods associated with homes sold in the current period (1)
(2,337
)
Costs incurred in current period related to homes not sold in the current period (2)
8,652

Indirect expenses included in cost of revenue (3)
5,309

Indirect marketing and advertising costs included in sales and marketing (4)
19,588

Indirect costs included in technology and development expense (5)
14,025

Indirect costs included in general and administrative expense (6)
14,822

Return on Homes Sold After Interest
$
(2,292
)
Homes sold
786

Per home Return on Homes Sold After Interest
$
(2,916
)
(1) Amount represents costs incurred in prior periods associated with homes sold in the current period that were not eligible for inventory capitalization and were therefore expensed as period costs.
(2) Amount represents costs ineligible for inventory capitalization that were expensed as period costs during the three months ended June 30, 2019 associated with homes that remain in inventory as of June 30, 2019.
(3) Includes allocated segment costs that were recorded to cost of revenue within the Homes segment during the three months ended June 30, 2019.
(4) Includes marketing and advertising expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.
(5) Includes technology and development expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.
(6) Includes general and administration expenses incurred during the three months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.

The following table presents the Return on Homes Sold After Interest Expense for the period presented (in thousands, except per home amounts, unaudited):
 
 
 
Six Months Ended
June 30, 2019
 
 
 
Total
 
Per Home
Homes sold
 
 
1,200

 
 
Homes revenue
 
 
$
377,396

 
$
314,497

Operating costs:
 
 
 
 


Home acquisition costs (1)
 
 
341,664

 
284,720

Renovation costs (1)
 
 
14,165

 
11,804

Holding costs (1)(2)
 
 
3,807

 
3,173

Selling costs
 
 
16,218

 
13,515

Total operating costs
 
 
375,854

 
313,212

Interest expense (1)(2)
 
 
5,187

 
4,323

Return on Homes Sold After Interest
 
 
$
(3,645
)
 
$
(3,038
)
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period.
(2) Holding costs and interest expense include $0.9 million and $0.9 million, respectively, of costs incurred in prior quarters associated with homes sold during the six months ended June 30, 2019.





Reconciliation of Non-GAAP Measure to Nearest GAAP Measure:
Six Months Ended
June 30, 2019
Loss before income taxes
$
(116,327
)
Homes sold
1,200

Per home loss before income taxes
$
(96,939
)
 
 
Loss before income taxes
$
(116,327
)
Depreciation and amortization
3,053

Share-based compensation expense
12,641

Costs incurred in prior periods associated with homes sold in the current period (1)
(1,860
)
Costs incurred in current period related to homes not sold in the current period (2)
11,823

Indirect expenses included in cost of revenue (3)
5,730

Indirect marketing and advertising costs included in sales and marketing (4)
31,813

Indirect costs included in technology and development expense (5)
23,351

Indirect costs included in general and administrative expense (6)
26,131

Return on Homes Sold After Interest
$
(3,645
)
Homes sold
1,200

Per home Return on Homes Sold After Interest
$
(3,038
)
(1) Amount represents costs ineligible for inventory capitalization and expensed as period costs prior to the six months ended June 30, 2019 associated with homes sold during the six months ended June 30, 2019.
(2) Amount represents costs ineligible for inventory capitalization and expensed during the six months ended June 30, 2019 associated with homes that remained in inventory as of June 30, 2019.
(3) Includes allocated segment costs which were recorded to cost of revenue within the Homes segment during the six months ended June 30, 2019.
(4) Includes marketing and advertising expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.
(5) Includes technology and development expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.
(6) Includes general and administration expenses incurred during the six months ended June 30, 2019 not directly related to purchasing, renovating and selling homes.