☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Washington | 47-1645716 | |||||||
(State or other jurisdiction of | (I.R.S. Employer | |||||||
incorporation or organization) | Identification No.) |
@ZillowGroup
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Class A Common Stock, par value $0.0001 per share | ZG | The Nasdaq Global Select Market | ||||||
Class C Capital Stock, par value $0.0001 per share | Z | The Nasdaq Global Select Market |
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||||||||
Emerging growth company | ☐ |
Page | ||||||||||||||
Item 1. | ||||||||||||||
Item 2. | ||||||||||||||
Item 3. | ||||||||||||||
Item 4. | ||||||||||||||
Item 1. | ||||||||||||||
Item 1A. | ||||||||||||||
Item 2. | ||||||||||||||
Item 6. | ||||||||||||||
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 319,942 | $ | 243,592 | ||||
Short-term investments | 361,038 | 262,870 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $3,990 and $1,337 at September 30, 2017 and December 31, 2016, respectively | 53,951 | 40,527 | ||||||
Prepaid expenses and other current assets | 30,014 | 34,817 | ||||||
|
|
|
| |||||
Total current assets | 764,945 | 581,806 | ||||||
Restricted cash | 1,053 | 1,053 | ||||||
Property and equipment, net | 110,741 | 98,288 | ||||||
Goodwill | 1,931,260 | 1,923,480 | ||||||
Intangible assets, net | 505,696 | 527,464 | ||||||
Other assets | 27,006 | 17,586 | ||||||
|
|
|
| |||||
Total assets | $ | 3,340,701 | $ | 3,149,677 | ||||
|
|
|
| |||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,915 | $ | 4,257 | ||||
Accrued expenses and other current liabilities | 55,598 | 38,427 | ||||||
Accrued compensation and benefits | 25,252 | 24,057 | ||||||
Deferred revenue | 31,060 | 29,154 | ||||||
Deferred rent, current portion | 1,930 | 1,347 | ||||||
|
|
|
| |||||
Total current liabilities | 118,755 | 97,242 | ||||||
Deferred rent, net of current portion | 17,787 | 15,298 | ||||||
Long-term debt | 380,795 | 367,404 | ||||||
Deferred tax liabilities and other long-term liabilities | 134,372 | 136,146 | ||||||
|
|
|
| |||||
Total liabilities | 651,709 | 616,090 | ||||||
Commitments and contingencies (Note 14) | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; 30,000,000 shares authorized as of September 30, | — | — | ||||||
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized as of | 6 | 5 | ||||||
Class B common stock, $0.0001 par value; 15,000,000 shares authorized as of | 1 | 1 | ||||||
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized as of | 13 | 12 | ||||||
Additional paid-in capital | 3,204,383 | 3,030,854 | ||||||
Accumulated other comprehensive loss | (345 | ) | (242 | ) | ||||
Accumulated deficit | (515,066 | ) | (497,043 | ) | ||||
|
|
|
| |||||
Total shareholders’ equity | 2,688,992 | 2,533,587 | ||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | $ | 3,340,701 | $ | 3,149,677 | ||||
|
|
|
|
June 30, 2023 | December 31, 2022 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 1,566 | $ | 1,466 | |||||||
Short-term investments | 1,745 | 1,896 | |||||||||
Accounts receivable, net of allowance for doubtful accounts | 90 | 72 | |||||||||
Mortgage loans held for sale | 73 | 41 | |||||||||
Prepaid expenses and other current assets | 155 | 126 | |||||||||
Restricted cash | 2 | 2 | |||||||||
Total current assets | 3,631 | 3,603 | |||||||||
Contract cost assets | 23 | 23 | |||||||||
Property and equipment, net | 309 | 271 | |||||||||
Right of use assets | 108 | 126 | |||||||||
Goodwill | 2,374 | 2,374 | |||||||||
Intangible assets, net | 153 | 154 | |||||||||
Other assets | 20 | 12 | |||||||||
Total assets | $ | 6,618 | $ | 6,563 | |||||||
Liabilities and shareholders’ equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 21 | $ | 20 | |||||||
Accrued expenses and other current liabilities | 118 | 90 | |||||||||
Accrued compensation and benefits | 50 | 48 | |||||||||
Borrowings under credit facilities | 66 | 37 | |||||||||
Deferred revenue | 49 | 44 | |||||||||
Lease liabilities, current portion | 29 | 31 | |||||||||
Total current liabilities | 333 | 270 | |||||||||
Lease liabilities, net of current portion | 126 | 139 | |||||||||
Convertible senior notes | 1,663 | 1,660 | |||||||||
Other long-term liabilities | 10 | 12 | |||||||||
Total liabilities | 2,132 | 2,081 | |||||||||
Commitments and contingencies (Note 13) | |||||||||||
Shareholders’ equity: | |||||||||||
Preferred stock, $0.0001 par value; authorized — 30,000,000 shares; no shares issued and outstanding | — | — | |||||||||
Class A common stock, $0.0001 par value; authorized — 1,245,000,000 shares; issued and outstanding — 56,684,307 and 57,494,698 shares as of June 30, 2023 and December 31, 2022, respectively | — | — | |||||||||
Class B common stock, $0.0001 par value; authorized — 15,000,000 shares; issued and outstanding — 6,217,447 shares | — | — | |||||||||
Class C capital stock, $0.0001 par value; authorized — 600,000,000 shares; issued and outstanding — 169,820,864 and 170,555,565 shares as of June 30, 2023 and December 31, 2022, respectively | — | — | |||||||||
Additional paid-in capital | 6,174 | 6,109 | |||||||||
Accumulated other comprehensive loss | (19) | (15) | |||||||||
Accumulated deficit | (1,669) | (1,612) | |||||||||
Total shareholders’ equity | 4,486 | 4,482 | |||||||||
Total liabilities and shareholders’ equity | $ | 6,618 | $ | 6,563 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 281,839 | $ | 224,592 | $ | 794,464 | $ | 618,977 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue (exclusive of amortization) (1) | 22,152 | 17,608 | 62,644 | 50,556 | ||||||||||||
Sales and marketing | 107,108 | 93,180 | 344,266 | 291,910 | ||||||||||||
Technology and development | 83,389 | 64,496 | 234,798 | 188,263 | ||||||||||||
General and administrative | 54,226 | 42,625 | 153,038 | 284,175 | ||||||||||||
Acquisition-related costs | 218 | 93 | 366 | 890 | ||||||||||||
Gain on divestiture of business | — | (1,251 | ) | — | (1,251 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total costs and expenses | 267,093 | 216,751 | 795,112 | 814,543 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) from operations | 14,746 | 7,841 | (648 | ) | (195,566 | ) | ||||||||||
Other income | 1,407 | 561 | 3,970 | 1,995 | ||||||||||||
Interest expense | (6,906 | ) | (1,595 | ) | (20,526 | ) | (4,740 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 9,247 | 6,807 | (17,204 | ) | (198,311 | ) | ||||||||||
Income tax benefit (expense) | (41 | ) | — | (41 | ) | 1,364 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 9,206 | $ | 6,807 | $ | (17,245 | ) | $ | (196,947 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per share — basic and diluted | $ | 0.05 | $ | 0.04 | $ | (0.09 | ) | $ | (1.10 | ) | ||||||
Weighted-average shares outstanding — basic | 187,692 | 180,583 | 185,447 | 179,577 | ||||||||||||
Weighted-average shares outstanding — diluted | 196,425 | 189,661 | 185,447 | 179,577 | ||||||||||||
(1) Amortization of website development costs and intangible assets included in technology and development | $ | 13,442 | $ | 22,006 | $ | 59,862 | $ | 64,931 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Revenue | $ | 506 | $ | 504 | $ | 975 | $ | 1,040 | |||||||||||||||
Cost of revenue | 104 | 97 | 196 | 189 | |||||||||||||||||||
Gross profit | 402 | 407 | 779 | 851 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Sales and marketing | 173 | 163 | 329 | 337 | |||||||||||||||||||
Technology and development | 140 | 119 | 277 | 227 | |||||||||||||||||||
General and administrative | 153 | 120 | 276 | 232 | |||||||||||||||||||
Impairment and restructuring costs | 2 | — | 8 | 14 | |||||||||||||||||||
Acquisition-related costs | 1 | — | 1 | — | |||||||||||||||||||
Total operating expenses | 469 | 402 | 891 | 810 | |||||||||||||||||||
Income (loss) from continuing operations | (67) | 5 | (112) | 41 | |||||||||||||||||||
Other income | 42 | 5 | 74 | 7 | |||||||||||||||||||
Interest expense | (9) | (9) | (18) | (17) | |||||||||||||||||||
Income (loss) from continuing operations before income taxes | (34) | 1 | (56) | 31 | |||||||||||||||||||
Income tax benefit (expense) | (1) | 9 | (1) | 4 | |||||||||||||||||||
Net income (loss) from continuing operations | (35) | 10 | (57) | 35 | |||||||||||||||||||
Net loss from discontinued operations, net of income taxes | — | (2) | — | (11) | |||||||||||||||||||
Net income (loss) | $ | (35) | $ | 8 | $ | (57) | $ | 24 | |||||||||||||||
Net income (loss) from continuing operations per share: | |||||||||||||||||||||||
Basic | $ | (0.15) | $ | 0.04 | $ | (0.24) | $ | 0.14 | |||||||||||||||
Diluted | $ | (0.15) | $ | 0.04 | $ | (0.24) | $ | 0.13 | |||||||||||||||
Net income (loss) per share: | |||||||||||||||||||||||
Basic | $ | (0.15) | $ | 0.03 | $ | (0.24) | $ | 0.10 | |||||||||||||||
Diluted | $ | (0.15) | $ | 0.03 | $ | (0.24) | $ | 0.09 | |||||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||||||||
Basic | 233,629 | 243,942 | 234,023 | 246,229 | |||||||||||||||||||
Diluted | 233,629 | 245,163 | 234,023 | 248,544 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 9,206 | $ | 6,807 | $ | (17,245 | ) | $ | (196,947 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) on investments | 99 | (179 | ) | (103 | ) | 664 | ||||||||||
Reclassification adjustment for net losses from investments included in net loss | — | — | — | 5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net unrealized gains (losses) on investments | 99 | (179 | ) | (103 | ) | 669 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other comprehensive income (loss) | 99 | (179 | ) | (103 | ) | 669 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income (loss) | $ | 9,305 | $ | 6,628 | $ | (17,348 | ) | $ | (196,278 | ) | ||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net income (loss) | $ | (35) | $ | 8 | $ | (57) | $ | 24 | |||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Unrealized losses on investments | (16) | (12) | (4) | (20) | |||||||||||||||||||
Total other comprehensive loss | (16) | (12) | (4) | (20) | |||||||||||||||||||
Comprehensive income (loss) | $ | (51) | $ | (4) | $ | (61) | $ | 4 |
Class A Common Stock, Class B Common Stock and Class C Capital Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at April 1, 2023 | 233,994 | $ | — | $ | 6,157 | $ | (1,634) | $ | (3) | $ | 4,520 | ||||||||||||||||||||||||
Issuance of common and capital stock upon exercise of stock options | 450 | — | 17 | — | — | 17 | |||||||||||||||||||||||||||||
Vesting of restricted stock units | 1,556 | — | — | — | — | — | |||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 150 | — | — | 150 | |||||||||||||||||||||||||||||
Repurchases of Class A common stock and Class C capital stock | (3,277) | — | (150) | — | — | (150) | |||||||||||||||||||||||||||||
Net loss | — | — | (35) | — | (35) | ||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (16) | (16) | |||||||||||||||||||||||||||||
Balance at June 30, 2023 | 232,723 | $ | — | $ | 6,174 | $ | (1,669) | $ | (19) | $ | 4,486 |
Class A Common Stock, Class B Common Stock and Class C Capital Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at April 1, 2022 | 246,268 | $ | — | $ | 6,298 | $ | (1,495) | $ | (1) | $ | 4,802 | ||||||||||||||||||||||||
Issuance of common and capital stock upon exercise of stock options | 188 | — | 6 | — | — | 6 | |||||||||||||||||||||||||||||
Vesting of restricted stock units | 1,122 | — | — | — | — | — | |||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 112 | — | — | 112 | |||||||||||||||||||||||||||||
Repurchases of Class A common stock and Class C capital stock | (6,437) | — | (249) | — | — | (249) | |||||||||||||||||||||||||||||
Net income | — | — | — | 8 | — | 8 | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (12) | (12) | |||||||||||||||||||||||||||||
Balance at June 30, 2022 | 241,141 | $ | — | $ | 6,167 | $ | (1,487) | $ | (13) | $ | 4,667 |
Class A Common Stock, Class B Common Stock and Class C Capital Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at January 1, 2023 | 234,268 | $ | — | $ | 6,109 | $ | (1,612) | $ | (15) | $ | 4,482 | ||||||||||||||||||||||||
Issuance of common and capital stock upon exercise of stock options | 823 | — | 30 | — | — | 30 | |||||||||||||||||||||||||||||
Vesting of restricted stock units | 2,921 | — | — | — | — | — | |||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 271 | — | — | 271 | |||||||||||||||||||||||||||||
Repurchases of Class A common stock and Class C capital stock | (5,289) | — | (236) | — | — | (236) | |||||||||||||||||||||||||||||
Net loss | — | — | — | (57) | — | (57) | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (4) | (4) | |||||||||||||||||||||||||||||
Balance at June 30, 2023 | 232,723 | $ | — | $ | 6,174 | $ | (1,669) | $ | (19) | $ | 4,486 |
Class A Common Stock, Class B Common Stock and Class C Capital Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | 250,630 | $ | — | $ | 7,001 | $ | (1,667) | $ | 7 | $ | 5,341 | ||||||||||||||||||||||||
Cumulative-effect adjustment from adoption of guidance on accounting for convertible instruments and contracts in an entity’s own equity | — | — | (492) | 156 | — | (336) | |||||||||||||||||||||||||||||
Issuance of common and capital stock upon exercise of stock options | 995 | — | 42 | — | — | 42 | |||||||||||||||||||||||||||||
Vesting of restricted stock units | 1,811 | — | — | — | — | — | |||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 213 | — | — | 213 | |||||||||||||||||||||||||||||
Repurchases of Class A common stock and Class C capital stock | (12,295) | — | (597) | — | — | (597) | |||||||||||||||||||||||||||||
Net income | — | — | — | 24 | — | 24 | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (20) | (20) | |||||||||||||||||||||||||||||
Balance at June 30, 2022 | 241,141 | $ | — | $ | 6,167 | $ | (1,487) | $ | (13) | $ | 4,667 |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating activities | ||||||||
Net loss | $ | (17,245 | ) | $ | (196,947 | ) | ||
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 | 81,576 | 74,852 | ||||||
Share-based compensation expense | 84,162 | 81,152 | ||||||
Amortization of discount and issuance costs on 2021 Notes | 13,391 | — | ||||||
Release of valuation allowance on certain deferred tax assets | — | (1,364 | ) | |||||
Loss on disposal of property and equipment | 4,085 | 3,416 | ||||||
Gain on divestiture of business | — | (1,360 | ) | |||||
Bad debt expense | 5,861 | 1,715 | ||||||
Deferred rent | 3,072 | 312 | ||||||
Amortization of bond premium | 451 | 1,171 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (19,272 | ) | (11,770 | ) | ||||
Prepaid expenses and other assets | 4,434 | 5,197 | ||||||
Accounts payable | 224 | 3,296 | ||||||
Accrued expenses and other current liabilities | 13,174 | (8,746 | ) | |||||
Accrued compensation and benefits | 1,194 | 13,016 | ||||||
Deferred revenue | 1,775 | 5,645 | ||||||
Other long-term liabilities | 41 | (21 | ) | |||||
|
|
|
| |||||
Net cash provided by (used in) operating activities | 176,923 | (30,436 | ) | |||||
Investing activities | ||||||||
Proceeds from maturities of investments | 204,520 | 158,828 | ||||||
Purchases of investments | (303,241 | ) | (126,986 | ) | ||||
Proceeds from sales of investments | — | 4,963 | ||||||
Decrease in restricted cash | — | 1,962 | ||||||
Purchases of property and equipment | (51,580 | ) | (45,732 | ) | ||||
Purchases of intangible assets | (9,377 | ) | (7,827 | ) | ||||
Purchase of cost method investment | (10,000 | ) | — | |||||
Proceeds from divestiture of a business | 579 | 3,200 | ||||||
Cash paid for acquisitions, net | (11,147 | ) | (16,319 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (180,246 | ) | (27,911 | ) | ||||
Financing activities | ||||||||
Proceeds from exercise of stock options | 80,010 | 20,461 | ||||||
Value of equity awards withheld for tax liability | (337 | ) | (492 | ) | ||||
|
|
|
| |||||
Net cash provided by financing activities | 79,673 | 19,969 | ||||||
Net increase (decrease) in cash and cash equivalents during period | 76,350 | (38,378 | ) | |||||
Cash and cash equivalents at beginning of period | 243,592 | 229,138 | ||||||
|
|
|
| |||||
Cash and cash equivalents at end of period | $ | 319,942 | $ | 190,760 | ||||
|
|
|
| |||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid for interest | $ | 4,458 | $ | 3,163 | ||||
Noncash transactions: | ||||||||
Capitalized share-based compensation | $ | 8,915 | $ | 7,809 | ||||
Write-off of fully depreciated property and equipment | $ | 12,685 | $ | 11,585 | ||||
Write-off of fully amortized intangible assets | $ | 5,454 | $ | — |
Six Months Ended June 30, | |||||||||||
2023 | 2022 | ||||||||||
Operating activities | |||||||||||
Net income (loss) | $ | (57) | $ | 24 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 85 | 87 | |||||||||
Share-based compensation | 233 | 193 | |||||||||
Amortization of right of use assets | 12 | 11 | |||||||||
Amortization of contract cost assets | 11 | 16 | |||||||||
Amortization of debt discount and debt issuance costs | 3 | 24 | |||||||||
Loss on extinguishment of debt | — | 21 | |||||||||
Accretion of bond discount | (20) | (11) | |||||||||
Other adjustments to reconcile net income (loss) to net cash provided by operating activities | 1 | 11 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | (19) | 81 | |||||||||
Mortgage loans held for sale | (32) | 46 | |||||||||
Inventory | — | 3,881 | |||||||||
Prepaid expenses and other assets | (30) | 4 | |||||||||
Contract cost assets | (11) | (8) | |||||||||
Lease liabilities | (15) | (8) | |||||||||
Accounts payable | — | (1) | |||||||||
Accrued expenses and other current liabilities | 27 | (69) | |||||||||
Accrued compensation and benefits | 2 | (47) | |||||||||
Deferred revenue | 5 | 1 | |||||||||
Other long-term liabilities | (2) | (1) | |||||||||
Net cash provided by operating activities | 193 | 4,255 | |||||||||
Investing activities | |||||||||||
Proceeds from maturities of investments | 806 | 160 | |||||||||
Purchases of investments | (638) | (1,023) | |||||||||
Purchases of property and equipment | (66) | (60) | |||||||||
Purchases of intangible assets | (18) | (11) | |||||||||
Net cash provided by (used in) investing activities | 84 | (934) | |||||||||
Financing activities | |||||||||||
Repayments of borrowings on credit facilities | — | (2,205) | |||||||||
Net borrowings (repayments) on warehouse line of credit and repurchase agreements | 29 | (58) | |||||||||
Repurchases of Class A common stock and Class C capital stock | (236) | (597) | |||||||||
Settlement of long-term debt | — | (1,158) | |||||||||
Proceeds from exercise of stock options | 30 | 42 | |||||||||
Net cash used in financing activities | (177) | (3,976) | |||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash during period | 100 | (655) | |||||||||
Cash, cash equivalents and restricted cash at beginning of period | 1,468 | 2,838 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 1,568 | $ | 2,183 | |||||||
Supplemental disclosures of cash flow information | |||||||||||
Noncash transactions: | |||||||||||
Capitalized share-based compensation | $ | 38 | $ | 20 | |||||||
Write-off of fully depreciated property and equipment | 16 | 33 | |||||||||
Write-off of fully amortized intangible assets | 2 | 196 | |||||||||
Recognition of operating right of use assets and lease liabilities | — | 14 | |||||||||
Settlement of beneficial interests in securitizations | — | 79 |
Page | ||||||||
Note 1. | ||||||||
Note 2. | ||||||||
Note 3. | ||||||||
Note 4. | ||||||||
Note 5. | ||||||||
Note 6. | ||||||||
Note 7. | ||||||||
Note 8. | ||||||||
Note 9. | ||||||||
Note 10. | ||||||||
Note 11. | ||||||||
Note 12. | ||||||||
Note 13. | ||||||||
Note 14. | ||||||||
Note 15. |
December 31, 2022. See Note 3 for additional information.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to our continuing operations and does not include the results of discontinued operations.
Reclassifications
Certain immaterial reclassifications The health of the residential housing market and interest rate environment have been made inintroduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the condensed consolidated statements of operations to conform data for prior periods to the current format. The Company reclassified certain technology-related costs and expenses between expense categories. Amountsestimates previously reported in the condensed consolidated statement of operations for the three months ended September 30, 2016 were revised herein as shown below (in thousands):
As Reported | As Revised | Effect of Change | ||||||||||
Cost of revenue (exclusive of amortization) | $ | 18,254 | $ | 17,608 | $ | (646 | ) | |||||
Sales and marketing | 92,794 | 93,180 | 386 | |||||||||
Technology and development | 69,171 | 64,496 | (4,675 | ) | ||||||||
General and administrative | 37,690 | 42,625 | 4,935 |
Amounts previously reported in the condensed consolidated statement of operations for the nine months ended September 30, 2016 were revised herein as shown below (in thousands):
As Reported | As Revised | Effect of Change | ||||||||||
Cost of revenue (exclusive of amortization) | $ | 51,926 | $ | 50,556 | $ | (1,370 | ) | |||||
Sales and marketing | 290,810 | 291,910 | 1,100 | |||||||||
Technology and development | 201,009 | 188,263 | (12,746 | ) | ||||||||
General and administrative | 271,159 | 284,175 | 13,016 |
Certain immaterial reclassifications have been made in the statement of cash flows to conform data for prior periods to the current format.
listed, among others.
In November 2016,liabilities were classified as discontinued operations as of December 31, 2022.
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||
Revenue | $ | 505 | $ | 4,226 | |||||||
Cost of revenue | 469 | 3,999 | |||||||||
Gross profit | 36 | 227 | |||||||||
Operating expenses: | |||||||||||
Sales and marketing | 19 | 152 | |||||||||
Technology and development | — | 6 | |||||||||
General and administrative | 3 | 10 | |||||||||
Restructuring costs | 1 | 25 | |||||||||
Total operating expenses | 23 | 193 | |||||||||
Income from discontinued operations | 13 | 34 | |||||||||
Loss on extinguishment of debt | (7) | (21) | |||||||||
Other income | 7 | 13 | |||||||||
Interest expense | — | (36) | |||||||||
Income (loss) from discontinued operations before income taxes | 13 | (10) | |||||||||
Income tax expense | (15) | (1) | |||||||||
Net loss from discontinued operations | $ | (2) | $ | (11) | |||||||
Net loss from discontinued operations per share: | |||||||||||
Basic | $ | (0.01) | $ | (0.04) | |||||||
Diluted | $ | (0.01) | $ | (0.04) |
Amortization of debt discount and debt issuance costs | $ | 21 | |||
Loss on debt extinguishment | 21 | ||||
Share-based compensation | 15 | ||||
Inventory valuation adjustment | 9 | ||||
Depreciation and amortization | 7 | ||||
Settlement of beneficial interests in securitizations | (79) |
In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. This guidance requires the use of an expected loss impairment model for instruments measured at amortized cost. For available-for-sale debt securities, an entity is required to recognize credit losses through an allowance for credit losses rather than as a write-down. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The adoption of this guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We expect to adopt this guidance on January 1, 2020. We haveemployee termination costs that did not yet determined the impact the adoption of this guidance will have on our financial position, results of operations or cash flows.
In February 2016, the FASB issued guidance on leases. This guidance requires the recognition of a right-of-use asset and lease liability on the balance sheet for all leases. This guidance also requires more detailed disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and early adoption is permitted. We expect to adopt this guidance on January 1, 2019. We anticipate this guidance will have a material impact on our financial position, primarily due to our office space operating leases, as we will be required to recognize lease assets and lease liabilities on our consolidated balance sheet. We continue to assess the potential impacts of this guidance, including the impact the adoption of this guidance will have on our results of operations and cash flows, if any.
In January 2016, the FASB issued guidance on the recognition and measurement of financial instruments. This guidance generally requires equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. This guidance also requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notesrelate to the financial statements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, early adoption is permitted, and the guidance must be applied prospectivelyZillow Offers wind down.
In May 2014, the FASB issued new guidance on revenue recognition. The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The effective date of this guidance is for interim and annual reporting periods beginning after December 15, 2017, as the FASB approved an optional one-year deferral of the effective date, and the guidance must be applied retrospectively or modified retrospectively. We will adopt this guidance on January 1, 2018 using the modified retrospective transition approach. This will result in an adjustment to accumulated deficit for the cumulative effect, if any, of applyingthree months ended June 30, 2022. Restructuring costs totaled $14 million for the guidance as of the adoption date. Under this approach, we will not restate the prior financial statements presented. The guidance requires us to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as compared to the guidance that was in effect before the change,six months ended June 30, 2022 and an explanation of the reasons for significant changes, if any. While we continue to assess all potential impacts of this new guidance, we currently expect a significant impactwere related to the accounting for the cost of sales commissions. Under the new guidance, the cost of certain sales commissions will be recorded as an asset and recognized as an operating expense over the period that we expectZillow Offers wind down. Cumulative restructuring charges attributable to recover the costs (the average customer life). Currently we expense the cost of all sales commissions as incurred. We also continue to assess the impact of the guidance on our current product offerings. We continue to implement key control activitiescontinuing operations related to the new guidance, particularly related to evaluating the impactZillow Offers wind down as of the standard on new products or products with more than one performance obligation, the determination of average customer life, and the new disclosure requirements. Further, we have concluded that upon adoption of the new guidance, we will not need to implement new information technology systems. We continue to assess the impact the adoption of this guidance will have on our financial position, results of operations, cash flows and disclosures.
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
We appliedapply the following methods and assumptions in estimating our fair value measurements:
directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within revenue in our condensed Cash equivalents: Money market funds Certificates of deposit Short-term investments: U.S. government agency securities Corporate notes and bonds Commercial paper Municipal securities Certificates of deposit Foreign government securities Restricted cash Total Cash equivalents: Money market funds Certificates of deposit Short-term investments: U.S. government agency securities Corporate notes and bonds Commercial paper Municipal securities Certificates of deposit Foreign government securities Restricted cash Total Cash equivalents are comprised of highly liquid investments, including money market funds and certificates of deposit, with original maturities of three months or less. The fair value measurement of money market funds is based on quoted market prices in active markets and the(Level 1). The fair value measurement of certificatesother cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).depositour short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.Investmentsmeans (Level 2).Our investments consistThe carrying value of fixed income securities, which include U.S. and foreign government agency securities, corporate notes and bonds, municipal securities, commercial paper and certificatesrestricted cash approximates fair value due to the short period of deposit.time amounts are held in escrow (Level 1).measurement of thesemortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).observable market-based inputs or inputs thatestimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are derived principally from or corroborated by observable market data by correlation or other means.June 30, 2023 December 31, 2022 Range 48% - 99% 47% - 100% Weighted-average 83% 87% thousands)millions): September 30, 2017 Total Level 1 Level 2 $ 188,622 $ 188,622 $ — 996 — 996 255,541 — 255,541 44,759 — 44,759 37,554 — 37,554 8,836 — 8,836 8,355 — 8,355 5,993 — 5,993 1,053 — 1,053 $ 551,709 $ 188,622 $ 363,087 December 31, 2016 Total Level 1 Level 2 $ 166,527 $ 166,527 $ — 460 — 460 162,312 — 162,312 61,483 — 61,483 14,952 — 14,952 11,912 — 11,912 6,226 — 6,226 5,985 — 5,985 1,053 — 1,053 $ 430,910 $ 166,527 $ 264,383 June 30, 2023 Total Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 1,394 $ 1,394 $ — $ — Commercial paper 115 115 Short-term investments: U.S. government treasury securities 1,529 — 1,529 — Corporate bonds 160 — 160 — Commercial paper 42 — 42 — U.S. government agency securities 14 — 14 — Mortgage origination-related: Mortgage loans held for sale 73 — 73 — IRLCs - other current assets 1 — — 1 Forward contracts - other current assets 1 — 1 — Total $ 3,329 $ 1,394 $ 1,934 $ 1 December 31, 2022 Total Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 1,338 $ 1,338 $ — $ — Short-term investments: U.S. government treasury securities 1,716 — 1,716 — Corporate bonds 161 — 161 — Commercial paper 10 — 10 — U.S. government agency securities 9 — 9 — Mortgage origination-related: Mortgage loans held for sale 41 — 41 — Forward contracts - other current assets 1 — 1 — Total $ 3,276 $ 1,338 $ 1,938 $ — 98 for the carrying amountamounts and estimated fair valuevalues of the Company’s Convertible Senior Notes due in 2021 and Trulia’s Convertible Senior Notes due in 2020.We did not have any Level 3 assets asour convertible senior notes.
Our investments are classified as available-for-sale securities and are carried at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive loss in shareholders’ equity, while realized gains and losses and other-than-temporary impairments are reported as a component of net income (loss) based on specific identification.
September 30, 2017 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Market Value | |||||||||||||
Cash | $ | 130,324 | $ | — | $ | — | $ | 130,324 | ||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | 188,622 | — | — | 188,622 | ||||||||||||
Certificates of deposit | 996 | — | — | 996 | ||||||||||||
Short-term investments: | ||||||||||||||||
U.S. government agency securities | 255,903 | 2 | (364 | ) | 255,541 | |||||||||||
Corporate notes and bonds | 44,794 | — | (35 | ) | 44,759 | |||||||||||
Commercial paper | 37,554 | — | — | 37,554 | ||||||||||||
Municipal securities | 8,840 | — | (4 | ) | 8,836 | |||||||||||
Certificates of deposit | 8,353 | 2 | — | 8,355 | ||||||||||||
Foreign government securities | 5,998 | — | (5 | ) | 5,993 | |||||||||||
Restricted cash | 1,053 | — | — | 1,053 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 682,437 | $ | 4 | $ | (408 | ) | $ | 682,033 | |||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2016 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Market Value | |||||||||||||
Cash | $ | 76,605 | $ | — | $ | — | $ | 76,605 | ||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | 166,527 | — | — | 166,527 | ||||||||||||
Certificates of deposit | 460 | — | — | 460 | ||||||||||||
Short-term investments: | ||||||||||||||||
U.S. government agency securities | 162,438 | 31 | (157 | ) | 162,312 | |||||||||||
Corporate notes and bonds | 61,530 | 3 | (50 | ) | 61,483 | |||||||||||
Commercial paper | 14,952 | — | — | 14,952 | ||||||||||||
Municipal securities | 11,925 | — | (13 | ) | 11,912 | |||||||||||
Certificates of deposit | 6,226 | — | — | 6,226 | ||||||||||||
Foreign government securities | 5,995 | — | (10 | ) | 5,985 | |||||||||||
Restricted cash | 1,053 | — | — | 1,053 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 507,711 | $ | 34 | $ | (230 | ) | $ | 507,515 | |||||||
|
|
|
|
|
|
|
|
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
Amortized Cost | Estimated Fair Market Value | Amortized Cost | Estimated Fair Market Value | ||||||||||||||||||||
Cash | $ | 57 | $ | 57 | $ | 128 | $ | 128 | |||||||||||||||
Cash equivalents: | |||||||||||||||||||||||
Money market funds | 1,394 | 1,394 | 1,338 | 1,338 | |||||||||||||||||||
Commercial paper | 115 | 115 | — | — | |||||||||||||||||||
Short-term investments: | |||||||||||||||||||||||
U.S. government treasury securities (1) | 1,547 | 1,529 | 1,731 | 1,716 | |||||||||||||||||||
Corporate bonds | 160 | 160 | 162 | 161 | |||||||||||||||||||
Commercial paper | 42 | 42 | 10 | 10 | |||||||||||||||||||
U.S. government agency securities | 14 | 14 | 9 | 9 | |||||||||||||||||||
Restricted cash | 2 | 2 | 2 | 2 | |||||||||||||||||||
Total | $ | 3,331 | $ | 3,313 | $ | 3,380 | $ | 3,364 | |||||||||||||||
(1) The estimated fair market value includes $18 million and $15 million of gross unrealized losses as of June 30, 2023 and December 31, 2022, respectively. |
Amortized Cost | Estimated Fair Market Value | |||||||
Due in one year or less | $ | 244,619 | $ | 244,436 | ||||
Due after one year through two years | 116,823 | 116,602 | ||||||
|
|
|
| |||||
Total | $ | 361,442 | $ | 361,038 | ||||
|
|
|
|
Amortized Cost | Estimated Fair Market Value | ||||||||||
Due in one year or less | $ | 718 | $ | 714 | |||||||
Due after one year | 1,045 | 1,031 | |||||||||
Total | $ | 1,763 | $ | 1,745 |
September 30, 2017 | December 31, 2016 | |||||||
Website development costs | $ | 121,966 | $ | 102,130 | ||||
Computer equipment | 28,462 | 28,175 | ||||||
Leasehold improvements | 47,995 | 37,923 | ||||||
Construction-in-progress | 23,688 | 19,470 | ||||||
Office equipment, furniture and fixtures | 23,519 | 19,254 | ||||||
|
|
|
| |||||
Property and equipment | 245,630 | 206,952 | ||||||
Less: accumulated amortization and depreciation | (134,889 | ) | (108,664 | ) | ||||
|
|
|
| |||||
Property and equipment, net | $ | 110,741 | $ | 98,288 | ||||
|
|
|
|
June 30, 2023 | December 31, 2022 | ||||||||||
Website development costs | $ | 378 | $ | 291 | |||||||
Leasehold improvements | 90 | 90 | |||||||||
Office equipment, furniture and fixtures | 23 | 24 | |||||||||
Computer equipment | 18 | 18 | |||||||||
Construction-in-progress | 1 | 7 | |||||||||
Property and equipment | 510 | 430 | |||||||||
Less: accumulated amortization and depreciation | (201) | (159) | |||||||||
Property and equipment, net | $ | 309 | $ | 271 |
2022, respectively.
Construction-in-progress primarily consists of website development costs that are capitalizable, but for which the associated applications had not been placed in service.
Note 6. Acquisition and Equity Investments
Acquisition
On September 6, 2017, Zillow, Inc. acquired New Home Feed, Inc. (formerly known as Graphic Language, Inc.), a California corporation which operates the New Home Feed business, pursuant to an Agreement and Plan of Merger for an immaterial amount. New Home Feed is a listing management technology that allows builders to input, manage and syndicate their listings across Zillow Group and partner sites. Our acquisition of New Home Feed has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of September 6, 2017. We acquired goodwill of $3.8 million and an identifiable intangible asset of $1.9 million, and we recorded a deferred tax liability of $0.2 million.
Acquisition-related costs incurred related to the acquisition of New Home Feed, which primarily included legal and accounting fees and other external costs directly related to the acquisition, were expensed as incurred and were not material.
The results of operations related to the acquisition of New Home Feed have been included in our condensed consolidated financial statements since the date of acquisition, and are not significant. Pro forma financial information for the acquisition accounted for as a business combination has not been presented, as the effects were not material to our condensed consolidated financial statements.
Equity Investments
In June 2017, we purchased an equity interest in a privately held corporation for approximately $10.0 million, which is accounted for as a cost method investment and classified within other assets in the condensed consolidated balance sheet.
In October 2016, we purchased a 10% equity interest in a privately held variable interest entity within the real estate industry for $10.0 million, which is accounted for as a cost method investment and classified within other assets in the condensed consolidated balance sheet. In October 2016, we also entered into an immaterial commercial agreement with this entity. The entity is financed through its business operations. We are not the primary beneficiary of the entity, as we do not direct the activities that most significantly impact the entity’s economic performance. Therefore, we do not consolidate the entity. Our maximum exposure to loss is $10.0 million, the carrying amount of the investment as of September 30, 2017.
As there were no identified events or changes in circumstances that may have a significant adverse effect on the fair values of our cost method investments as of September 30, 2017, and it is not practicable to estimate the fair values of the investments given the fair values of the investments are not readily determinable, an estimate of the fair values of the cost method investments was not performed.
Note 7. Goodwill
The following table presents the change in goodwill from December 31, 2016 through September 30, 2017 (in thousands):
Balance as of December 31, 2016 | $ | 1,923,480 | ||
Goodwill recorded in connection with acquisitions | 7,780 | |||
|
| |||
Balance as of September 30, 2017 | $ | 1,931,260 | ||
|
|
September 30, 2017 | ||||||||||||
Cost | Accumulated Amortization | Net | ||||||||||
Purchased content | $ | 34,010 | $ | (17,981 | ) | $ | 16,029 | |||||
Software | 15,605 | (7,556 | ) | 8,049 | ||||||||
Customer relationships | 103,900 | (42,555 | ) | 61,345 | ||||||||
Developed technology | 113,380 | (50,953 | ) | 62,427 | ||||||||
Trade names and trademarks | 4,900 | (3,679 | ) | 1,221 | ||||||||
Advertising relationships | 9,000 | (7,811 | ) | 1,189 | ||||||||
MLS home data feeds | 1,100 | (955 | ) | 145 | ||||||||
Intangibles-in-progress | 4,291 | — | 4,291 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 286,186 | $ | (131,490 | ) | $ | 154,696 | |||||
|
|
|
|
|
|
December 31, 2016 | ||||||||||||
Cost | Accumulated Amortization | Net | ||||||||||
Purchased content | $ | 35,205 | $ | (15,508 | ) | $ | 19,697 | |||||
Software | 9,712 | (4,773 | ) | 4,939 | ||||||||
Customer relationships | 103,200 | (30,952 | ) | 72,248 | ||||||||
Developed technology | 110,080 | (36,341 | ) | 73,739 | ||||||||
Trade names and trademarks | 4,900 | (2,877 | ) | 2,023 | ||||||||
Advertising relationships | 9,000 | (5,598 | ) | 3,402 | ||||||||
MLS home data feeds | 1,100 | (684 | ) | 416 | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 273,197 | $ | (96,733 | ) | $ | 176,464 | |||||
|
|
|
|
|
|
June 30, 2023 | |||||||||||||||||
Cost | Accumulated Amortization | Net | |||||||||||||||
Software | $ | 72 | $ | (21) | $ | 51 | |||||||||||
Customer relationships | 58 | (14) | 44 | ||||||||||||||
Trade names and trademarks | 45 | (17) | 28 | ||||||||||||||
Developed technology | 49 | (22) | 27 | ||||||||||||||
Purchased content | 11 | (8) | 3 | ||||||||||||||
Total | $ | 235 | $ | (82) | $ | 153 |
December 31, 2022 | |||||||||||||||||
Cost | Accumulated Amortization | Net | |||||||||||||||
Customer relationships | $ | 59 | $ | (10) | $ | 49 | |||||||||||
Software | 54 | (15) | 39 | ||||||||||||||
Developed technology | 49 | (15) | 34 | ||||||||||||||
Trade names and trademarks | 45 | (15) | 30 | ||||||||||||||
Purchased content | 8 | (6) | 2 | ||||||||||||||
Total | $ | 215 | $ | (61) | $ | 154 |
June 30, 2023 | December 31, 2022 | ||||||||||
Credit facilities | |||||||||||
Master repurchase agreements: | |||||||||||
Atlas Securitized Products, L.P. (1) | $ | 19 | $ | 23 | |||||||
JPMorgan Chase Bank, N.A. | 8 | — | |||||||||
Citibank, N.A. | — | 3 | |||||||||
Warehouse line of credit: | |||||||||||
Comerica Bank | 39 | 11 | |||||||||
Total credit facilities | 66 | 37 | |||||||||
Convertible senior notes | |||||||||||
1.375% convertible senior notes due 2026 | 496 | 495 | |||||||||
2.75% convertible senior notes due 2025 | 561 | 560 | |||||||||
0.75% convertible senior notes due 2024 | 606 | 605 | |||||||||
Total convertible senior notes | 1,663 | 1,660 | |||||||||
Total debt | $ | 1,729 | $ | 1,697 | |||||||
(1) Agreement was reassigned from Credit Suisse AG, Cayman Islands (“Credit Suisse”) on May 25, 2023. See Credit Facilities section below for further information. |
Lender | Maturity Date | Maximum Borrowing Capacity | Weighted-Average Interest Rate | |||||||||||||||||
Atlas Securitized Products, L.P. | March 11, 2024 | $ | 50 | 7.07 | % | |||||||||||||||
JPMorgan Chase Bank, N.A. | May 30, 2024 | 100 | 6.75 | % | ||||||||||||||||
Comerica Bank | December 29, 2023 | 50 | 7.05 | % | ||||||||||||||||
Total | $ | 200 |
Asthe event of Septembera decline in the market value of the assets purchased under the master repurchase agreements. At both June 30, 20172023 and December 31, 2016,2022, $28 million in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.
June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
Maturity Date | Aggregate Principal Amount | Stated Interest Rate | Effective Interest Rate | Semi-Annual Interest Payment Dates | Unamortized Debt Issuance Costs | Fair Value | Unamortized Debt Issuance Costs | Fair Value | ||||||||||||||||||||||||||||||||||||||||||
September 1, 2026 | $ | 499 | 1.375 | % | 1.57 | % | March 1; September 1 | $ | 3 | $ | 647 | $ | 4 | $ | 504 | |||||||||||||||||||||||||||||||||||
May 15, 2025 | 565 | 2.75 | % | 3.20 | % | May 15; November 15 | 4 | 601 | 5 | 531 | ||||||||||||||||||||||||||||||||||||||||
September 1, 2024 | 608 | 0.75 | % | 1.02 | % | March 1; September 1 | 2 | 774 | 3 | 629 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,672 | $ | 9 | $ | 2,022 | $ | 12 | $ | 1,664 |
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||
Maturity Date | Contractual Coupon Interest | Amortization of Debt Issuance Costs | Interest Expense | Contractual Coupon Interest | Amortization of Debt Issuance Costs | Interest Expense | ||||||||||||||||||||||||||||||||||||||
September 1, 2026 | $ | 2 | $ | 1 | $ | 3 | $ | 1 | $ | — | $ | 1 | ||||||||||||||||||||||||||||||||
May 15, 2025 | 4 | 1 | 5 | 4 | 1 | 5 | ||||||||||||||||||||||||||||||||||||||
September 1, 2024 | 1 | — | 1 | 2 | — | 2 | ||||||||||||||||||||||||||||||||||||||
Total | $ | 7 | $ | 2 | $ | 9 | $ | 7 | $ | 1 | $ | 8 |
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||
Maturity Date | Contractual Coupon Interest | Amortization of Debt Issuance Costs | Interest Expense | Contractual Coupon Interest | Amortization of Debt Issuance Costs | Interest Expense | ||||||||||||||||||||||||||||||||
September 1, 2026 | $ | 4 | $ | 1 | $ | 5 | $ | 3 | $ | — | $ | 3 | ||||||||||||||||||||||||||
May 15, 2025 | 8 | 1 | 9 | 8 | 1 | 9 | ||||||||||||||||||||||||||||||||
September 1, 2024 | 2 | 1 | 3 | 3 | 1 | 4 | ||||||||||||||||||||||||||||||||
Total | $ | 14 | $ | 3 | $ | 17 | $ | 14 | $ | 2 | $ | 16 |
Intangibles-in-progress consistwas determined through consideration of purchased content and softwarequoted market prices in markets that are capitalizable but have not been placed in service.
Note 9. Convertible Senior Notes
Convertible Senior Notes due in 2021
On December 12, 2016, Zillow Group issued $460.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2021 (the “2021 Notes”), which amount includes the exercise in full of the $60.0 million over-allotment option, to Citigroup Global Markets Inc. as the initial purchaser of the 2021 Notes in a private offering to the initial purchaser in reliance on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for resale to qualified institutional buyers as defined in, and pursuant to, Rule 144A under the Securities Act. active.
Maturity Date | Early Conversion Date | Conversion Rate | Conversion Price | Optional Redemption Date | ||||||||||||||||||||||
September 1, 2026 | March 1, 2026 | 22.9830 | $ | 43.51 | September 5, 2023 | |||||||||||||||||||||
May 15, 2025 | November 15, 2024 | 14.8810 | 67.20 | May 22, 2023 | ||||||||||||||||||||||
September 1, 2024 | March 1, 2024 | 22.9830 | 43.51 | September 5, 2022 |
Maturity Date | Initial Cap Price | Cap Price Premium | ||||||||||||
September 1, 2026 | $ | 80.5750 | 150 | % | ||||||||||
September 1, 2024 | 72.5175 | 125 | % | |||||||||||
July 1, 2023 | 105.45 | 85 | % |
Prior tomore than 20 trading days during the close30 consecutive trading days ended June 30, 2023. Accordingly, each series of business on the business day immediately preceding September 1, 2021, the 2021 Notes areis not redeemable or convertible at the option of the holders of the 2021 Notes only under certain conditions, none of which conditions have been satisfied as offrom July 1 through September 30, 2017. On or after September 1, 2021, until2023.
If the Company undergoes a fundamental change (as defined in the indenture governing the 2021 Notes), holders of the 2021 Notes may require the Company to repurchase for cash all or part of their 2021 Notes at a repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the indenture governing the 2021 Notes). In addition, if certain fundamental changes occur, the Company may be required in certain circumstances to increase the conversion rate for any 2021 Notes converted in connection with such fundamental changes by a specified number of shares of its Class C capital stock. Certain events are also considered “Events of Default,” which may result in the acceleration of the maturity of the 2021 Notes, as described in the indenture governing the notes. There are no financial covenants associated with the 2021 Notes.
We may not redeem the 2021 Notes prior to December 6, 2019. We may redeem the 2021 Notes for cash, at our option, in whole or in partAnnual Report on or after December 6, 2019, if the last reported sale price per share of our Class C capital stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
In accountingForm 10-K for the issuance of the 2021 Notes, the Company separated the 2021 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2021 Notes. The difference between the principal amount of the 2021 Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the consolidated balance sheet and amortized to interest expense using the effective interest method over the term of the 2021 Notes. The equity component of the 2021 Notes of approximately $91.4 million is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred transaction costs of approximately $12.2 million related to the issuance of the 2021 Notes, including approximately $11.5 million in fees to the initial purchaser, which amount was paid out of the gross proceeds from the note offering. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 2021 Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the condensed consolidated balance sheet and amortized to interest expense over the term of the 2021 Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.
Interest expense related to the 2021 Notes for the three months ended September 30, 2017 was $6.8 million, which is comprised of approximately $4.5 million related to the amortization of debt discount and debt issuance costs and $2.3 million for the contractual coupon interest. Interest expense related to the 2021 Notes for the nine months ended September 30, 2017 was $20.3 million, which is comprised of approximately $13.4 million related to the amortization of debt discount and debt issuance costs and $6.9 million for the contractual coupon interest. Accrued interest related to the 2021 Notes as of September 30, 2017 and December 31, 2016 was $3.1 million and $0.5 million, respectively, and is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet.
The following table presents the outstanding principal amount and carrying value of the 2021 Notes as of the dates presented (in thousands):
Outstanding Principal Amount | Unamortized Debt Discount and Debt Issuance Costs | Carrying Value | ||||||||||
September 30, 2017 | $ | 460,000 | $ | (89,342 | ) | $ | 370,658 | |||||
December 31, 2016 | $ | 460,000 | $ | (102,733 | ) | $ | 357,267 |
As of September 30, 2017, the unamortized debt discount and debt issuance costs for the 2021 Notes will be amortized to interest expense over a remaining period of approximately 50 months.
The estimated fair value of the 2021 Notes was $498.1 million and $474.2 million, respectively, as of September 30, 2017 and December 31, 2016. The estimated fair value of the 2021 Notes was determined through consideration of quoted market prices. The fair value is classified as Level 3 due to the limited trading activity for the 2021 Notes.
The Capped Call Confirmations are expected generally to reduce the potential dilution of our Class C capital stock upon any conversion of 2021 Notes and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2021 Notes in the event that the market price of the Class C capital stock is greater than the strike price of the Capped Call Confirmations (which initially corresponds to the initial conversion price of the 2021 Notes and is subject to certain adjustments under the terms of the Capped Call Confirmations), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Confirmations. The Capped Call Confirmations have an initial cap price of $69.19 per share, which represents a premium of approximately 85% over the closing price of the Company’s Class C capital stock on The NASDAQ Global Select Market on December 6, 2016, and is subject to certain adjustments under the terms of the Capped Call Confirmations. The Capped Call Confirmations will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2021 Notes, the number of shares of Class C capital stock that will underlie the 2021 Notes. In addition, the Capped Call Confirmations provide for the Company to elect, subject to certain conditions, for the Capped Call Confirmations to remain outstanding (with certain modifications) following its election to redeem the 2021 Notes, notwithstanding any conversions of 2021 Notes in connection with such redemption. The Capped Call Confirmations do not meet the criteria for separate accounting as a derivative as they are indexed to our own stock. The premiums paid for the Capped Call Confirmations have been included as a net reduction to additional paid-in capital within shareholders’ equity.
Trulia’s Convertible Senior Notes due in 2020
In connection with the February 2015 acquisition of Trulia, a portion of the total purchase price was allocated to Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”), which are unsecured senior obligations. Pursuant to and in accordance with the Merger Agreement, Zillow Group entered into a supplemental indenture in respect of the 2020 Notes in the aggregate principal amount of $230.0 million, which supplemental indenture provides, among other things, that, at the effective time of the Trulia Merger, (i) each outstanding 2020 Note is no longer convertible into shares of Trulia common stock and is convertible solely into shares of Zillow Group Class A common stock, pursuant to, and in accordance with, the terms of the indenture governing the 2020 Notes, and (ii) Zillow Group guaranteed all of the obligations of Trulia under the 2020 Notes and related indenture. The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed. Interest is payable on the 2020 Notes at the rate of 2.75% semi-annually on June 15 and December 15 of each year.
In December 2016, the Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes discussed above to repurchase $219.9 million aggregate principal of the 2020 Notes in privately negotiated transactions. The repurchase of the 2020 Notes was accounted for as a debt extinguishment, and the consideration transferred was allocated between the liability and equity components by determining the intrinsic value of the conversion option immediately prior to the debt extinguishment and allocating that portion of the repurchase price to additional paid-in capital for $127.6 million with the residual repurchase price allocated to the liability component. The partial repurchase of the 2020 Notes resulted in the recognition of a $22.8 million loss on debt extinguishment for thefiscal year ended December 31, 2016.
Holders of the 2020 Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. Regarding the supplemental indenture in respect of the 2020 Notes, the conversion ratio immediately prior to the effective time of the Trulia Merger of 27.8303 shares of Trulia common stock per $1,000 principal amount of notes was adjusted to 12.3567 shares of our Class A common stock per $1,000 principal amount of notes based on the exchange ratio of 0.444 per the Merger Agreement. This was equivalent to an initial conversion price of approximately $80.93 per share of our Class A common stock. Regarding the August 2015 distribution of shares of our Class C capital stock as a dividend to our Class A and Class B common shareholders, the conversion ratio has been further adjusted to 41.4550 shares of Class A common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $24.12 per share of our Class A common stock. The conversion ratio will be adjusted for certain dilutive events and will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes). The conversion option of the 2020 Notes has no cash settlement provisions. The conversion option does not meet the criteria for separate accounting as a derivative as it is indexed to our own stock.
The holders of the 2020 Notes will have the ability to require us to repurchase the notes in whole or in part upon the occurrence of an event that constitutes a “Fundamental Change” (as defined in the indenture governing the notes, including such events as a “change in control” or “termination of trading”,2022.
The 2020 Notes are redeemable, at our option, in whole or in part on or after December 20, 2018, if the last reported sale price per share of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
Interest expense related to the 2020 Notes for the three months ended September 30, 2017 and 2016 was $0.1 million and $1.6 million, respectively. Interest expense related to the 2020 Notes for the nine months ended September 30, 2017 and 2016 was $0.2 million and $4.7 million, respectively. Accrued interest related to the 2020 Notes as of September 30, 2017 and December 31, 2016 was not material.
The carrying value of the 2020 Notes was $10.1 million as of September 30, 2017 and December 31, 2016. The estimated fair value of the 2020 Notes was $17.6 million and $17.3 million, respectively, as of September 30, 2017 and December 31, 2016. The estimated fair value of the 2020 Notes was determined through consideration of quoted market prices. The fair value is classified as Level 3 due to the limited trading activity for the 2020 Notes.
Note 10. Income Taxes
We are subject to federal and state income taxes in the United States (federal and in Canada. During the threestate), as well as certain foreign jurisdictions. As of June 30, 2023 and nine month periods ended September 30, 2017 and 2016, we did not have a material amount of current taxable income, and we are not projecting a material amount of current taxable income for the year ending December 31, 2017. We2022, we have provided a full valuation allowance against our net deferred tax assets as of September 30, 2017 and December 31, 2016 because,that we believe, based on the weight of available evidence, it isare not more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will notto be realized. Therefore, no material current tax liability or expense has been recorded in the condensed consolidated financial statements. We have accumulated federal tax losses of approximately $893.3 million$1.8 billion as of December 31, 2016,2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $13.5$63 million (tax effected) as of December 31, 2016.
2022.
Note 11. Shareholders’ Equity
Preferred Stock
Our board$1.8 billion of directors has the authority to fix and determine and to amend the number of shares of any series of preferred stock that is wholly unissued or to be established and to fix and determine and to amend the designation, preferences, voting powers and limitations, and the relative, participating, optional or other rights, of any series of shares of preferred stock that is wholly unissued or to be established, subject in each case to certain approval rights of holders of our outstanding Class B common stock. There was no preferred stock issued and outstanding as of September 30, 2017 or December 31, 2016.
Common and Capital Stock
Our Class A common stock, has no preferencesClass C capital stock, outstanding convertible senior notes or privilegesa combination thereof (together the “Repurchase Authorizations”). For additional information on these authorizations, see Note 13 to our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Our Class B common stock has no preferences or privileges and is not redeemable. At any time after the$1.0 billion under our total Repurchase Authorizations of $2.5 billion.
Our Class C capital stock has no preferences or privileges, is not redeemablerepurchase activity under the Repurchase Authorizations for the periods presented (in millions, except share data, which are presented in thousands, and except in limited circumstances, is non-voting.
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||
Class A common stock | Class C capital stock | Class A common stock | Class C capital stock | ||||||||||||||||||||
Shares repurchased | 496 | 2,781 | 1,165 | 5,272 | |||||||||||||||||||
Weighted-average price per share | $ | 45.18 | $ | 45.86 | $ | 38.31 | $ | 38.91 | |||||||||||||||
Total purchase price | $ | 23 | $ | 127 | $ | 44 | $ | 205 |
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||
Class A common stock | Class C capital stock | Class A common stock | Class C capital stock | ||||||||||||||||||||
Shares repurchased | 810 | 4,479 | 2,577 | 9,718 | |||||||||||||||||||
Weighted-average price per share | $ | 44.12 | $ | 44.76 | $ | 49.30 | $ | 48.40 | |||||||||||||||
Total purchase price | $ | 36 | $ | 200 | $ | 127 | $ | 470 |
In connection with our February 2015 acquisition of Trulia, we assumed the obligations of Zillow, Inc. and Trulia outstanding under pre-existing stock plans. We intend that future equity grants will be made under Zillow Group’s 2011 Amended and Restated Incentive Plan (as amended and/or restated from time to time, the “2011 Plan”) only (or a successor thereto).
Zillow Group, Inc. Amended and Restated 2011 Incentive Plan
On July 19, 2011, the 2011 Plan became effective and serves as the successor to Zillow, Inc.’s 2005 Equity Incentive Plan (the “2005 Plan”). Shareholders last approved the 2011 Plan on June 15, 2016.
number of shares equal to2023, the least of (a) 3.5% of our outstanding Class A common stock, Class B common stock, and Class C capital stock on a fully diluted basis asCompensation Committee of the end of our immediately preceding fiscal year, (b) 10,500,000 shares,Board approved option and (c) a lesser amount determined by our board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuancerestricted stock unit awards granted under the 2011 Plan. In addition, shares previously available for grant under2020 Plan in connection with the 2005 Plan, but not issued or subject to outstanding2022 annual review cycle that vest quarterly over three years. The exercisability terms of these equity awards under the 2005 Plan as of July 19, 2011, and shares subject to outstanding awards under the 2005 Plan that subsequently cease to be subject to such awards (other than by reason of exercise of the awards) are available for grant under the 2011 Plan. The 2011 Plan is administered by the compensation committee of the board of directors. Underotherwise consistent with the terms of the 2011 Plan, the compensation committee may grant equityoption awards including incentive stock options, nonqualified stock options, restricted stock,and restricted stock units or restricted units to employees, officers, directors, consultants, agents, advisors and independent contractors. The board of directors has also authorized certain senior executive officers to grant equity awards under the 2011 Plan, within limits prescribed by our board of directors. The 2011 Plan provides that in the event of a stock dividend, stock split or similar event, the maximum number and kind of securities available for issuance under the plan will be proportionally adjusted.
Options under the 2011 Plan are granted with an exercise price per share not less than 100% of the fair market value of our stock on the date of grant, with the exception of substituted option awards granted in connection with acquisitions, and are exercisable at such times and under such conditions as determined by the compensation committee. Under the 2011 Plan, the maximum term of an option is ten years from the date of grant. Any portion of an option that is not vested and exercisable on the date of a participant’s termination of service expires on such date. Employees generally forfeit their rights to exercise vested options after 3 months following their termination of employment or 12 months in the event of termination by reason of death, disability or retirement. Optionstypically granted under the 2011 Plan typically expire seven or 10 years from2020 Plan. For additional information regarding our share-based awards, see Note 16 in the grant date and typically vest either 25% after 12 months and ratably thereafter overNotes to the next 36 months or quarterly over a period of four years, though certain options have been granted with alternative vesting schedules.
Restricted stock units granted under the 2011 Plan typically vest either 25% after 12 months and quarterly thereafter over the next three years or 12.5% after 6 months and quarterly thereafterConsolidated Financial Statements in our Annual Report on Form 10-K for the next 3.5 years. Any portion of a restricted stock unit that is not vested on the date of a participant’s termination of service expires on such date.
In March 2016, Zillow Group established an equity choice program pursuant to which Zillow Group grants restricted stock units and option awards to acquire shares of Class C capital stock to certain employees to retain and recognize their efforts on behalf of Zillow Group.
fiscal year ended December 31, 2022.
Number of Shares Subject to Existing Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at January 1, 2017 | 29,628,443 | $ | 24.11 | 5.97 | $ | 376,004 | ||||||||||
Granted | 4,330,797 | 35.83 | ||||||||||||||
Exercised | (5,260,391 | ) | 15.21 | |||||||||||||
Forfeited or cancelled | (1,172,856 | ) | 32.27 | |||||||||||||
|
| |||||||||||||||
Outstanding at September 30, 2017 | 27,525,993 | 27.31 | 5.87 | 359,650 | ||||||||||||
Vested and exercisable at September 30, 2017 | 13,985,706 | 24.77 | 4.47 | 218,956 |
2023:
Number of Shares Subject to Existing Options (in thousands) | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
Outstanding at January 1, 2023 | 28,598 | $ | 44.90 | 7.08 | $ | 15 | |||||||||||||||||
Granted | 6,287 | 42.16 | |||||||||||||||||||||
Exercised | (823) | 37.60 | |||||||||||||||||||||
Forfeited or cancelled | (671) | 49.94 | |||||||||||||||||||||
Outstanding at June 30, 2023 | 33,391 | 44.46 | 7.21 | 276 | |||||||||||||||||||
Vested and exercisable at June 30, 2023 | 18,805 | 44.88 | 5.94 | 160 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2017 | 2016 | 2017 | 2016 | |||||
Expected volatility | 46% | 50% | 46%-49% | 50%-51% | ||||
Expected dividend yield | — | — | — | — | ||||
Risk-free interest rate | 1.70% | 0.98% | 1.67%-1.84% | 0.98%-1.12% | ||||
Weighted-average expected life | 4.25 years | 4.00 years | 4.25-4.75 years | 3.75-4.25 years | ||||
Weighted-average fair value of options granted | $15.79 | $14.29 | $14.40 | $9.20 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Expected volatility | 61% | 60% | 55% - 61% | 55% - 60% | |||||||||||||||||||
Risk-free interest rate | 3.75% | 2.97% | 3.75% - 4.04% | 1.94% - 2.97% | |||||||||||||||||||
Weighted-average expected life | 5.25 years | 5.00 years | 5.25 - 6.50 years | 4.50 - 6.00 years | |||||||||||||||||||
Weighted-average fair value of options granted | $25.81 | $17.82 | $23.76 | $24.60 |
option awards.
Restricted Stock Units | Weighted- Average Grant- Date Fair Value | |||||||
Unvested outstanding at January 1, 2017 | 3,780,577 | $ | 28.54 | |||||
Granted | 2,218,754 | 36.78 | ||||||
Vested | (1,059,105 | ) | 29.04 | |||||
Forfeited or cancelled | (721,000 | ) | 31.34 | |||||
|
| |||||||
Unvested outstanding at September 30, 2017 | 4,219,226 | 32.27 | ||||||
|
|
The fair value of the outstanding restricted stock units will be recorded as share-based compensation expense over the vesting period. 2023:
Restricted Stock Units (in thousands) | Weighted-Average Grant Date Fair Value | ||||||||||
Unvested outstanding at January 1, 2023 | 10,930 | $ | 46.85 | ||||||||
Granted | 7,331 | 42.49 | |||||||||
Vested | (2,921) | 47.16 | |||||||||
Forfeited | (512) | 46.21 | |||||||||
Unvested outstanding at June 30, 2023 | 14,828 | 44.66 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Cost of revenue | $ | 1,014 | $ | 894 | $ | 2,942 | $ | 2,662 | ||||||||
Sales and marketing | 5,914 | 5,968 | 17,694 | 17,566 | ||||||||||||
Technology and development | 10,438 | 8,035 | 29,329 | 23,160 | ||||||||||||
General and administrative | 11,208 | 12,388 | 34,197 | 37,764 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 28,574 | $ | 27,285 | $ | 84,162 | $ | 81,152 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
Cost of revenue | $ | 4 | $ | 4 | $ | 8 | $ | 7 | |||||||||||||||||||||||||||
Sales and marketing | 19 | 14 | 35 | 25 | |||||||||||||||||||||||||||||||
Technology and development | 42 | 38 | 81 | 66 | |||||||||||||||||||||||||||||||
General and administrative | 65 | 43 | 109 | 78 | |||||||||||||||||||||||||||||||
Share-based compensation - continuing operations | 130 | 99 | 233 | 176 | |||||||||||||||||||||||||||||||
Share-based compensation - discontinued operations | — | 3 | — | 17 | |||||||||||||||||||||||||||||||
Total share-based compensation | $ | 130 | $ | 102 | $ | 233 | $ | 193 |
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period. In the calculation of basic net income (loss) per share, undistributed earnings are allocated assuming all earnings during the period were distributed.
Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period and potentially dilutive Class A common stock and Class C capital stock equivalents, except in cases where the effect of the Class A common stock or Class C capital stock equivalent would be antidilutive. Potential Class A common stock and Class C capital stock equivalents consist of Class A common stock and Class C capital stock issuable upon exercise of stock options and Class A common stock and Class C capital stock underlying unvested restricted stock units using the treasury stock method. Potential Class A common stock equivalents also include Class A common stock issuable upon conversion of the 2020 Notes using the if-converted method.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Denominator for basic calculation | 187,692 | 180,583 | 185,447 | 179,577 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Option awards | 7,401 | 7,928 | — | — | ||||||||||||
Unvested restricted stock units | 1,332 | 1,150 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Denominator for dilutive calculation | 196,425 | 189,661 | 185,447 | 179,577 | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Denominator for basic calculation | 233,629 | 243,942 | 234,023 | 246,229 | |||||||||||||||||||
Effect of dilutive securities: | |||||||||||||||||||||||
Option awards | — | 964 | — | 1,757 | |||||||||||||||||||
Unvested restricted stock units | — | 257 | — | 558 | |||||||||||||||||||
Denominator for dilutive calculation | 233,629 | 245,163 | 234,023 | 248,544 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Weighted-average Class A common stock and Class C capital stock option awards outstanding | 6,542 | 8,456 | 28,671 | 17,874 | ||||||||||||
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding | 199 | 235 | 4,311 | 3,559 | ||||||||||||
Class A common stock issuable upon conversion of the 2020 Notes | 438 | 10,026 | 438 | 10,026 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Class A common stock and Class C capital stock equivalents | 7,179 | 18,717 | 33,420 | 31,459 | ||||||||||||
|
|
|
|
|
|
|
|
Since the Company expects to settle the principal amount
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Weighted-average Class A common stock and Class C capital stock option awards outstanding | 22,315 | 207 | 20,045 | 2,650 | |||||||||||||||||||
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding | 15,366 | 7,357 | 13,746 | 5,284 | |||||||||||||||||||
Class C capital stock issuable upon conversion of the Notes | 33,855 | 33,855 | 33,855 | 33,855 | |||||||||||||||||||
Total Class A common stock and Class C capital stock equivalents | 71,536 | 41,419 | 67,646 | 41,789 |
In the event of liquidation, dissolution, distribution of assets or winding-up of the Company, the holders of all classes of common and capital stock have equal rights to receive all the assets of the Company after the rights of the holders of preferred stock have been satisfied. We have not presented net income (loss) per share under the two-class method for our Class A common stock, Class B common stock and Class C capital stock because it would be the same for each class due to equal dividend and liquidation rights for each class.
Lease
We have entered into various non-cancelable operating lease agreements for certain of
Future minimum payments for all operating leases as of September 30, 2017 are as follows (in thousands):
Remainder of 2017 | $ | 6,266 | ||
2018 | 25,510 | |||
2019 | 24,579 | |||
2020 | 25,006 | |||
2021 | 25,322 | |||
All future years | 61,755 | |||
|
| |||
Total future minimum lease payments | $ | 168,438 | ||
|
|
Purchase Commitments
We have entered into various non-cancelable purchase commitments for content related to our mobile applications and websites. License agreement terms vary by vendor. In some instances, we retain perpetual rights to this information after the contract ends; in other instances, the information and data are licensed only during the fixed term of the agreement. Additionally, certain data license agreements provide for uneven payment amounts throughout the contract term.
We capitalize payments made to third parties for data licenses that we expect to provide future economic benefit through the recovery of the costs of these arrangements via the generation of our revenue and margins. For data license contracts that include uneven payment amounts, we capitalize the payments as they are made as an intangible asset and amortize the total contract value over the estimated useful life. For contracts in which we have perpetual rights to the data and expect to utilize the data beyond the life of the contract, the total contract value is amortized on a straight-line basis over the life of the contract plus two years, which is equivalent to the estimated useful life of the asset. For contracts in which we either do not have access to the data beyond the contractual term or do not expect to utilize the data beyond the life of the contract, the total contract value is amortized on a straight-line basis over the term of the contract. We evaluate data content contracts for potential capitalization at the inception of the arrangement as well as each time periodic payments to third parties are made.
The amortization period for the capitalized purchased content is based on our best estimate of the useful life of the asset, which ranges from approximately five to nine years. The capitalized purchased data content is amortized on a straight-line basis as the pattern of delivery of the economic benefits of the data cannot reliably be determined because we do not have the ability to reliably predict future traffic to our mobile applications and websites.
Under certain other data agreements, the underlying data is obtained on a subscription basis with consistent monthly or quarterly recurring payment terms over the contractual period. Upon the expiration of such arrangements, we no longer have the right to access the related data, and therefore, the costs incurred under such contracts are not capitalized and are expensed as payments are made. We would immediately lose rights to data under these arrangements if we were to cancel the subscription and/or cease making payments under the subscription arrangements.
As of September 30, 2017, we had non-cancelable purchase commitments for content related to our mobile applications and websites totaling $144.4 million. The amounts due for this content as of September 30, 2017 are as follows (in thousands):
Remainder of 2017 | $ | 8,265 | ||
2018 | 32,750 | |||
2019 | 33,500 | |||
2020 | 33,500 | |||
2021 | 32,000 | |||
2022 | 4,375 | |||
|
| |||
Total future purchase commitments | $ | 144,390 | ||
|
|
Letters of Credit
As of September 30, 2017, we have outstanding letters of credit of approximately $5.2 million, $1.8 million, $1.5 million and $1.1 million, respectively, which secure our lease obligations in connection with the operating leases of our San Francisco, Seattle, New York and Denver office spaces. Certain of the letters of credit are unsecured obligations, and certain of the letters of credit are secured by certificates of deposit held as collateral in our name at a financial institution. The secured letters of credit are classified as restricted cash in our consolidated balance sheet.
Surety Bonds
In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guarantee of our performance on and our compliance with certain obligations. If we were to fail to perform or comply with these obligations, any draws upon surety bonds issued on our behalf would then trigger our payment obligation to the surety bond issuer. We have outstanding surety bonds issued for our benefit of approximately $3.7 million and $3.6 million as of September 30, 2017 and December 31, 2016, respectively.
2022.
cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow.
In March 2015, For the Wage and Hour Division of the U.S. Department of Labor (“DOL”) notified the Company that it was initiating a compliance review to determine the Company’s compliance with one or more federal labor laws enforced by the DOL. Asmatters discussed below, on May 5, 2016, Zillow, Inc. agreed to settle a class action lawsuit which alleged, among other things, claims that we failed to provide meal and rest breaks, failed to pay overtime, and failed to keep accurate records of employees’ hours worked. The settlement of the class action lawsuit, which was approved by the court on October 3, 2017, was contingent on Zillow, Inc.’s complete resolution of the DOL compliance review. On November 28, 2016, Zillow, Inc. entered into a settlement agreement with the DOL that resolved the DOL’s compliance review. Under the terms of the settlement agreement, Zillow, Inc. agreed that it will make the voluntary payments contemplated by the class action lawsuit settlement and establish and maintain certain procedures to promote future compliance with the Fair Labor Standards Act. The settlement agreement with the DOL doeshave not require Zillow, Inc. to makerecorded any payments which are in addition to those contemplated by the class action lawsuit settlement. Zillow, Inc. has not admitted liability with respect to either the DOL settlement or the class action lawsuit settlement.
In November 2014, a former employee filed a putative class action lawsuit against us in the United States District Court, Central District of California, with the caption Ian Freeman v. Zillow, Inc. The complaint alleged, among other things, claims that we failed to provide meal and rest breaks, failed to pay overtime, and failed to keep accurate records of employees’ hours worked. After the court granted our two motions to dismiss certain claims, plaintiff filed a second amended complaint that includes claims under the Fair Labor Standards Act. On November 20, 2015, plaintiff filed a motion for class certification. On February 26, 2016, the court granted the plaintiff’s motion for class certification. On May 5, 2016, the parties agreed to settle the lawsuit, which was later memorialized in a settlement agreement executed by the parties on December 2, 2016, with payment by Zillow, Inc. of up to $6.0 million. On June 9, 2016, the Ninth Circuit Court of Appeals granted our petition for permission to appeal the order granting class certification. The settlement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties. On April 10, 2017, the parties executed an amendment to the settlement agreement providing that the settlement class includes all current and former inside sales consultants employed by Zillow, Inc. in (i) its California offices from November 19, 2010 through the date on which the court granted preliminary approval and (ii) its Washington offices from March 1, 2013 through the date on which the court granted preliminary approval. On May 26, 2017, the court granted preliminary approval of the settlement of the class action lawsuit, and on October 3, 2017, the court granted final approval of the settlement of the class action lawsuit. We made the voluntary payments contemplated by the class action settlement agreement in the amount of $6.0 million in October 2017. We have recorded a liability related to the settlement for $6.0 millionmaterial accruals as of SeptemberJune 30, 2017 and2023 or December 31, 2016. We do not believe that any additional loss will be incurred related to this matter given the court granted final approval of the settlement of the class action lawsuit in October 2017.
In July 2015, VHT, Inc. (“VHT”) filed a complaint against us in the U.S. District Court for the Western District of Washington alleging copyright infringement of VHT’s images on the Zillow Digs site. In January 2016, VHT filed an amended complaint alleging copyright infringement of VHT’s images on the Zillow Digs site as well as the Zillow listing site. In December 2016, the court granted a motion for partial summary judgment that dismissed VHT’s claims with respect to the Zillow listing site. A federal jury trial began on January 23, 2017, and on February 9, 2017, the jury returned a verdict finding that the Company had infringed VHT’s copyrights in images displayed or saved to the Digs site. The jury awarded VHT $79,875 in actual damages and approximately $8.2 million in statutory damages. In March 2017, the Company filed motions in the district court seeking judgment for the Company on certain claims that are the subject of the verdict, and for a new trial on others. On June 20, 2017, the judge ruled and granted in part our motions, finding that VHT failed to present sufficient evidence to prove direct copyright infringement for a portion of the images, reducing the total damages to approximately $4.1 million. On October 26, 2017, the Company filed an appeal with the Ninth Circuit Court of Appeals seeking review of the final judgment and certain prior rulings entered by the district court. We did not record an accrual related to this complaint as of December 31, 2016, as we did not believe a loss was probable. We have recorded an estimated liability for approximately $4.1 million as of September 30, 2017, which is classified in general and administrative expenses in our condensed consolidated statement of operations for the nine months ended September 30, 2017. We do not believe there is a reasonable possibility that a material loss in excess of amounts accrued may be incurred.
In April 2017, we received a Civil Investigative Demand from the Consumer Financial Protection Bureau (“CFPB”) requesting information related to our March 2017 response to the CFPB’s February 2017 Notice and Opportunity to Respond and Advise (“NORA”) letter. The NORA letter notified us that the CFPB’s Office of Enforcement was considering whether to recommend that the CFPB take legal action against us, alleging that we violated Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) and Section 1036 of the Consumer Financial Protection Act (“CFPA”). This notice stemmed from an inquiry that commenced in 2015 when we received and responded to an initial Civil Investigative Demand from the CFPB. We continue to cooperate with the CFPB in connection with requests for information. Based on correspondence from the CFPB in August 2017, we understand that it has
concluded its investigation. The CFPB invited us to discuss a possible settlement and indicated that it intends to pursue further action if those discussions do not result in a settlement. We continue to believe that our acts and practices are lawful and that our co-marketing program allows lenders and agents to comply with RESPA, and we will vigorously defend against any allegations to the contrary. Should the CFPB commence an action against us, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action. As of September 30, 2017, we have recorded an accrual for an immaterial amount in connection with this matter. There is a reasonable possibility that a loss in excess of amounts accrued may be incurred; however, the possible loss or range of loss is not estimable. We did not record an accrual related to this matter as of December 31, 2016 because the possible loss or range of loss was not estimable.
2022.
In October 2017, anew shareholder derivative lawsuit was filed in the U.S. District Court for the Western District of Washington against certain of our executive officers and directors seeking unspecified damages on behalf of the Company.Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The plaintiffU.S. District Court for the Western District of Washington formally consolidated the new lawsuit with the other consolidated Federal Suit pending in that court on June 15, 2021. On November 14, 2022, the parties jointly filed a stipulation with the U.S. District Court for the Western District of Washington informing the court that, among other things, they have agreed in principle to all material terms of a settlement. On April 20, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 25, 2023. The terms of the parties’ proposed settlement agreement are contained in the settlement documents filed with the court on April 20, 2023 and found on Zillow’s Investor Relations page at https://investors.zillowgroup.com/investors/resources/investor-faqs/default.aspx. The court has set August 29, 2023 as the hearing date for final approval of the settlement. The full amount of plaintiffs’ attorneys’ fees and costs associated with the settlement is expected to be paid by our insurance carriers under the applicable insurance policy and pursuant to the terms of the proposed settlement.
Note 15. Related Party Transactions
In February 2016, we paid a total of approximately $0.2 million and $0.2 million, respectively, to Mr. Lloyd Frink, our Vice Chairman and President, and Mr. Richard Barton, our Executive Chairman, for reimbursement of costs incurred by Mr. Frink and Mr. Barton for use of private planes by certain of the Company’s employees and Mr. Frink and Mr. Barton for business travel in prior years.
In April 2016, we paid approximately $0.1 million for a tax “gross-up” payment to Mr. Barton to cover the imputed income associated with one of his Hart-Scott-Rodino Antitrust Improvements Act of 1976 filings, which filing was required due to Mr. Barton’s ownership of Zillow, Inc.’s common stock.
Note 16. Self-Insurance
Beginning on January 1, 2016, we are self-insured for medical benefits for all qualifying Zillow Group employees. The medical plan carries a stop-loss policy which will protect when cumulative medical claims exceed 125% of expected claims for the plan year with a limit of $1.0 million and from individual claims during the plan year exceeding $150,000. We record estimates of the total costs of claims incurred based on an analysis of historical data and independent estimates. Our liability for self-insured medical claims is included within accrued compensation and benefits in our consolidated balance sheet and was $2.6 million as of September 30, 2017 and $1.7 million as of December 31, 2016.
Note 17. Employee Benefit Plan
Effective January 1, 2016, we have a single defined contribution 401(k) retirement plan covering Zillow Group employees who have met certain eligibility requirements (“the Zillow Group 401(k) Plan”). Eligible employees may contribute pretax compensation up to a maximum amount allowable under the Internal Revenue Service limitations. Employee contributions and earnings thereon vest immediately. We currently match up to 4% of employee contributions under the Zillow Group 401(k) Plan. The total expense related to the Zillow Group 401(k) Plan for the three months ended September 30, 2017 and 2016 was $3.0 million and $2.4 million, respectively. The total expense related to the Zillow Group 401(k) Plan for the nine months ended September 30, 2017 and 2016 was $8.9 million and $7.1 million, respectively.
Note 18. Segment Information and Revenue
We have one operating and reportable segment which has been identified based on how2023, our chief executive officer, who acts as the chief operating decision-makerdecision maker, manages our business, makes operating decisions and evaluates operating performance. The chief executive officer actsperformance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision-makerdecision maker. This serves to align our reported results with our ongoing growth strategy and reviews financialour intent to provide integrated customer solutions for all tasks and operational information on an entity-wide basis. Thereservices related to facilitating real estate transactions. As a result, we have determined that we have a single reportable segment. Our revenues are no segment managers who are held accountableclassified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.
The chief executive officer reviews information aboutreal estate professionals, including StreetEasy for-sale product offerings and ShowingTime+. Our Rentals and Mortgages revenue categories including marketplaceremain consistent with our historical presentation, and our Other revenue andcategory primarily includes revenue generated from display revenue. advertising.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Marketplace revenue: | ||||||||||||||||
Premier Agent | $ | 197,054 | $ | 158,322 | $ | 562,081 | $ | 439,957 | ||||||||
Other real estate | 44,778 | 28,799 | 117,427 | 72,847 | ||||||||||||
Mortgages | 20,869 | 19,775 | 62,075 | 54,621 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Marketplace revenue | 262,701 | 206,896 | 741,583 | 567,425 | ||||||||||||
Display revenue | 19,138 | 17,696 | 52,881 | 51,552 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenue | $ | 281,839 | $ | 224,592 | $ | 794,464 | $ | 618,977 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Residential | $ | 380 | $ | 392 | $ | 741 | $ | 810 | |||||||||||||||
Rentals | 91 | 71 | 165 | 132 | |||||||||||||||||||
Mortgages | 24 | 29 | 50 | 75 | |||||||||||||||||||
Other | 11 | 12 | 19 | 23 | |||||||||||||||||||
Total revenue | $ | 506 | $ | 504 | $ | 975 | $ | 1,040 |
2022. dotloop. display advertising. Display revenue visits for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, due primarily to these macro housing market factors. The impact of the decrease in visits was partially offset by a 6% increase in Residential revenue per visit, driven by continued improvement in our ability to connect high-intent customers. our mobile applications and websites. Average Monthly Unique Users Visits macro housing market factors described above. advertising spend from multifamily property managers. Statements of Operations Data: Revenue Costs and expenses: Cost of revenue (exclusive of amortization) (1)(2) Sales and marketing (1) Technology and development (1) General and administrative (1) Acquisition-related costs Gain on divestiture of business Total costs and expenses Income (loss) from operations Other income Interest expense Income (loss) before income taxes Income tax benefit (expense) Net income (loss) Net income (loss) per share — basic and diluted Weighted-average shares outstanding — basic Weighted-average shares outstanding — diluted Other Financial Data: Adjusted EBITDA (3) (1) Includes share-based compensation as follows: Cost of revenue Sales and marketing Technology and development General and administrative Total (2) Amortization of website development costs and intangible assets included in technology and development (3) See “Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP. Adjusted EBITDA for the nine months ended September 30, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. Percentage of Revenue: Revenue Costs and expenses: Cost of revenue (exclusive of amortization) Sales and marketing Technology and development General and administrative Acquisition-related costs Gain on divestiture of business Total costs and expenses Income (loss) from operations Other income Interest expense Income (loss) before income taxes Income tax benefit (expense) Net income (loss) Adjusted EBITDA, which excludes the impact of discontinued operations (in millions, except percentages): Reconciliation of Adjusted EBITDA to Net Income (Loss): Net income (loss) Other income Depreciation and amortization expense Share-based compensation expense Acquisition-related costs Gain on divestiture of business Interest expense Income tax benefit (expense) Adjusted EBITDA (1) Revenue: Marketplace revenue: Premier Agent Other real estate Mortgages Total Marketplace revenue Display revenue Total revenue Percentage of Total Revenue: Marketplace revenue: Premier Agent Other real estate Mortgages Total Marketplace revenue Display revenue Total revenue Cost of revenue 80%. Sales and marketing Technology and development General and administrative Acquisition-related costs Gain on divestiture of business Interest expense Revenue: Marketplace revenue: Premier Agent Other real estate Mortgages Total Marketplace revenue Display revenue Total revenue Percentage of Total Revenue: Marketplace revenue: Premier Agent Other real estate Mortgages Total Marketplace revenue Display revenue Total revenue Cost of revenue Sales and marketing Technology and development General and administrative Acquisition-related costs Gain on divestiture of business Interest expense income taxes. on discontinued operations, including supplemental cash flow information. The following table presents selected cash flow data for the periods Cash Flow Data: Net cash provided by (used in) operating activities Net cash used in investing activities Net cash provided by financing activities presented (in millions, unaudited): Prior to the wind down of Zillow Offers operations, our primary uses of cash from operating activities also included payments for homes purchased through Zillow Offers. lease liabilities. investments and $84 million of purchases of property and equipment and intangible assets. As of June 30, 2023, $264 million remained available for future repurchases pursuant to this authorization, which repurchases decrease our liquidity and capital resources when effected. For additional information on this authorization, see Notes 13 and 15 to our Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, convertible senior notes or a combination thereof, which increases the amount available for future repurchases to $1.0 billion under our total authorizations of $2.5 billion. 2021 Notes (1) Interest on 2021 Notes (2) 2020 Notes (3) Interest on 2020 Notes (4) Operating lease obligations (5) Purchase obligations (6) Total contractual obligations fiscal year ended December 31, 2022.containeddescribed in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, including in the section titled “Note Regarding Forward-Looking Statements,” and also those factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2016.Inc. operates the leadingis reimagining real estate to make home a reality for more and home-related information marketplaces on mobilemore people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the web,home they want by connecting them with a complementarydigital solutions, great partners, and easier buying, selling, financing and renting experiences.brandsaffiliates, subsidiaries and products to help consumers find vital information about homes and connect with local professionals. Zillow Group’s brands focus on all stages of the home lifecycle: renting, buying, selling and financing. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow Premier Agent, Zillow Home Loans, our affiliate lender, Zillow Rentals, Trulia, StreetEasy, HotPads Naked Apartments and RealEstate.com.Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to helpfor the real estate rental and mortgage professionals maximize business opportunities and connect with millions of consumers. We also own and operate a number of business brands for real estate, rental and mortgage professionals,industry, including Mortech, dotloop,New Home Feed and ShowingTime+, which includes ShowingTime, Bridge Interactive and New Home Feed.living databasefinancial performance is impacted by changes in the health of the housing market, which is impacted, in turn, by general economic conditions. Current market factors have been driven by low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates, as well as home price fluctuations and inflationary conditions. These factors may have a negative impact on the number of transactions consumers complete using our products and services and on demand for our advertising services. According to industry data from the National Association of REALTORS®, total residential real estate transaction dollars declined more than 110 million U.S. homes—including homes for sale, homes for rent and homes not currently on the market—attracts an active and vibrant community of users. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 74 million homes, creating exclusive home profiles not available anywhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. Using complex, proprietary automated valuation models, we provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications that enable consumers to access our information when they are curbside, viewing homes, and through our websites. There were approximately 175.2 million average monthly unique users of our mobile applications and websites for20% during both the three months ended SeptemberJune 30, 20172023 as compared to 164.5 million average monthly unique users for the three months ended SeptemberJune 30, 2016, representing year-over-year2022 and during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Despite the industry headwinds and total residential real estate transaction value declines, we continue to invest in the execution of our strategy to increase customer transactions and revenue per transaction. We believe this continued investment in our strategic priorities has resulted in year over year Residential revenue results, described below, for the three and six months ended June 30, 2023 as compared to the same periods in the prior year, that exceeded residential real estate industry performance for the same periods. The extent to which market factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict.of 6%.We generatestrategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single operating and reportable segment.services and our suite of marketing software andbusiness technology solutions to businesses and professionals primarily associated with the residentialfor real estate mortgageprofessionals through StreetEasy for-sale product offerings and rental industries. These professionals include real estate, mortgage and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue.Marketplace revenue consists of Premier Agent revenue, other real estate revenue and mortgages revenue. ShowingTime+.under our Premier Agent and Premier Broker programs, which offer a suite ofservices, as well as marketing and business technology products and services, to help real estate agents and brokers grow and manage their businesses and brands.businesses. We offer these products and services through our flagshipPremier Agent program. Premier Agent products, which include the delivery of validated customer connections, or leads,productservices in certain markets to select partners. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and our Premier Brokerpay a performance advertising productfee only when a real estate transaction is closed with one of the leads, generally within two years.Impressions are delivered when aStreetEasy for-sale revenue includes advertising services sold advertisement appears on pages viewed by users of our mobile applications and websites. Otherto real estate professionals serving the New York City for sale market primarily on a cost per listing or performance fee basis. ShowingTime revenue is primarily includes revenue generated by Zillow Group Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center services also include call center specialists who provide scheduling support to customers. Appointment Center revenue is primarily billed in advance on a monthly basis. Our dotloop real estate transaction management software-as-a-service solution is a monthly subscription service allowing real estate partners to efficiently manage their transactions.through which we offerrevenue includes advertising products in our rentals marketplace and a suite of tools forsold to property managers, landlords and other rental professionals New Construction,on a cost per lead, lease, listing or impression basis or for a fixed fee for certain advertising packages through both the Zillow and StreetEasy brands. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee.advertising services for homebuilders, as well as revenue fromgenerated through mortgage originations and the related sale of various other advertisingmortgages on the secondary market through Zillow Home Loans and business software solutions and services and technology solutions for real estate professionals. Mortgages revenue primarily includesfrom advertising sold to mortgage lenders and other mortgage professionals as well ason a cost per lead basis, including our Custom Quote and Connect services.Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform. primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost-per-clickcost per click basis to advertisers promoting their brands on our mobile applications and websiteswebsites.partner websites.Duringcontinuing operations. Given the wind down of Zillow Offers and corresponding shift in our strategic plans, financial performance for prior and current periods may not be indicative of future performance. For additional information, see Note 3 in our Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.SeptemberJune 30, 2017,2023 and 2022, we generated total revenue of $281.8$506 million as compared to $224.6and $504 million, in the three months ended September 30, 2016,respectively, an increase of 25%. This increase$2 million. The change in total revenue was primarily attributable to the result of a $38.7following:or 24%, increase in Premier Agent revenue, and a $16.0 million, or 55%, increase in other real estate revenue. There were approximately 175.2 million average monthly unique users of our mobile applications and websites for the three months ended September 30, 2017, representing year-over-year growth of 6%. Visits increased 19% to 1,667.1$91 million for the three months ended SeptemberJune 30, 2017 from 1,403.82023 compared to $71 million for the three months ended SeptemberJune 30, 2016.In September 2017, we acquired New Home Feed. New Home Feed is2022. The increase in Rentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 15% to 31 million during the three months ended June 30, 2023 from 27 million during the three months ended June 30, 2022. The increase in Rentals revenue was also driven by a leading provider of listing management and syndication tools12% increase in quarterly revenue per average monthly rentals unique visitor to $2.94 for the new construction industry. For additional information about the acquisition of New Home Feed, see Note 6 to our condensed consolidated financial statements.As of Septemberthree months ended June 30, 2017, we had 3,060 full-time employees2023 as compared to 2,776 full-time employees$2.63 for the three months ended June 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers.December 31, 2016.visitsthe volume of loans originated through Zillow Home Loans as relevant to investors’ and others’ assessment of our financial condition and results of operations. Three Months Ended
June 30,2022 to 2023
% ChangeSix Months Ended
June 30,2022 to 2023
% Change 2023 2022 2023 2022 Visits 2,653 2,897 (8) % 5,140 5,524 (7) % marketplace revenue depends in part on our ability to enableconnect home buyers and sellers, renters and individuals with or looking for a mortgage to real estate, rental and mortgage professionals, to connect with our users,products and our display revenue depends in part on the number of impressions delivered to our users.services. Growth in consumer traffic to our mobile applications and websites increases the number of impressions, clicks, connections, leads and clicksother events we can monetize to generate revenue. For example, our revenue depends in part, on users accessing our marketplacemobile applications and display revenue categories. In addition, our communitywebsites to engage in the sale, purchase and financing of users improves the qualityhomes, including with Zillow Home Loans, and a significant portion of our living databaseResidential revenue, Rentals revenue and Other revenue depend on advertisements being served to users of homes with their contributions, which in turn attracts more users.HotPads, Naked Apartments and RealEstate.com (as of June 2017)HotPads measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.(formerly called Omniture analytical tools). Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in millions) 175.2 164.5 6 % VisitsThe numbermay assign a unique cookie to different instances of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications and websites. We believe highly engaged consumers are more likely to be transaction-ready real estate market participants and therefore more sought-afteraccess by our agent and other real estate professional advertisers.We define a visit as a group of interactions by users with the Zillow, Trulia, StreetEasy (as of March 2017) and RealEstate.com (as of June 2017) mobile applications and websites, as we monetize our Premier Agent and Premier Broker products on these mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.Zillow, StreetEasy and RealEstate.com measure visits with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow, StreetEasy and RealEstate.com end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source. Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in millions) 1,667.1 1,403.8 19 % Basis of PresentationRevenueWe generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, mortgage and rental industries. These professionals include real estate, mortgage and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue.Marketplace Revenue.Marketplace revenue for the three and nine month periods ended September 30, 2017 and 2016 consisted of Premier Agent revenue, other real estate revenue and mortgages revenue.Premier Agent revenue is derived from our Premier Agent and Premier Broker programs. Our Premier Agent and Premier Broker programs offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising needs, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our website that provides individualized program performance analytics, self-service ad buying tools and our free customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms.We offer our flagship Premier Agent advertising product and our Premier Broker advertising product on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. From 2012 through the end of the third quarter of 2016, we had primarily charged customers for our Premier Agent product based on the number of impressions delivered on our buyer’s agent list in zip codes purchased and a contracted maximum cost per impression. Our Premier Agent and Premier Broker products include multiple deliverables which are accounted for as a single unit of accounting, as the delivery or performance of the undelivered elements is based on trafficindividual to our mobile applications and websites. With this pricing method, we recognized revenue related to our impression-based Premier Agent and Premier Broker products basedIn such instances, Google Analytics would count different instances of access by the same individual as separate unique users. Accordingly, reliance on the lessernumber of (i)unique users counted by Google Analytics may overstate the actual number of impressions delivered on our buyer’s agent list during the period multiplied by the contracted maximum cost per impression, or (ii) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered, typically over a period of six months or twelve months and then month-to-month thereafter.In 2016, we began testing and implementation of a new auction-based pricing method for our Premier Agent product by which we determine the cost per impression delivered in each zip code based upon the total amount spent by Premier Agents to purchase impressions in the zip code during the month. The cost per impression that we charge is dynamic – as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased. This new auction-based pricing method complements our self-serve account interface, which we introduced to Premier Agents over the course of 2016. The interface includes account management tools that allow agent advertisers to independently control their budgets, impression buys, and the duration of their advertising commitment. We began testing this auction-based pricing method for our Premier Agent product to better align our revenue opportunities with increasing traffic levels to our mobile and web platforms and leveraging increasing demand by real estate agents forunique users who access to home shoppers who use our mobile applications and websites. In the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. With this auction-based pricing method, we recognize revenue related to our dynamic impression-based Premier Agent and Premier Broker products based on the contractual maximum spend on a straight-line basiswebsites during the contractual period overperiod. Three Months Ended
June 30,2022 to 2023
% ChangeSix Months Ended
June 30,2022 to 2023
% Change 2023 2022 2023 2022 Average monthly unique users 226 234 (3) % 219 222 (1) % services are delivered. In our historytotal value of building our real estatemortgage loan originations closed through Zillow Home Loans during the period.other information marketplaces and product offerings, we have continually evaluated and utilized various pricing and value delivery strategies in ordertotal for Zillow Home Loans for the periods presented (in millions, except percentages):Three Months Ended
June 30,2022 to 2023
% ChangeSix Months Ended
June 30,2022 to 2023
% Change2023 2022 2023 2022 Purchase loan origination volume $ 336 $ 194 73 % $ 595 $ 317 88 % Refinance loan origination volume 4 136 (97) % 7 714 (99) % Total loan origination volume $ 340 $ 330 3 % $ 602 $ 1,031 (42) % better align our revenue opportunities with the three months ended June 30, 2022. This increase was primarily driven by the continued growth in usage of our mobile and web platforms.WeZillow Home Loans purchase loan originations, partially offset by interest rate increases which negatively impacted refinance loan originations. During the six months ended June 30, 2023, total loan origination volume decreased 42% compared to the six months ended June 30, 2022. This decrease was primarily driven by interest rate increases which negatively impacted refinance loan originations, partially offset by the increase in purchase loan originations as we continue to support some legacyprioritize growth in Zillow Home Loans purchase originations.% of Total Revenue Three Months Ended
June 30,2022 to 2023 Three Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 (in millions, except percentages, unaudited) Residential $ 380 $ 392 $ (12) (3) % 75 % 78 % Rentals 91 71 20 28 18 14 Mortgages 24 29 (5) (17) 5 6 Other 11 12 (1) (8) 2 2 Total revenue $ 506 $ 504 $ 2 — % 100 % 100 % % of Total Revenue Six Months Ended
June 30,2022 to 2023 Six Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 (in millions, except percentages, unaudited) Residential $ 741 $ 810 $ (69) (9) % 76 % 78 % Rentals 165 132 33 25 17 13 Mortgages 50 75 (25) (33) 5 7 Other 19 23 (4) (17) 2 2 Total revenue $ 975 $ 1,040 $ (65) (6) % 100 % 100 % Premier Agent products, which areand HotPads mobile apps and websites. The increase in Rentals revenue was also driven by a 12% increase in quarterly revenue per average monthly rentals unique visitor to $2.94 for the three months ended June 30, 2023 as compared to $2.63 for the three months ended June 30, 2022, primarily sold on a fixed fee subscription basis for periods that generally rangedriven by lower occupancy rates and the corresponding increase in advertising spend from six months to 12 months. Subscription advertisingmultifamily property managers. We calculate quarterly revenue per average monthly rentals unique visitor by dividing total Rentals revenue for Trulia’s products includedthe period by the average monthly rentals unique visitors for the period and then dividing by the number of quarters in the period.is recognized on a straight-line basis during the contractual period over whichthree months ended June 30, 2023 as compared to the services are delivered.Other real estatethree months ended June 30, 2022. The decrease in Residential revenue primarily includeswas driven by an 8% decrease in the number of visits for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 due to the macro housing market factors described above. The impact of this decrease was partially offset by a 6% increase in Residential revenue per visit to $0.143 for the three months ended June 30, 2023 from $0.135 for the three months ended June 30, 2022 driven by continued improvement in our ability to connect high-intent customers. We calculate Residential revenue per visit by dividing the revenue generated by Zillow Group Rentals, as well asour Residential offerings by the number of visits in the period. We expect Residential revenue to decrease in absolute dollars during the three months ending September 30, 2023, primarily due to continued pressure from the sale of various other marketing and business products and services to real estate professionals, including our new construction marketing solutions. Zillow Group Rentals includes our rentals marketplace and suite of tools for rental professionals. Rentals revenue primarily includes revenue generated by advertising sold to property managers and other rental professionals on a cost per lead, cost per lease and cost per click generated basis whereby we recognize revenue as leads are delivered to rental professionals or as qualified leases are confirmed. Our new construction marketing solutions allow homebuilders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby revenue is recognized based on the contractual spend on a straight-line basis during the contractual period over which the services are delivered.includesdue to a 23% decrease in leads generated from marketing products sold to mortgage professionals onprofessionals. This decrease in leads was driven by a cost per lead basis,decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period.our Long Formlow housing inventory, fewer new for-sale listings, increases and Custom Quote services. Mortgages revenue also includes revenue generated by Mortech, which provides subscription-basedvolatility in mortgage software solutions, including a product and pricing engine and lead management platform, for which we recognize revenue on a straight-line basis during the contractual period over which the services are delivered. For our Long Form and Custom Quote cost per lead mortgage marketing products, generally, participating qualified mortgage professionals make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Through Long Form, consumers answer a series ofquestions to find a local lender, and mortgage professionals receive consumer contact information. Consumers who requestinterest rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. We only charge mortgage professionals a fee when users contact mortgage professionals through Long Form or Custom Quotes. Mortgage professionals who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace. We recognize revenue when a user contacts a mortgage professional through Zillow Group’s mortgages platform.Display Revenue. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost-per-click basis to advertisers promoting their brands on our mobile applications and websites and our partner websites and mobile applications, primarily in the real estate industry, including real estate brokerages, multi-family rental professionals, mortgage professionals and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. Impressions are the number of times an advertisement is loaded on a web page and clicks are the number of times users click on an advertisement. Pricing is primarily based on advertisement size and position on our mobile applications and websites or on our partner websites and mobile applications, and fees are generally billed monthly. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites.Costs and ExpensesCost of Revenue. Our cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount expenses, such as salaries, benefits, share-based compensation expense and bonuses, as well as credit card fees, ad serving costs paidhome price fluctuations. These factors resulted in an 11% decrease in Premier Agent revenue during the six months ended June 30, 2023 as compared to third parties, revenue-sharing costs relatedthe six months ended June 30, 2022. These factors also resulted in a 2% decrease in Residential revenue per visit to $0.144 for the six months ended June 30, 2023 from $0.147 for the six months ended June 30, 2022.commercial business relationships, depreciation expenseCustom Quote and costs associated withConnect advertising services revenue, which drove 62% of the operationdecrease, and a decrease in mortgage originations revenue, which drove 33% of the decrease. The decrease in our data centerCustom Quote and mobile applications and websites.Sales and Marketing.Sales andConnect advertising revenue was primarily due to a 32% decrease in leads generated from marketing expenses consistproducts sold to mortgage professionals. This decrease in leads was driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period. The decrease in mortgage originations revenue was due to a 42% decrease in total loan origination volume from $1.0 billion for the six months ended June 30, 2022 to $602 million for the six months ended June 30, 2023, primarily resulting from a decrease in demand for refinance mortgages attributable to the higher interest rate environment as compared to the prior year period. The decrease in mortgage originations revenue was partially offset by a 13% increase in gain on sale margin. Gain on sale margin represents the net gain on sale of advertising costs and other sales expenses related to promotional and marketing activities, as well as headcount expenses, including salaries, commissions, benefits, share-based compensation expense and bonusesmortgage loans divided by total loan origination volume for sales, sales support, customer support, marketing and public relations employees, and depreciation expense.Technology and Development.Technology and development expenses consistthe period. Net gain on sale of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our mobile applications and websites, and equipment and maintenance costs. Technology and development expenses also include amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangibles and other data agreement costsmortgage loans includes all components related to the purchaseorigination and sale of data used to populate our mobile applicationsmortgage loans, including the net gain on sale of loans into the secondary market, loan origination fees, unrealized gains and websites, and amortization of intangible assets recorded in connection with acquisitions, including developed technology and customer relationships, amongst others. Technology and development expenses also include depreciation expense.General and Administrative.General and administrative expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.Acquisition-related Costs.Acquisition-related costs consist of investment banking, legal, accounting, tax, and regulatory filing feeslosses associated with acquisitions.Other IncomeOther income consists primarilychanges in fair value of interest income earned on our cash, cash equivalentsrate lock commitments and short-term investments.Interest ExpenseInterest expense consists of interest onmortgage loans held for sale, realized and unrealized gains or losses from derivative financial instruments and the 2020 Notes we guaranteedprovision for losses relating to representations and warranties.connection with our February 2015 acquisition of TruliaRentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 15% to 30 million during the six months ended June 30, 2023 from 26 million during the six months ended June 30, 2022. The increase in Rentals revenue was also driven by an 8% increase in quarterly revenue per average monthly rentals unique visitor to $2.75 for the six months ended June 30, 2023 as compared to $2.54 for the six months ended June 30, 2022, primarily driven by lower occupancy rates and interest on the 2021 Notes we issuedcorresponding increase in December 2016. Interest is payable on the 2020 Notes at the rate of 2.75% semi-annually on June 15 and December 15 of each year. Interest is payable on the 2021 Notes at the rate of 2.00% semi-annually on June 1 and December 1 of each year.Income TaxesWe are subject to federal and state income taxes in the United States and in Canada. During the three and nine month periods ended September 30, 2017, and 2016, we did not have a material amount of current taxable income. We have provided a full valuation allowance against our deferred tax assets as of September 30, 2017 and December 31, 2016 because, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized. Therefore, no material related tax liability or expense has been recorded in the financial statements.Results of Operationstables present our resultstable summarizes net income (loss), which includes the impact of discontinued operations, for the periods indicated and as a percentage of total revenue: Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 (in thousands, except per share data, unaudited) $ 281,839 $ 224,592 $ 794,464 $ 618,977 22,152 17,608 62,644 50,556 107,108 93,180 344,266 291,910 83,389 64,496 234,798 188,263 54,226 42,625 153,038 284,175 218 93 366 890 — (1,251 ) — (1,251 ) 267,093 216,751 795,112 814,543 14,746 7,841 (648 ) (195,566 ) 1,407 561 3,970 1,995 (6,906 ) (1,595 ) (20,526 ) (4,740 ) 9,247 6,807 (17,204 ) (198,311 ) (41 ) — (41 ) 1,364 $ 9,206 $ 6,807 $ (17,245 ) $ (196,947 ) $ 0.05 $ 0.04 $ (0.09 ) $ (1.10 ) 187,692 180,583 185,447 179,577 196,425 189,661 185,447 179,577 $ 70,957 $ 59,463 $ 165,456 $ (39,923 ) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 (in thousands, unaudited) $ 1,014 $ 894 $ 2,942 $ 2,662 5,914 5,968 17,694 17,566 10,438 8,035 29,329 23,160 11,208 12,388 34,197 37,764 $ 28,574 $ 27,285 $ 84,162 $ 81,152 $ 13,442 $ 22,006 $ 59,862 $ 64,931 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 (unaudited) 100 % 100 % 100 % 100 % 8 8 8 8 38 41 43 47 30 29 30 30 19 19 19 46 — — — — 0 (1 ) 0 — 95 97 100 132 5 3 — (32 ) — — — — (2 ) (1 ) (3 ) (1 ) 3 3 (2 ) (32 ) — 0 — — 3 % 3 % (2 %) (32 %) % of Revenue Three Months Ended
June 30,2022 to 2023 Three Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 Net income (loss) $ (35) $ 8 $ (43) (538) % (7) % 2 % Adjusted EBITDA $ 111 $ 145 $ (34) (23) % 22 % 29 % % of Revenue Six Months Ended
June 30,2022 to 2023 Six Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 Net income (loss) $ (57) $ 24 $ (81) (338) % (6) % 2 % Adjusted EBITDA $ 215 $ 311 $ (96) (31) % 22 % 30 % 10-Q, a non-GAAP financial measure.10-Q. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAPU.S. generally accepted accounting principle (“GAAP”) financial measure.becauseas it is a key metric used by our management and board of directorsBoard 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.itthis measure 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;expenditure requirements;expenditures or contractual commitments;Adjusted EBITDA does not reflect the gain on divestiture of business;thanfrom the way we do, limiting its usefulness as a comparative measure.cash flowcash-flow metrics, net income (loss) and our other GAAP results.presented: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 (in thousands, unaudited) $ 9,206 $ 6,807 $ (17,245 ) $ (196,947 ) (1,407 ) (561 ) (3,970 ) (1,995 ) 27,419 25,495 81,576 74,852 28,574 27,285 84,162 81,152 218 93 366 890 — (1,251 ) — (1,251 ) 6,906 1,595 20,526 4,740 41 — 41 (1,364 ) $ 70,957 $ 59,463 $ 165,456 $ (39,923 ) (1)Adjusted EBITDA for the nine month period ended September 30, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims.Three Months Ended September 30, 2017 Comparedpresented (in millions, unaudited): Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Reconciliation of Adjusted EBITDA to Net Income (Loss): Net income (loss) $ (35) $ 8 $ (57) $ 24 Loss from discontinued operations, net of income taxes — 2 — 11 Income taxes 1 (9) 1 (4) Other income (42) (5) (74) (7) Depreciation and amortization 45 41 85 80 Share-based compensation 130 99 233 176 Impairment and restructuring costs 2 — 8 14 Acquisition-related costs 1 — 1 — Interest expense 9 9 18 17 Adjusted EBITDA $ 111 $ 145 $ 215 $ 311 % of Total Revenue Three Months Ended
June 30,2022 to 2023 Three Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 (in millions, except percentages, unaudited) Cost of revenue $ 104 $ 97 $ 7 7 % 21 % 19 % Gross profit 402 407 (5) (1) 79 81 Operating expenses: Sales and marketing 173 163 10 6 34 32 Technology and development 140 119 21 18 28 24 General and administrative 153 120 33 28 30 24 Impairment and restructuring costs 2 — 2 — — — Acquisition-related costs 1 — 1 — — — Total operating expenses 469 402 67 17 93 80 Other income 42 5 37 740 8 1 Interest expense (9) (9) — — (2) (2) Income tax benefit (expense) (1) 9 (10) (111) — 2 % of Total Revenue Six Months Ended
June 30,2022 to 2023 Six Months Ended
June 30, 2023 2022 $ Change % Change 2023 2022 (in millions, except percentages, unaudited) Cost of revenue $ 196 $ 189 $ 7 4 % 20 % 18 % Gross profit 779 851 (72) (8) 80 82 Operating expenses: Sales and marketing 329 337 (8) (2) 34 32 Technology and development 277 227 50 22 28 22 General and administrative 276 232 44 19 28 22 Impairment and restructuring costs 8 14 (6) (43) 1 1 Acquisition-related costs 1 — 1 — — — Total operating expenses 891 810 81 10 91 78 Other income 74 7 67 957 8 1 Interest expense (18) (17) (1) (6) (2) (2) Income tax benefit (expense) (1) 4 (5) (125) — — Three Months Ended September 30, 2016Revenue Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 197,054 $ 158,322 24 % 44,778 28,799 55 % 20,869 19,775 6 % 262,701 206,896 27 % 19,138 17,696 8 % $ 281,839 $ 224,592 25 % Three Months Ended
September 30, 2017 2016 70 % 70 % 16 13 7 9 93 92 7 8 100 % 100 % Overall revenue increased by $57.2 million, or 25%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Marketplace revenue increased by 27%, and display revenue increased by 8%. There were approximately 175.2 million average monthly unique users ofoperating our mobile applications and websites, for the three months ended September 30, 2017 compared to 164.5 million average monthly unique users for the three months ended September 30, 2016, representing year-over-year growth of 6%. This increase in unique users increased the number of impressionsincluding associated headcount-related expenses, such as salaries, benefits, bonuses and clicks we monetized in our marketplace and display revenue categories. In connection with the hurricanes that occurred during the summer of 2017, we worked closely with our Premier Agents and other advertisers in affected areas to help manage their advertising budgets. We estimate that relief initiatives, which included billing credits and other forms of advertiser assistance,share-based compensation expense, as well as lost sales, impacted Premier Agentrevenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with hosting our mobile applications and websites. Cost of revenue by more than $0.8 million for the quarterly period ended September 30, 2017. We expect Premier Agent revenue forthe three months ended December 31, 2017 will be impacted by approximately $1.0 million duealso includes amortization costs related to relief initiatives. We also experienced a temporary decline in trafficcapitalized website and development activities, amortization of software, amortization of certain intangible assets and other costs to obtain data used to populate our mobile applications and websites, from consumersand amortization of certain intangible assets recorded in impacted areas during September 2017, which may have impacted the numberconnection with acquisitions, including developed technology. Cost of unique usersrevenue also includes credit card fees and visits for thead serving costs paid to third parties, and direct costs to originate mortgage loans, including underwriting and processing costs.SeptemberJune 30, 2017,2022may impact theamortization expense due to an increase in capitalized website and development activities, $2 million in ad serving costs and $2 million in software and hardware costs. The increases were partially offset by a $2 million decrease in lead acquisition costs.unique users and visits forfactors, including the mix of revenue from our various product offerings.December 31, 2017.Marketplace revenue grew to $262.7 million for the three months ended SeptemberJune 30, 2017 from $206.9 million for the three months ended September 30, 2016, an increase of $55.8 million. Marketplace revenue represented 93% of total revenue for the three months ended September 30, 2017 compared to 92% of total revenue for the three months ended September 30, 2016. The increase in marketplace revenue was primarily attributable to the $38.7202224%1%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 19% to 1,667.1 million for the three months ended September 30, 2017 from 1,403.8 million for the three months ended September 30, 2016. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit increased by 5% to $0.118 for the three months ended September 30, 2017 from $0.113 for the three months ended September 30, 2016. We calculate Premier Agent revenue per visit by dividing the revenue generated by our Premier Agent and Premier Broker programs in the period by the number of visits in the period. We believe Premier Agent revenue was also positively impacted by the full implementation of the new pricing method for our Premier Agent product, which may have increased the demand for our advertising platform. As discussed above, during the year ended December 31, 2016, we began meaningful testing and implementation of a new auction-based pricing method for our Premier Agent product, our flagship advertising product, by which we determine the cost per impression delivered in each zip code in a dynamic way based on demand for impressions in that zip code. We continue to evaluate this pricing method, and in the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. We believe the increase in Premier Agent revenue was also due in part to increased advertising sales to current Premier Agents, including brokerages and other teams. Revenue generated from Premier Agent accounts which have advertised with Zillow Group for more than one year grew by 45% for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $16.0 million, or 55%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in other real estate revenue was primarily a result of a 56% increase in revenue generated by Zillow Group Rentals. Growth in Zillow Group Rentals revenue was primarily attributable to increases in consumer adoption of our rentals information marketplaces, which in turn increased the likelihood of a lead, lease, or click that we monetize, and advertiser adoption of our cost per lead, cost per lease and cost per click advertising products, as well as enhancements to our marketing products that improve the ways in which consumers and advertisers connect through the Zillow Group Rentals marketplace. Other real estate revenue was also positively impacted by increased advertising sales to new home builders through our New Construction platform.The increase in marketplace revenue was also attributable to growth in mortgages revenue, which increased by $1.1 million, or 6%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in mortgages revenue was primarily a result of a 31% increase in our average revenue per loan information request for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in average revenue per loan information request was primarily a result of our flagship mortgage advertising platform, Long Form, which yields higher revenue than our other mortgage advertising products, and increased consumer adoption of Long Form, which was driven by product enhancements that allow us to monetize our mortgages products more efficiently. There were approximately 5.5 million mortgage loan information requests submitted by consumers for the three months ended September 30, 2017 compared to 6.9 million mortgage loan information requests submitted by consumers for the three months ended September 30, 2016, a decrease of 20%. We believe the decrease in the number of loan information requests submitted by consumers is due to our strategic decision to improve loan information request quality by requiring consumers to provide more information before a loan information request is submitted. We believe our mortgage product feature change creates a better experience for consumers and more valuable loan information requests for our lender advertisers.Display revenue was $19.1 million for the three months ended September 30, 2017 compared to $17.7 million for the three months ended September 30, 2016, an increase of $1.4 million. Display revenue represented 7% of total revenue for the three months ended September 30, 2017 compared to 8% of total revenue for the three months ended September 30, 2016. The increase in display revenue was primarily a result of the increase in unique users, which resulted in a greater number of impressions and clicks we monetized.Cost of Revenue Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 22,152 $ 17,608 26 % Cost of revenue was $22.2 million for the three months ended September 30, 2017 compared to $17.6 million for the three months ended September 30, 2016, an increase of $4.5 million, or 26%. The increase in cost of revenue, was primarily attributableassociated with additional depreciation and amortization expenses, which outpaced the growth of revenue. Total gross margin decreased from 81% to 79%.$2.2 million increasedecrease in revenue, share costs, a $1.4 million increase in data center and connectivity costs, a $0.4 million increase in headcount-related expenses, including share-based compensation expense, and a $0.5 million increase in various miscellaneous expenses. We expect our cost of revenuediscussed above. Total gross margin decreased from 82% to increase in absolute dollars in future years as we continue to incur more expenses that are associated with growth in revenue. Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 107,108 $ 93,180 15 % were $107.1 millionconsist of advertising costs and other sales expenses related to promotional and marketing activities, headcount-related expenses, including salaries, commissions, benefits, bonuses and share-based compensation expense for sales, sales support, customer support, including the customer connections team and mortgage loan officers and specialists, marketing and public relations employees, depreciation expense and amortization of certain intangible assets recorded in connection with acquisitions, including trade names and trademarks and customer relationships.SeptemberJune 30, 2017 compared to $93.2 million for the three months ended September 30, 2016, an increase of $13.9 million, or 15%. The increase in sales2022was primarily attributableincreased $10 million, or 6%, due to increased marketing and advertising expensesincreases of $6.8$4 million primarily related to advertising spend during the peak residential real estate transaction period to attract consumers across online and offline channels, which supports our growth initiatives.In addition to the increases in marketing and advertising headcount-related expenses increased $5.0costs and $4 million including share-based compensation expense, due primarily to significant growth in the size of our sales team. The increase in sales and marketing expenses was also attributable to a $1.4 million increase in consulting costs to support our advertising initiatives and a $0.7 million increase in various miscellaneous expenses. We expect our sales and marketing expenses to increase in absolute dollars in future years as we continue to expand our sales team and invest more resources in extending our audience through marketing and advertising initiatives.Technology and Development Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 83,389 $ 64,496 29 % Technology and development expenses, which include research and development costs, were $83.4 million for the three months ended September 30, 2017 compared to $64.5 million for the three months ended September 30, 2016, an increase of $18.9 million, or 29%. Approximately $13.2 million of the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to growinvest and support the growth of our engineering teams to support current and future product initiatives. In addition, there wasbusiness, as well as a $3.6 million increase in other non-capitalizable data content expense, a $1.4 million increase in the amortization of purchased data content intangible assets, and a $0.7 million increase in various miscellaneous expenses.Amortization expense included in technology and development for capitalized website development costs and software was $11.2 million and $11.3 million, respectively, for the three months ended September 30, 2017 and 2016. Amortization expense included in technology and development related to intangible assets recorded in connection with acquisitions was $9.8 million and $9.6 million, respectively, for the three months ended September 30, 2017 and 2016. Other data content expense was $10.1 million and $6.5 million, respectively, for the three months ended September 30, 2017 and 2016. Amortization expense included in technology and development for purchased data content intangible assets was $2.5 million and $1.1 million, respectively, for the three months ended September 30, 2017 and 2016. We expect our technology and development expenses to increase in absolute dollars over time as we continue to build new mobile and website functionality.General and Administrative Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 54,226 $ 42,625 27 % General and administrative expenses were $54.2 million for the three months ended September 30, 2017 compared to $42.6 million for the three months ended September 30, 2016, an increase of $11.6 million, or 27%. The increase in general and administrative expenses was due in part to a $3.6 million increase in estimated legal liabilities, a $1.9 million increase in city and state taxes, a $1.8 million increase in building lease-related expenses including rent, utilities and insurance, a $1.4$2 million increase in travel expenses. The increases were partially offset by a $2 million decrease in third-party professional service fees.meals expense,marketing expenses decreased $8 million, or 2%, due to decreases of $8 million in marketing and advertising costs due to active cost management, $3 million in third-party professional service fees and $3 million in depreciation and amortization expense. The decreases were partially offset by a $1.1$5 million increase in bad debttravel expenses and a $2 million increase in software and hardware costs.a $1.1for individuals engaged in the design, development and testing of our products, mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs and depreciation expense.growththe August 2022 Equity Award Actions, $4 million in headcountthird-party professional service fees and $3 million in sharedtravel expenses.services to support our engineeringinformation technology costs and other teams,administrative support. General and administrative expenses also include legal settlement costs and estimated legal liabilities, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.$0.7$17 million increase in miscellaneous general and administrative expenses.share-based compensation expense associated with the departures of certain personnel, as well as the impact of the August 2022 Equity Award Actions. We expect general and administrative expenses to increase over timedecrease in absolute dollars for the three months ending September 30, 2023 as we continuea result of the impact of costs associated with the departure of certain personnel recorded in the three months ended June 30, 2023, as discussed above.expand our business.Acquisition-Relatedsix months ended June 30, 2022 Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 218 $ 93 134 % Acquisition-related$0.2$2 million and $8 million for the three and six months ended June 30, 2023, respectively. Costs incurred during the three months ended June 30, 2023 primarily pertained to employee termination costs that did not relate to the Zillow Offers wind down. Costs incurred during the six months ended June 30, 2023 also include impairment costs of $6 million related to reductions in our right of use assets associated with changes in the use of certain office space in our lease portfolio.SeptemberJune 30, 2017, primarily as a result2022 and an income tax benefit of our September 2017 acquisition of New Home Feed, including legal and accounting fees. Acquisition-related costs were $0.1$4 million for the threesix months ended SeptemberJune 30, 2016, primarily as a result of our August 2016 acquisition of Bridge Interactive Group, including legal and accounting fees.Gain on Divestiture of Business Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ — $ 1,251 N/A There was no gain on divestiture of business for the three months ended September 30, 2017. The gain on divestiture of business of $1.3 million for the three months ended September 30, 2016 relates to the August 2016 sale of our Diverse Solutions business.Interest Expense Three Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 6,906 $ 1,595 333 % Interest expense was $6.9 million for the three months ended September 30, 2017, compared to $1.6 million for the three months ended September 30, 2016.For the three months ended September 30, 2017, interest expense primarily relates to the 2021 Notes that were issued on December 12, 2016. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017.For the three months ended September 30, 2016, interest expense relates to the 2020 Notes that we guaranteed in connection with the February 2015 acquisition of Trulia, which accrue interest at a fixed rate of 2.75% annually.For additional information regarding the 2020 Notes and the 2021 Notes, see Note 9 to our condensed consolidated financial statements.Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016Revenue Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 562,081 $ 439,957 28 % 117,427 72,847 61 % 62,075 54,621 14 % 741,583 567,425 31 % 52,881 51,552 3 % $ 794,464 $ 618,977 28 % Nine Months Ended
September 30, 2017 2016 71 % 71 % 15 12 8 9 93 92 7 8 100 % 100 % Overall revenue increased by $175.5 million, or 28%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Marketplace revenue increased by 31%, and display revenue increased by 3%.Marketplace revenue grew to $741.6 million for the nine months ended September 30, 2017 from $567.4 million for the nine months ended September 30, 2016, an increase of $174.2 million. Marketplace revenue represented 93% of total revenue for the nine months ended September 30, 2017 compared to 92% of total revenue for the nine months ended September 30, 2016. The increase in marketplace revenue was primarily attributable to the $122.1 million, or 28%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 18% to 4,878.8 million for the nine months ended September 30, 2017 from 4,133.5 million for the nine months ended September 30, 2016. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit increased by 8% to $0.115 for the nine months ended September 30, 2017 from $0.106 for the nine months ended September 30, 2016. We believe Premier Agent revenue was also positively impacted by the full implementation of the new pricing method for our Premier Agent product, which may have increased the demand for our advertising platform. As discussed above, during the year ended December 31, 2016, we began meaningful testing and implementation of a new auction-based pricing method for our Premier Agent product, our flagship advertising product, by which we determine the cost per impression delivered in each zip code in a dynamic way based on demand for impressions in that zip code. We continue to evaluate this pricing method, and in the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams.The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $44.6 million, or 61%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in other real estate revenue was primarily a result of a 73% increase in revenue generated by Zillow Group Rentals. Growth in Zillow Group Rentals revenue was primarily attributable to increases in consumer adoption of our rentals information marketplaces, which in turn increased the likelihood of a lead, lease, or click that we monetize, and advertiser adoption of our cost per lead, cost per lease and cost per click advertising products, as well as enhancements to our marketing products that improve the ways in which consumers and advertisers connect through the Zillow Group Rentals marketplace. Other real estate revenue was also positively impacted by increased advertising sales to new home builders through our New Construction platform.The increase in marketplace revenue was also attributable to growth in mortgages revenue, which increased by $7.5 million, or 14%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in mortgages revenue was primarily a result of a 62% increase in our average revenue per loan information request for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in average revenue per loaninformation request was primarily a result of our flagship mortgage advertising platform, Long Form, which yields higher revenue than our other mortgage advertising products, and increased consumer adoption of Long Form, which was driven by product enhancements that allow us to monetize our mortgages products more efficiently. There were approximately 17.3 million mortgage loan information requests submitted by consumers for the nine months ended September 30, 2017 compared to 24.8 million mortgage loan information requests submitted by consumers for the nine months ended September 30, 2016, a decrease of 30%. We believe the decrease in the number of loan information requests submitted by consumers is due to our strategic decision to improve loan information request quality by requiring consumers to provide more information before a loan information request is submitted. We believe our mortgage product feature change creates a better experience for consumers and more valuable loan information requests for our lender advertisers.Display revenue was $52.9 million for the nine months ended September 30, 2017 compared to $51.6 million for the nine months ended September 30, 2016, an increase of $1.3 million. Display revenue represented 6% of total revenue for the nine months ended September 30, 2017 compared to 8% of total revenue for the nine months ended September 30, 2016. The increase in display revenue was primarily a result of the increase in unique users, which resulted in a greater number of impressions and clicks we monetized.Cost of Revenue Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 62,644 $ 50,556 24 % Cost of revenue was $62.6 million for the nine months ended September 30, 2017 compared to $50.6 million for the nine months ended September 30, 2016, an increase of $12.1 million, or 24%. The increase in cost of revenue was primarily attributable to a $6.6 million increase in revenue share costs, a $3.1 million increase in data center and connectivity costs, a $0.9 million increase in headcount-related expenses, including share-based compensation expense, a $0.6 million increase in software and hardware costs, and a $0.9 million increase in various miscellaneous expenses.Sales and Marketing Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 344,266 $ 291,910 18 % Sales and marketing expenses were $344.3 million for the nine months ended September 30, 2017 compared to $291.9 million for the nine months ended September 30, 2016, an increase of $52.4 million, or 18%. The increase in sales and marketing expenses was primarily attributable to increased marketing and advertising expenses $30.5 million,2022, primarily related to advertising spend to attract consumers across online and offline channels, which supports our growth initiatives.In addition to the increases in marketing and advertising, headcount-related expenses increased $15.1 million, including share-based compensation expense, due primarily to significant growth in the size of our sales team. The increase in sales and marketing expenses was also attributable to a $2.4 million increase in tradeshows and conferences expense and related travel costs, a $1.9 million increase in consulting costs to support our advertising initiatives, a $1.0 million increase in software, hardware and connectivity costs, and a $1.5 million increase in various miscellaneous expenses.Technology and Development Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 234,798 $ 188,263 25 % Technology and development expenses, which include research and development costs, were $234.8 million for the nine months ended September 30, 2017 compared to $188.3 million for the nine months ended September 30, 2016, an increase of $46.5 million, or 25%. Approximately $33.1 million of the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to grow our engineering teams to support current and future product initiatives. In addition, there was a $7.0 million increase in other non-capitalizable data content expense, a $3.8 million increase in amortization of purchased data content intangible assets, and a $2.6 million increase in various miscellaneous expenses.Amortization expense included in technology and development for capitalized website development costs and software was $33.0 million and $32.4 million, respectively, for the nine months ended September 30, 2017 and 2016. Amortization expense included in technology and development related to intangible assets recorded in connection with acquisitions was $29.5 million and $28.9 million, respectively, for the nine months ended September 30, 2017 and 2016. Other data content expense was $25.8 million and $18.8 million, respectively, for the nine months ended September 30, 2017 and 2016. Amortization expense included in technology and development for purchased data content intangible assets was $7.5 million and $3.6 million, respectively, for the nine months ended September 30, 2017 and 2016.General and Administrative Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 153,038 $ 284,175 (46 %) General and administrative expenses were $153.0 million for the nine months ended September 30, 2017 compared to $284.2 million for the nine months ended September 30, 2016, a decrease of $131.1 million, or 46%. The decrease in general and administrative expenses was primarily a result of the settlement of a lawsuit with Move Inc. and certain related entities (collectively, “Move”) in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. In addition, there was a $30.4 million decrease in professional services fees, primarily as a result of our settlement of litigation with Move, as we incurred $28.8 million in legal costs related to our litigation with Move for the nine months ended September 30, 2016. These decreases were partially offset by a $5.7 million increase in estimated legal liabilities, a $5.6 million increase in building lease-related expenses including rent, utilities and insurance, a $4.5 million increase in headcount-related expenses, including share-based compensation expense, driven primarily by growth in headcount in shared corporate services to support our engineering and other teams, a $4.3 million increase in city and state taxes, a $4.1 million increase in bad debt expense, a $1.5 million increase in software and hardware costs, a $1.3 million increase in the loss on disposal of assets, and a $2.3 million increase in miscellaneous general and administrative expenses.Acquisition-Related Costs Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 366 $ 890 (59 %) Acquisition-related costs were approximately $0.4 million for the nine months ended September 30, 2017, primarily as a result of our January 2017 acquisition of HREO and our September 2017 acquisition of New Home Feed, including legal and accounting fees. Acquisition-related costs were $0.9 million for the nine months ended September 30, 2016, primarily as a result of our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive Group, including legal and accounting fees.Gain on Divestiture of Business Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ — $ 1,251 N/A There was no gain on divestiture of business for the nine months ended September 30, 2017. The gain on divestiture of business was $1.3 million for the nine months ended September 30, 2016 and relates to the August 2016 sale of our Diverse Solutions business.Interest Expense Nine Months Ended
September 30, 2016 to 2017
% Change 2017 2016 (in thousands, unaudited) $ 20,526 $ 4,740 333 % Interest expense was $20.5 million for the nine months ended September 30, 2017, compared to $4.7 million for the nine months ended September 30, 2016.For the nine months ended September 30, 2017, interest expense primarily relates to the 2021 Notes that were issued on December 12, 2016. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017.For the nine months ended September 30, 2016, interest expense relates to the 2020 Notes that we guaranteed in connection with the February 2015 acquisition of Trulia, which accrue interest at a fixed rate of 2.75% annually.For additional information regarding the 2020 Notes and the 2021 Notes, see Note 9 to our condensed consolidated financial statements.SeptemberJune 30, 20172023 and December 31, 2016,2022, we had cash and cash equivalents, investments and restricted cash of $3.3 billion and investments of $682.0 million and $507.5 million,$3.4 billion, respectively. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market funds and certificates of deposit with original maturities of three months or less.funds. Investments as of September 30, 2017 and December 31, 2016 consistedconsist of fixed income securities, which include U.S. government treasury securities, U.S. government agency securities, investment grade corporate notessecurities, and bonds, municipal securities, foreign government securities, commercial paper and certificatespaper. Restricted cash primarily consists of deposit.amounts held in escrow related to funding customer home purchases in our mortgage origination business. Amounts on deposit with third-party financial institutions exceed the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation insurance limits, as applicable. As of June 30, 2023, Zillow Group and its subsidiaries were in compliance with all debt covenants specified in the facilities described below.On February 17, 2015, We believe we acquired Trulia in a stock-for-stock transaction. The total purchase price of Trulia was approximately $2.0 billion. Our February 2015 acquisition of Trulia had a significant impact on our liquidity, financial positionwill meet longer-term expected future cash requirements and results of operations.Further, as a result of the acquisition, Zillow Group entered into a supplemental indenture in respect of the 2020 Notes in the aggregate principal amount of $230.0 million, which supplemental indenture provides, among other things, that, at the effective time of the Trulia acquisition, (i) each outstanding 2020 Note is no longer convertible into shares of Trulia common stock and is convertible solely into shares of Zillow Group Class A common stock, pursuant to, and in accordance with, the terms of the indenture governing the 2020 Notes, and (ii) Zillow Group guaranteed all of the obligations of Trulia under the 2020 Notes and related indenture. The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed. Interest is payable on the 2020 Notes at the rate of 2.75% semi-annually on June 15 and December 15 of each year. In December 2016, the Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes discussed below to repurchase $219.9 million aggregate principal of the 2020 Notes in privately negotiated transactions.Holders of the 2020 Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. In connection with the supplemental indenture in respect of the 2020 Notes, the conversion ratio immediately prior to the effective time of the Trulia Merger of 27.8303 shares of Trulia common stock per $1,000 principal amount of notes was adjusted to 12.3567 shares of our Class A common stock per $1,000 principal amount of notes based on the exchange ratio of 0.444 per the Merger Agreement. This was equivalent to an initial conversion price of approximately $80.93 per share of our Class A common stock. In connection with the August 2015 distribution of shares of our Class C capital stock as a dividend to our Class A and Class B common shareholders, the conversion ratio has been further adjusted to 41.4550 shares of Class A common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $24.12 per share of our Class A common stock. The conversion ratio will be adjusted for certain dilutive events and will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes). The conversion option of the 2020 Notes has no cash settlement provisions. The conversion option does not meet the criteria for separate accounting as a derivative as it is indexed to our own stock.The 2020 Notes are redeemable, at our option, in whole or in part on or after December 20, 2018, if the last reported sale price per share of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.For additional information regarding the 2020 Notes, see Note 9 to our condensed consolidated financial statements.In December 2016, Zillow Group issued $460.0 million aggregate principal amount of 2021 Notes, which amount includes the exercise in full of the $60.0 million over-allotment option, to Citigroup Global Markets Inc. as the initial purchaser of the 2021 Notes in a private offering to the initial purchaser in reliance on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for resale to qualified institutional buyers as defined in, and pursuant to, Rule 144A under the Securities Act. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017. The 2021 Notes are convertible into cash, shares of our Class C capital stock or a combination thereof, at the Company’s election. The 2021 Notes will mature on December 1, 2021, unless earlier repurchased, redeemed, or converted in accordance with their terms. The Company incurred transaction costs of approximately $12.2 million related to the issuance of the 2021 Notes, including approximately $11.5 million in fees to the initial purchaser, which amount was paid out of the gross proceeds from the note offering.The net proceeds from the issuance of the 2021 Notes were approximately $447.8 million, after deducting fees and expenses. The Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes to repurchase a portion of the outstanding 2020 Notes in privately negotiated transactions. In addition, the Company used approximately $36.6 million of the net proceeds from the issuance of the 2021 Notes to pay the cost of Capped Call Confirmations as discussed in Note 9 to our condensed consolidated financial statements. The Company used the remainder of the net proceeds for general corporate purposes.Prior to the close of business on the business day immediately preceding September 1, 2021, the 2021 Notes are convertible at the option of the holders of the 2021 Notes only under certain conditions, none of which conditions have been satisfied as of September 30, 2017. On or after September 1, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2021 Notes may convert their 2021 Notes at their option at the conversion rate then in effect, irrespective of these conditions. The Company will settle conversions of the 2021 Notes by paying or delivering, as the case may be, cash, shares of Class C capital stock, orthrough a combination of cash flows from operations, debt financing and sharesequity offerings, as applicable.Class C capital stock, at its election. The conversion rate will initially be 19.0985 sharescash flows and the following discussions include the results of Class C capital stock per $1,000 principal amount of 2021 Notes (equivalentcontinuing and discontinued operations for the six months ended June 30, 2022. There were no cash flows related to an initial conversion price of approximately $52.36 per share of Class C capital stock). The conversion rate is subject to customary adjustments upondiscontinued operations for the occurrence of certain events. The Company may redeem for cash all or part of the 2021 Notes, at its option, on or after December 6, 2019, under certain circumstances at a redemption price equal to 100% of the principal amount of the 2021six months ended June 30, 2023. See Note 3 in our Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the indenture governing the 2021 Notes).We may not redeem the 2021 Notes prior to December 6, 2019. We may redeem the 2021 NotesCondensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for cash, at our option, in whole or in part on or after December 6, 2019, if the last reported sale price per share of our Class C capital stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.For additional information regarding the 2021 Notes, see Note 9 to our condensed consolidated financial statements.In September 2017, we acquired New Home Feed for an immaterial amount. A substantial majority of the purchase price for New Home Feed has been allocated to goodwill and an intangible asset.presented: Nine Months Ended
September 30, 2017 2016 (in thousands, unaudited) $ 176,923 $ (30,436 ) (180,246 ) (27,911 ) 79,673 19,969 Six Months Ended
June 30, 2023 2022 Cash Flow Data: Net cash provided by operating activities $ 193 $ 4,255 Net cash provided by (used in) investing activities 84 (934) Net cash used in financing activities (177) (3,976) (Used In) Operating Activitiesrental professionalsbuilders and brand advertisers.advertisers, as well as cash received from sales of mortgages originated by Zillow Home Loans and, prior to September 30, 2022, from customers for sales of homes through Zillow Offers. Our primary uses of cash from operating activities include payments for marketing and advertising activities, mortgages funded through Zillow Home Loans and employee benefitscompensation and compensation.benefits. Additionally, uses of cash from operating activities include costs associated with operating our mobile applications and websites and other general corporate expenditures.ninesix months ended SeptemberJune 30, 2017,2023, net cash provided by operating activities was $176.9$193 million. This was primarily driven by a net loss of $17.2$57 million, adjusted by share-based compensation of $233 million, depreciation and amortization expense of $81.6 million, share-based compensation expense of $84.2$85 million, amortization of theright of use assets of $12 million, accretion of bond discount of $20 million, amortization of contract cost assets of $11 million, and amortization of debt issuance costs on the 2021 Notes of $13.4$3 million. Changes in operating assets and liabilities decreased cash provided by operating activities by $75 million. The changes in operating assets and liabilities are primarily related to a $32 million increase in mortgage loans held for sale due to an increase in badpurchase loan origination volume, a $30 million increase in prepaid expenses and other current assets and a $19 million increase in accounts receivable both primarily due to an increase in revenue from products and services billed in arrears, a $15 million decrease in lease liabilities due to contractual lease payments, an $11 million increase in contract cost assets and a $2 million decrease in other long term liabilities. These changes were partially offset by a $27 million increase in accrued expenses and other current liabilities primarily driven by the timing of billings, a $5 million increase in deferred revenue and a $2 million increase in accrued compensation and benefits.expensediscount and debt issuance costs of $5.9$24 million, a loss on disposalextinguishment of property and equipmentdebt of $4.1$21 million, amortization of contract cost assets of $16 million, amortization of right of use assets of $11 million, accretion of bond discount of $11 million, and a change$11 million in deferredrent of $3.1 million.other adjustments to reconcile net income to net cash provided by operation activities. Changes in operating assets and liabilities increased cash provided by operating activities by $1.6 million.$3.9 billion. The changes in operating assets and liabilities arewere primarily duerelated to a $19.3$3.9 billion decrease in inventory, an $81 million increasedecrease in accounts receivable, due primarily associated with the wind down of Zillow Offers operations, a $46 million decrease in mortgage loans held for sale, and a $4 million decrease in prepaid expenses and other current assets primarily related to an increase in revenue,the repayment of the term loans associated with our Zillow Offers securitization transactions. These changes were partially offset by a $13.2$69 million increasedecrease in accrued expenses and other current liabilities and a $4.4 million decrease in prepaid expenses and other assets driven primarily by the timingwind down of payments.For the nine months ended September 30, 2016, net cash used in operating activities was $30.4 million. This was primarily driven byZillow Offers operations, a net loss of $196.9$47 million including the impact of the settlement of a lawsuit for $130.0 million in June 2016, adjusted by share-based compensation expense of $81.2 million, depreciation and amortization expense of $74.9 million, a loss on disposal of property and equipment of $3.4 million, bad debt expense of $1.7 million, a $1.4 million gain on the divestiture of a business and a $1.4 million non-cash change in the valuation allowance related to a deferred tax liability generated in connection with our February 2016 acquisition of Naked Apartments. Changes in operating assets and liabilities increased cash provided by operating activities by $6.6 million. The increase in operating assets and liabilities is primarily due to a $13.0 million increasedecrease in accrued compensation and benefits, due primarily to an increase in sales commissions and the timing of payroll, an $11.8$8 million increase in accounts receivable driven bycontract cost assets, and an increase$8 million decrease in revenue and a $5.6 million increase in deferred revenue driven by an increase in revenue.Used InProvided By (Used In) Investing Activitiesassets,assets.purchase of cost method investments,six months ended June 30, 2023, net cash paid in connection with acquisitions andprovided by investing activities was $84 million. This was the result of $168 million of net proceeds from divestiturethe maturity of a business.ninesix months ended SeptemberJune 30, 2017,2022, net cash used in investing activities was $180.2$934 million. This was primarily the result of $98.7$863 million of net purchases of investments $61.0and $71 million of purchases forof property and equipment and intangible assets, $11.1 million paid in connection with acquisitions, and approximately $10.0 million related to the purchase of a cost method investment, partially offset by $0.6 million in proceeds from our August 2016 sale of our Diverse Solutions business.For the nine months ended September 30, 2016, netassets.investing activities was $27.9 million. This was primarily the result of $53.6 million of purchases for property and equipment and intangible assets and $16.3 million paid in connection with our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive Group, partially offset by $36.8 million of net maturities and sales of investments, $3.2 million in proceeds from the divestiture of a business and a $2.0 million decrease in restricted cash.Cash Flows Provided By Financing ActivitiesFor the nine months ended September 30, 2017 and 2016, our financing activities has primarily related toresulted from repurchases of Class A common stock and Class C capital stock, the exercise of employee option awards. Theawards, repayments of borrowings on the warehouse lines of credit and master repurchase agreements related to Zillow Home Loans, and, prior to September 30, 2022, settlement of long term debt including our Zillow Offers securitization term loans, proceeds from our Zillow Offers securitization transaction, and proceeds from and repayments of borrowings on our credit facilities related to Zillow Offers.ninepartial repayment of the term loans associated with the Zillow Offers securitization transactions, $597 million of cash paid for share repurchases and $58 million of net repayments on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans. The cash outflows were partially offset by $42 million of proceeds from the exercise of option awards.June 30, 2023 December 31, 2022 Maturity Date Aggregate Principal Amount Stated Interest Rate Carrying Value Carrying Value September 1, 2026 $ 499 1.375 % $ 496 $ 495 May 15, 2025 565 2.75 % 561 560 September 1, 2024 608 0.75 % 606 605 Total $ 1,672 $ 1,663 $ 1,660 SeptemberJune 30, 20172023, we repurchased 0.8 million shares of Class A common stock and 2016 were $80.04.5 million shares of Class C capital stock at an average price of $44.12 and $44.76 per share, respectively, for an aggregate purchase price of $36 million and $20.5$200 million, respectively.Off-Balance Sheet Arrangementsdid notprimarily use debt financing to fund mortgage loan originations. The following table summarizes our warehouse line of credit and master repurchase agreements as of the periods presented (in millions, except interest rates):
(1) Agreement was reassigned from Credit Suisse AG, Cayman Islands on May 25, 2023. No other material changes were made to the agreement in connection with the reassignment.Lender Maturity Date Maximum Borrowing Capacity Outstanding Borrowings at June 30, 2023 Weighted Average Interest Rate Atlas Securitized Products, L.P. (1) March 11, 2024 $ 50 $ 19 $ 23 7.07 % JPMorgan Chase Bank, N.A. May 30, 2024 100 8 — 6.75 % Citibank, N.A. June 9, 2023 — — 3 — % Comerica Bank December 29, 2023 50 39 11 7.05 % Total $ 200 $ 66 $ 37 any off-balance sheet arrangements other thanan outstanding surety bonds issuedaggregate principal amount of convertible senior notes of $1.7 billion, none of which is payable within 12 months. Future interest payments associated with the convertible senior notes total $61 million, with $27 million payable within 12 months. Refer to Note 8 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for maturity dates, stated interest rates and additional information on our convertible senior notes.benefit of approximately $3.7 million as of September 30, 2017. We do not believe that the surety bonds will have a material effect on our liquidity, capital resources, market risk support or credit risk support.office space. For additional information regarding the surety bonds,our operating leases, see Note 1412 to our condensed consolidated financial statements under the subsection titled “Surety Bonds”.Contractual Obligations and Other CommitmentsThe following table provides a summaryNotes to Consolidated Financial Statements in Part II, Item 8 of our contractual obligationsAnnual Report on Form 10-K for the fiscal year ended December 31, 2022. Additionally, as of SeptemberJune 30, 2017: Payment Due By Period Total Less Than
1 Year 1-3 Years 3-5 Years More Than
5 Years (in thousands, unaudited) $ 460,000 $ — $ — $ 460,000 $ — 38,333 9,200 18,400 10,733 — 10,137 — — 10,137 — 976 279 558 139 — 168,438 25,521 49,569 49,086 44,262 144,390 32,640 67,000 44,750 — $ 822,274 $ 67,640 $ 135,527 $ 574,845 $ 44,262 (1)The aggregate principal amount of the 2021 Notes is due on December 1, 2021 if not earlier converted or redeemed.(2)The stated interest rate on the 2021 Notes is 2.00%.(3)The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed.(4)The stated interest rate on the 2020 Notes is 2.75%.(5)Our operating lease obligations consist of various operating leases for office space under noncancelable operating lease agreements. For additional information regarding our operating leases, see Note 14 to our condensed consolidated financial statements.(6)We have noncancelable purchase obligations for content related to our mobile applications and websites. For additional information regarding our purchase obligations, see Note 14 to our condensed consolidated financial statements.We have excluded unrecognized tax benefits from the contractual obligations table above because2023, we cannot make a reasonably reliable estimate of the amount and period of payment due primarily to our significant net operating loss carryforwards.As of September 30, 2017, we havehad outstanding letters of credit of approximately $5.2$12 million, $1.8 million, $1.5 million and $1.1 million, respectively, which secure our lease obligations in connection with certain of the operating leases of our San Francisco, Seattle, New Yorkoffice spaces.Denver office spaces. Certainwebsites and certain cloud computing costs. During the six months ended June 30, 2023, there were no material changes to the purchase commitments disclosed in Note 18 of the letters of credit are unsecured obligations, and certain ofNotes to the letters of credit are secured by certificates of deposit held as collateralConsolidated Financial Statements in our name at a financial institution.In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guaranteePart II, Item 8 of our performanceAnnual Report on and our compliance with certain obligations. If we were to fail to perform or comply with these obligations, any draws upon surety bonds issued on our behalf would then trigger our payment obligation toForm 10-K for the surety bond issuer. We have outstanding surety bonds issued for our benefit of approximately $3.7 million as of September 30, 2017.U.S. generally accepted accounting principles, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. We evaluate our estimates, judgments and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates, and the health of the real estate market and the broader economy have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact our estimates. For information on our critical accounting policies and estimates, see Part II Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
We cannot predict the duration or magnitude of these inflationary pressures, or how they may change over time, but we expect to see continued impacts on the residential real estate industry, our customers and our company. Despite these near-term effects, we do not expect these inflationary pressures to have a material impact on our ability to execute our long-term business strategy.certificates of deposit,U.S. government treasury securities, U.S. government agency securities, foreign government securities, municipalinvestment grade corporate securities and corporate notes and bonds.commercial paper. Our current investment policy seeks first to preserve principal,capital, second to provide sufficient liquidity for our operating and capital needs and third to maximize yield without putting our principal at risk.AsFor our investment portfolio, is short-term in nature, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio.SeptemberJune 30, 2017,2023, we have outstanding $460.0 millionhad approximately $1.7 billion aggregate principal Convertible Senior Notes due in 2021 (the “2021 Notes”). The 2021 Notes were issued in December 2016 and carry a fixed interest rateamount of 2.00% per year. As ofconvertible senior notes outstanding with maturities ranging from September 30, 2017, we also have2024 through September 2026. All outstanding $10.1 million aggregate principal Convertible Senior Notes due in 2020 (the “2020 Notes”). The 2020 Notes were guaranteed by Zillow Group in connection with our February 2015 acquisition of Trulia, Inc. The 2020 Notes carry a fixed interest rate of 2.75% per year. Since the 2020 Notes and 2021 Notesconvertible senior notes bear interest at fixed rates we have no directof interest and, therefore, do not expose us to financial statement risk associated with changes in interest rates. However, theThe fair values of the 2020 Notes and 2021 Notesconvertible senior notes change primarily when the market price of our stock fluctuates or interest rates change.For these reasons, we do not expectoperationsoperations. This risk is primarily mitigated through the expedited sale of our loans. As of June 30, 2023 and December 31, 2022, we had $66 million and $37 million, respectively, of outstanding borrowings on our warehouse line of credit and master repurchase agreements which bear interest either at a floating rate based on Secured Overnight Financing Rate (“SOFR”) plus an applicable margin, as defined by the governing agreements, or cash flows would be materially affectedBloomberg Short-Term Bank Yield Index Rate (“BSBY”) plus an applicable margin, as defined by a suddenthe governing agreements. We manage the interest rate risk associated with our mortgage loan origination services through the use of forward sales of mortgage-backed securities. Assuming no change in market interest rates.Inflation RiskWe dothe outstanding borrowings on the warehouse line of credit and master repurchase agreements, we estimate that a one percentage point increase in SOFR or BSBY, as applicable, would not believe that inflation has hadhave a material effect on our annual interest expense associated with the warehouse line of credit and master repurchase agreements as of June 30, 2023 and December 31, 2022.resultswe believe these effects have been pervasive throughout our business during the past several quarters. In response to ongoing inflationary pressures in the United States, the Federal Reserve has implemented a number of operations or financial condition. increases to the federal funds rate in recent quarters. These increases have impacted other market rates derived from this benchmark rate, including mortgage interest rates. The increase in mortgage interest rates across the industry has decreased demand for mortgages overall and, in turn, had an adverse impact on our Mortgages revenue.were to become subject to significant inflationary pressures,in particular labor, marketing and hosting costs, may increase and we may not be able to fully offset such higher costs through price increases. In addition, uncertain or changing economic and market conditions, including inflation or deflation, may continue to affect demand for our products and services and the housing markets in which we operate. Our inability or failure to do soquickly respond to inflation could harm our business, results of operations and financial condition.
2023.SeptemberJune 30, 2017.2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective as of SeptemberJune 30, 2017.During the three months ended September 30, 2017, the Company implemented a new enterprise resource planning (“ERP”) system to support our procurement and financial reporting processes. We implemented this new ERP system to enhance our overall system of internal control over financial reporting through further automation and integration of business processes. The ERP system was not implemented in response to any identified deficiency or material weakness in the Company’s internal control over financial reporting. As a result of this implementation, we have modified the design and documentation of certain internal control processes and procedures relating to the ERP system.Other than the ERP system implementation described above, thereSeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
1413 under the subsection titled “Legal Proceedings” in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
2016.2022. However, you should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
SeptemberJune 30, 2017.2023.Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) Period Class A common stock Class C capital stock Class A common stock Class C capital stock April 1 - April 30, 2023 — — $ — $ — — $ 414 May 1 - May 31, 2023 447 2,458 45.17 45.83 2,905 281 June 1 - June 30, 2023 49 323 45.27 46.11 372 264 Total 496 2,781 3,277 (1) On December 2, 2021, the Board authorized a stock repurchase program granting the authority to repurchase up to $750 million of its Class A common stock, Class C capital stock or a combination of both. On May 4, 2022, the Board authorized the repurchase of up to an additional $1 billion (together the “Repurchase Authorizations”) of its Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board further expanded the Repurchase Authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. There were no repurchases of convertible senior notes during the three months ended June 30, 2023. On July 31, 2023, the Board expanded the Repurchase Authorizations to authorize the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, convertible senior notes or a combination thereof. The Repurchase Authorizations do not have an expiration date.
Chief Exhibit
NumberDescription ExhibitNumberDescription 31.13.210.1* 31.1 31.2 32.132.1^ 32.232.2^101.INS Inline XBRL Instance Document.Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (embedded within the inline XBRL document). * Indicates a management contract or compensatory plan or arrangement. ^ The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. Dated: November 7, 2017August 2, 2023 ZILLOW GROUP, INC. By: By:KATHLEEN PHILIPSJENNIFER ROCKName: Name:Kathleen PhilipsJennifer RockTitle: Title:FinancialAccounting Officer Chief Legal Officer, and Secretary46