As filed with the Securities and Exchange Commission on August 8, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2019

Or

☐	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	82-1204801
(State or other jurisdiction of incorporation or organization)	(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)

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

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 ☒    No ☐

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 ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

As of August 2, 2019, the following shares of the registrant's common stock were outstanding:

Class A Common Stock	85,989,523
Class B Common Stock	421,452,903
Class C Common Stock	—
Total outstanding Common Stock	507,442,426

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	8
	Note 1—The Company and Summary of Significant Accounting Policies	9
	Note 2—Leases	11
	Note 3—Income Taxes	12
	Note 4—Business Combination	14
	Note 5—Financial Instruments	14
	Note 6—Long-term Debt	16
	Note 7—Accumulated Other Comprehensive (Loss) Income	17
	Note 8—Earnings per Share	18
	Note 9—Segment Information	20
	Note 10—Consolidated Financial Statement Details	23
	Note 11—Contingencies	24
	Note 12—Related Party Transactions with IAC	24
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	44
PART II
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	47
	Signatures	48

2

PART I

FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

	June 30, 2019			December 31, 2018
	(In thousands, except par value amounts)
ASSETS
Cash and cash equivalents	$	380,563		$	336,984
Marketable securities	—			24,947
Accounts receivable, net of allowance and reserves of $22,790 and $16,603, respectively	56,835			27,263
Other current assets	63,478			84,933
Total current assets	500,876			474,127
Right-of-use assets	103,997			—
Property and equipment, net of accumulated depreciation and amortization of $49,053 and $36,473, respectively	99,883			70,859
Goodwill	914,505			894,709
Intangible assets, net of accumulated amortization of $113,958 and $85,589, respectively	276,238			304,295
Deferred income taxes	52,842			40,837
Other non-current assets	8,662			23,200
TOTAL ASSETS	$	1,957,003		$	1,808,027
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current portion of long-term debt	$	13,750		$	13,750
Accounts payable	34,187			20,083
Deferred revenue	65,334			61,417
Accrued expenses and other current liabilities	112,876			105,987
Total current liabilities	226,147			201,237
Long-term debt, net	238,357			244,971
Long-term debt—related party	—			1,015
Deferred income taxes	3,435			3,808
Other long-term liabilities	121,097			16,846
Redeemable noncontrolling interests	23,421			18,163
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Class A common stock, $0.001 par value; authorized 2,000,000 shares; 85,803 and 80,515 shares issued and outstanding	86			81
Class B convertible common stock, $0.001 par value; authorized 1,500,000 shares; 421,453 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	1,338,280			1,333,097
Accumulated deficit	(1,860		)	(18,797		)
Accumulated other comprehensive loss	(1,482		)	(1,861		)
Total ANGI Homeservices Inc. shareholders' equity	1,335,445			1,312,941
Noncontrolling interests	9,101			9,046
Total shareholders' equity	1,344,546			1,321,987
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,957,003		$	1,808,027

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

3

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands, except per share data)
Revenue	$	343,896		$	294,822		$	647,339		$	550,133
Operating costs and expenses:
Cost of revenue (exclusive of depreciation shown separately below)	10,722			14,703			20,733			28,298
Selling and marketing expense	196,167			141,843			371,469			279,775
General and administrative expense	88,013			79,688			172,442			155,958
Product development expense	15,082			13,662			30,886			29,442
Depreciation	8,796			5,886			15,795			12,070
Amortization of intangibles	13,713			15,778			28,252			32,084
Total operating costs and expenses	332,493			271,560			639,577			537,627
Operating income	11,403			23,262			7,762			12,506
Interest expense—third party	(2,963		)	(3,011		)	(5,957		)	(5,665		)
Interest expense—related party	—			(34		)	(16		)	(79		)
Other income, net	1,047			1,053			3,334			1,409
Earnings before income taxes	9,487			21,270			5,123			8,171
Income tax (provision) benefit	(2,253		)	1,753			11,962			5,738
Net earnings	7,234			23,023			17,085			13,909
Net (earnings) loss attributable to noncontrolling interests	(266		)	(124		)	(148		)	105
Net earnings attributable to ANGI Homeservices Inc. shareholders	$	6,968		$	22,899		$	16,937		$	14,014
Earnings per share attributable to ANGI Homeservices Inc. shareholders:
Basic earnings per share	$	0.01		$	0.05		$	0.03		$	0.03
Diluted earnings per share	$	0.01		$	0.05		$	0.03		$	0.03
Stock-based compensation expense by function:
Cost of revenue	$	—		$	—		$	—		$	—
Selling and marketing expense	1,046			997			2,005			1,658
General and administrative expense	14,642			19,311			30,749			41,005
Product development expense	1,832			1,745			4,048			4,296
Total stock-based compensation expense	$	17,520		$	22,053		$	36,802		$	46,959

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

4

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands)
Net earnings	$	7,234		$	23,023		$	17,085		$	13,909
Other comprehensive (loss) income:
Change in foreign currency translation adjustment	(1,674		)	(5,955		)	191			(1,451		)
Change in unrealized gains and losses on available-for-sale debt securities	—			—			(3		)	—
Total other comprehensive (loss) income	(1,674		)	(5,955		)	188			(1,451		)
Comprehensive income	5,560			17,068			17,273			12,458
Components of comprehensive loss (income) attributable to noncontrolling interests:
Net (earnings) loss attributable to noncontrolling interests	(266		)	(124		)	(148		)	105
Change in foreign currency translation adjustment attributable to noncontrolling interests	383			822			191			310
Comprehensive loss attributable to noncontrolling interests	117			698			43			415
Comprehensive income attributable to ANGI Homeservices Inc. shareholders	$	5,677		$	17,766		$	17,316		$	12,873

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

5

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Three Months Ended June 30, 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
					$		Shares	$		Shares	$		Shares
				(In thousands)
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
Net earnings	160				—		—	—		—	—		—	—			6,968			—			6,968			106			7,074
Other comprehensive loss	(335		)		—		—	—		—	—		—	—			—			(1,291		)	(1,291		)	(48		)	(1,339		)
Stock-based compensation expense	35				—		—	—		—	—		—	17,485			—			—			17,485			—			17,485
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—				1		1,085	—		—	—		—	(10,257		)	—			—			(10,256		)	—			(10,256		)
Issuance of common stock to IAC pursuant to the employee matters agreement	—				—		—	—		1	—		—	—			—			—			—			—			—
Adjustment of redeemable noncontrolling interests to fair value	319				—		—	—		—	—		—	(319		)	—			—			(319		)	—			(319		)
Balance as of June 30, 2019	$	23,421			$	86	85,803	$	421	421,453	$	—	—	$	1,338,280		$	(1,860	)	$	(1,482	)	$	1,335,445		$	9,101		$	1,344,546

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
Net earnings	22			—		—	—		—	—		—	—			22,899			—			22,899			102			23,001
Other comprehensive loss	(593		)	—		—	—		—	—		—	—			—			(5,133		)	(5,133		)	(229		)	(5,362		)
Stock-based compensation expense	390			—		—	—		—	—		—	21,663			—			—			21,663			—			21,663
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—			2		2,063	—		—	—		—	(18,149		)	—			—			(18,147		)	—			(18,147		)
Purchase of redeemable noncontrolling interests	(53		)	—		—	—		—	—		—	—			—			—			—			—			—
Purchase of noncontrolling interests	—			—		—	—		—	—		—	—			—			—			—			(549		)	(549		)
Adjustment of redeemable noncontrolling interests to fair value	(582		)	—		—	—		—	—		—	582			—			—			582			—			582
Other	1			—		—	—		—	—		—	(182		)	—			—			(182		)	174			(8		)
Balance as of June 30, 2018	$	21,840		$	65	65,416	$	416	415,885	$	—	—	$	1,138,938		$	(82,101	)	$	1,091		$	1,058,409		$	9,081		$	1,067,490

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

6

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Six Months Ended June 30, 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
					$		Shares	$		Shares	$		Shares
				(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 earnings	51				—		—	—		—	—		—	—			16,937			—			16,937			97			17,034
Other comprehensive (loss) income	(149		)		—		—	—		—	—		—	—			—			379			379			(42		)	337
Stock-based compensation expense	77				—		—	—		—	—		—	36,725			—			—			36,725			—			36,725
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—				5		5,288	—		—	—		—	(25,448		)	—			—			(25,443		)	—			(25,443		)
Issuance of common stock to IAC pursuant to the employee matters agreement	—				—		—	—		335	—		—	(795		)	—			—			(795		)	—			(795		)
Adjustment of redeemable noncontrolling interests to fair value	5,279				—		—	—		—	—		—	(5,279		)	—			—			(5,279		)	—			(5,279		)
Other	—				—		—	—		—	—		—	(20		)	—			—			(20		)	—			(20		)
Balance as of June 30, 2019	$	23,421			$	86	85,803	$	421	421,453	$	—	—	$	1,338,280		$	(1,860	)	$	(1,482	)	$	1,335,445		$	9,101		$	1,344,546

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) earnings	(89		)	—		—	—		—	—		—	—			14,014			—			14,014			(16		)	13,998
Other comprehensive loss	(218		)	—		—	—		—	—		—	—			—			(1,141		)	(1,141		)	(92		)	(1,233		)
Stock-based compensation expense	800			—		—	—		—	—		—	46,159			—			—			46,159			—			46,159
Issuance of common stock pursuant to stock-based awards, net of withholding taxes	—			2		2,598	—		—	—		—	(19,292		)	—			—			(19,290		)	—			(19,290		)
Issuance of common stock to IAC pursuant to the employee matters agreement	—			—		—	1		699	—		—	(1		)	—			—			—			—			—
Purchase of redeemable noncontrolling interests	(53		)	—		—	—		—	—		—	—			—			—			—			—			—
Purchase of noncontrolling interests	—			—		—	—		—	—		—	—			—			—			—			(818		)	(818		)
Adjustment of redeemable noncontrolling interests to fair value	61			—		—	—		—	—		—	(61		)	—			—			(61		)	—			(61		)
Other	39			—		—	—		—	—		—	(267		)	—			—			(267		)	259			(8		)
Balance as of June 30, 2018	$	21,840		$	65	65,416	$	416	415,885	$	—	—	$	1,138,938		$	(82,101	)	$	1,091		$	1,058,409		$	9,081		$	1,067,490

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

7

ANGI HOMESERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	Six Months Ended June 30,
	2019			2018
	(In thousands)
Cash flows from operating activities:
Net earnings	$	17,085		$	13,909
Adjustments to reconcile net earnings to net cash provided by operating activities:
Stock-based compensation expense	36,802			46,959
Amortization of intangibles	28,252			32,084
Bad debt expense	32,143			20,581
Depreciation	15,795			12,070
Deferred income taxes	(12,407		)	(6,416		)
Other adjustments, net	3,446			164
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	(61,889		)	(36,951		)
Other assets	10,556			(14,217		)
Accounts payable and other liabilities	29,588			(1,673		)
Income taxes payable and receivable	269			667
Deferred revenue	3,384			6,389
Net cash provided by operating activities	103,024			73,566
Cash flows from investing activities:
Acquisition, net of cash acquired	(20,341		)	—
Capital expenditures	(39,113		)	(21,448		)
Proceeds from maturities of marketable debt securities	25,000			—
Net proceeds from the sale of a business	23,599			—
Proceeds from sale of fixed assets	—			10,410
Other, net	(103		)	—
Net cash used in investing activities	(