Document

As filed with the Securities and Exchange Commission on May 9, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________

Commission File No. 001-38220

ANGI HOMESERVICES INC.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		82-1204801 (I.R.S. Employer Identification No.)
3601 Walnut Street, Denver, CO 80205 (Address of registrant's principal executive offices)
(303) 963-7200 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of exchange on which registered
Class A Common Stock, par value $0.001	ANGI	The Nasdaq Stock Market LLC

As of May 3, 2019, the following shares of the registrant's common stock were outstanding:



Class A Common Stock	85,070,957
Class B Common Stock	421,452,486
Class C Common Stock	—
Total outstanding Common Stock	506,523,443

The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of May 3, 2019 was $1,565,336,645. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant are assumed to be affiliates of the registrant.

TABLE OF CONTENTS



		Page Number
PART I
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheet	3
	Consolidated Statement of Operations	4
	Consolidated Statement of Comprehensive Operations	5
	Consolidated Statement of Shareholders' Equity	6
	Consolidated Statement of Cash Flows	7
	Note 1—The Company and Summary of Significant Accounting Policies	8
	Note 2—Revenue Recognition	9
	Note 3—Leases	10
	Note 4—Income Taxes	11
	Note 5—Business Combination	12
	Note 6—Financial Instruments	13
	Note 7—Long-term Debt	15
	Note 8—Accumulated Other Comprehensive (Loss) Income	16
	Note 9—Earnings (Loss) per Share	16
	Note 10—Segment Information	17
	Note 11—Consolidated Financial Statement Details	20
	Note 12—Contingencies	20
	Note 13—Related Party Transactions with IAC	21
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	37
PART II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
	Signatures	41

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)



	March 31, 2019			December 31, 2018
	(In thousands, except par value amounts)
ASSETS
Cash and cash equivalents	$	345,351		$	336,984
Marketable securities	—			24,947
Accounts receivable, net of allowance and reserves of $17,953 and $16,603, respectively	52,255			27,263
Other current assets	81,948			84,933
Total current assets	479,554			474,127

Right of use assets	91,650			—
Property and equipment, net of accumulated depreciation and amortization of $41,397 and $36,473, respectively	79,618			70,859
Goodwill	915,932			894,709
Intangible assets, net of accumulated amortization of $100,358 and $85,589, respectively	290,172			304,295
Deferred income taxes	54,870			40,837
Other non-current assets	8,406			23,200
TOTAL ASSETS	$	1,920,202		$	1,808,027

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current portion of long-term debt	$	13,750		$	13,750
Accounts payable	21,803			20,083
Deferred revenue	62,941			61,417
Accrued expenses and other current liabilities	120,466			105,987
Total current liabilities	218,960			201,237

Long-term debt, net	241,664			244,971
Long-term debt—related party	—			1,015
Deferred income taxes	3,513			3,808
Other long-term liabilities	100,922			16,846

Redeemable noncontrolling interests	23,242			18,163

Commitments and contingencies

SHAREHOLDERS' EQUITY:
Class A common stock, $0.001 par value; authorized 2,000,000 shares; 84,718 and 80,515 shares issued and outstanding	85			81
Class B convertible common stock, $0.001 par value; authorized 1,500,000 shares; 421,452 and 421,118 shares issued and outstanding	421			421
Class C common stock, $0.001 par value; authorized 1,500,000 shares; no shares issued and outstanding	—			—
Additional paid-in capital	1,331,371			1,333,097
Accumulated deficit	(8,828		)	(18,797		)
Accumulated other comprehensive loss	(191		)	(1,861		)
Total ANGI Homeservices Inc. shareholders' equity	1,322,858			1,312,941
Noncontrolling interests	9,043			9,046
Total shareholders' equity	1,331,901			1,321,987
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,920,202		$	1,808,027

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Three Months Ended March 31,
	2019			2018
	(In thousands, except per share data)
Revenue	$	303,443		$	255,311
Operating costs and expenses:
Cost of revenue (exclusive of depreciation shown separately below)	10,011			13,595
Selling and marketing expense	175,302			137,932
General and administrative expense	84,429			76,270
Product development expense	15,804			15,780
Depreciation	6,999			6,184
Amortization of intangibles	14,539			16,306
Total operating costs and expenses	307,084			266,067
Operating loss	(3,641		)	(10,756		)
Interest expense—third party	(2,994		)	(2,654		)
Interest expense—related party	(16		)	(45		)
Other income, net	2,287			356
Loss before income taxes	(4,364		)	(13,099		)
Income tax benefit	14,215			3,985
Net earnings (loss)	9,851			(9,114		)
Net loss attributable to noncontrolling interests	118			229
Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders	$	9,969		$	(8,885	)

Per share information attributable to ANGI Homeservices Inc. shareholders:
Basic earnings (loss) per share	$	0.02		$	(0.02	)
Diluted earnings (loss) per share	$	0.02		$	(0.02	)

Stock-based compensation expense by function:
Cost of revenue	$	—		$	—
Selling and marketing expense	959			661
General and administrative expense	16,107			21,694
Product development expense	2,216			2,551
Total stock-based compensation expense	$	19,282		$	24,906

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS

(Unaudited)



	Three Months Ended March 31,
	2019			2018
	(In thousands)
Net earnings (loss)	$	9,851		$	(9,114	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	1,865			4,504
Change in unrealized gains and losses on available-for-sale debt securities	(3		)	—
Total other comprehensive income	1,862			4,504
Comprehensive income (loss)	11,713			(4,610		)
Components of comprehensive loss (income) attributable to noncontrolling interests:
Net loss attributable to noncontrolling interests	118			229
Change in foreign currency translation adjustment attributable to noncontrolling interests	(192		)	(512		)
Comprehensive loss attributable to noncontrolling interests	(74		)	(283		)
Comprehensive income (loss) attributable to ANGI Homeservices Inc. shareholders	$	11,639		$	(4,893	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Three Months Ended March 31, 2019 and 2018

(Unaudited)



					ANGI Homeservices Inc. Shareholders' Equity
					Class A Common Stock $0.001 Par Value			Class B Convertible Common Stock $0.001 Par Value			Class C Common Stock $0.001 Par Value												Total ANGI Homeservices Inc. Shareholders' Equity

																				Accumulated Other Comprehensive (Loss) Income									Total Shareholders' Equity
	Redeemable Noncontrolling Interests													Additional Paid-in Capital			Accumulated Deficit									Noncontrolling Interests
	Redeemable Noncontrolling Interests				$		Shares	$		Shares	$		Shares	Additional Paid-in Capital			Accumulated Deficit									Noncontrolling Interests
				(In thousands)
Balance as of December 31, 2018	$	18,163			$	81	80,515	$	421	421,118	$	—	—	$	1,333,097		$	(18,797	)	$	(1,861	)	$	1,312,941		$	9,046		$	1,321,987
Net (loss) earnings	(109		)		—		—	—		—	—		—	—			9,969			—			9,969			(9		)	9,960
Other comprehensive income	186				—		—	—		—	—		—	—			—			1,670			1,670			6			1,676
Stock-based compensation expense	42				—		—	—		—	—		—	19,240			—			—			19,240			—			19,240
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—				4		4,203	—		—	—		—	(15,191		)	—			—			(15,187		)	—			(15,187		)
Issuance of common stock to IAC pursuant to the employee matters agreement	—				—		—	—		334	—		—	(795		)	—			—			(795		)	—			(795		)
Adjustment of redeemable noncontrolling interests to fair value	4,960				—		—	—		—	—		—	(4,960		)	—			—			(4,960		)	—			(4,960		)
Other	—				—		—	—		—	—		—	(20		)	—			—			(20		)	—			(20		)
Balance as of March 31, 2019	$	23,242			$	85	84,718	$	421	421,452	$	—	—	$	1,331,371		$	(8,828	)	$	(191	)	$	1,322,858		$	9,043		$	1,331,901



Balance as of December 31, 2017	$	21,300		$	63	62,818	$	415	415,186	$	—	—	$	1,112,400		$	(121,764	)	$	2,232	$	993,346		$	9,748		$	1,003,094
Cumulative effect of adoption of ASU No. 2014-09	—			—		—	—		—	—		—	—			25,649			—		25,649			—			25,649
Net loss	(111		)	—		—	—		—	—		—	—			(8,885		)	—		(8,885		)	(118		)	(9,003		)
Other comprehensive income	375			—		—	—		—	—		—	—			—			3,992		3,992			137			4,129
Stock-based compensation expense	410			—		—	—		—	—		—	24,496			—			—		24,496			—			24,496
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—			—		535	—		—	—		—	(1,143		)	—			—		(1,143		)	—			(1,143		)
Issuance of common stock to IAC pursuant to the employee matters agreement	—			—		—	1		699	—		—	(1		)	—			—		—			—			—
Purchase of noncontrolling interests	—			—		—	—		—	—		—	—			—			—		—			(269		)	(269		)
Adjustment of redeemable noncontrolling interests to fair value	643			—		—	—		—	—		—	(643		)	—			—		(643		)	—			(643		)
Other	38			—		—	—		—	—		—	(85		)	—			—		(85		)	85			—
Balance as of March 31, 2018	$	22,655		$	63	63,353	$	416	415,885	$	—	—	$	1,135,024		$	(105,000	)	$	6,224	$	1,036,727		$	9,583		$	1,046,310

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS



	Three Months Ended March 31,
	2019			2018
	(In thousands)
Cash flows from operating activities:
Net earnings (loss)	$	9,851		$	(9,114	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Stock-based compensation expense	19,282			24,906
Amortization of intangibles	14,539			16,306
Bad debt expense	14,310			9,434
Depreciation	6,999			6,184
Deferred income taxes	(14,377		)	(4,178		)
Other adjustments, net	1,352			(63		)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	(39,729		)	(17,650		)
Other assets	1,159			(13,748		)
Accounts payable and other liabilities	11,856			(5,329		)
Income taxes payable and receivable	146			162
Deferred revenue	1,314			4,191
Net cash provided by operating activities	26,702			11,101
Cash flows from investing activities:
Acquisition, net of cash acquired	(20,341		)	—
Capital expenditures	(15,177		)	(8,886		)
Proceeds from maturities of marketable debt securities	25,000			—
Net proceeds from the sale of a business	23,655			—
Proceeds from sale of fixed assets	—			10,410
Other, net	(103		)	—
Net cash provided by investing activities	13,034			1,524
Cash flows from financing activities:
Principal payments on term loan	(3,438		)	(3,438		)
Principal payments on related party debt	(1,008		)	(618		)
Proceeds from the exercise of stock options	573			1,752
Withholding taxes paid on behalf of employees on net settled stock-based awards	(16,544		)	(2,925		)
Distribution to IAC pursuant to the tax sharing agreement	(11,355		)	—
Purchase of noncontrolling interests	—			(234		)
Other, net	—			39
Net cash used in financing activities	(31,772		)	(5,424		)
Total cash provided	7,964			7,201
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	401			22
Net increase in cash, cash equivalents, and restricted cash	8,365			7,223
Cash, cash equivalents, and restricted cash at beginning of period	338,821			221,521
Cash, cash equivalents, and restricted cash at end of period	$	347,186		$	228,744

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations

ANGI Homeservices Inc. connects quality home service pros across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers. Over 250,000 service professionals find work through ANGI Homeservices, and consumers turn to at least one of our brands to find a pro for more than 20 million projects each year. We’ve established category-transforming products with brands such as HomeAdvisor®, Angie’s List® and Handy.

At March 31, 2019, IAC owned 83.3% and 98.0% of the economic and voting interest, respectively, of ANGI Homeservices.

The Company has two operating segments (i) North America (United States and Canada), which includes HomeAdvisor, Angie's List, Handy, mHelpDesk, HomeStars, Fixd Repair, LLC and Fixd Services LLC (collectively, "Fixd Repair") and Felix, for periods prior to its sale on December 31, 2018, and (ii) Europe, which includes Travaux, MyHammer, My Builder, Werkspot and Instapro.

As used herein, "ANGI Homeservices," the "Company," "ANGI," "we," "our" or "us" and similar terms refer to ANGI Homeservices Inc and its subsidiaries (unless the context requires otherwise).

Basis of Presentation and Consolidation

The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).

The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated.

For the purpose of these financial statements, income taxes have been computed as if ANGI Homeservices filed on a standalone, separate tax return basis.

In management's opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Accounting Estimates

Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

On an ongoing basis, the Company evaluates its estimates and judgments, including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair values of cash equivalents and marketable debt securities; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; unrecognized tax benefits; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.

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ANGI HOMESERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Adoption of ASU No. 2016-02, Leases (Topic 842)

The Company adopted Accounting Standards Update 2016-02, Leases (Topic 842) ("ASC 842") effective January 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.

The adoption of ASC 842 resulted in the recognition of $69.4 million of right of use assets ("ROU assets") and related lease liabilities as of January 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. In addition, the adoption of ASC 842 did not impact the leverage calculation set forth in the agreement governing the Company's outstanding debt and revolving credit facility because, in each circumstance, the leverage calculation is not affected by the lease liabilities that were recorded upon adoption of ASC 842.

The Company adopted ASC 842 prospectively and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.

See "Note 3—Leases" for additional information on the adoption of ASC 842.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 2—REVENUE RECOGNITION

General Revenue Recognition

Revenue is recognized when control of the promised services or goods is transferred to our customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.

The Company's disaggregated revenue disclosures are presented in "Note 10—Segment Information."

Deferred Revenue

Deferred revenue consists of payments that are received or are contractually due in advance of the Company's performance. The Company’s deferred revenue is reported on a contract by contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the term of the applicable subscription period or expected completion of our performance obligation is one year or less. The current and non-current deferred revenue balances at December 31, 2018 are $61.4 million and $0.5 million, respectively. During the three months ended March 31, 2019, the Company recognized $36.4 million of revenue that was included in the deferred revenue balance as of December 31, 2018. The current and non-current deferred revenue balances at March 31, 2019 are $62.9 million and $0.4 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.

Practical Expedients and Exemptions

As permitted under the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.

For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred. The amount of capitalized sales commissions where the customer relationship period is greater than one year is $40.3 million and $38.8 million at March 31, 2019 and December 31, 2018, respectively.

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ANGI HOMESERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 3—LEASES

The Company leases office space and equipment used in connection with its operations under various operating leases, the majority of which contain escalation clauses. The Company does not have any financing leases.

ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the present value of the Company’s obligation to make payments arising from leases. ROU assets and related lease liabilities are based on the present value of fixed lease payments over the lease term using the Company's incremental borrowing rate on the lease commencement date or January 1, 2019 for leases that commenced prior to that date. The Company combines the lease and non-lease components of lease payments in determining ROU assets and related lease liabilities. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option. Leases with an initial term of twelve months or less ("short-term leases") are not recorded on the accompanying consolidated balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease.

Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.



Leases	Balance Sheet Classification	March 31, 2019
		(In thousands)
Assets:
Right of use assets	Right of use assets	$	91,650

Liabilities:
Current lease liabilities	Accrued expenses and other current liabilities	11,706
Long-term lease liabilities	Other long-term liabilities	99,720
Total lease liabilities		$	111,426



Lease Cost	Income Statement Classification	Three Months Ended March 31, 2019
		(In thousands)
Fixed lease cost	Selling and marketing expense	$	1,911
Fixed lease cost	General and administrative expense	1,785
Fixed lease cost	Product development expense	300
Total fixed lease cost ^(a)		3,996
Variable lease cost	Selling and marketing expense	304
Variable lease cost	General and administrative expense	191
Variable lease cost	Product development expense	30
Total variable lease cost		525
Net lease cost		$	4,521

________________________

^(a)Includes approximately $0.3 million of short-term lease cost.

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ANGI HOMESERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Maturities of lease liabilities^(b):



	March 31, 2019
	(In thousands)
2019	$	12,387
2020	18,511
2021	17,919
2022	16,905
2023	16,035
After 2023	60,764
Total	142,521
Less: Interest	31,095
Present value of lease liabilities	$	111,426

________________________

^(b) Lease payments exclude $30.8 million of legally binding minimum lease payments for leases signed but not yet commenced.

The following are the weighted average assumptions used for lease term and discount rate:



	March 31, 2019
Remaining lease term	7.9 years
Discount rate	5.97	%



	Three Months Ended March 31, 2019
	(In thousands)
Other Information:
Right of use assets obtained in exchange for lease liabilities	$	27,862
Cash paid for amounts included in the measurement of lease liabilities	$	4,753

NOTE 4—INCOME TAXES

The Company is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, current and deferred income tax benefit and provision have been computed for the Company on an as if standalone, separate return basis. The Company’s payments to IAC for its share of IAC’s consolidated federal and state tax return liabilities have been reflected within cash flows from operating activities in the accompanying consolidated statement of cash flows. The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters. Any differences between taxes currently due or receivable under the tax sharing agreement and the current tax provision computed on an as if standalone, separate return basis for GAAP are payable to or receivable from IAC and are reflected as adjustments to additional paid-in capital.

At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of

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ANGI HOMESERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.

For the three months ended March 31, 2019, the Company recorded an income tax benefit of $14.2 million, which represents an effective income tax rate of 326% and is higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards. For the three months ended March 31, 2018, the Company recorded an income tax benefit of $4.0 million, which represents an effective income tax rate of 30% and was higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards and state taxes, partially offset by unbenefited foreign losses.

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Accruals for interest and penalties are not material.

The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC’s federal income tax returns for the years ended December 31, 2010 through 2016, which includes the operations of the HomeAdvisor business. The statute of limitations for the years 2010 through 2015 has been extended to December 31, 2019. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

At March 31, 2019 and December 31, 2018, unrecognized tax benefits, including interest, are $2.5 million and $2.4 million, respectively, for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at March 31, 2019 are subsequently recognized, the income tax provision would be reduced by $2.5 million. The comparable amount as of December 31, 2018 is $2.4 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $1.0 million due to potential settlements, which would reduce the income tax provision.

The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. As of March 31, 2019, the Company has a U.S. gross deferred tax asset of $130.3 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $33.6 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $96.7 million will be utilized based on forecasts of future taxable income.

NOTE 5—BUSINESS COMBINATION

On October 19, 2018, the Company acquired 100% of Handy Technologies, Inc. ("Handy"), a leading platform in the United States for connecting individuals looking for household services. The Company's purchase accounting is not yet complete, including the determination of purchase price, the value of the indemnified liabilities and related assets and the allocation of purchase price to the fair value of assets acquired and liabilities assumed. There were no material adjustments recorded during the first quarter of 2019 related to purchase accounting and the preliminary values are not expected to be finalized until the fourth quarter of 2019.

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(Unaudited)

Unaudited pro forma financial information

The unaudited pro forma financial information in the table below presents the combined results of the Company and Handy as if this acquisition had occurred on January 1, 2017. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisition actually occurred on January 1, 2017.



	Three Months Ended March 31, 2018
	(In thousands, except per share data)
Revenue	$	261,904
Net loss attributable to ANGI Homeservices Inc. shareholders	$	(10,723	)
Basic loss per share attributable to ANGI Homeservices Inc. shareholders	$	(0.02	)
Diluted loss per share attributable to ANGI Homeservices Inc. shareholders	$	(0.02	)

NOTE 6—FINANCIAL INSTRUMENTS

Marketable Debt Securities

The Company did not hold any available-for sale marketable debt securities at March 31, 2019.

At December 31, 2018, current available-for-sale marketable debt securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Treasury discount notes	$	24,947	$	1	$	(1	)	$	24,947
Total available-for-sale marketable debt securities	$	24,947	$	1	$	(1	)	$	24,947

For the three months ended March 31, 2019, proceeds from maturities of available-for-sale marketable debt securities were $25.0 million. The specific-identification method is used to determine the cost of available-for-sale marketable debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. There were no gross realized gains or losses from the maturities of available-for-sale marketable debt securities for the three months ended March 31, 2019. The Company did not hold any available-for-sale marketable debt securities prior to the third quarter of 2018.

Fair Value Measurements

The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:


•	Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.

•

Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.

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(Unaudited)


•	Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities.

The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:



	March 31, 2019
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
	(In thousands)
Assets:
Cash equivalents:
Money market funds	$	60,802	$	—	$	—	$	60,802
Treasury discount notes	—		147,339		—		147,339
Commercial paper	—		34,967		—		34,967
Time deposits	—		15,000		—		15,000
Total	$	60,802	$	197,306	$	—	$	258,108



	December 31, 2018
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
	(In thousands)
Assets:
Cash equivalents:
Money market funds	$	137,359	$	—	$	—	$	137,359
Treasury discount notes	—		99,914		—		99,914
Commercial paper	—		52,931		—		52,931
Time deposits	—		15,000		—		15,000
Marketable securities:
Treasury discount notes	—		24,947		—		24,947
Total	$	137,359	$	192,792	$	—	$	330,151

Assets measured at fair value on a nonrecurring basis

The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value only when an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs.

Financial instruments measured at fair value only for disclosure purposes

The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:

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(Unaudited)



	March 31, 2019						December 31, 2018
	Carrying value			Fair value			Carrying value			Fair value
	(In thousands)
Current portion of long-term debt	$	(13,750	)	$	(13,243	)	$	(13,750	)	$	(12,753	)
Long-term debt, net ^(a)	(241,664		)	(235,064		)	(244,971		)	(229,556		)
Long-term debt—related party, net	—			—			(1,015		)	(1,092		)

_________________


^(a)	At March 31, 2019 and December 31, 2018, the carrying value of long-term debt, net includes unamortized debt issuance costs of $2.4 million and $2.5 million, respectively.

At March 31, 2019 and December 31, 2018, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs. The fair value of long-term debt—related party, net was based on Level 3 inputs and was estimated by discounting the future cash flows based on current market conditions.

NOTE 7—LONG-TERM DEBT

Long-term debt consists of:



	March 31, 2019		December 31, 2018
	(In thousands)
Term Loan due November 5, 2023	$	257,813	$	261,250
Less: current portion of Term Loan	13,750		13,750
Less: unamortized debt issuance costs	2,399		2,529
Total long-term debt, net	$	241,664	$	244,971

See "Note 13—Related Party Transactions with IAC" for a description of long-term debt—related party.

Term Loan and Credit Facility

At March 31, 2019 and December 31, 2018, the outstanding balance of the five-year term loan facility ("Term Loan") was $257.8 million and $261.3 million, respectively. At both March 31, 2019 and December 31, 2018, the Term Loan bears interest at LIBOR plus 1.50%. The spread over LIBOR is subject to change in future periods based on the Company's consolidated net leverage ratio. The interest rate was 4.00% and 3.98% at March 31, 2019 and December 31, 2018, respectively. Interest payments are due at least quarterly through the term of the loan. Additionally, there are quarterly principal payments of $3.4 million through December 31, 2021, $6.9 million for the one year period ending December 31, 2022 and $10.3 million through maturity of the loan when the final amount of $161.6 million is due.

The terms of the Term Loan require the Company to maintain a consolidated net leverage ratio of not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less than 2.0 to 1.0 (in each case as defined in the credit agreement). The Term Loan also contains covenants that would limit the Company's ability to pay dividends, make distributions or repurchase its stock in the event a default has occurred or its consolidated net leverage ratio exceeds 4.25 to 1.0. There are additional covenants under the Term Loan that limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions.

On November 5, 2018, the Company entered into a five-year $250 million revolving credit facility (the "Credit Facility"). At March 31, 2019 and December 31, 2018, there were no outstanding borrowings under the Credit Facility. The annual commitment fee on undrawn funds is based on the consolidated net leverage ratio most recently reported, and is 25 basis points at both March 31, 2019 and December 31, 2018. Borrowings under the Credit Facility bear interest, at the Company's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is based on the Company's consolidated net leverage ratio. The financial and other covenants are the same as those for the Term Loan.

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(Unaudited)

The Term Loan and Credit Facility are guaranteed by the Company's wholly-owned material domestic subsidiaries and are secured by substantially all assets of the Company and the guarantors, subject to certain exceptions.

NOTE 8—ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive income into earnings:



	Three Months Ended March 31, 2019
	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) On Available-For-Sale Debt Securities			Accumulated Other Comprehensive (Loss) Income
	(In thousands)
Balance at January 1	$	(1,864	)	$	3		$	(1,861	)
Other comprehensive income (loss)	1,673			(3		)	1,670
Balance at March 31	$	(191	)	$	—		$	(191	)



	Three Months Ended March 31, 2018
	Foreign Currency Translation Adjustment		Accumulated Other Comprehensive Income
	(In thousands)
Balance at January 1	$	2,232	$	2,232
Other comprehensive income before reclassifications	3,853		3,853
Amounts reclassified to earnings	139		139
Net current period other comprehensive income	3,992		3,992
Balance at March 31	$	6,224	$	6,224

The amount reclassified out of foreign currency translation adjustment into earnings for the three months ended March 31, 2018 relates to the liquidation of an international subsidiary.

At both March 31, 2019 and 2018, there was no tax benefit or provision on the accumulated other comprehensive (loss) income.

NOTE 9—EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to ANGI Homeservices shareholders:

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(Unaudited)



	Three Months Ended March 31,
	2019				2018
	Basic		Diluted		Basic			Diluted
	(In thousands, except per share data)
Numerator:
Net earnings (loss)	$	9,851	$	9,851	$	(9,114	)	$	(9,114	)
Net loss attributable to noncontrolling interests	118		118		229			229
Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders	$	9,969	$	9,969	$	(8,885	)	$	(8,885	)

Denominator:
Weighted average basic shares outstanding	504,404		504,404		478,309			478,309
Dilutive securities ^{(a) (b) (c)}	—		18,721		—			—
Denominator for earnings per share—weighted average shares	504,404		523,125		478,309			478,309

Earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders:
Earnings (loss) per share	$	0.02	$	0.02	$	(0.02	)	$	(0.02	)

________________________

^(a)

If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock appreciation rights, stock options and subsidiary denominated equity and vesting of restricted stock units. For the three months ended March 31, 2019, 4.2 million potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

^(b)

Performance-based stock units (“PSUs”) are considered contingently issuable shares. Shares issuable upon vesting of PSUs are included in the denominator for earnings per share if (i) the applicable performance condition(s) has been met and (ii) the inclusion of the PSUs is dilutive for the respective reporting periods. For the three months ended March 31, 2019, 0.8 million shares underlying PSUs were excluded from the calculation of diluted earnings per share because the performance condition(s) had not been met.


^(c)	For the three months ended March 31, 2018, the Company had a loss from operations and as a result, approximately 50.8 million potentially dilutive securities were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute diluted earnings per share amounts.

NOTE 10—SEGMENT INFORMATION

The overall concept that the Company employs in determining its operating segments is to present the financial information in a manner consistent with: how the chief operating decision maker views the businesses; how the businesses are organized as to segment management; and the focus of the businesses with regards to the types of services or products offered or the target market.

The following table presents revenue by reportable segment:



	Three Months Ended March 31,
	2019	2018
	(In thousands)
Revenue: