Washington, D.C. 20549
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
ANGI HOMESERVICES INC. AND SUBSIDIARIES
ANGI HOMESERVICES INC. AND SUBSIDIARIES
ANGI HOMESERVICES INC. AND SUBSIDIARIES
(Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | ANGI Homeservices Inc. Shareholders' Equity | | | | |
| | | | Class A Common Stock $0.001 Par Value | | Class B Convertible Common Stock $0.001 Par Value | | Class C Common Stock $0.001 Par Value | | | | | | | | Total ANGI Homeservices Inc. Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated Other Comprehensive (Loss) Income | | | | | Total Shareholders' Equity |
| Redeemable Noncontrolling Interests | | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Deficit | | | | Noncontrolling Interests | |
| | | $ | | Shares | | $ | | Shares | | $ | | Shares | | | | | | |
| | | (In thousands) | | |
Balance as of March 31, 2019 | $ | 23,242 |
| | | $ | 85 |
| | 84,718 |
| | $ | 421 |
| | 421,452 |
| | $ | — |
| | — |
| | $ | 1,331,371 |
| | $ | (8,828 | ) | | $ | (191 | ) | | $ | 1,322,858 |
| | $ | 9,043 |
| | $ | 1,331,901 |
|
Net earnings | 160 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,968 |
| | — |
| | 6,968 |
| | 106 |
| | 7,074 |
|
Other comprehensive loss | (335 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,291 | ) | | (1,291 | ) | | (48 | ) | | (1,339 | ) |
Stock-based compensation expense | 35 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17,485 |
| | — |
| | — |
| | 17,485 |
| | — |
| | 17,485 |
|
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 1 |
| | 1,085 |
| | — |
| | — |
| | — |
| | — |
| | (10,257 | ) | | — |
| | — |
| | (10,256 | ) | | — |
| | (10,256 | ) |
Issuance of common stock to IAC pursuant to the employee matters agreement | — |
| | | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjustment of redeemable noncontrolling interests to fair value | 319 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (319 | ) | | — |
| | — |
| | (319 | ) | | — |
| | (319 | ) |
Balance as of June 30, 2019 | $ | 23,421 |
| | | $ | 86 |
| | 85,803 |
| | $ | 421 |
| | 421,453 |
| | $ | — |
| | — |
| | $ | 1,338,280 |
| | $ | (1,860 | ) | | $ | (1,482 | ) | | $ | 1,335,445 |
| | $ | 9,101 |
| | $ | 1,344,546 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2018 | $ | 22,655 |
| | | $ | 63 |
| | 63,353 |
| | $ | 416 |
| | 415,885 |
| | $ | — |
| | — |
| | $ | 1,135,024 |
| | $ | (105,000 | ) | | $ | 6,224 |
| | $ | 1,036,727 |
| | $ | 9,583 |
| | $ | 1,046,310 |
|
Net earnings | 22 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,899 |
| | — |
| | 22,899 |
| | 102 |
| | 23,001 |
|
Other comprehensive loss | (593 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,133 | ) | | (5,133 | ) | | (229 | ) | | (5,362 | ) |
Stock-based compensation expense | 390 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 21,663 |
| | — |
| | — |
| | 21,663 |
| | — |
| | 21,663 |
|
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 2,063 |
| | — |
| | — |
| | — |
| | — |
| | (18,149 | ) | | — |
| | — |
| | (18,147 | ) | | — |
| | (18,147 | ) |
Purchase of redeemable noncontrolling interests | (53 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (549 | ) | | (549 | ) |
Adjustment of redeemable noncontrolling interests to fair value | (582 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 582 |
| | — |
| | — |
| | 582 |
| | — |
| | 582 |
|
Other | 1 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (182 | ) | | — |
| | — |
| | (182 | ) | | 174 |
| | (8 | ) |
Balance as of June 30, 2018 | $ | 21,840 |
| | | $ | 65 |
| | 65,416 |
| | $ | 416 |
| | 415,885 |
| | $ | — |
| | — |
| | $ | 1,138,938 |
| | $ | (82,101 | ) | | $ | 1,091 |
| | $ | 1,058,409 |
| | $ | 9,081 |
| | $ | 1,067,490 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | ANGI Homeservices Inc. Shareholders' Equity and Invested Capital | | | | |
| | | | Class A Common Stock $0.001 Par Value | | Class B Common Stock $0.001 Par Value | | Class C Common Stock $0.001 Par Value | | | | | | | | | | Total ANGI Homeservices Inc. Shareholders' Equity and Invested Capital | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated Other Comprehensive (Loss) Income | | | | | Total Shareholders' Equity |
| Redeemable Noncontrolling Interests | | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Invested Capital | | | | Noncontrolling Interests | |
| | | $ | | Shares | | $ | | Shares | | $ | | Shares | | | | | | | |
| | | (In thousands) | | |
Balance as of December 31, 2016 | $ | 13,781 |
| | | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 154,852 |
| | $ | (1,721 | ) | | $ | 153,131 |
| | $ | 9,482 |
| | $ | 162,613 |
|
Net (loss) earnings | (1,256 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (63,540 | ) | | 18,646 |
| | — |
| | (44,894 | ) | | (146 | ) | | (45,040 | ) |
Other comprehensive income | 280 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,069 |
| | 5,069 |
| | 243 |
| | 5,312 |
|
Stock-based compensation expense | 1,577 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 96,939 |
| | — |
| | — |
| | — |
| | 96,939 |
| | — |
| | 96,939 |
|
Redeemable noncontrolling interests created in acquisitions | 14,692 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of redeemable noncontrolling interests | (11,991 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (633 | ) | | (633 | ) |
Adjustment of redeemable noncontrolling interests to fair value | 1,725 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,725 | ) | | — |
| | (1,725 | ) | | — |
| | (1,725 | ) |
Net increase in IAC/InterActiveCorp’s investment in HomeAdvisor prior to the Combination | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 46,339 |
| | — |
| | 46,339 |
| | — |
| | 46,339 |
|
Contribution of IAC/InterActiveCorp's HomeAdvisor business to ANGI Homeservices Inc. and Combination with Angie's List | — |
| | | 61 |
| | 61,291 |
| | 415 |
| | 414,754 |
| | — |
| | — |
| | 997,107 |
| | — |
| | (218,112 | ) | | — |
| | 779,471 |
| | — |
| | 779,471 |
|
Other | 36 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 817 |
| | 817 |
|
Balance as of September 30, 2017 | $ | 18,844 |
| | | $ | 61 |
| | 61,291 |
| | $ | 415 |
| | 414,754 |
| | $ | — |
| | — |
| | $ | 1,094,046 |
| | $ | (63,540 | ) | | $ | — |
| | $ | 3,348 |
| | $ | 1,034,330 |
| | $ | 9,763 |
| | $ | 1,044,093 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWSSHAREHOLDERS' EQUITY
Six Months Ended June 30, 2019 and 2018
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | ANGI Homeservices Inc. Shareholders' Equity | | | | |
| | | | Class A Common Stock $0.001 Par Value | | Class B Convertible Common Stock $0.001 Par Value | | Class C Common Stock $0.001 Par Value | | | | | | | | Total ANGI Homeservices Inc. Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated Other Comprehensive (Loss) Income | | | | | Total Shareholders' Equity |
| Redeemable Noncontrolling Interests | | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Deficit | | | | Noncontrolling Interests | |
| | | $ | | Shares | | $ | | Shares | | $ | | Shares | | | | | | |
| | | (In thousands) | | |
Balance as of December 31, 2018 | $ | 18,163 |
| | | $ | 81 |
| | 80,515 |
| | $ | 421 |
| | 421,118 |
| | $ | — |
| | — |
| | $ | 1,333,097 |
| | $ | (18,797 | ) | | $ | (1,861 | ) | | $ | 1,312,941 |
| | $ | 9,046 |
| | $ | 1,321,987 |
|
Net earnings | 51 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16,937 |
| | — |
| | 16,937 |
| | 97 |
| | 17,034 |
|
Other comprehensive (loss) income | (149 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 379 |
| | 379 |
| | (42 | ) | | 337 |
|
Stock-based compensation expense | 77 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 36,725 |
| | — |
| | — |
| | 36,725 |
| | — |
| | 36,725 |
|
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 5 |
| | 5,288 |
| | — |
| | — |
| | — |
| | — |
| | (25,448 | ) | | — |
| | — |
| | (25,443 | ) | | — |
| | (25,443 | ) |
Issuance of common stock to IAC pursuant to the employee matters agreement | — |
| | | — |
| | — |
| | — |
| | 335 |
| | — |
| | — |
| | (795 | ) | | — |
| | — |
| | (795 | ) | | — |
| | (795 | ) |
Adjustment of redeemable noncontrolling interests to fair value | 5,279 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,279 | ) | | — |
| | — |
| | (5,279 | ) | | — |
| | (5,279 | ) |
Other | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (20 | ) | | — |
| | — |
| | (20 | ) | | — |
| | (20 | ) |
Balance as of June 30, 2019 | $ | 23,421 |
| | | $ | 86 |
| | 85,803 |
| | $ | 421 |
| | 421,453 |
| | $ | — |
| | — |
| | $ | 1,338,280 |
| | $ | (1,860 | ) | | $ | (1,482 | ) | | $ | 1,335,445 |
| | $ | 9,101 |
| | $ | 1,344,546 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | $ | 21,300 |
| | | $ | 63 |
| | 62,818 |
| | $ | 415 |
| | 415,186 |
| | $ | — |
| | — |
| | $ | 1,112,400 |
| | $ | (121,764 | ) | | $ | 2,232 |
| | $ | 993,346 |
| | $ | 9,748 |
| | $ | 1,003,094 |
|
Cumulative effect of adoption of ASU No. 2014-09 | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,649 |
| | — |
| | 25,649 |
| | — |
| | 25,649 |
|
Net (loss) earnings | (89 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,014 |
| | — |
| | 14,014 |
| | (16 | ) | | 13,998 |
|
Other comprehensive loss | (218 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,141 | ) | | (1,141 | ) | | (92 | ) | | (1,233 | ) |
Stock-based compensation expense | 800 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 46,159 |
| | — |
| | — |
| | 46,159 |
| | — |
| | 46,159 |
|
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 2,598 |
| | — |
| | — |
| | — |
| | — |
| | (19,292 | ) | | — |
| | — |
| | (19,290 | ) | | — |
| | (19,290 | ) |
Issuance of common stock to IAC pursuant to the employee matters agreement | — |
| | | — |
| | — |
| | 1 |
| | 699 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of redeemable noncontrolling interests | (53 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (818 | ) | | (818 | ) |
Adjustment of redeemable noncontrolling interests to fair value | 61 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (61 | ) | | — |
| | — |
| | (61 | ) | | — |
| | (61 | ) |
Other | 39 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (267 | ) | | — |
| | — |
| | (267 | ) | | 259 |
| | (8 | ) |
Balance as of June 30, 2018 | $ | 21,840 |
| | | $ | 65 |
| | 65,416 |
| | $ | 416 |
| | 415,885 |
| | $ | — |
| | — |
| | $ | 1,138,938 |
| | $ | (82,101 | ) | | $ | 1,091 |
| | $ | 1,058,409 |
| | $ | 9,081 |
| | $ | 1,067,490 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net (loss) earnings | $ | (46,296 | ) | | $ | 8,575 |
|
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | | | |
Bad debt expense | 20,625 |
| | 12,336 |
|
Stock-based compensation expense | 120,280 |
| | 6,685 |
|
Depreciation | 9,705 |
| | 5,824 |
|
Amortization of intangibles | 6,885 |
| | 2,271 |
|
Deferred income taxes | (71,446 | ) | | (2,742 | ) |
Other adjustments, net | (1,328 | ) | | 488 |
|
Changes in assets and liabilities, net of effects of acquisitions: | | | |
Accounts receivable | (30,080 | ) | | (20,999 | ) |
Other current assets | (5,972 | ) | | (925 | ) |
Accounts payable and other current liabilities | 41,847 |
| | 18,278 |
|
Income taxes payable | 22 |
| | 4,664 |
|
Deferred revenue | 7,788 |
| | 6,171 |
|
Net cash provided by operating activities | 52,030 |
| | 40,626 |
|
Cash flows from investing activities: | | | |
Acquisitions, net of cash acquired | (66,378 | ) | | — |
|
Capital expenditures | (16,278 | ) | | (13,742 | ) |
Net cash used in investing activities | (82,656 | ) | | (13,742 | ) |
Cash flows from financing activities: | | | |
Proceeds from the issuance of related party debt | 131,359 |
| | 446 |
|
Funds returned from escrow for MyHammer tender offer | 10,604 |
| | — |
|
Transfers from (to) IAC/InterActiveCorp | 30,216 |
| | (26,485 | ) |
Purchase of noncontrolling interests | (12,574 | ) | | — |
|
Principal payments on related party debt | (104,089 | ) | | — |
|
Other | 34 |
| | — |
|
Net cash provided by (used in) financing activities | 55,550 |
| | (26,039 | ) |
Total cash provided | 24,924 |
| | 845 |
|
Effect of exchange rate changes on cash and cash equivalents | (1,758 | ) | | 65 |
|
Net increase in cash and cash equivalents | 23,166 |
| | 910 |
|
Cash and cash equivalents at beginning of period | 36,377 |
| | 2,462 |
|
Cash and cash equivalents at end of period | $ | 59,543 |
| | $ | 3,372 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net earnings | $ | 17,085 |
| | $ | 13,909 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Stock-based compensation expense | 36,802 |
| | 46,959 |
|
Amortization of intangibles | 28,252 |
| | 32,084 |
|
Bad debt expense | 32,143 |
| | 20,581 |
|
Depreciation | 15,795 |
| | 12,070 |
|
Deferred income taxes | (12,407 | ) | | (6,416 | ) |
Other adjustments, net | 3,446 |
| | 164 |
|
Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | |
Accounts receivable | (61,889 | ) | | (36,951 | ) |
Other assets | 10,556 |
| | (14,217 | ) |
Accounts payable and other liabilities | 29,588 |
| | (1,673 | ) |
Income taxes payable and receivable | 269 |
| | 667 |
|
Deferred revenue | 3,384 |
| | 6,389 |
|
Net cash provided by operating activities | 103,024 |
| | 73,566 |
|
Cash flows from investing activities: | | | |
Acquisition, net of cash acquired | (20,341 | ) | | — |
|
Capital expenditures | (39,113 | ) | | (21,448 | ) |
Proceeds from maturities of marketable debt securities | 25,000 |
| | — |
|
Net proceeds from the sale of a business | 23,599 |
| | — |
|
Proceeds from sale of fixed assets | — |
| | 10,410 |
|
Other, net | (103 | ) | | — |
|
Net cash used in investing activities | (10,958 | ) | | (11,038 | ) |
Cash flows from financing activities: | | | |
Principal payments on term loan | (6,875 | ) | | (6,875 | ) |
Principal payments on related party debt | (1,008 | ) | | (1,322 | ) |
Proceeds from the exercise of stock options
| 573 |
| | 2,125 |
|
Withholding taxes paid on behalf of employees on net settled stock-based awards | (26,245 | ) | | (21,439 | ) |
Distribution to IAC pursuant to the tax sharing agreement | (11,355 | ) | | — |
|
Purchase of noncontrolling interests | — |
| | (871 | ) |
Other, net | (3,732 | ) | | 39 |
|
Net cash used in financing activities | (48,642 | ) | | (28,343 | ) |
Total cash provided | 43,424 |
| | 34,185 |
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 157 |
| | (111 | ) |
Net increase in cash, cash equivalents, and restricted cash | 43,581 |
| | 34,074 |
|
Cash, cash equivalents, and restricted cash at beginning of period | 338,821 |
| | 221,521 |
|
Cash, cash equivalents, and restricted cash at end of period | $ | 382,402 |
| | $ | 255,595 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ANGI Homeservices is creating the world's largest digital marketplace for home services, connecting millionsNature of homeowners across the globe with home service professionals. ANGI Homeservices operates 10 brands in eight countries, including HomeAdvisor®, Angie's List, mHelpDesk, HomeStars (Canada), Travaux.com (France), MyHammer (Germany), MyBuilder (UK), Werkspot (Netherlands) and Instapro (Italy).operations
All references to "ANGI Homeservices," the "Company," "we," "our" or "us" in this report are to ANGI Homeservices Inc. The Company has two operating segments, North Americaconnects quality home service pros across 500 different categories, from repairing and Europe. North America includes HomeAdvisor's operations in the United States, Angie's List, mHelpDeskremodeling to cleaning and HomeStars. Europe includes Travaux.com, MyHammer, MyBuilder, Werkspot and Instapro.
Organization
On September 29, 2017, IAC/InterActiveCorp ("IAC") and Angie's List Inc. ("Angie's List") combined IAC's HomeAdvisor business and Angie's List under a new publicly traded company calledlandscaping, with consumers. Over 250,000 domestic service professionals find work through ANGI Homeservices, Inc. The merger agreement providedand consumers turn to at least one of our brands to find a pro for the combinationmore than 20 million projects each year. We’ve established category-transforming products with brands such as HomeAdvisor, Angie’s List, by way of the merger of a direct wholly-owned subsidiary of ANGI Homeservices withHandy and into Angie’s List (the "Combination"), with Angie’s List continuing as the surviving company in the Combination. Prior to the effective time of the Combination, IAC contributed its HomeAdvisor business, along with certain cash, to ANGI Homeservices in exchange for shares of ANGI Homeservices Class B common stock. Following the Combination, Angie’s List and the legal entity that holds the HomeAdvisor business are direct wholly-owned subsidiaries of ANGI Homeservices Inc. Fixd Repair.
At
SeptemberJune 30,
2017,2019, IAC owned
87.1%83.1% and
98.5%98.0% of the economic and voting interest, respectively, of ANGI Homeservices.
See "Note 3—Business CombinationsThe Company has two operating segments (i) North America (United States and Canada), which includes HomeAdvisor, Angie's List, Handy, mHelpDesk, HomeStars, Fixd Repair, LLC and Fixd Services LLC (collectively, "Fixd Repair") and Felix, for periods prior to its sale on December 31, 2018, and (ii) Europe, which includes Travaux, MyHammer, My Builder, Werkspot and Instapro.
As used herein, "ANGI Homeservices," for additional information relatedthe "Company," "ANGI," "we," "our" or "us" and similar terms refer to the Combination.
Nature of operations
ANGI Homeservices isInc and its subsidiaries (unless the operator of the largest global home services marketplace, connecting homeowners with service professionals for home repair, maintenance and improvement projects. The Company’s marketplace provides the tools and resources to allow homeowners to find local pre-screened service professionals and instantly book appointments online or through its award-winning HomeAdvisor mobile application. The Company's marketplace also provides consumers with other home services-related resources, including access to average project costs using its HomeAdvisor True Cost Guide. Effective September 29, 2017, the Company also owns Angie's List, a nationwide marketplace for local services where consumers can research, hire, rate and review the providers of these services. Ratings and reviews assist members in identifying and hiring a provider for their local service needs. Angie's List's services are provided in markets located across the continental United States. In addition to its market-leading U.S. operations, ANGI Homeservices owns the leading home services online marketplaces in Canada (HomeStars), which was acquired on February 8, 2017, Germany (MyHammer), which was acquired on November 3, 2016, France (Travaux.com) and the Netherlands (Werkspot), as well as operations in Italy (Instapro) and the United Kingdom (MyBuilder), which was acquired on March 24, 2017. ANGI Homeservices also owns Felix, a pay-per-call advertising service, and mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses.
As of September 30, 2017, the Company's network of service professionals in the United States consisted of approximately 172,000 Marketplace Paying Service Professionals providing services in more than 500 categories ranging from simple home repairs to larger home remodeling projects in more than 400 discrete geographies. The Company generated approximately 13.9 million Marketplace Service Requests from homeowners in the United States during the nine months ended September 30, 2017. As of September 30, 2017, the Company also had 47,000 Angie's List service professionals under contract for advertising.context requires otherwise).
Basis of presentationPresentation and consolidationConsolidation
The Company prepares its consolidated and combined financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company's financial statements were prepared on a consolidated basis beginning September 29, 2017 and on a combined basis for periods prior thereto. The difference in presentation is due to the fact that the final steps of the legal reorganization through which IAC contributed the HomeAdvisor business and cash to fund the cash consideration paid in the Combination to ANGI Homeservices Inc. were not completed, as planned, until immediately prior to September 29, 2017. The preparation of the financial statements on a combined basis for periods prior thereto allows for the
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
financial statements to be presented on a consistent basis for all periods presented. The combined financial statements have been prepared on a standalone basis and are derived from the historical consolidated financial statements and accounting records of IAC through September 29, 2017. The combined financial statements reflect the historical financial position, results of operations and cash flows of the businesses comprising the HomeAdvisor business since their respective dates of acquisition by IAC. The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated.
The consolidated and combined financial statements reflect the allocation to ANGI Homeservices of certain IAC corporate expenses relating to the HomeAdvisor business based on the historical consolidated financial statements and accounting records of IAC through September 29, 2017. For the purpose of these financial statements, income taxes have been computed as if ANGI Homeservices filed on a standalone, separate tax return basis.
All intercompany transactions and balances Any differences between and amongtaxes currently payable to or receivable from IAC under the tax sharing agreement between the Company and its subsidiaries have been eliminated. All intercompany transactions between (i) ANGI Homeservices and (ii) IAC and its subsidiaries, with the exceptioncurrent tax provision computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital and as financing activities within the statement of notes payable due to IAC and its subsidiaries, are considered to be effectively settled for cash at the time the transaction is recorded. The notes payable due to IAC and its subsidiaries are included in “Long-term debt—related party” in the accompanying consolidated and combined balance sheet. See "Note 10—Related Party Transactions with IAC" for additional information on transactions between ANGI Homeservices and IAC.flows.In themanagement's opinion, of management, the assumptions underlying the historical consolidated and combined financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, standalone public company for the periods presented.
The unaudited interim consolidated and combined financial statements have been prepared on the same basis as the annual combinedconsolidated financial statements and reflect in management's opinion, all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim consolidated and combined financial statements should be read in conjunction with the audited combinedconsolidated financial statements of the HomeAdvisor business and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 included in the Company's Registration Statement on Form S-4 dated June 29, 2017 and the amendments thereto.2018.
Accounting estimatesEstimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated and combined financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments, including those related to: the recoverabilityfair values of goodwillcash equivalents and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment;marketable debt securities; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; the liabilities for uncertainuseful lives and recoverability of definite-lived intangible assets and property and equipment; the recoverability of goodwill and indefinite-lived intangible assets;
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
unrecognized tax positions;benefits; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Recent accounting pronouncementsGeneral Revenue Recognition
Accounting pronouncements not yet adopted by the Company
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. ASU No. 2014-09 was subsequently amended during 2015, 2016 and 2017; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, narrow-scope improvements and practical expedients.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when control of the promised services or goods or services areis transferred to the customerour customers, and in an amount that reflects the consideration expectedthe Company expects to be entitled to in exchange for those goodsservices or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior periodgoods.
Deferred Revenue
Deferred revenue consists of payments that are received or using the modified retrospective approach with the cumulative effect recognized asare contractually due in advance of the dateCompany's performance. The Company’s deferred revenue is reported on a contract by contract basis at the end of initial application.
While the Company’s evaluation of the impact of the adoption of ASU No. 2014-09 on its consolidated and combined financial statements continues, it has progressed to the point where we have reached certain preliminary determinations.each reporting period. The Company will adopt ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. Therefore, the cumulative effect of adoption will be reflectedclassifies deferred revenue as an adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018. The effect on the Company will be that sales commissions, which represent the incremental direct costs of obtaining a service professional contract, will be capitalized and amortized over the average life of a service professional. These costs are expensed as incurred currently. The cumulative effect of the adoption of ASU No. 2014-09 will be to establish an asset equal to the unamortized cost of the sales commissions paid to obtain a service professional and a related deferred tax liability with the net effect being recorded as an increase to retained earnings as of January 1, 2018. The ultimate amounts recorded will depend upon both the timing and amount of monthly sales commissions during the year ended December 31, 2016 and the year ending December 31, 2017 and the average life of a service professional as of January 1, 2018. The Company is in the initial stages of assessing the impact of ASU No. 2014-09 on Angie's List following the Combination. Prior to the Combination, Angie's List capitalized sales commissions and amortized the cost overcurrent when the term of the applicable advertising contract. Followingsubscription period or expected completion of our performance obligation is one year or less. The current and non-current deferred revenue balances at December 31, 2018 are $61.4 million and $0.5 million, respectively. During the Combination, Angie's List accounting policies will be conformedsix months ended June 30, 2019, the Company recognized $50.5 million of revenue that was included in the deferred revenue balance as of December 31, 2018. The current and non-current deferred revenue balances at June 30, 2019 are $65.3 million and $0.2 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.
Practical Expedients and Exemptions
As permitted under the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the Company's accounting policiesseries guidance, and these(iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.
For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs will be expensed as incurred. FollowingThe amount of capitalized sales commissions where the adoptioncustomer relationship period is greater than one year is $38.4 million and $38.8 million at June 30, 2019 and December 31, 2018, respectively.
Recent Accounting Pronouncements
Accounting Pronouncement Adopted by the Company
Adoption of ASU No. 2014-09, these costs will be capitalized and amortized over the average life of a service professional. Exclusive of the impact of the adoption of ASU No. 2014-09 on Angie's List, the2016-02, Leases (Topic 842)
The Company estimates that the cumulative effect of adoption on the Company's combined financial position, ifadopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842") effective January 1, 2017 were the date of adoption, would have been less than 9% of total assets, less than 8% of total liabilities and less than 10% of shareholders' equity. The Company, subject to the completion of assessing Angie's List, does not expect the adoption of ASU No. 2014-09 to have a material effect on its consolidated and combined results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes pre-existing2019. ASC 842 superseded previously existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the statement of financial position.
The adoption of ASC 842 resulted in the recognition of $69.4 million of right-of-use assets ("ROU assets") and related lease liabilities as of January 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows.
The Company adopted ASC 842 prospectively and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.
See "Note 2—Leases" for additional information on the adoption of ASC 842. Accounting Pronouncement Not Yet Adopted by the Company
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. The provisions of ASU No. 2016-022016-13 are effective for reporting periods beginning after December 15, 2018; early2019. Upon adoption, is permitted. The provisions of ASU No. 2016-02 are to2016-13 will be applied using athe modified retrospective approach. The Company will adopt ASU No. 2016-02 effective January 1, 2019.approach with a cumulative-effect adjustment to retained earnings recognized as of the date of initial application. The Company is currently evaluating the impact of the adoption of this standard updateASU No. 2016-13 will have on its consolidated and combined financial statements.
Accounting pronouncements adopted by the Company
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about the changesReclassifications
Certain prior year amounts have been reclassified to conform to the termscurrent year presentation.
NOTE 2—LEASES
The Company leases office space and conditionsequipment used in connection with its operations under various operating leases, the majority of a share-based payment awardwhich contain escalation clauses.
ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the present value of the Company’s obligation to make payments arising from these leases. ROU assets and related lease liabilities are based on the present value of fixed lease payments over the lease term using the Company's incremental borrowing rate on the lease commencement date or January 1, 2019 for leases that require an entitycommenced prior to apply modification accounting in "Stock Compensation (Topic 718)." The provisions of ASU No. 2017-09 are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoptionthat date. The Company early adoptedcombines the provisionslease and non-lease components of ASU No. 2017-09 during the third quarter of 2017 and the adoption of this standard update did not have a material impact on its consolidated and combined financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cashlease payments in determining ROU assets and related lease liabilities. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain transactionsthe Company will exercise the option(s). Lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less ("short-term leases") are presented and classifiednot recorded on the statementaccompanying consolidated balance sheet.
Variable lease payments consist primarily of cash flows.common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The provisionsCompany’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
|
| | | | | | |
Leases | | Balance Sheet Classification | | June 30, 2019 |
| | | | (In thousands) |
Assets: | | | | |
Right-of-use assets | | Right-of-use assets | | $ | 103,997 |
|
| | | | |
Liabilities: | | | | |
Current lease liabilities | | Accrued expenses and other current liabilities | | 12,809 |
|
Long-term lease liabilities | | Other long-term liabilities | | 119,982 |
|
Total lease liabilities | | | | $ | 132,791 |
|
Contents
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
to apply, in which case we would be required to apply |
| | | | | | | | | | |
Lease Cost | | Income Statement Classification | | Three Months Ended June 30, 3019 | | Six Months Ended June 30, 3019 |
| | | | (In thousands) |
Fixed lease cost | | Cost of revenue | | $ | 47 |
| | $ | 47 |
|
Fixed lease cost | | Selling and marketing expense | | 2,519 |
| | 4,430 |
|
Fixed lease cost | | General and administrative expense | | 2,263 |
| | 4,048 |
|
Fixed lease cost | | Product development expense | | 282 |
| | 582 |
|
Total fixed lease cost (a) | | | | 5,111 |
| | 9,107 |
|
Variable lease cost | | Selling and marketing expense | | 366 |
| | 670 |
|
Variable lease cost | | General and administrative expense | | 140 |
| | 331 |
|
Variable lease cost | | Product development expense | | 25 |
| | 55 |
|
Total variable lease cost | | | | 531 |
| | 1,056 |
|
Net lease cost | | | | $ | 5,642 |
| | $ | 10,163 |
|
________________________
(a) Includes approximately $0.4 million and $0.6 million of short-term lease cost and $0.5 million and $0.5 million of sublease income for the amendments prospectivelythree and six months ended June 30, 2019, respectively.
Maturities of lease liabilities as of June 30, 2019 (in thousands)(b): |
| | | | |
Remainder of 2019 | | $ | 8,325 |
|
2020 | | 21,718 |
|
2021 | | 21,463 |
|
2022 | | 20,517 |
|
2023 | | 19,505 |
|
After 2023 | | 79,654 |
|
Total | | 171,182 |
|
Less: Interest | | 38,391 |
|
Present value of lease liabilities | | $ | 132,791 |
|
________________________ (b) Lease payments exclude $0.7 million of legally binding minimum lease payments for leases signed but not yet commenced.
The following are the earliest date practicable; early adoption is permitted. The Company early adopted the provisionsweighted average assumptions used for lease term and discount rate as of ASU No. 2016-15 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated and combined financial statements.June 30, 2019: |
| | | |
Remaining lease term | | 8.1 years |
|
Discount rate | | 6.06 | % |
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company adopted the provisions of ASU No. 2016-09 on January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated and combined statement of operations as a component of the provision for income taxes, rather than recognized in equity, and (ii) reflected as operating, rather than financing, cash flows in our consolidated and combined statement of cash flows. Excess tax benefits for the nine months ended September 30, 2017 were $35.6 million. Excess tax benefits of $7.6 million for the nine months ended September 30, 2016 were reclassified in the combined statement of cash flows to conform to the current year presentation. The Company continues to account for forfeitures using an estimated forfeiture rate. |
| | | | | | | | |
| | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 3019 |
| | (In thousands) |
Other Information: | | | | |
Right-of-use assets obtained in exchange for lease liabilities | | $ | 23,622 |
| | $ | 51,484 |
|
Cash paid for amounts included in the measurement of lease liabilities | | $ | 3,768 |
| | $ | 8,521 |
|
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The guidance eliminates the requirement to calculate the implied fair value of goodwill under today’s two-step impairment test to measure a goodwill impairment charge. The provisions of ASU No. 2017-04 are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. The provisions of ASU No. 2017-04 are to be applied on a prospective basis. The Company early adopted the provisions of ASU No. 2017-04 on January 1, 2017 and the adoption of this standard update did not and is not expected to have a material impact on its consolidated and combined financial statements.
NOTE 2—3—INCOME TAXES
ANGI HomeservicesThe Company is included within IAC'sIAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, current and deferred income taxestax provision/benefit have been computed for the entities comprising ANGI HomeservicesCompany on an as if
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
standalone, separate return basis. The Company’sbasis and payments to and refunds from IAC for itsthe Company's share of IAC’s consolidated federal and state income tax return liabilitiesliabilities/receivables calculated on this basis have been reflected within cash flows from operating activities in the accompanying consolidated and combined statement of cash flows.
The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters and, therefore, ultimately governs the amount payable to or receivable from IAC with respect to income taxes. Any differences between taxes currently payable to or receivable from IAC under the tax sharing agreement and the current tax provision computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital and as financing activities within the statement of cash flows.
At the end of each interim period, the Company makes its best estimate ofestimates the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or incomeunrecognized tax contingenciesbenefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended SeptemberJune 30, 2017,2019, the Company recorded an income tax provision of $2.3 million, which represents an effective income tax rate of 24% and is higher than the statutory rate of 21% due primarily to unbenefited foreign losses and state taxes, partially offset by excess tax benefits generated by the exercise and vesting of stock-based awards. For the six months ended June 30, 2019, the Company recorded an income tax benefit of $40.8$12.0 million and $71.1 million, respectively. The income tax benefit for the three months ended September 30, 2017 represents an effective income tax rate of 36%, higher than the statutory rate of 35% due primarily to state taxes, partially offset by unbenefited losses in separate jurisdictions. The income tax benefit for the nine months ended September 30, 2017 is due primarily to the effect of adopting the provisions of ASU No. 2016-09 on January 1, 2017 and state taxes, partially offset by unbenefited losses in separate jurisdictions. Under ASU No. 2016-09, excess tax benefits generated by the settlement or exercise and vesting of stock-based awards of $35.6 million for the nine months ended September 30, 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital.awards. For the three and ninesix months ended SeptemberJune 30, 2016,2018, the Company recorded an income tax provisionbenefits, despite pre-tax income, of $4.4$1.8 million and $8.7$5.7 million, respectively, which represents an effective income tax rate of 50% in each period. The effective income tax rate for the three and nine months ended September 30, 2016 is higher
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
than the statutory rate of 35% due primarily to unbenefited lossesexcess tax benefits generated by the exercise and vesting of stock-based awards.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in separate jurisdictionsthe income tax provision. Accruals for interest and state taxes, partially offset by research credits.penalties are not material.
ANGI HomeservicesThe Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC’s federal income tax returns for the years ended December 31, 2010 through 2012,2016, which includes the operations of the HomeAdvisor business. The statute of limitations for the years 2010 through 20132012 has been extended to June 30, 2018.July 31, 2020 and the statute of limitations for the years 2013 through 2015 has been extended to December 31, 2020. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include reservesunrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reservesWe consider many factors when evaluating and estimating our tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon the resolution of issues raised in audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed bywill not have a material impact on liquidity, results of operations, or financial condition of the Company, these matters are recordedsubject to inherent uncertainties and management’s view of these matters may change in the period they become known.future.
The Company recognizes interestAt June 30, 2019 and if applicable, penalties related toDecember 31, 2018, unrecognized tax benefits, in the income tax provision.including interest, are $2.6 million and $2.4 million, respectively. At both SeptemberJune 30, 20172019 and December 31, 2016, the Company has not accrued any amount for the payment of either interest or penalties.
At September 30, 2017 and December 31, 2016, unrecognized tax benefits are $1.32018, $2.3 million and $0.6$2.2 million, respectively. Includedrespectively, was included in unrecognized tax benefits at September 30, 2017 and December 31, 2016, is $1.3 million and $0.6 million, respectively,positions for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at SeptemberJune 30, 20172019 are subsequently recognized, the income tax provision would be reduced by $1.3$2.5 million. The comparable
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
amount as of December 31, 20162018 is $0.6$2.4 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $1.0 million due to potential settlements, which would reduce the income tax provision.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, among other things,to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience, to the extent these items are applicable.experience. As of SeptemberJune 30, 2017,2019, the Company has a U.S. gross deferred tax asset of $124.1$128.3 million that the Company expects to fully utilize on a more likely than not basis. However,Of this amount, $33.6 million will be utilized upon the future reversal of deferred tax sharing agreement between ANGI Homeservices and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to ANGI Homeservices, entitlement to refunds, allocation of tax attributes and other matters. Any differences between taxes currently due or receivable under the tax sharing agreementliabilities and the currentremaining net deferred tax provision computedasset of $94.7 million will be utilized based on an as if standalone, separate return basis are reflected as adjustments to additional paid-in capital.forecasts of future taxable income.
NOTE 3—4—BUSINESS COMBINATIONSCOMBINATION
Angie's List Combination
Through the Combination,On October 19, 2018, the Company acquired 100% of Handy Technologies, Inc. ("Handy"), a leading platform in the common stockUnited States for connecting individuals looking for household services. The Company's purchase accounting is not yet complete, including the determination of Angie's List on September 29, 2017 for a total purchase price, valued at $781.4 million.
The purchase price of $781.4 million was determined based on the sum of (i) the fair value of the 61.3 million sharesindemnified liabilities and related assets and the allocation of Angie's List common stock outstanding immediately priorpurchase price to the Combination based on the closing stock price of Angie's List common stock on the NASDAQ on September 29, 2017 of $12.46 per share; (ii) the cash consideration of $1.9 million paid to holders of Angie's List common stock who elected to receive $8.50 in cash per share; and (iii) the fair value of vested equity awards (including the pro rata portion of unvested awards attributable to pre-combination services) outstanding under Angie's List stock plans on September 29, 2017. Each stock option to purchase shares of Angie's List common stock that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an option to purchase (i) that number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List option immediately prior to the effective time of the Combination, (ii) at a per-share exercise price equal to the exercise price per share of Angie's List common stock at which such Angie's List option was exercisable immediately prior to the effective time of the Combination. Each award of Angie's List restricted stock units that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an ANGI Homeservices restricted stock unit award with respect to a number of Class A
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List restricted stock unit award immediately prior to the effective time of the Combination.
The table below summarizes the purchase price:
|
| | | |
| Angie's List |
| (In thousands) |
Class A common stock | $ | 763,684 |
|
Cash consideration for holders who elected to receive $8.50 in cash per share of Angie's List common stock | 1,913 |
|
Fair value of vested and pro rata portion of unvested stock options attributable to pre-combination services | 11,749 |
|
Fair value of the pro rata portion of unvested restricted stock units attributable to pre-combination services | 4,038 |
|
Total purchase price | $ | 781,384 |
|
The financial results of Angie's List are included in the Company's consolidated and combined financial statements, within the North America segment, beginning September 29, 2017. For both the three and nine months ended September 30, 2017, the Company included $0.7 million of revenue and $19.5 million of net losses, respectively, in its consolidated and combined statement of operations related to Angie's List. The Company is in the process of completing its determination of the fair values of assets acquired and liabilities assumedassumed. There were no material adjustments recorded during the first six months of 2019 related to purchase accounting and the preliminary fair values are subject to revision. These fair values are expected towill be finalized inno later than the fourth quarter of 2017.2019.
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of combination:
|
| | | |
| Angie's List |
| (In thousands) |
Cash and cash equivalents | $ | 44,270 |
|
Other current assets | 10,641 |
|
Property and equipment | 16,341 |
|
Goodwill | 546,851 |
|
Intangible assets | 317,300 |
|
Total assets | 935,403 |
|
Deferred revenue | (32,130 | ) |
Other current liabilities | (46,106 | ) |
Long-term debt - related party | (61,498 | ) |
Deferred income taxes | (12,933 | ) |
Other long-term liabilities | (1,352 | ) |
Net assets acquired | $ | 781,384 |
|
The purchase price was based on the expected financial performance of Angie's List, not on the value of the net identifiable assets at the time of combination. This resulted in a significant portion of the purchase price being attributed to goodwill because Angie's List is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The preliminary estimated fair values of the identifiable intangible assets acquired at the date of combination are as follows:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | |
| Angie's List |
| (In thousands) | | Weighted-average useful life (years) |
Indefinite-lived trade names and trademarks | $ | 137,000 |
| | Indefinite |
Service providers | 90,500 |
| | 3 |
Developed technology | 63,900 |
| | 6 |
Memberships | 15,900 |
| | 3 |
User base | 10,000 |
| | 1 |
Total identifiable intangible assets acquired | $ | 317,300 |
| | |
Other current assets, current liabilities and other long-term liabilities of Angie's List were reviewed and adjusted to their fair values at the date of combination, as necessary. The fair value of deferred revenue was determined using an income approach that utilized a cost to fulfill analysis. The fair values of trade names and trademarks were determined using an income approach that utilized the relief from royalty methodology. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The fair values of the service providers and memberships were determined using an income approach that utilized the excess earnings methodology. The valuations of deferred revenue and intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows, cost and profit margins related to deferred revenue and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
HomeStars Acquisition
The Company acquired a 90% voting interest in HomeStars Inc. ("HomeStars"), a leading home services platform in Canada, on February 8, 2017. The purchase price for HomeStars was $16.6 CAD million (or $12.7 million) in cash and is net of a $0.3 CAD million (or $0.2 million) working capital adjustment paid in full to the Company in the third quarter of 2017. In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 10% noncontrolling interest in HomeStars, which totaled $1.9 CAD million (or $1.4 million). The determination of the fair value of noncontrolling interest was calculated using the implied value of 100% of the enterprise value of the business using the purchase price.
The financial results of HomeStars are included in the Company's consolidated and combined financial statements, within the North America segment, beginning February 8, 2017. For the three and nine months ended September 30, 2017, the Company included $2.0 million and $4.2 million of revenue, respectively, and less than $0.1 million and $1.0 million of net losses, respectively, in its consolidated and combined statement of operations related to HomeStars.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
| | | |
| HomeStars |
| (In thousands) |
Cash and cash equivalents | $ | 181 |
|
Other current assets | 165 |
|
Goodwill | 9,841 |
|
Intangible assets | 6,414 |
|
Total assets | 16,601 |
|
Current liabilities | (649 | ) |
Other long-term liabilities | (1,873 | ) |
Net assets acquired | $ | 14,079 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The purchase price was based on the expected financial performance of HomeStars, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because HomeStars is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
|
| | | | | |
| HomeStars |
| (In thousands) | | Weighted-average useful life (years) |
Indefinite-lived trade name | $ | 2,358 |
| | Indefinite |
Contractor relationships | 2,435 |
| | 2 |
Developed technology | 1,522 |
| | 2 |
User base | 99 |
| | 1 |
Total identifiable intangible assets acquired | $ | 6,414 |
| | |
Other current assets, current liabilities and other long-term liabilities of HomeStars were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
MyBuilder Acquisition
The Company acquired a 75% voting interest in MyBuilder Limited ("MyBuilder"), a leading home services platform in the United Kingdom, on March 24, 2017. The purchase price was £32.6 million (or $40.7 million) in cash and includes a £0.6 million (or $0.8 million) working capital adjustment paid in full by the Company in the third quarter of 2017. In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 25% noncontrolling interest in MyBuilder, which totaled £10.7 million (or $13.3 million). The determination of the fair value of noncontrolling interest was calculated using the implied value of 100% of the enterprise value of the business using the purchase price.
The financial results of MyBuilder are included in the Company's consolidated and combined financial statements, within the Europe segment, beginning April 1, 2017. For the three and nine months ended September 30, 2017, the Company included $2.7 million and $5.4 million of revenue, respectively, and $0.7 million and $1.0 million of net losses, respectively, in its consolidated and combined statement of operations related to MyBuilder.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | |
| MyBuilder |
| (In thousands) |
Cash and cash equivalents | $ | 6,004 |
|
Other current assets | 344 |
|
Goodwill | 38,521 |
|
Intangible assets | 13,490 |
|
Total assets | 58,359 |
|
Current liabilities | (2,065 | ) |
Other long-term liabilities | (2,296 | ) |
Net assets acquired | $ | 53,998 |
|
The purchase price was based on the expected financial performance of MyBuilder, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because MyBuilder is complementary and synergistic to the other European businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
|
| | | | | |
| MyBuilder |
| (In thousands) | | Weighted-average useful life (years) |
Indefinite-lived trade name | $ | 6,245 |
| | Indefinite |
Contractor relationships | 4,122 |
| | 2 |
Developed technology | 1,499 |
| | 2 |
User base | 1,624 |
| | 1 |
Total identifiable intangible assets acquired | $ | 13,490 |
| | |
Other current assets, current liabilities and other long-term liabilities of MyBuilder were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
MyHammer Acquisition
On November 3, 2016, the Company acquired a 70% voting interest in MyHammer Holding AG ("MyHammer"), the leading home services marketplace in Germany. The purchase price was €17.7 million (or $19.7 million). In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 30% noncontrolling interest in MyHammer, which totaled €9.4 million (or $10.4 million). The determination of the fair value of noncontrolling interest was calculated using the MyHammer share price on the acquisition date.
The financial results of MyHammer are included in the Company's consolidated and combined financial statements, within the Europe segment, with effect from the date of acquisition. For the three and nine months ended September 30, 2017, the Company included $3.3 million and $9.2 million of revenue, respectively, and $0.2 million and $0.6 million of net losses, respectively, in its consolidated and combined statement of operations related to MyHammer.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | |
| MyHammer |
| (In thousands) |
Cash and cash equivalents | $ | 4,041 |
|
Other current assets | 790 |
|
Goodwill | 22,277 |
|
Intangible assets | 8,107 |
|
Total assets | 35,215 |
|
Current liabilities | (2,642 | ) |
Other long-term liabilities | (2,447 | ) |
Net assets acquired | $ | 30,126 |
|
The purchase price was based on the expected financial performance of MyHammer, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because MyHammer is complementary and synergistic to the other European businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
|
| | | | | |
| MyHammer |
| (In thousands) | | Weighted-average useful life (years) |
Indefinite-lived trade name | $ | 4,553 |
| | Indefinite |
Contractor relationships | 1,444 |
| | 4 |
Developed technology | 1,222 |
| | 3 |
User base | 888 |
| | 1 |
Total identifiable intangible assets acquired | $ | 8,107 |
| | |
Other current assets, current liabilities and other long-term liabilities of MyHammer were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
ProUnaudited pro forma financial information
The unaudited pro forma financial information in the table below presents the combined results of the Company and Angie's List, HomeStars, MyBuilder and MyHammerHandy as if these acquisitionsthis acquisition had occurred on January 1, 2016.2017. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisitionsacquisition actually occurred on January 1, 2016. 2017.
|
| | | | | | | |
| Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| (In thousands, except per share data) |
Revenue | $ | 301,988 |
| | $ | 563,892 |
|
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 20,565 |
| | $ | 9,842 |
|
Basic earnings per share attributable to ANGI Homeservices Inc. shareholders | $ | 0.04 |
| | $ | 0.02 |
|
Diluted earnings per share attributable to ANGI Homeservices Inc. shareholders | $ | 0.04 |
| | $ | 0.02 |
|
NOTE 5—FINANCIAL INSTRUMENTS
Marketable Debt Securities
The Company did not hold any available-for sale marketable debt securities at June 30, 2019.
At December 31, 2018, current available-for-sale marketable debt securities were as follows:
|
| | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
Treasury discount notes | $ | 24,947 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 24,947 |
|
Total available-for-sale marketable debt securities | $ | 24,947 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 24,947 |
|
For the three and ninesix months ended SeptemberJune 30, 2017, pro forma adjustments include (i) reductions in stock-based compensation expense2019, proceeds from maturities of $85.1 million and $52.9 million, respectively, and transaction related costsavailable-for-sale marketable debt securities were $25.0 million. The specific-identification method is used to determine the cost of $22.1 million and $26.8 million, respectively, because they are one-time in nature and will not have a continuing impact on operations; and (ii) an increase in amortizationavailable-for-sale marketable debt securities
Contents
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
sold and the amount of deferred revenue atunrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. There were no gross realized gains or losses from the datematurities of acquisition as well as increases in stock-based compensation expense of $19.7 million and $51.6 million, respectively, and amortization of intangibles of $16.0 million and $48.3 million, respectively.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In thousands, except per share data) |
Revenue | $ | 251,995 |
| | $ | 214,212 |
| | $ | 731,920 |
| | $ | 607,802 |
|
Net loss attributable to ANGI Homeservices Inc. shareholders | $ | (7,172 | ) | | $ | (25,159 | ) | | $ | (2,178 | ) | | $ | (68,345 | ) |
Basic and diluted loss per share attributable to ANGI Homeservices Inc. shareholders | $ | (0.02 | ) | | $ | (0.06 | ) | | $ | (0.01 | ) | | $ | (0.16 | ) |
NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In thousands) |
Goodwill | $ | 774,191 |
| | $ | 170,990 |
|
Intangible assets with indefinite lives | 151,735 |
| | 4,884 |
|
Intangible assets with definite lives, net | 191,658 |
| | 5,908 |
|
Total goodwill and intangible assets, net | $ | 1,117,584 |
| | $ | 181,782 |
|
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill,available-for-sale marketable debt securities for the ninethree and six months ended SeptemberJune 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2016 | | Additions | | Deductions | | Foreign exchange translation | | Balance at September 30, 2017 |
| (In thousands) |
North America | $ | 140,930 |
| | $ | 556,692 |
| | $ | — |
| | $ | 640 |
| | $ | 698,262 |
|
Europe | 30,060 |
| | 38,643 |
| | — |
| | 7,226 |
| | 75,929 |
|
Total goodwill | $ | 170,990 |
| | $ | 595,335 |
| | $ | — |
| | $ | 7,866 |
| | $ | 774,191 |
|
Additions relate2019. The Company did not hold any available-for-sale marketable debt securities prior to the acquisitionsthird quarter of Angie's List and HomeStars (included in the North America segment) and MyBuilder (included in the Europe segment).2018.
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2015 | | Additions | | (Deductions) | | Foreign exchange translation | | Balance at December 31, 2016 |
| (In thousands) |
North America | $ | 140,930 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 140,930 |
|
Europe | 9,700 |
| | 21,985 |
| | — |
| | (1,625 | ) | | 30,060 |
|
Total goodwill | $ | 150,630 |
| | $ | 21,985 |
| | $ | — |
| | $ | (1,625 | ) | | $ | 170,990 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Additions relate to the acquisition of MyHammer (included in the Europe segment).
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. At September 30, 2017 and December 31, 2016, intangible assets with definite lives are as follows:
|
| | | | | | | | | | | | | |
| September 30, 2017 |
| Gross carrying amount | | Accumulated amortization | | Net | | Weighted-average useful life (years) |
| (Dollars in thousands) |
Contractor and service provider relationships | $ | 99,628 |
| | $ | (2,989 | ) | | $ | 96,639 |
| | 3.0 |
Technology | 78,761 |
| | (10,714 | ) | | 68,047 |
| | 5.6 |
Memberships | 15,900 |
| | (15 | ) | | 15,885 |
| | 3.0 |
Customer lists and user base | 13,911 |
| | (2,973 | ) | | 10,938 |
| | 1.1 |
Trade names | 5,612 |
| | (5,463 | ) | | 149 |
| | 3.1 |
Total | $ | 213,812 |
| | $ | (22,154 | ) | | $ | 191,658 |
| | 3.8 |
|
| | | | | | | | | | | | | |
| December 31, 2016 |
| Gross carrying amount | | Accumulated amortization | | Net | | Weighted-average useful life (years) |
| (Dollars in thousands) |
Contractor relationships | $ | 1,830 |
| | $ | (495 | ) | | $ | 1,335 |
| | 4.0 |
Technology | 11,377 |
| | (7,834 | ) | | 3,543 |
| | 4.3 |
Customer lists and user base | 4,136 |
| | (3,432 | ) | | 704 |
| | 1.8 |
Trade names | 5,260 |
| | (4,934 | ) | | 326 |
| | 2.9 |
Total | $ | 22,603 |
| | $ | (16,695 | ) | | $ | 5,908 |
| | 3.5 |
At September 30, 2017, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
|
| | | | |
Year Ending September 30, | (In thousands) |
2018 | $ | 64,155 |
|
2019 | 49,101 |
|
2020 | 46,446 |
|
2021 | 10,685 |
|
2022 | 10,650 |
|
Thereafter | 10,621 |
|
Total | $ | 191,658 |
|
NOTE 5—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTSFair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities.
The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
| | | September 30, 2017 | June 30, 2019 |
| Quoted market prices in active markets for identical assets (level 1) | | Significant other observable inputs (level 2) | | Significant unobservable inputs (level 3) | | Total fair value measurements | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) | (In thousands) |
Assets: | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | |
Money market funds | $ | 1,670 |
| | $ | — |
| | $ | — |
| | $ | 1,670 |
| $ | 228,402 |
| | $ | — |
| | $ | — |
| | $ | 228,402 |
|
Treasury discount notes | 1,199 |
| | — |
| | — |
| | 1,199 |
| — |
| | 12,495 |
| | — |
| | 12,495 |
|
Certificates of deposit | — |
| | 6,199 |
| | — |
| | 6,199 |
| |
Commercial paper | | — |
| | 15,983 |
| | — |
| | 15,983 |
|
Time deposits | | — |
| | 30,000 |
| | — |
| | 30,000 |
|
Total | $ | 2,869 |
| | $ | 6,199 |
| | $ | — |
| | $ | 9,068 |
| $ | 228,402 |
| | $ | 58,478 |
| | $ | — |
| | $ | 286,880 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Quoted market prices in active markets for identical assets (level 1) | | Significant other observable inputs (level 2) | | Significant unobservable inputs (level 3) | | Total fair value measurements |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 28,064 |
| | $ | — |
| | $ | — |
| | $ | 28,064 |
|
Total | $ | 28,064 |
| | $ | — |
| | $ | — |
| | $ | 28,064 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 137,359 |
| | $ | — |
| | $ | — |
| | $ | 137,359 |
|
Treasury discount notes | — |
| | 99,914 |
| | — |
| | 99,914 |
|
Commercial paper | — |
| | 52,931 |
| | — |
| | 52,931 |
|
Time deposits | — |
| | 15,000 |
| | — |
| | 15,000 |
|
Marketable securities: | | | | | | | |
Treasury discount notes | — |
| | 24,947 |
| | — |
| | 24,947 |
|
Total | $ | 137,359 |
| | $ | 192,792 |
| | $ | — |
| | $ | 330,151 |
|
Assets measured at fair value on a nonrecurring basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Financial instruments measured at fair value only for disclosure purposes
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying value | | Fair value | | Carrying value | | Fair value |
| (In thousands) |
Current portion of long-term debt—related party | $ | — |
| | $ | — |
| | $ | (2,838 | ) | | $ | (2,776 | ) |
Long-term debt—related party, net of current portion | (79,504 | ) | | (79,611 | ) | | (47,000 | ) | | (46,324 | ) |
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes: |
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Carrying value | | Fair value | | Carrying value | | Fair value |
| (In thousands) |
Current portion of long-term debt | $ | (13,750 | ) | | $ | (13,681 | ) | | $ | (13,750 | ) | | $ | (12,753 | ) |
Long-term debt, net (a) | (238,357 | ) | | (239,422 | ) | | (244,971 | ) | | (229,556 | ) |
Long-term debt—related party | — |
| | — |
| | (1,015 | ) | | (1,092 | ) |
_________________ | |
(a) | At June 30, 2019 and December 31, 2018, the carrying value of long-term debt, net includes unamortized debt issuance costs of $2.3 million and $2.5 million, respectively. |
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
At June 30, 2019 and December 31, 2018, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs. The fair value of the Company’s long-term debt—related party including current portion, iswas based on Level 3 inputs and iswas estimated by discounting the future cash flows based on current market conditions.
NOTE 6—LONG-TERM DEBT
Long-term debt consists of:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (In thousands) |
Term Loan due November 5, 2023 | $ | 254,375 |
| | $ | 261,250 |
|
Less: current portion of Term Loan | 13,750 |
| | 13,750 |
|
Less: unamortized debt issuance costs | 2,268 |
| | 2,529 |
|
Total long-term debt, net | $ | 238,357 |
| | $ | 244,971 |
|
Term Loan and Credit Facility
At June 30, 2019 and December 31, 2018, the outstanding balance of the five-year term loan facility ("Term Loan") was $254.4 million and $261.3 million, respectively. At both June 30, 2019 and December 31, 2018, the Term Loan bears interest at LIBOR plus 1.50%. The spread over LIBOR is subject to change in future periods based on the Company's consolidated net leverage ratio. The interest rate was 4.00% and 3.98% at June 30, 2019 and December 31, 2018, respectively. Interest payments are due at least quarterly through the term of the loan. Additionally, there are quarterly principal payments of $3.4 million through December 31, 2021, $6.9 million for the one-year period ending December 31, 2022 and $10.3 million through maturity of the loan when the final amount of $161.6 million is due.
The terms of the Term Loan require the Company to maintain a consolidated net leverage ratio of not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less than 2.0 to 1.0 (in each case as defined in the credit agreement). The Term Loan also contains covenants that would limit the Company's ability to pay dividends, make distributions or repurchase its stock in the event a default has occurred or its consolidated net leverage ratio exceeds 4.25 to 1.0. There are additional covenants under the Term Loan that limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions.
On November 5, 2018, the Company entered into a five-year $250 million revolving credit facility (the "Credit Facility"). At June 30, 2019 and December 31, 2018, there were no outstanding borrowings under the Credit Facility. The annual commitment fee on undrawn funds is based on the consolidated net leverage ratio most recently reported and is 25 basis points at both June 30, 2019 and December 31, 2018. Borrowings under the Credit Facility bear interest, at the Company's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is based on the Company's consolidated net leverage ratio. The financial and other covenants are the same as those for the Term Loan.
The Term Loan and Credit Facility are guaranteed by the Company's wholly-owned material domestic subsidiaries and are secured by substantially all assets of the Company and the guarantors, subject to certain exceptions.
NOTE 7—ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (LOSS)
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive (loss): income into earnings:
|
| | | | | | | |
| Three Months Ended June 30, 2019 |
| Foreign Currency Translation Adjustment | | Accumulated Other Comprehensive Loss |
| (In thousands) |
Balance at April 1 | $ | (191 | ) | | $ | (191 | ) |
Other comprehensive loss | (1,291 | ) | | (1,291 | ) |
Balance at June 30 | $ | (1,482 | ) | | $ | (1,482 | ) |
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | |
| Three Months Ended September 30, 2017 |
| Foreign currency translation adjustment | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Balance at July 1 | $ | (230 | ) | | $ | (230 | ) |
Other comprehensive income | 3,578 |
| | 3,578 |
|
Balance at September 30 | $ | 3,348 |
| | $ | 3,348 |
|
| | | |
| Three Months Ended September 30, 2016 |
| Foreign currency translation adjustment | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Balance at July 1 | $ | (486 | ) | | $ | (486 | ) |
Other comprehensive income | 32 |
| | 32 |
|
Balance at September 30 | $ | (454 | ) | | $ | (454 | ) |
|
| | | | | | | |
| Three Months Ended June 30, 2018 |
| Foreign Currency Translation Adjustment | | Accumulated Other Comprehensive Income (Loss) |
| (In thousands) |
Balance at April 1 | $ | 6,224 |
| | $ | 6,224 |
|
Other comprehensive loss before reclassifications | (4,942 | ) | | (4,942 | ) |
Amounts reclassified to earnings | (191 | ) | | (191 | ) |
Net current period other comprehensive loss | (5,133 | ) | | (5,133 | ) |
Balance at June 30 | $ | 1,091 |
| | $ | 1,091 |
|
|
| | | | | | | |
| Nine Months Ended September 30, 2017 |
| Foreign currency translation adjustment | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Balance at January 1 | $ | (1,721 | ) | | $ | (1,721 | ) |
Other comprehensive income | 5,069 |
| | 5,069 |
|
Balance at September 30 | $ | 3,348 |
| | $ | 3,348 |
|
| | | |
| Nine Months Ended September 30, 2016 |
| Foreign currency translation adjustment | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Balance at January 1 | $ | (1,064 | ) | | $ | (1,064 | ) |
Other comprehensive income | 610 |
| | 610 |
|
Balance at September 30 | $ | (454 | ) | | $ | (454 | ) |
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) On Available-For-Sale Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (1,864 | ) | | $ | 3 |
| | $ | (1,861 | ) |
Other comprehensive income (loss) | 382 |
| | (3 | ) | | 379 |
|
Balance at June 30 | $ | (1,482 | ) | | $ | — |
| | $ | (1,482 | ) |
|
| | | | | | | |
| Six Months Ended June 30, 2018 |
| Foreign Currency Translation Adjustment | | Accumulated Other Comprehensive Income (Loss) |
| (In thousands) |
Balance at January 1 | $ | 2,232 |
| | $ | 2,232 |
|
Other comprehensive loss before reclassifications | (1,089 | ) | | (1,089 | ) |
Amounts reclassified to earnings | (52 | ) | | (52 | ) |
Net current period other comprehensive loss | (1,141 | ) | | (1,141 | ) |
Balance at June 30 | $ | 1,091 |
| | $ | 1,091 |
|
The amount reclassified out of foreign currency translation adjustment into earnings for the three and six months ended June 30, 2018 relate to the liquidation of an international subsidiary.
At Septemberboth June 30, 20172019 and 2016,2018, there was no tax benefit or provision on the accumulated other comprehensive income (loss). income.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 7—(LOSS) 8—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share attributable to ANGI Homeservices shareholders:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| Basic | | Diluted | | Basic | | Diluted |
| (In thousands, except per share data) |
Numerator: | | | | | | | |
Net (loss) earnings | $ | (72,158 | ) | | $ | (72,158 | ) | | $ | 4,468 |
| | $ | 4,468 |
|
Net loss attributable to noncontrolling interests | 397 |
| | 397 |
| | 607 |
| | 607 |
|
Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders | $ | (71,761 | ) | | $ | (71,761 | ) | | $ | 5,075 |
| | $ | 5,075 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic shares outstanding | 415,420 |
| | 415,420 |
| | 414,754 |
| | 414,754 |
|
Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards (a) | — |
| | — |
| | — |
| | — |
|
Denominator for earnings per share—weighted average shares (b) | 415,420 |
| | 415,420 |
| | 414,754 |
| | 414,754 |
|
| | | | | | | |
(Loss) earnings per share attributable to ANGI Homeservices Inc. shareholders: | | | | |
(Loss) earnings per share | $ | (0.17 | ) | | $ | (0.17 | ) | | $ | 0.01 |
| | $ | 0.01 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| Basic | | Diluted | | Basic | | Diluted |
| (In thousands, except per share data) |
Numerator: | | | | | | | |
Net (loss) earnings | $ | (46,296 | ) | | $ | (46,296 | ) | | $ | 8,575 |
| | $ | 8,575 |
|
Net loss attributable to noncontrolling interests | 1,402 |
| | 1,402 |
| | 1,833 |
| | 1,833 |
|
Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders | $ | (44,894 | ) | | $ | (44,894 | ) | | $ | 10,408 |
| | $ | 10,408 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic shares outstanding | 414,978 |
| | 414,978 |
| | 414,754 |
| | 414,754 |
|
Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards (a) | — |
| | — |
| | — |
| | — |
|
Denominator for earnings per share—weighted average shares (b) | 414,978 |
| | 414,978 |
| | 414,754 |
| | 414,754 |
|
| | | | | | | |
(Loss) earnings per share attributable to ANGI Homeservices Inc. shareholders: | | | | |
(Loss) earnings per share | $ | (0.11 | ) | | $ | (0.11 | ) | | $ | 0.03 |
| | $ | 0.03 |
|
________________________
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
| (In thousands, except per share data) |
Numerator: | | | | | | | |
Net earnings | $ | 7,234 |
| | $ | 7,234 |
| | $ | 23,023 |
| | $ | 23,023 |
|
Net earnings attributable to noncontrolling interests | (266 | ) | | (266 | ) | | (124 | ) | | (124 | ) |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 6,968 |
| | $ | 6,968 |
| | $ | 22,899 |
| | $ | 22,899 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic shares outstanding | 506,725 |
| | 506,725 |
| | 480,618 |
| | 480,618 |
|
Dilutive securities (a) (b) | — |
| | 13,904 |
| | — |
| | 28,145 |
|
Denominator for earnings per share—weighted average shares | 506,725 |
| | 520,629 |
| | 480,618 |
| | 508,763 |
|
| | | | | | | |
Earnings per share attributable to ANGI Homeservices Inc. shareholders: | | | | |
Earnings per share | $ | 0.01 |
| | $ | 0.01 |
| | $ | 0.05 |
| | $ | 0.05 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
| (In thousands, except per share data) |
Numerator: | | | | | | | |
Net earnings | $ | 17,085 |
| | $ | 17,085 |
| | $ | 13,909 |
| | $ | 13,909 |
|
Net (earnings) loss attributable to noncontrolling interests | (148 | ) | | (148 | ) | | 105 |
| | 105 |
|
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 16,937 |
| | $ | 16,937 |
| | $ | 14,014 |
| | $ | 14,014 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic shares outstanding | 505,548 |
| | 505,548 |
| | 479,470 |
| | 479,470 |
|
Dilutive securities (a) (b) | — |
| | 16,313 |
| | — |
| | 27,544 |
|
Denominator for earnings per share—weighted average shares | 505,548 |
| | 521,861 |
| | 479,470 |
| | 507,014 |
|
| | | | | | | |
Earnings per share attributable to ANGI Homeservices Inc. shareholders: | | | | |
Earnings per share | $ | 0.03 |
| | $ | 0.03 |
| | $ | 0.03 |
| | $ | 0.03 |
|
________________________
| |
(a) | If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock appreciation rights, stock options and subsidiary denominated equity and vesting of restricted stock units. For both the three and six months ended June 30, 2019, 4.2 million potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three and ninesix months ended SeptemberJune 30, 2017, the Company had a loss from operations2018, 0.1 million and as a result, approximately 58.30.3 million potentially dilutive securities, wererespectively, are excluded from computing dilutivethe calculation of diluted earnings per share because the impacttheir inclusion would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute diluted earnings per share amounts. |
| |
(b) | The Company computed basicPerformance-based stock units (“PSUs”) are considered contingently issuable shares. Shares issuable upon vesting of PSUs are included in the denominator for earnings per share if (i) the applicable performance condition(s) has been met and (ii) the inclusion of the PSUs is dilutive for the respective reporting periods. For both the three and six months ended June 30, 2019, 2.8 million shares underlying PSUs were excluded from the calculation of diluted earnings per share forbecause the performance condition(s) had not been met. For both the three and ninesix months ended SeptemberJune 30, 2016 using2018, 1.3 million shares underlying PSUs were excluded from the shares issued to IAC forcalculation of diluted earnings per share because the contribution of the HomeAdvisor business.performance condition(s) had not been met. |
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8—9—SEGMENT INFORMATION
The overall concept that the Company has twoemploys in determining its operating segments North America and Europe, which are alsois to present the Company’s reportable segments. Each segment manager reports tofinancial information in a manner consistent with: how the Company’s chief operating decision maker. The chief operating decision maker allocates resourcesviews the businesses; how the businesses are organized as to segment management; and assesses performance at the segment level.focus of the businesses with regards to the types of services or products offered or the target market.
The following table presents revenue by reportable segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) | (In thousands) |
Revenue: | | | | | | | | | | | | | | |
North America | $ | 167,104 |
| | $ | 125,226 |
| | $ | 470,667 |
| | $ | 348,287 |
| $ | 324,400 |
| | $ | 277,505 |
| | $ | 606,394 |
| | $ | 513,531 |
|
Europe | 14,613 |
| | 8,334 |
| | 42,506 |
| | 26,935 |
| 19,496 |
| | 17,317 |
| | 40,945 |
| | 36,602 |
|
Total | $ | 181,717 |
| | $ | 133,560 |
| | $ | 513,173 |
| | $ | 375,222 |
| $ | 343,896 |
| | $ | 294,822 |
| | $ | 647,339 |
| | $ | 550,133 |
|
The following table presents the revenue of the Company's segments disaggregated by type of service: | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) | (In thousands) |
Operating (Loss) Income: | | | | | | | | |
North America | $ | (107,687 | ) | | $ | 11,573 |
| | $ | (99,479 | ) | | $ | 23,202 |
| | | | | | | |
Marketplace: | | | | | | | | |
Consumer connection revenue(a) | | $ | 241,236 |
| | $ | 187,172 |
| | $ | 442,818 |
| | $ | 336,232 |
|
Membership subscription revenue | | 16,485 |
| | 16,565 |
| | 33,002 |
| | 32,192 |
|
Other revenue | | 1,807 |
| | 998 |
| | 3,633 |
| | 1,919 |
|
Total Marketplace revenue | | 259,528 |
| | 204,735 |
| | 479,453 |
| | 370,343 |
|
Advertising & Other revenue(b) | | 64,872 |
| | 72,770 |
| | 126,941 |
| | 143,188 |
|
Total North America revenue | | 324,400 |
| | 277,505 |
| | 606,394 |
| | 513,531 |
|
Europe | (4,818 | ) | | (2,730 | ) | | (14,474 | ) | | (5,360 | ) | | | | | | | |
Total | $ | (112,505 | ) | | $ | 8,843 |
| | $ | (113,953 | ) | | $ | 17,842 |
| |
Consumer connection revenue | | 15,232 |
| | 12,496 |
| | 32,355 |
| | 26,863 |
|
Membership subscription revenue | | 3,613 |
| | 4,517 |
| | 7,355 |
| | 9,188 |
|
Advertising and other revenue | | 651 |
| | 304 |
| | 1,235 |
| | 551 |
|
Total Europe revenue | | 19,496 |
| | 17,317 |
| | 40,945 |
| | 36,602 |
|
Total revenue | | $ | 343,896 |
| | $ | 294,822 |
| | $ | 647,339 |
| | $ | 550,133 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In thousands) |
Adjusted EBITDA(a): | | | | | | | |
North America | $ | 60 |
| | $ | 16,119 |
| | $ | 31,356 |
| | $ | 35,990 |
|
Europe | (2,326 | ) | | (2,133 | ) | | (8,439 | ) | | (3,368 | ) |
Total | $ | (2,266 | ) | | $ | 13,986 |
| | $ | 22,917 |
| | $ | 32,622 |
|
___________________________________________________
| |
(a) | Includes fees paid by HomeAdvisor service professionals for consumer matches and revenue from completed jobs sourced through the Handy platform. |
| |
(b) | Includes Angie's List revenue from service professionals under contract for advertising and Angie's List membership subscription fees from consumers, as well as revenue from mHelpDesk, HomeStars, Fixd Repair and Felix. Felix was sold on December 31, 2018 and its revenue for the three and six months ended June 30, 2018 was $10.0 million and $18.5 million, respectively. |
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) |
Revenue | | | | | | | |
United States | $ | 320,701 |
| | $ | 274,785 |
| | $ | 599,179 |
| | $ | 508,260 |
|
All other countries | 23,195 |
| | 20,037 |
| | 48,160 |
| | 41,873 |
|
Total | $ | 343,896 |
| | $ | 294,822 |
| | $ | 647,339 |
| | $ | 550,133 |
|
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (In thousands) |
Long-lived assets (excluding goodwill and intangible assets) | | | |
United States | $ | 93,748 |
| | $ | 65,510 |
|
All other countries | 6,135 |
| | 5,349 |
|
Total | $ | 99,883 |
| | $ | 70,859 |
|
The following tables present operating income (loss) and Adjusted EBTIDA by reportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) |
Operating Income (Loss): | | | | | | | |
North America | $ | 12,473 |
| | $ | 26,110 |
| | $ | 13,215 |
| | $ | 20,745 |
|
Europe | (1,070 | ) | | (2,848 | ) | | (5,453 | ) | | (8,239 | ) |
Total | $ | 11,403 |
| | $ | 23,262 |
| | $ | 7,762 |
| | $ | 12,506 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) |
Adjusted EBITDA(c): | | | | | | | |
North America | $ | 51,606 |
| | $ | 68,088 |
| | $ | 91,295 |
| | $ | 107,693 |
|
Europe | $ | (174 | ) | | $ | (1,109 | ) | | $ | (2,684 | ) | | $ | (4,074 | ) |
________________________
| |
(c) | The Company’s primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of amortization of intangible assets and impairments of goodwill and intangible assets, if applicable. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments,businesses, and this measure is one of the primary metrics byon which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and long-term related party debt is serviced.nature. Adjusted EBITDA has certain limitations in thatbecause it does not take into accountexcludes the impact to ANGI Homeservices Inc.'s statement of operations of certainthese expenses. |
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (In thousands) |
Capital expenditures: | | | |
North America | $ | 14,472 |
| | $ | 12,238 |
|
Europe | 1,806 |
| | 1,504 |
|
Total | $ | 16,278 |
| | $ | 13,742 |
|
The following tables present revenue disaggregated by servicereconcile operating income (loss) to Adjusted EBITDA for the Company'sCompany’s reportable segments:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| North America | | Europe | | Total | | North America | | Europe | | Total |
| (In thousands) |
Consumer connection revenue (b) | $ | 141,055 |
| | $ | 10,001 |
| | $ | 151,056 |
| | $ | 104,427 |
| | $ | 6,447 |
| | $ | 110,874 |
|
Membership subscription revenue | 17,826 |
| | 4,320 |
| | 22,146 |
| | 12,379 |
| | 1,704 |
| | 14,083 |
|
Other revenue | 8,223 |
| | 292 |
| | 8,515 |
| | 8,420 |
| | 183 |
| | 8,603 |
|
Total | $ | 167,104 |
| | $ | 14,613 |
| | $ | 181,717 |
| | $ | 125,226 |
| | $ | 8,334 |
| | $ | 133,560 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Operating income (loss) | | Stock-based compensation expense | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 12,473 |
| | $ | 17,387 |
| | $ | 8,227 |
| | $ | 13,519 |
| | $ | 51,606 |
|
Europe | (1,070 | ) | | $ | 133 |
| | $ | 569 |
| | $ | 194 |
| | $ | (174 | ) |
Operating income | 11,403 |
| | | | | | | | |
Interest expense—third party | (2,963 | ) | | | | | | | | |
Interest expense—related party | — |
| | | | | | | | |
Other income, net | 1,047 |
| | | | | | | | |
Earnings before income taxes | 9,487 |
| | | | | | | | |
Income tax provision | (2,253 | ) | | | | | | | | |
Net earnings | 7,234 |
| | | | | | | | |
Net earnings attributable to noncontrolling interests | (266 | ) | | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 6,968 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Operating income (loss) | | Stock-based compensation expense | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 26,110 |
| | $ | 21,821 |
| | $ | 5,354 |
| | $ | 14,803 |
| | $ | 68,088 |
|
Europe | (2,848 | ) | | $ | 232 |
| | $ | 532 |
| | $ | 975 |
| | $ | (1,109 | ) |
Operating income | 23,262 |
| | | | | | | | |
Interest expense—third party | (3,011 | ) | | | | | | | | |
Interest expense—related party | (34 | ) | | | | | | | | |
Other income, net | 1,053 |
| | | | | | | | |
Earnings before income taxes | 21,270 |
| | | | | | | | |
Income tax benefit | 1,753 |
| | | | | | | | |
Net earnings | 23,023 |
| | | | | | | | |
Net earnings attributable to noncontrolling interests | (124 | ) | | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 22,899 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| North America | | Europe | | Total | | North America | | Europe | | Total |
| (In thousands) |
Consumer connection revenue (b) | $ | 398,218 |
| | $ | 29,636 |
| | $ | 427,854 |
| | $ | 289,952 |
| | $ | 21,010 |
| | $ | 310,962 |
|
Membership subscription revenue | 48,947 |
| | 12,198 |
| | 61,145 |
| | 34,774 |
| | 5,234 |
| | 40,008 |
|
Other revenue | 23,502 |
| | 672 |
| | 24,174 |
| | 23,561 |
| | 691 |
| | 24,252 |
|
Total | $ | 470,667 |
| | $ | 42,506 |
| | $ | 513,173 |
| | $ | 348,287 |
| | $ | 26,935 |
| | $ | 375,222 |
|
___________________________
| |
(b)
| Fees paid by services professionals for consumer matches. |
Geographic information about revenue and long-lived assets is presented below. Revenue by geography is based on where the customer is located.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In thousands) |
Revenue | | | | | | | |
United States | $ | 164,999 |
| | $ | 125,124 |
| | $ | 466,134 |
| | $ | 347,934 |
|
All other countries | 16,718 |
| | 8,436 |
| | 47,039 |
| | 27,288 |
|
Total | $ | 181,717 |
| | $ | 133,560 |
| | $ | 513,173 |
| | $ | 375,222 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The United States is the only country whose revenue is greater than 10% of total revenue of the Company for the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
| (In thousands) |
Long-lived assets (excluding goodwill and intangible assets) | | | |
United States | $ | 44,027 |
| | $ | 21,775 |
|
All other countries | 3,608 |
| | 1,870 |
|
Total | $ | 47,635 |
| | $ | 23,645 |
|
The following tables reconcile operating (loss) income for the Company’s reportable segments and net (loss) earnings attributable to ANGI Homeservices Inc. shareholders to Adjusted EBITDA: |
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Operating income (loss) | | Stock-based compensation expense | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 13,215 |
| | $ | 36,459 |
| | $ | 14,434 |
| | $ | 27,187 |
| | $ | 91,295 |
|
Europe | (5,453 | ) | | $ | 343 |
| | $ | 1,361 |
| | $ | 1,065 |
| | $ | (2,684 | ) |
Operating loss | 7,762 |
| | | | | | | | |
Interest expense—third party | (5,957 | ) | | | | | | | | |
Interest expense—related party | (16 | ) | | | | | | | | |
Other income, net | 3,334 |
| | | | | | | | |
Earnings before income taxes | 5,123 |
| | | | | | | | |
Income tax benefit | 11,962 |
| | | | | | | | |
Net earnings | 17,085 |
| | | | | | | | |
Net earnings attributable to noncontrolling interests | (148 | ) | | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 16,937 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| Operating income (loss) | | Stock-based compensation expense | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 20,745 |
| | $ | 46,396 |
| | $ | 10,928 |
| | $ | 29,624 |
| | $ | 107,693 |
|
Europe | (8,239 | ) | | $ | 563 |
| | $ | 1,142 |
| | $ | 2,460 |
| | $ | (4,074 | ) |
Operating income | 12,506 |
| | | | | | | | |
Interest expense—third party | (5,665 | ) | | | | | | | | |
Interest expense—related party | (79 | ) | | | | | | | | |
Other income, net | 1,409 |
| | | | | | | | |
Earnings before income taxes | 8,171 |
| | | | | | | | |
Income tax benefit | 5,738 |
| | | | | | | | |
Net earnings | 13,909 |
| | | | | | | | |
Net loss attributable to noncontrolling interests | 105 |
| | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 14,014 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Operating loss | | Stock-based compensation | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | (107,687 | ) | | $ | 103,565 |
| | $ | 3,085 |
| | $ | 1,097 |
| | $ | 60 |
|
Europe | (4,818 | ) | | 415 |
| | 406 |
| | 1,671 |
| | (2,326 | ) |
Total | (112,505 | ) | | $ | 103,980 |
| | $ | 3,491 |
| | $ | 2,768 |
| | $ | (2,266 | ) |
Interest expense—related party | (1,864 | ) | | | | | | | | |
Other income, net | 1,364 |
| | | | | | | | |
Loss before income taxes | (113,005 | ) | | | | | | | | |
Income tax benefit | 40,847 |
| | | | | | | | |
Net loss | (72,158 | ) | | | | | | | | |
Net loss attributable to noncontrolling interests | 397 |
| | | | | | | | |
Net loss attributable to ANGI Homeservices Inc. shareholders | $ | (71,761 | ) | | | | | | | | |
NOTE 10—CONSOLIDATED FINANCIAL STATEMENT DETAILS
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the total amounts shown in the consolidated statement of cash flows:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (In thousands) |
Cash and cash equivalents | $ | 380,563 |
| | $ | 336,984 |
|
Restricted cash included in other current assets | 1,419 |
| | 1,417 |
|
Restricted cash included in other non-current assets | 420 |
| | 420 |
|
Total cash, cash equivalents, and restricted cash as shown on the consolidated statement of cash flows | $ | 382,402 |
| | $ | 338,821 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Operating income (loss) | | Stock-based compensation | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 11,573 |
| | $ | 1,977 |
| | $ | 1,944 |
| | $ | 625 |
| | $ | 16,119 |
|
Europe | (2,730 | ) | | 414 |
| | 82 |
| | 101 |
| | (2,133 | ) |
Total | 8,843 |
| | $ | 2,391 |
| | $ | 2,026 |
| | $ | 726 |
| | $ | 13,986 |
|
Interest expense—related party | (156 | ) | | | | | | | | |
Other income, net | 195 |
| | | | | | | | |
Earnings before income taxes | 8,882 |
| | | | | | | | |
Income tax provision | (4,414 | ) | | | | | | | | |
Net earnings | 4,468 |
| | | | | | | | |
Net loss attributable to noncontrolling interests | 607 |
| | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 5,075 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Operating loss | | Stock-based compensation | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | (99,479 | ) | | $ | 118,961 |
| | $ | 8,862 |
| | $ | 3,012 |
| | $ | 31,356 |
|
Europe | (14,474 | ) | | 1,319 |
| | 843 |
| | 3,873 |
| | (8,439 | ) |
Total | (113,953 | ) | | $ | 120,280 |
| | $ | 9,705 |
| | $ | 6,885 |
| | $ | 22,917 |
|
Interest expense—related party | (5,538 | ) | | | | | | | | |
Other income, net | 2,100 |
| | | | | | | | |
Loss before income taxes | (117,391 | ) | | | | | | | | |
Income tax benefit | 71,095 |
| | | | | | | | |
Net loss | (46,296 | ) | | | | | | | | |
Net loss attributable to noncontrolling interests | 1,402 |
| | | | | | | | |
Net loss attributable to ANGI Homeservices Inc. shareholders | $ | (44,894 | ) | | | | | | | | |
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Operating income (loss) | | Stock-based compensation | | Depreciation | | Amortization of intangibles | | Adjusted EBITDA |
| (In thousands) |
North America | $ | 23,202 |
| | $ | 5,351 |
| | $ | 5,469 |
| | $ | 1,968 |
| | $ | 35,990 |
|
Europe | (5,360 | ) | | 1,334 |
| | 355 |
| | 303 |
| | (3,368 | ) |
Total | 17,842 |
| | $ | 6,685 |
| | $ | 5,824 |
| | $ | 2,271 |
| | $ | 32,622 |
|
Interest expense—related party | (240 | ) | | | | | | | | |
Other expense, net | (304 | ) | | | | | | | | |
Earnings before income taxes | 17,298 |
| | | | | | | | |
Income tax provision | (8,723 | ) | | | | | | | | |
Net earnings | 8,575 |
| | | | | | | | |
Net loss attributable to noncontrolling interests | 1,833 |
| | | | | | | | |
Net earnings attributable to ANGI Homeservices Inc. shareholders | $ | 10,408 |
| | | | | | | | |
Restricted cash at June 30, 2019 and December 31, 2018 primarily consists of a cash collateralized letter of credit and a deposit related to corporate credit cards.NOTE 9—11—CONTINGENCIES
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See "Note 2—3—Income Taxes" for additional information related to income tax contingencies. NOTE 10—12—RELATED PARTY TRANSACTIONS WITH IAC
Relationship with IAC prior to the Combination
For periods prior to the Combination, the Company’s consolidated and combined statement of operations includes allocations of general and administrative costs, including stock-based compensation expense, related to IAC’s accounting, treasury, legal, tax, corporate support and internal audit functions. These allocations were based on the HomeAdvisor business' revenue as a percentage of IAC’s total revenue. Allocated general and administrative costs, inclusive of stock-based compensation expense, were $1.7 million and $4.8 million for the three and nine months ended September 30, 2017, respectively, and $1.1 million and $3.2 million for the three and nine months ended September 30, 2016, respectively, and are included in “General and administrative expense” in the accompanying consolidated and combined statement of operations. It is not practicable to determine the actual expenses that would have been incurred for these services had the HomeAdvisor business operated as a standalone entity during the periods presented. Management considers the allocation method to be reasonable.
The following table summarizes the components of the net (increase) decrease in IAC’s investment in HomeAdvisor prior to the contribution of the HomeAdvisor business to ANGI Homeservices:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
| (In thousands) |
Cash transfers (from) to IAC related to its centrally managed U.S. treasury management function, acquisitions and cash expenses paid by IAC on behalf of HomeAdvisor, net | $ | (80,368 | ) | | $ | 21,094 |
|
Taxes | 38,162 |
| | (1,948 | ) |
Interest income(a) | 656 |
| | 170 |
|
Allocation of general and administrative expense | (4,789 | ) | | (3,173 | ) |
Net (increase) decrease in IAC’s investment in HomeAdvisor | $ | (46,339 | ) | | $ | 16,143 |
|
| |
(a)
| Interest expense on long-term debt—related party is not included. |
The related party notes described below were settled in full immediately prior to the Combination.
On October 14, 2016, the Company through a foreign subsidiary, issued a promissory note due October 14, 2023 in the amount of $42.0 million to a foreign subsidiary of IAC that is not part of the HomeAdvisor business. The proceeds were used to finance the acquisition of MyHammer and refinance an $11.4 million loan that was previously outstanding. The promissory note bore interest at 11% per annum.
On March 20, 2017, the Company, through two foreign subsidiaries, issued promissory notes in the amount of £21.0 million due March 20, 2024 (“Note A”) and $15.5 million due March 20, 2047 (“Note B”), respectively, to two foreign subsidiaries of IAC that are not part of the HomeAdvisor business. The proceeds were used to finance the acquisition of MyBuilder. Note A and Note B bore interest at 6.5% and 7% per annum, respectively.
On February 7, 2017, the Company, through a foreign subsidiary, issued a promissory note due February 7, 2024 in the amount of £8.4 million to a foreign subsidiary of IAC that is not part of the HomeAdvisor business. The proceeds were used to finance the acquisition of HomeStars. The promissory note bore interest at 6.875% per annum.
On August 29, 2013, the Company, through a foreign subsidiary, issued a promissory note due August 29, 2018 in the amount of $5.0 million to a foreign subsidiary of IAC that is not part of the HomeAdvisor business. The proceeds were used to repay certain indebtedness. The promissory note bore interest at LIBOR plus 2.00%.
Interest expense related to the long-term debt is included in “Interest expense—related party” in the accompanying consolidated and combined statement of operations.
Guarantee of IAC Senior Notes and Revolving Credit Facility
Upon completion of the Combination, HomeAdvisor (US) and its wholly-owned domestic subsidiaries no longer guarantee any debt of IAC and the pledge of the stock of HomeAdvisor (US) and certain of its domestic and foreign entities that had secured the IAC revolving credit facility was released.
Intercompany Loans entered into in Connection with the Combination and Relationship with IAC following the Combination
On September 29, 2017, the Company and IAC entered into two intercompany notes (collectively referred to as "Intercompany Notes") as follows: (i) a Payoff Intercompany Note, which provided the funds necessary to repay the outstanding balance under Angie's List's existing credit agreement, totaling approximately $61.5 million; and (ii) a Working Capital Intercompany Note, which provided ANGI Homeservices with $15 million for working capital purposes. These Intercompany Notes were repaid on November 1, 2017 with a portion of the proceeds from the Term Loan that were received on the same date. See "Note 12—Subsequent Event" for additional information.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Additionally, immediately prior to the Combination, the Company, through a foreign subsidiary, sold a promissory note due December 31, 2019 in the amount of €2.4 million ($2.8 million at September 30, 2017) to a foreign subsidiary of IAC that is not part of the HomeAdvisor business.
In connection with the Combination, ANGI Homeservices and IAC entered into certain agreements to govern theour relationship between them following the Combination.combination of IAC's HomeAdvisor business and Angie's List, Inc. on September 29, 2017 (the "Combination"). These agreements include: a contribution agreement; an investor rights agreement; a services agreement; a tax sharing agreement; and an employee matters agreement.
Contribution Agreement
The contribution agreement sets forthFor the agreements between IACthree and six months ended June 30, 2019 and 2018, the Company regarding the principal transactions necessarywas charged $1.3 million and $2.7 million; and $1.2 million and $2.7 million, respectively, by IAC for IAC to separate the HomeAdvisor business from IAC's other businesses and cause the HomeAdvisor business to be transferred to ANGI Homeservices priorservices rendered pursuant to the Combination, as well as governs certain aspects of our relationship with IAC following the Combination. Under the contributionservices agreement, the Company agrees to assume all of the assets and liabilities related to the HomeAdvisor business and agrees to indemnify IAC against any losses arising out of any breachwhich were paid in full by the Company of the contribution agreement or the other transaction related agreements described below. IAC also agrees to indemnifyat June 30, 2019 and 2018, respectively. At December 31, 2018, the Company against losses arising out of any breach byhad an outstanding receivable due from IAC of $0.1 million, pursuant to the contribution agreement or any ofservices agreement. This amount was deducted from the other transaction related agreements described below.
Investor Rights Agreement
The investor rights agreement sets forth certain registration, anti-dilution and governance rights ofcharges due to IAC with respectpursuant to ANGI Homeservices, as well as certain governance rights for the benefit of ANGI Homeservices stockholders other than IAC, in each case following the Combination.
Services Agreement
The services agreement governs services that IAC provides todiscussed above during the first quarter of 2019.
At June 30, 2019 and December 31, 2018, the Company including, among others: (i) assistance with certain legal, M&A, human resources, finance, risk management, internal audithad outstanding payables of $0.7 million and treasury functions, health and wellness, information security services, and insurance and tax affairs, including assistance with certain public company and unclaimed property reporting obligations; (ii) accounting, controllership and payroll processing services; (iii) investor relations services; (iv) tax compliance services; and (v) such other services as$12.1 million due to which IAC and the Company may agree. The services agreement has an initial term of one year from the date of the Combination, and will automatically renew for additional one-year periods thereafter for so long as IAC continuespursuant to own a majority of the outstanding shares of the Company's common stock.
Tax Sharing Agreement
The tax sharing agreement governs the rights, responsibilities, and obligations of the Company and IAC with respect to tax liabilities and benefits, entitlements to refunds, preparation of tax returns, tax contests and other tax matters regarding U.S. federal, state, local and foreign income taxes. Under the tax sharing agreement, which is included in "Accrued expenses and other current liabilities" in the Company is generally responsibleaccompanying consolidated balance sheet. During the first quarter of 2019, $11.4 million was paid to IAC pursuant to this agreement.
For the three and requiredsix months ended June 30, 2019, less than 0.1 million and 0.3 million shares, respectively, of ANGI Homeservices Class B common stock were issued to indemnify IAC, for: (i) all taxes imposed with respectrespectively, pursuant to any consolidated, combined or unitary tax return of IAC or its subsidiaries that includes the Company or any of its subsidiaries to the extent attributable to the Company or any of its subsidiaries, as determined under the tax sharing agreement, and (ii) all taxes imposed with respect to any of the Company's or its subsidiaries’ consolidated, combined, unitary or separate tax returns.
Employee Matters Agreement
The employee matters agreement addresses certain compensation and benefit issues related to the allocation of liabilities associated with: (i) employment or termination of employment, (ii) employee benefit plans and (iii) equity awards. Under the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the Company's employees participate in IAC’s U.S. healthexercise and welfare plans, 401(k) plan and flexible benefits plan andvesting of IAC equity awards held by ANGI Homeservices employees. There were no shares issued to IAC pursuant to the Company reimburses IACemployee matters agreement for the coststhree months ended June 30, 2018. For the six months ended June 30, 2018, 0.7 million shares of such participation. In the event IAC no longer retains shares representing at least 80% of the aggregate voting power of shares entitled to vote in the election of the Company’s Board of Directors, ANGI Homeservices will no longer participate in IAC’s employee benefit plans, but will establish its own employee benefit plans that will be substantially similarClass B common stock were issued to IAC pursuant to the plans sponsored by IAC prior to the Combination.employee matters agreement.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The employee matters agreementCompany also requires the Company to reimburse IAC for the cost of any IAC equity awards held by ANGI Homeservices’ employees and former employees, with IAC electing to receive payment either in cash or in the Company's Class B shares. With respect to former HomeAdvisor (US) stock appreciation rights that have been converted to Company stock appreciation rights and equity awards in the Company's subsidiaries, IAC may require those awards to be settled in either shares of IAC common stock or in Class A shares of the Company's common stock and, to the extent shares of IAC common stock are issued in settlement, the Company will reimburse IAC for the cost of those shares by issuingsubleases office space to IAC additional Class B sharesand charged IAC $0.5 million of rent for both the Company's common stock.
Long-term debt—related party for periods priorthree and subsequentsix months ended June 30, 2019. There were no outstanding amounts due from IAC at June 30, 2019 pursuant to the Combinationtwo sublease agreements.
Long-term debt—related party
Long-term debt—related party consists of:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In thousands) |
Long-term debt—related party | | | |
Intercompany note due September 29, 2024 | $ | 61,498 |
| | $ | — |
|
Intercompany note due September 29, 2024 | 15,000 |
| | — |
|
Promissory note due October 14, 2023 | — |
| | 42,000 |
|
Promissory note due August 29, 2018 | — |
| | 5,000 |
|
Other | 3,006 |
| | 2,838 |
|
Total long-term debt—related party | 79,504 |
| | 49,838 |
|
Less: Current portion of long-term debt—related party | — |
| | 2,838 |
|
Total long-term debt—related party, net of current portion | $ | 79,504 |
| | $ | 47,000 |
|
Long-term debt—related party maturities:
|
| | | |
| (In thousands) |
2019 | $ | 3,006 |
|
2024 | 76,498 |
|
Total long-term debt—related party, net of current portion | $ | 79,504 |
|
NOTE 11—CONSOLIDATED AND COMBINED FINANCIAL STATEMENT DETAILS
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In thousands) |
Other current assets: | | | |
Prepaid expenses | $ | 20,324 |
| | $ | 6,456 |
|
Other | 3,062 |
| | 2,283 |
|
Other current assets | $ | 23,386 |
| | $ | 8,739 |
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)Immediately prior to the Combination, the Company, through a foreign subsidiary, sold a promissory note in the amount of €2.4 million to a foreign subsidiary of IAC. During the first quarter of 2019, the amount outstanding on the promissory note at December 31, 2018 of €0.9 million, or $1.0 million, was repaid.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In thousands) |
Other non-current assets: | | | |
Deferred income taxes | $ | 72,195 |
| | $ | 15,211 |
|
Other | 723 |
| | 11,067 |
|
Other non-current assets | $ | 72,918 |
| | $ | 26,278 |
|
NOTE 12—SUBSEQUENT EVENT
On November 1, 2017, ANGI Homeservices entered into a credit agreement which provides for a five-year term loan A facility of $275 million ("Term Loan"). The Term Loan is guaranteed by ANGI Homeservices' wholly-owned material domestic subsidiaries and is secured by substantially all assets of ANGI Homeservices and the guarantors, subject to certain exceptions. The Term Loan currently bears interest at LIBOR plus 200 basis points, which is subject to change based on ANGI Homeservices' consolidated net leverage ratio. Interest payments are due at least quarterly through the term of the loan. The Term Loan also requires quarterly amortization payments of 1.25% of the original principal amount thereof in the first three years, 2.5% in the fourth year and 3.75% thereafter. A portion of the proceeds of the loan were used to repay the Intercompany Notes outstanding to IAC and its subsidiaries and the remaining proceeds will be used for general corporate purposes. See "Note 10—Related Party Transactions with IAC" for further information on the Intercompany Notes outstanding between the Company and IAC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
GeneralGENERAL
Management Overview
ANGI Homeservices Inc. ("ANGI Homeservices," the "Company," "ANGI," "we," "our," or "us") is creating the world's largest digital marketplace for home services, connecting millions of homeowners across the globe withconnects quality home service professionals.pros across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers. Over 250,000 domestic service professionals find work through ANGI Homeservices, operates 10and consumers turn to at least one of our brands in eight countries, including HomeAdvisor®, Angie's List, mHelpDesk, HomeStars (Canada), Travaux.com (France), MyHammer (Germany), MyBuilder (UK), Werkspot (Netherlands) and Instapro (Italy).
The Company’s marketplace provides the tools and resources to allow homeowners to find local pre-screened service professionals and instantly book appointments online or through its award-winning HomeAdvisor mobile application. The Company’s marketplace also provides consumers with other home services-related resources, including access to average project costs using its HomeAdvisor True Cost Guide. Effective September 29, 2017, the Company also owns Angie's List, a nationwide marketplacepro for local services where consumers can research, hire, rate and review providers of these services in markets located across the continental United States. In addition to its market‑leading U.S. operations, ANGI Homeservices owns the leading home services online marketplaces in Canada (HomeStars), which was acquired on February 8, 2017, Germany (MyHammer), which was acquired on November 3, 2016, France (Travaux.com) and the Netherlands (Werkspot), as well as operations in Italy (Instapro) and the United Kingdom (MyBuilder), which was acquired on March 24, 2017. ANGI Homeservices also owns Felix, a pay-per-call advertising service, and mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses.
As of September 30, 2017, the Company’s network of service professionals in the United States consisted of approximately 172,000 Marketplace Paying Service Professionals providing services in more than 500 categories ranging from simple home repairs to larger home remodeling20 million projects in more than 400 discrete geographies. The Company generated approximately 13.9 million Marketplace Service Requests from homeowners in the United States during the nine months ended September 30, 2017. As of September 30, 2017, the Company also had 47,000 Angie'seach year. We’ve established category-transforming products with brands such as HomeAdvisor, Angie’s List, service professionals under contract for advertising.Handy and Fixd Repair.
The Company has two operating segments: (i) North America (United States and Canada), which includes HomeAdvisor's operations in the United States,HomeAdvisor, Angie's List, Handy, mHelpDesk, HomeStars, Fixd Repair, LLC and HomeStars,Fixd Services LLC (collectively, "Fixd Repair") and Felix, for periods prior to its sale on December 31, 2018, and (ii) Europe, which includes Travaux.com,Travaux, MyHammer, MyBuilder, Werkspot and Instapro.
The Company markets its services to homeowners through search engine marketing, television advertising and affiliate agreements with third parties. Pursuant to these affiliate agreements, third parties agree to advertise and promote on their websites HomeAdvisor’s services and those of service professionals that participate in the HomeAdvisor network, and in exchange HomeAdvisor agrees to pay these third partiesFor a fixed fee when visitors from their websites click through to the HomeAdvisor website and submit a valid service request through the HomeAdvisor platform, or when visitors submit a valid service request on the affiliate website and the affiliate transmits the service request to HomeAdvisor, both on a cost‑per‑acquisition basis. The Company also markets its services to consumers through emails, digital display advertisements, partnerships with other contextually related websites and, to a lesser extent, through direct mail and radio advertising. The Company markets HomeAdvisor's subscription packages to service professionals primarily through its sales force, as well as through search engine marketing, digital media advertising and direct relationships with trade associations and manufacturers. We have made, and expect to continue to make, substantial investments in online and offline advertising to homeowners to promote our services and drive traffic to our platform and to service professionals to expand our network.
Factors Affecting the Comparability of Our Results
On September 29, 2017, IAC and Angie's List Inc. combined IAC's HomeAdvisor business and Angie's List under a new publicly traded company called ANGI Homeservices (the "Combination"). At September 30, 2017, IAC owned 87.1% and 98.5%more detailed description of the economic and voting interest, respectively, of ANGI Homeservices. See "Note 3—Business Combinations" toCompany's operating businesses, see the consolidated and combined financial statements included in "Item 1. Consolidated and Combined Financial Statements"Company's Annual Report on Form 10-K for additional information related to the Combination. During the three and nine monthsyear ended September 30, 2017, the Company incurred $26.0 million and $29.7 million, respectively, in costs related to this transaction (including severance, retention, transaction and integration related costs). The Company expects the aggregate amount of transaction-related expenses during 2017 and 2018 (including those previously recognized) to be less than $75 million. The Company also incurred $96.9 millionDecember 31, 2018.
in stock-based compensation expense during the third quarter of 2017 related to the modification of previously issued HomeAdvisor vested equity awards, which were converted into ANGI Homeservices' equity awards, and the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination.
On March 24, 2017, the Company acquired a controlling interest in MyBuilder Limited (“MyBuilder”), a leading home services platform in the United Kingdom, which is included in our Europe segment.
On February 8, 2017, the Company acquired a controlling interest in HomeStars Inc. (“HomeStars”), a leading home services platform in Canada, which is included in our North America segment.
On November 3, 2016, the Company acquired a controlling interest in MyHammer Holding AG (“MyHammer”), the leading home services marketplace in Germany, which is included in our Europe segment.
Key MetricsOperating Metrics:
In connection with the management of our businesses, we identify, measure and assess a variety of keyoperating metrics. The principal metrics we use in managing our businessbusinesses are set forth below:
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• | Marketplace Revenue includes revenue from the HomeAdvisor and Handy domestic marketplace, including consumer connection revenue for consumer matches, membership subscription revenue from HomeAdvisor service professionals and revenue from completed jobs sourced through the Handy platform. It excludes revenue from Angie's List, mHelpDesk, HomeStars, Fixd Repair and Felix. |
| |
• | Advertising & OtherRevenue includes Angie’s List revenue (revenue from service professionals under contract for advertising and membership subscription fees from consumers) as well as revenue from mHelpDesk, HomeStars, Fixd Repair (acquired on January 25, 2019) and, for periods prior to its sale on December 31, 2018, Felix. |
| |
• | Marketplace Service Requests are fully completed and submitted domestic customer service requests to HomeAdvisor and completed jobs sourced through the Handy platform. |
| |
• | Marketplace Paying Service Professionals ("Marketplace Paying SPs") are the number of HomeAdvisor and Handy domestic service professionals that had an active subscription and/or paid for consumer matches or completed a job sourced through the Handy platform in the last month of the period. An active HomeAdvisor subscription is a subscription for which HomeAdvisor was recognizing revenue on the last day of the relevant period. |
| |
• | Advertising Service Professionals are the total number of Angie’s List service professionals under contract for advertising at the end of the period. |
Marketplace (formerly Domestic) Revenue reflects the domestic HomeAdvisor branded marketplace service. It excludes the other businesses within the North America segment.
Marketplace (formerly Domestic) Service Requests are fully completed and submitted domestic customer service requests.
Marketplace (formerly Domestic) Paying Service Professionals (or “Marketplace Paying SPs”) are the number of domestic service professionals that had an active membership and/or paid for consumer matches in the last month of the period.
Key Components of Results of Operations
Revenue
Marketplace Revenue is primarily derived from (i) consumer connection revenue, which comprises fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon certainseveral factors, including the service requested, typeproduct experience offered and geographic location of match (such as Instant Booking or Instant Connect)service. Advertising & Other Revenue is primarily derived from Angie's List (i) sales of time-based website, mobile and where the service is provided.
The Company’s consumer connection revenue is generated and recognized when an in‑network service professional is delivered a consumer match. Membership subscription revenue is generated through subscription salescall center advertising to service professionals and is deferred and recognized over the term of the applicable membership. Membership agreements can be one month, three months, or one year. Deferred revenue is $60.1 million and $18.8 million at September 30, 2017 and December 31, 2016, respectively. The balance at September 30, 2017 includes the fair value of Angie's List deferred revenue at the date of Combination of $33.3 million related to (i) time-based sales of advertising to service providers and (ii) membership subscription fees from consumers. Service providers generally pay for advertisements, which carry an early termination penalty, in advance on a monthly or annual basis at the option of the service provider with the average advertising contract term being approximately one year. Angie's List revenue from the sale of website, mobile and call center advertising is recognized ratably over the time period in which the advertisements run. Revenue from the sale of advertising in the Angie’s ListMagazine publication is recognized in the period in which the publication, and therefore the advertisement, is published and distributed. Angie's List prepaid membership subscription fees are recognized as revenue ratably over the term of the associated subscription, which is typically one year.
Cost of revenue
Cost of revenue consists primarily of traffic acquisition costs, credit card processing fees and hosting fees. Traffic acquisition costs consist of amounts based on revenue share arrangements.
SellingOperating Costs and marketing expenseExpenses:
Selling and marketing expense consists primarily of advertising expenditures and compensation (including stock-based compensation expense) and other employee‑related costs for personnel engaged in selling and marketing, and sales support. Advertising and promotional expense includes online marketing, including fees paid to search engines, and offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to our brands.
General and administrative expense
General and administrative expense consists primarily of compensation (including stock‑based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions, bad debt expense, facilities costs and fees for professional services.
Product development expense
Product development expense consists primarily of compensation (including stock‑based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology. | |
• | Cost of revenue - consists primarily of credit card processing fees, compensation expense and other employee-related costs at Fixd Repair for service work performed, hosting fees and traffic acquisition costs. Traffic acquisition costs include amounts based on revenue share arrangements, which relate to Felix for periods prior to its sale. |
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• | Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including fees paid to search engines, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to our brands, compensation expense (including stock-based compensation expense) and other employee-related costs for our sales force and marketing personnel, and facilities costs. |
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• | General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions, fees for professional services (including transaction-related costs related to acquisitions), bad debt expense, software license and maintenance costs and facilities costs. Our customer service function includes personnel who provide support to our service professionals and consumers. |
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• | Product development expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology, software license and maintenance costs and facilities costs. |
Non-GAAP financial measure
ResultsEBITDA and a reconciliation of operationsnet earnings attributable to ANGI Homeservices Inc. shareholders to operating income to consolidated Adjusted EBITDA for the three and ninesix months ended June 30, 2019 and 2018.
The Combination
On September 29, 2017, IAC/InterActiveCorp's ("IAC") HomeAdvisor business and Angie's List, Inc. ("Angie's List") combined under a new publicly traded company called ANGI Homeservices Inc. (the "Combination"). At June 30, 2017 compared to2019, IAC owned 83.1% and 98.0% of the economic and voting interest, respectively, of ANGI Homeservices.
During the three and ninesix months ended SeptemberJune 30, 20162019, the Company incurred $8.2 million and $17.8 million, respectively, in stock-based compensation expense related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination. The comparable amounts incurred by the Company during the three and six months ended June 30, 2018 were $16.7 million and $35.8 million, respectively. Stock-based compensation expense arising from the Combination is expected to be approximately $15 million for the remainder of 2019 and $20 million in 2020.
Revenue2019 Developments
On January 25, 2019, the Company completed the acquisition of Fixd Repair, a home warranty and service company. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 | | 2017 | | $ Change | | % Change | | 2016 |
| (Amounts in thousands) |
Revenue | | | | | | | | | | | | | | | |
North America | $ | 167,104 |
| | $ | 41,878 |
| | 33 | % | | $ | 125,226 |
| | $ | 470,667 |
| | $ | 122,380 |
| | 35 | % | | $ | 348,287 |
|
Europe | 14,613 |
| | 6,279 |
| | 75 | % | | 8,334 |
| | 42,506 |
| | 15,571 |
| | 58 | % | | 26,935 |
|
Total Revenue | $ | 181,717 |
| | $ | 48,157 |
| | 36 | % | | $ | 133,560 |
| | $ | 513,173 |
| | $ | 137,951 |
| | 37 | % | | $ | 375,222 |
|
| | | | | | | | | | | | | | | |
Percentage of Total Revenue: | | | | | | | | | | | | | | |
Revenue | | | | | | | | | | | | | | | |
North America | 92 | % | | | | | | 94 | % | | 92 | % | | | | | | 93 | % |
Europe | 8 | % | | | | | | 6 | % | | 8 | % | | | | | | 7 | % |
Total Revenue | 100 | % | | | | | | 100 | % | | 100 | % | | | | | | 100 | % |
| | | | | | | | | | | | | | | |
Key metrics:
| | | | | | | | | | | | | | | |
Marketplace Revenue | $ | 156,595 |
| | $ | 40,120 |
| | 34 | % | | $ | 116,475 |
| | $ | 442,024 |
| | $ | 118,460 |
| | 37 | % | | $ | 323,564 |
|
Marketplace Service Requests | 5,023 |
| | 1,339 |
| | 36 | % | | 3,684 |
| | 13,902 |
| | 3,791 |
| | 37 | % | | 10,111 |
|
Marketplace Paying SPs | 172 |
| | 35 |
| | 25 | % | | 137 |
| | 172 |
| | 35 |
| | 25 | % | | 137 |
|
Second Quarter 2019 and Year to Date June 2019 Consolidated ResultsFor the three months ended SeptemberJune 30, 20172019:
Revenue increased $49.1 million, or 17%, which was primarily driven by Marketplace Revenue growth of $54.8 million, or 27%, and growth in Europe of $2.2 million, or 13%, partially offset by a decrease of $7.9 million, or 11%, in Advertising & Other Revenue driven principally by the sale of Felix on December 31, 2018.
Operating income decreased $11.9 million, or 51%, due primarily to a decrease in Adjusted EBITDA of $15.5 million described below, and an increase of $2.9 million in depreciation, partially offset by decreases of $4.5 million in stock-based compensation expense and $2.1 million in amortization of intangibles. The decrease in stock-based
compensation expense was due primarily to a decrease of $8.5 million in modification and acceleration charges related to the Combination ($8.2 million in 2019 compared to $16.7 million in 2018), partially offset by $2.7 million of expense related to new awards issued in connection with the acquisitions of Handy (acquired on October 19, 2018) and Fixd Repair and the issuance of new equity awards since 2018. The decrease in amortization of intangibles was due primarily to lower expense from the Combination, partially offset by an increase in amortization expense related to the acquisition of Handy.
Adjusted EBITDA decreased 23% to $51.4 million, despite higher revenue, due primarily to higher selling and marketing expense as a percentage of revenue, an increase of $6.7 million in bad debt expense due, in part, to higher Marketplace Revenue, and investments in Handy and Fixd Repair, partially offset by the inclusion in 2018 of $2.6 million in costs related to the Combination (including deferred revenue write-offs, severance, retention and integration related costs).
For the six months ended June 30, 2019:
Revenue increased $97.2 million, or 18%, which was primarily driven by Marketplace Revenue growth of $109.1 million, or 29%, and growth in Europe of $4.3 million, or 12%, partially offset by a decrease of $16.2 million, or 11%, in Advertising & Other Revenue driven principally by the sale of Felix.
Operating income decreased $4.7 million, or 38%, due primarily to a decrease in Adjusted EBITDA of $15.0 million described below, and an increase of $3.7 million in depreciation, partially offset by decreases of $10.2 million in stock-based compensation expense and $3.8 million in amortization of intangibles. The decrease in stock-based compensation expense was due primarily to a decrease of $18.1 million in modification and acceleration charges related to the Combination ($17.8 million in 2019 compared to $35.8 million in 2018), partially offset by $5.7 million of expense related to new awards issued in connection with the acquisitions of Handy and Fixd Repair and the issuance of new equity awards since 2018. The decrease in amortization of intangibles was due primarily to the factors described above in the three-month discussion.
Adjusted EBITDA decreased 14% to $88.6 million, despite higher revenue, due primarily to higher selling and marketing expense as a percentage of revenue, an increase of $11.6 million in bad debt expense due, in part, to higher Marketplace Revenue, and investments in Handy and Fixd Repair, partially offset by the inclusion in 2018 of $7.9 million in costs related to the Combination (including deferred revenue write-offs, severance, retention and integration related costs).
Results of Operations for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018
Revenue
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 |
| $ Change |
| % Change |
| 2018 | | 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Revenue: | | | | | | | | | | | | | | | |
Marketplace: | | | | | | | | | | | | | | | |
Consumer connection revenue | $ | 241,236 |
| | $ | 54,064 |
| | 29% | | $ | 187,172 |
| | $ | 442,818 |
| | $ | 106,586 |
| | 32% | | $ | 336,232 |
|
Membership subscription revenue | 16,485 |
| | (80 | ) | | NM | | 16,565 |
| | 33,002 |
| | 810 |
| | 3% | | 32,192 |
|
Other revenue | 1,807 |
| | 809 |
| | 81% | | 998 |
| | 3,633 |
| | 1,714 |
| | 89% | | 1,919 |
|
Total Marketplace Revenue | 259,528 |
| | 54,793 |
| | 27% | | 204,735 |
| | 479,453 |
| | 109,110 |
| | 29% | | 370,343 |
|
Advertising & Other Revenue | 64,872 |
| | (7,898 | ) | | (11)% | | 72,770 |
| | 126,941 |
| | (16,247 | ) | | (11)% | | 143,188 |
|
North America | 324,400 |
| | 46,895 |
| | 17% | | 277,505 |
| | 606,394 |
| | 92,863 |
| | 18% | | 513,531 |
|
Europe | 19,496 |
| | 2,179 |
| | 13% | | 17,317 |
| | 40,945 |
| | 4,343 |
| | 12% | | 36,602 |
|
Total Revenue | $ | 343,896 |
| | $ | 49,074 |
| | 17% | | $ | 294,822 |
| | $ | 647,339 |
| | $ | 97,206 |
| | 18% | | $ | 550,133 |
|
| | | | | | | | | | | | | | | |
Percentage of Total Revenue: | | | | | | | | | | | | | | |
North America | 94 | % | | | | | | 94 | % | | 94 | % | | | | | | 93 | % |
Europe | 6 | % | | | | | | 6 | % | | 6 | % | | | | | | 7 | % |
Total Revenue | 100 | % | | | | | | 100 | % | | 100 | % | | | | | | 100 | % |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | Change | | % Change | | 2018 | | 2019 | | $ Change | | % Change | | 2018 |
| (Amounts in thousands) |
Operating metrics: | | | | | | | | | | | | | | |
Marketplace Service Requests | 7,925 |
| | 1,126 |
| | 17% | | 6,799 |
| | 13,722 |
| | 1,893 |
| | 16% | | 11,829 |
|
Marketplace Paying SPs | 223 |
| | 22 |
| | 11% | | 202 |
| | | | | | | | |
Advertising Service Professionals | 36 |
| | (2 | ) | | (6)% | | 39 |
| | | | | | | | |
For the three months ended June 30, 2019 compared to the three months ended SeptemberJune 30, 2016
Revenue increased $48.2 million, or 36%, in 2017 versus 2016.
2018
North America revenue increased $41.9$46.9 million, or 33%17%, driven by an increase in Marketplace Revenue of $54.8 million, or 27%, partially offset by a decrease of $7.9 million, or 11%, in 2017 versus 2016,Advertising & Other Revenue. The increase in Marketplace Revenue was due primarily to an increase of $36.6 million, or 35%, in consumer connection revenue of $54.1 million, or 29%, which was driven by a 25% increase in Marketplace Paying SPs to 172,000 and a 36%17% increase in Marketplace Service Requests to 5.0 million. North America revenue7.9 million, including the contribution from Handy. The decrease in 2017 includes $0.7 million from Angie's List.Advertising & Other Revenue was driven principally by the sale of Felix on December 31, 2018.
Europe revenue grew $6.3$2.2 million, or 75%13%, in 2017 versus 2016, drivendue to growth across several regions, partially offset by the acquisitionsunfavorable impact from the strengthening of controlling interests in MyHammer on November 3, 2016the U.S. dollar relative to the Euro and MyBuilder on March 24, 2017, as well as organic growth across other regions.British Pound.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 2016
Revenue increased $138.0 million, or 37%, in 2017 versus 2016.2018
North America revenue increased $122.4$92.9 million, or 35%18%, driven by an increase in Marketplace Revenue of $109.1 million or 29%, partially offset by a decrease of $16.2 million, or 11%, in 2017 versus 2016,Advertising & Other Revenue. The increase in Marketplace Revenue was due primarily to an increase of $108.3 million, or 37%, in consumer connection revenue of $106.6 million, or 32%, which was driven by a 25% increase in Marketplace Paying SPs to 172,000 and a 37%16% increase in Marketplace Service Requests to 13.9 million. North America revenue13.7 million, including the contribution from Handy. The decrease in 2017 includes $0.7 million from Angie's List.Advertising & Other Revenue was driven principally by the sale of Felix.
Europe revenue grew $15.6$4.3 million, or 58%12%, in 2017 versus 2016, drivendue to growth across several regions, partially offset by the acquisitionsunfavorable impact from the strengthening of controlling interests in MyHammer on November 3, 2016the U.S. dollar relative to the Euro and MyBuilder on March 24, 2017, as well as organic growth across other regions.British Pound.
Cost of revenue (exclusive of depreciation)depreciation shown separately below)
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Cost of revenue | $7,999 | | $1,173 | | 17% | | $6,826 |
Percentage of revenue | 4% | | | | | | 5% |
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Cost of revenue (exclusive of depreciation shown separately below) | $10,722 | | $(3,981) | | (27)% | | $14,703 |
As a percentage of revenue | 3% | | | | | | 5% |
Cost of revenue increased $1.2 million, or 17%, in 2017 versus 2016.
North America cost of revenue increased $0.4decreased $4.0 million, or 5%28%, due primarily to a decrease of $6.6 million in 2017 versus 2016, driventraffic acquisition costs due to the sale of Felix, partially offset by increases$1.9 million of $0.7expense from the inclusion of Handy and Fixd Repair and an increase of $1.0 million in credit card processing fees due to higher revenue and $0.1 million in hosting fees, partially offset by a reduction in traffic acquisition costs of $0.6 million.
Europe cost of revenue increased $0.8 million, or 1395%, in 2017 versus 2016, driven by an increase of $0.6 million in hosting fees.Marketplace Revenue.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Cost of revenue | $22,391 | | $2,826 | | 14% | | $19,565 |
Percentage of revenue | 4% | | | | | | 5% |
Cost of revenue increased $2.8 million, or 14%, in 2017 versus 2016. |
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Cost of revenue (exclusive of depreciation shown separately below) | $20,733 | | $(7,565) | | (27)% | | $28,298 |
As a percentage of revenue | 3% | | | | | | 5% |
North America cost of revenue increased $2.0decreased $7.6 million, or 10%28%, due primarily to a decrease of $12.2 million in 2017 versus 2016, driventraffic acquisition costs due to the sale of Felix, partially offset by increases$4.1 million of $2.1expense from the inclusion of Handy and Fixd Repair and an increase of $1.4 million in credit card processing fees due to higher revenue and $0.6 million in hosting fees, partially offset by a reduction in traffic acquisition costs of $0.7 million.
Europe cost of revenue increased $0.8 million, or 388%, in 2017 versus 2016, driven by an increase of $0.6 million in hosting fees.Marketplace Revenue.
Selling and marketing expense
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Selling and marketing expense | $130,866 | | $50,592 | | 63% | | $80,274 |
Percentage of revenue | 72% | | | | | | 60% |
Selling and marketing expense increased $50.6 million, or 63%, in 2017 versus 2016. |
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Selling and marketing expense | $196,167 | | $54,324 | | 38% | | $141,843 |
As a percentage of revenue | 57% | | | | | | 48% |
North America selling and marketing expense increased $46.0$54.3 million, or 61%41%, in 2017 versus 2016, driven by an increase in advertising expense of $28.6$38.3 million, in compensation expense an increase in online and offline marketing of $18.8$8.8 million as well as $0.9 million of expense from the inclusion of HomeStars.Handy and Fixd Repair, and increases in compensation expense of $6.2 million and facilities costs of $1.2 million. The increase in advertising expense was due primarily to increased investments in online marketing and television spend. Efficiency of online marketing spend was negatively impacted by traffic sourced through Google. Service requests from free search engine traffic were down from the prior year, while service requests from paid search engine marketing efforts were up, and were considerably more expensive than the prior year. We expect this trend to continue for the near-term. Compensation expense increased due primarily to an increase of $19.5 milliongrowth in stock-based compensation expense, an increase inthe sales force headcount and the inclusion of $4.1 million in severance and retention costs related to the Combination. The increase in stock-based compensation expense was due to the modification of previously issued HomeAdvisor vested equity awards, which were converted into ANGI Homeservices' equity awards, and the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination.
Europe selling and marketing expense increased $4.6 million, or 99%, in 2017 versus 2016, driven by organic growth of $1.3 million in online and offline marketing and $1.1 million in compensation expense, as well as $2.1 million of expense from the inclusion of MyHammer and MyBuilder.force.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2017 | | $ Change | | % Change | | 2016 | 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) | (Dollars in thousands) |
Selling and marketing expense | $337,654 | | $103,310 | | 44% | | $234,344 | $371,469 | | $91,694 | | 33% | | $279,775 |
Percentage of revenue | 66% | | 62% | |
As a percentage of revenue | | 57% | | 51% |
Selling and marketing expense increased $103.3 million, or 44%, in 2017 versus 2016.
North America selling and marketing expense increased $91.3$90.2 million, or 42%35%, in 2017 versus 2016, driven by an increase in online and offline marketingadvertising expense of $53.6$62.6 million, an increaseexpense of $37.9$14.1 million in compensation expense, as well as $2.2 million of expense from the inclusion of HomeStars.Handy and Fixd Repair, and increases in compensation expense of $12.0 million and facilities costs of $1.4 million. The increase in advertising expense was due primarily to increased investments in online marketing and television spend. Compensation expense increased due primarily to an increase of $19.8 million in stock-based compensation expense, an increase in sales force headcount and the inclusion of $4.1 million in severance and retention costs related to the Combination. The increase in stock-based compensation expense was due to the modification and acceleration of equity awards as described abovegrowth in the three-month discussion.sales force.
Europe selling and marketing expense increased $12.0$1.5 million, or 75%7%, in 2017 versus 2016, driven by organic growthan increase in advertising expense of $4.6$2.5 million, in online and offline marketing and $2.4 millionpartially offset by a decrease in compensation expense as well as $4.9 million of expense from the inclusion of MyHammer and MyBuilder.$0.8 million.
General and administrative expense
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
General and administrative expense | $129,088 | | $99,579 | | 337% | | $29,509 |
Percentage of revenue | 71% | | | | | | 22% |
General and administrative expense increased $99.6 million, or 337%, in 2017 versus 2016.
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
General and administrative expense | $88,013 | | $8,325 | | 10% | | $79,688 |
As a percentage of revenue | 26% | | | | | | 27% |
North America general and administrative expense increased $99.0$7.2 million, or 411%10%, in 2017 versus 2016, due primarily to higherexpense of $7.3 million from the inclusion of Handy and Fixd Repair, which includes $2.5 million of stock-based compensation expense of $78.9 million and $13.9 million in costs related to the Angie's List transaction including transaction related costs of $9.5 million and integration related costs of $3.9 million. The increasenew awards issued in compensation expense is due principally toconnection with these acquisitions, an increase of $69.8 million in stock-based compensation expense and the inclusion of $7.7 million in severance and retention costs related to the Combination, and an increase in headcount from business growth. The increase in stock-based compensation expense was due principally to the modification of HomeAdvisor vested equity awards, which were converted into ANGI Homeservices' equity awards, and the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination. North America general and administrative expense also includes increases of $2.4$6.2 million in bad debt expense due, in part, to higher revenueMarketplace Revenue, and $1.0increases of $1.1 million in outsourced customer servicefacilities costs and $0.8 million in software license and maintenance costs, partially offset by a decrease in compensation expense as well as $1.0of $6.1 million of expense fromand the inclusion in 2018 of HomeStars.$0.8 million in integration-related costs in connection with the Combination. The decrease in compensation expense was due primarily to a decrease of $7.0 million in stock-based compensation expense, partially offset by an increase in headcount resulting from existing business growth. The decrease in stock-based compensation expense reflects a decrease of $8.1 million in expense due to the modification and acceleration charges related to the Combination ($6.7 million in 2019 compared to $14.8 million in 2018), partially offset by the issuance of new equity awards since 2018.
Europe general and administrative expense increased $0.6$1.1 million, or 10%18%, in 2017 versus 2016, due primarily to $1.9increases in bad debt expense of $0.5 million and facilities costs of expense from the inclusion of MyHammer and MyBuilder,$0.2 million, partially offset by a reduction in transaction related costs of $1.2 million.lower stock-based compensation expense.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
General and administrative expense | $217,962 | | $137,728 | | 172% | | $80,234 |
Percentage of revenue | 42% | | | | | | 21% |
General and administrative expense increased $137.7 million, or 172%, in 2017 versus 2016. |
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
General and administrative expense | $172,442 | | $16,484 | | 11% | | $155,958 |
As a percentage of revenue | 27% | | | | | | 28% |
North America general and administrative expense increased $131.0$15.8 million, or 195%11%, in 2017 versus 2016, due primarily to higherexpense of $14.8 million from the inclusion of Handy and Fixd Repair, which includes $5.0 million of stock-based compensation expense of $94.7 million and $17.6 million in costs related to the Angie's List transaction including transaction related costs of $13.1 million and integration related costs of $4.0 million. The increasenew awards issued in compensation expense is due principally toconnection with these acquisitions, an increase of $81.2 million in stock-based compensation expense, an increase in headcount from business growth and the inclusion of $7.7 million in severance and retention costs in 2017 related to the Combination. The increase in stock-based compensation expense was due principally to the modification and acceleration of equity awards as described above in the three-month discussion as well as a modification charge related to a HomeAdvisor equity award recorded in the second quarter of 2017. North America general and administrative expense also includes increases of $7.7$10.9 million in bad debt expense due, in part, to higher revenue,Marketplace Revenue, and increases of $1.4 million in software license and maintenance costs and $1.3 million in facilities costs, partially offset by a decrease in compensation expense of $12.3 million and the inclusion in 2018 of $3.3 million in outsourced customer serviceintegration-related costs in connection with the Combination. The decrease in compensation expense and $1.6was due primarily to a decrease of $15.1 million in software maintenance costs, as well as $2.2stock-based compensation expense, partially offset by an increase in headcount resulting from existing business growth. The decrease in stock-based compensation expense reflects a decrease of $16.9 million in expense due to the modification and acceleration charges related to the Combination ($14.7 million in 2019 compared to $31.5 million in 2018), partially offset by the issuance of new equity awards since 2018.
Europe general and administrative expense increased $0.7 million, or 5%, due primarily to increases in bad debt expense of $0.7 million and compensation expense of $0.3 million due, in part, to increased headcount, partially offset by lower stock-based compensation expense.
Product development expense
For the three months ended June 30, 2019 compared to the three months ended June 30, 2018
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Product development expense | $15,082 | | $1,420 | | 10% | | $13,662 |
As a percentage of revenue | 4% | | | | | | 5% |
North America product development expense increased $1.4 million, or 13%, due primarily to $1.5 million of expense from the inclusion of HomeStars.Handy.
Europe general and administrativeFor the six months ended June 30, 2019 compared to the six months ended June 30, 2018
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Product development expense | $30,886 | | $1,444 | | 5% | | $29,442 |
As a percentage of revenue | 5% | | | | | | 5% |
North America product development expense increased $6.8$0.9 million, or 51%4%, in 2017 versus 2016, due primarily to $5.6$3.1 million of expense from the inclusion of MyHammerHandy, partially offset by decreases in compensation expense of $1.2 million, software license and MyBuildermaintenance costs of $0.8 million and an increasefacilities costs of $0.8$0.2 million.
Europe product development expense increased $0.5 million, or 11%, due primarily to increases of $0.3 million in compensation expense due, in part, to increased headcount, partially offset by a reduction in transaction relatedand facilities costs of $0.5$0.2 million.
Product development expense
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Product development expense | $20,010 | | $14,654 | | 274% | | $5,356 |
Percentage of revenue | 11% | | | | | | 4% |
Product development expense increased $14.7 million, or 274%, in 2017 versus 2016.
North America product development expense increased $14.2 million, or 305%, in 2017 versus 2016, due primarily to an increase of $12.2 million in stock-based compensation expense due to the modification of HomeAdvisor vested equity awards in connection with the Combination. North America product development expense also includes an increase in compensation expense due, in part, to increased headcount, as well as $0.4 million of expense from the inclusion of HomeStars.
Europe product development expense increased $0.5 million, or 66%, in 2017 versus 2016, due to $0.5 million of compensation expense from the inclusion of MyHammer and MyBuilder.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Product development expense | $32,529 | | $17,387 | | 115% | | $15,142 |
Percentage of revenue | 6% | | | | | | 4% |
Product development expense increased $17.4 million, or 115%, in 2017 versus 2016.
North America product development expense increased $16.3 million, or 126%, in 2017 versus 2016, due primarily to an increase of $12.2 million in stock-based compensation expense due to the modification and acceleration of equity awards as described above in the three-month discussion. North America product development expense also includes an increase in compensation expense due, in part, to increased headcount, as well as $0.9 million of expense from the inclusion of HomeStars.
Europe product development expense increased $1.0 million, or 48%, in 2017 versus 2016, driven by $1.3 million of compensation expense from the inclusion of MyHammer and MyBuilder.
Depreciation
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Depreciation | $3,491 | | $1,465 | | 72% | | $2,026 |
Percentage of revenue | 2% | | | | | | 2% |
Depreciation increased by $1.5 million, or 72%, in 2017 versus 2016. |
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Depreciation | $8,796 | | $2,910 | | 49% | | $5,886 |
As a percentage of revenue | 3% | | | | | | 2% |
North America depreciation increased $1.1$2.9 million, or 59%54%, in 2017 versus 2016, due primarily to the incremental depreciation related to continued corporate growth.growth, including internally developed capitalized software and leasehold improvements.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Depreciation | $9,705 | | $3,881 | | 67% | | $5,824 |
Percentage of revenue | 2% | | | | | | 2% |
Depreciation increased by $3.9 million, or 67%, in 2017 versus 2016. |
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Depreciation | $15,795 | | $3,725 | | 31% | | $12,070 |
As a percentage of revenue | 2% | | | | | | 2% |
North America depreciation increased $3.4$3.5 million, or 62%32%, in 2017 versus 2016, due primarily to the incrementalfactors described above in the three-month discussion. Europe depreciation related to continued corporate growth.increased $0.2 million, or 19%.
Operating income (loss) income
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 | | 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Operating (loss) income | $(112,505) | | $(121,348) | | NM | | $8,843 | | $(113,953) | | $(131,795) | | NM | | $17,842 |
Percentage of revenue | (62)% | | | | | | 7% | | (22)% | | | | | | 5% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 | | 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
North America | $ | 12,473 |
| | $ | (13,637 | ) | | (52)% | | $ | 26,110 |
| | $ | 13,215 |
| | $ | (7,530 | ) | | (36)% | | $ | 20,745 |
|
Europe | (1,070 | ) | | 1,778 |
| | 62% | | (2,848 | ) | | (5,453 | ) | | 2,786 |
| | 34% | | (8,239 | ) |
Total | $ | 11,403 |
| | $ | (11,859 | ) | | (51)% | | $ | 23,262 |
| | $ | 7,762 |
| | $ | (4,744 | ) | | (38)% | | $ | 12,506 |
|
| | | | | | | | | | | | | | | |
As a percentage of revenue | 3% | | | | | | 8% | | 1% | | | | | | 2% |
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 2016
Operating income decreased $121.3 million to an operating loss of $112.5 million in 2017 versus operating income of $8.8 million in 2016.2018
North America operating income decreased $119.3$13.6 million, to an operating loss of $107.7 million in 2017 versus operating income of $11.6 million in 2016, primarily due to the decrease in Adjusted EBITDA of $16.5 million described below, and an increase of $101.6$2.9 million in depreciation, partially offset by decreases of $4.4 million in stock-based compensation expense a decrease of $16.1 million in Adjusted EBITDA described below, an increase of $1.1 million in depreciation and an increase of $0.5$1.3 million in amortization of intangibles. The increasedecrease in stock-based compensation expense was due primarily to a decrease of $8.5 million in modification and acceleration charges of $96.9 million related to the Angie's List transaction described above.Combination ($8.2 million in 2019 compared to $16.7 million in 2018), partially offset by $2.7 million of expense related to new awards issued in connection with the acquisitions of Handy and Fixd Repair and the issuance of new equity awards since 2018. The decrease in amortization of intangibles was due primarily to lower expense from the Combination, partially offset by an increase in amortization expense related to the acquisition of Handy.
Europe operating loss increased $2.1decreased $1.8 million, or 76%62%, due primarily to the decrease in 2017 versus 2016, primarily due to an increaseAdjusted EBITDA loss of $1.6$0.9 million described below, and decreases of $0.8 million in amortization of intangibles and $0.1 million in stock-based compensation expense.
For the six months ended June 30, 2019 compared to the six months ended June 30, 2018
North America operating income decreased $7.5 million, due to the decrease in Adjusted EBITDA of $16.4 million described below, and an increase of $0.3$3.5 million in depreciation, partially offset by decreases of $9.9 million in stock-based compensation expense and an increase$2.4 million in amortization of intangibles. The decrease in stock-based compensation expense was due primarily to a decrease of $18.1 million in modification and acceleration charges related to the Combination ($17.8 million in 2019 compared to $35.8 million in 2018), partially offset by $5.7 million of expense related to new awards issued in connection with the acquisitions of Handy and Fixd Repair and the issuance of new equity awards since 2018. The decrease in amortization of intangibles was due primarily to the factors described above in the three-month discussion.
Europe operating loss decreased $2.8 million, or 34%, due primarily to the decrease in Adjusted EBITDA loss of $1.4 million described below, and decreases of $1.4 million in amortization of intangibles and $0.2 million described below.in stock-based compensation expense, partially offset by an increase of $0.2 million in depreciation.
At SeptemberJune 30, 2017,2019, there was $215.4is $133.1 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.5 years.
Adjusted EBITDA
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 | | 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
North America | $ | 51,606 |
| | $ | (16,482 | ) | | (24)% | | $ | 68,088 |
| | $ | 91,295 |
| | $ | (16,398 | ) | | (15)% | | $ | 107,693 |
|
Europe | (174 | ) | | 935 |
| | 84% | | (1,109 | ) | | (2,684 | ) | | 1,390 |
| | 34% | | (4,074 | ) |
Total | $ | 51,432 |
| | $ | (15,547 | ) | | (23)% | | $ | 66,979 |
| | $ | 88,611 |
| | $ | (15,008 | ) | | (14)% | | $ | 103,619 |
|
| | | | | | | | | | | | | | | |
As a percentage of revenue | 15% | | | | | | 23% | | 14% | | | | | | 19% |
For the nine months ended September 30, 2017 compareda reconciliation of net earnings attributable to the nine months ended September 30, 2016
Operating income decreased $131.8 millionANGI Homeservices Inc. shareholders to an operating loss of $114.0 million in 2017 versus operating income of $17.8 million in 2016.
North America operating income decreased $122.7 million to an operating loss of $99.5 million in 2017 versus operating income of $23.2 million in 2016, primarily due to an increase of $113.6 million in stock-based compensation expense, a decrease of $4.6 million inconsolidated Adjusted EBITDA, described below, an increase of $3.4 million in depreciation and an increase of $1.0 million in amortization of intangibles. The increase in stock-based compensation expense was due primarily to modification and acceleration charges of $96.9 million related to the Angie's List transaction described above.
Europe operating loss increased $9.1 million, or 170%, in 2017 versus 2016, primarily due to an increase of $3.6 million in amortization of intangibles, an increase in Adjusted EBITDA loss of $5.1 million described below and an increase of $0.5 million in depreciation.
Adjusted EBITDA
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 | | 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Adjusted EBITDA | $(2,266) | | $(16,252) | | NM | | $13,986 | | $22,917 | | $(9,705) | | (30)% | | $32,622 |
Percentage of revenue | (1)% | | | | | | 10% | | 4% | | | | | | 9 | % |
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 2016
Adjusted EBITDA decreased $16.3 million to an Adjusted EBITDA loss of $2.3 million in 2017 versus Adjusted EBITDA of $14.0 million in 2016.2018
North America Adjusted EBITDA declined $16.1decreased $16.5 million or 100%, in 2017 versus 2016,to $51.6 million, despite higher revenue, due to higher selling and marketing expense as a percentage of revenue, an increase of $41.9$6.2 million in revenue,bad debt expense, due, primarilyin part, to higher Marketplace Revenue, and investments in Handy and Fixd Repair, partially offset by the inclusion in 20172018 of $26.0$2.6 million in costs related to the Angie's List transactionCombination (including deferred revenue write-offs, severance, retention transaction and integration relatedintegration-related costs).
Europe Adjusted EBITDA loss decreased $0.9 million, or 84%, due primarily to the increase of $2.2 million in revenue, partially offset by increases in advertising expense of $0.8 million and bad debt expense of $0.5 million.
For the six months ended June 30, 2019 compared to the six months ended June 30, 2018
North America Adjusted EBITDA decreased $16.4 million to $91.3 million, despite higher revenue, due primarily to higher selling and marketing expense as well as increased investment in online and offline marketinga percentage of $18.8 million, higher compensation expense due, in part, to increased headcount, and increasesrevenue, an increase of $2.4$10.9 million in bad debt expense, due, in part, to higher revenueMarketplace Revenue, and $1.0 millioninvestments in outsourced customer service expense. Adjusted EBITDA was further impacted by a write-off of deferred revenue related to the acquisitions of HomeStars of $0.1 millionHandy and Angie's List of $0.1 million in 2017.
Europe Adjusted EBITDA loss increased $0.2 million, or 9%, in 2017 versus 2016, driven primarily by our European expansion strategy including increased investment in online and offline marketing of $3.1 million and higher compensation expense of $3.0 million due primarily to the inclusion of MyHammer and MyBuilder in 2017 as well as increased headcount,Fixd Repair, partially offset by a reduction in transaction related costs of $1.2 million.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
Adjusted EBITDA decreased $9.7 million, or 30%, in 2017 versus 2016.
North America Adjusted EBITDA declined $4.6 million, or 13%, in 2017 versus 2016, despite an increase of $122.4 million in revenue, due primarily to the inclusion in 20172018 of $29.7$7.9 million in costs related to the Angie's List transactionCombination (including deferred revenue write-offs, severance, retention transaction and integration relatedintegration-related costs), as well as increased investment in online and offline marketing of $53.6 million, higher compensation expense due, in part, to increased headcount, and increases of $7.7 million in bad debt expense due to higher revenue, $3.3 million in outsourced customer service expense and $1.6 million in software maintenance costs. Adjusted EBITDA was further impacted by a write-off of deferred revenue related to the acquisitions of HomeStars of $0.7 million and Angie's List of $0.1 million in 2017..
Europe Adjusted EBITDA loss increased $5.1decreased $1.4 million, or 151%34%, in 2017 versus 2016, driven primarily by our European expansion strategy including increased investment in online and offline marketing of $8.7 million and higher compensation expense of $8.0 million due primarily to the inclusionincrease of MyHammer and MyBuilder$4.3 million in 2017 as well as increased headcount,revenue, partially offset by a reductionan increase in transaction related costsadvertising expense of $0.5$2.5 million.
Interest expense—related partyexpense
Interest expense—third party relates to interest on a five-year term loan, which is due on November 5, 2023, and commitment fees on an undrawn five-year revolving credit facility of $250 million, which commenced on November 5, 2018.
Interest expense—related party includes interest charged byon a loan from a foreign subsidiary of IAC, and its subsidiaries on related party notes, which are primarily related to acquisitions. was settled during the first quarter of 2019.
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Interest expense—related party | $1,864 | | $1,708 | | 1095% | | $156 |
|
| | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Interest expense—third party | $ | 2,963 |
| | $ | (48 | ) | | (2)% | | $ | 3,011 |
|
Interest expense—related party | $ | — |
| | $ | (34 | ) | | NM | | $ | 34 |
|
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Interest expense—related party | $5,538 | | $5,298 | | 2208% | | $240 |
|
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Interest expense—third party | $ | 5,957 |
| | $ | 292 |
| | 5% | | $ | 5,665 |
|
Interest expense—related party | $ | 16 |
| | $ | (63 | ) | | (80)% | | $ | 79 |
|
Other income, (expense), net
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Other income, net | $1,364 | | $1,169 | | 599% | | $195 |
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Other income, net | $1,047 | | $(6) | | (1)% | | $1,053 |
Other income, net in 2017 and 20162019 principally includeincludes third party interest income of $2.2 million, partially offset by a $1.1 million mark-to-market charge for an indemnification claim related to the Handy acquisition that will be settled in ANGI shares held in escrow.
Other income, net foreign currency exchange gains.in 2018 principally includes third party interest income of $0.9 million.
For the ninesix months ended SeptemberJune 30, 20172019 compared to the ninesix months ended SeptemberJune 30, 20162018
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | $ Change | | % Change | | 2016 |
| (Dollars in thousands) |
Other income (expense), net | $2,100 | | $2,404 | | NM | | $(304) |
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) |
Other income, net | $3,334 | | $1,925 | | 137% | | $1,409 |
Other income, (expense), net in 20172019 principally includes third party interest income of $4.3 million and 2016 principally include net foreign currency exchange gains andof $0.3 million, partially offset by a $1.1 million mark-to-market charge for an indemnification claim related to the Handy acquisition that will be settled in ANGI shares held in escrow.
Other income, net in 2018 includes third party interest income of $1.6 million, partially offset by net foreign currency exchange losses respectively.of $0.2 million.
Income tax (provision) benefit (provision)
For the three months ended SeptemberJune 30, 20172019 compared to the three months ended SeptemberJune 30, 20162018
| | | Three Months Ended September 30, | Three Months Ended June 30, |
| 2017 | | $ Change | | % Change | | 2016 | 2019 | | $ Change | | % Change | | 2018 |
| (Dollars in thousands) | (Dollars in thousands) |
Income tax benefit (provision) | $40,847 | | $45,261 | | NM | | $(4,414) | |
Income tax (provision) benefit | | $(2,253) | | $(4,006) | | NM | | $1,753 |
Effective income tax rate | 36% | | 50% | 24% | | NM |
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, buthowever, should not be considered a substitute for or superior to GAAP results. We endeavor to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure, which we discuss below.
Loan"). TheOn November 5, 2018, the Term Loan is guaranteed by ANGI Homeservices' wholly-owned material domestic subsidiarieswas amended and restated, and is secured by substantially all assets of ANGI Homeservices and the guarantors, subject to certain exceptions. The Term Loan currently bears interest at LIBOR plus 200 basis points, which is subject to change basednow due on ANGI Homeservices' consolidated net leverage ratio.November 5, 2023. Interest payments are due at least quarterly through the term of the loan. The Term Loan also requiresAdditionally, there are quarterly amortizationprincipal payments of 1.25% of$3.4 million through December 31, 2021, $6.9 million for the original principal amount thereof in the first three years, 2.5% in the fourth yearone-year period ending December 31, 2022 and 3.75% thereafter. A portion of the proceeds$10.3 million through maturity of the loan when the final amount of $161.6 million is due. At June 30, 2019, the Term Loan bears interest at LIBOR plus 1.50%, or 4.00%. The spread over LIBOR is subject to change in future periods based on the Company's consolidated net leverage ratio.
The Company monitors and evaluates on an ongoing basis its disclosure controls and procedures and internal control over financial reporting in order to improve itstheir overall effectiveness. In the course of these evaluations, the Company modifies and refines its internal processes as conditions warrant.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company’s management, including our principal executive and principal financial officers, or persons performing similar functions, evaluated the effectiveness of the Company's disclosure controls and procedures as defined by Rule 13a-15(e) under the Exchange Act. Based on this evaluation, management has concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report in providing reasonable assurance that information we are required to disclose in our filings with the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and Forms,forms, and include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
In the ordinary course of business, the Company and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, as well as stockholder derivative actions, class action lawsuits and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. Although the results of legal proceedings and claims cannot be predicted with certainty, neither the Company nor any of its subsidiaries is currently a party to any legal proceedings, the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.
Rules of the Securities and Exchange Commission require the description of material pending legal proceedings (other than ordinary, routine litigation incident to the registrant’s business) and advise that proceedings ordinarily need not be described if they primarily involve damages claims for amounts (exclusive of interest and costs) not exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of Company management, none of the pending litigation matters which we are defending, including thosethe one described below, involves or is likely to involve amounts of that magnitude. The litigation mattersmatter described below involveinvolves issues or claims that may be of particular interest to our stockholders, regardless of whether any of these mattersthis matter may be material to our financial position or operations based upon the standard set forth in the rules of the Securities and Exchange Commission.
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipates," "estimates," "expects," "plans" and "believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: (i)to the Company's future business, financial condition, results of operations and financial performance, of ANGI Homeservices, (ii) the business prospects and strategy, anticipated trends and prospects of ANGI Homeservices, (iii) trends in the home services industry (iv) expected synergies and other benefits to be realized by ANGI Homeservices following the Combination and (v) other similar matters. These forward-looking statements are based on Company management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others: (i)our ability to compete, the possibility that the anticipated cost savings and other benefits of the Combination are not realized when expectedfailure or at all (including as a result of the impact of, or problems arising from, the integration of HomeAdvisor and Angie’s List, or as a result of changes in the economy and competitive factors in the areas in which they do business), (ii) diversion of management’s attention from ongoing business operations and opportunities as a result of the Combination, (iii) potential adverse reactions or changes to business or employee relationships (including those resulting from the Combination), (iv) the migrationdelay of the home services market to migrate online, (v)adverse economic events or trends (particularly those that adversely impact consumer confidence and spending behavior), our ability to establish and maintain relationships with quality service professionals, (vi) our ability to build, maintain andand/or enhance our various brands, (vii) our ability to attract and convert visitors tomarket our various websites into users and customers, (viii) our ability to offer new or alternative products and services in a successful and cost-effective manner, and consumerour continued ability to communicate with consumers and service professional acceptanceprofessionals via e-mail (or other sufficient means), our ability develop and monetize version of theseour products and services (ix)for mobile devices, the integrity, efficiency and scalability of our technology systems and infrastructures (and those of third parties), any challenge to the contractor classification or employment status of Handy service professionals, our ability to protect our systems, technology and infrastructure from cyberattacks and to protect personal and confidential user information, (x) the occurrence of data security breaches, fraud and/or additional regulation involving or impacting credit card payments, operational and financial risks relating to acquisitions, our ability to operate (and expand successfully intointo) international markets (xi) thesuccessfully, our ability to retainadequately protect our intellectual property rights and not infringe the intellectual property rights of third parties, changes in key personnel, (xii) the potential liability forincreased costs and strain on our management as a failureresult of operating as a new public company and various risks related to meet regulatory requirementsour relationship with IAC and (xiii) regulatory changes.our outstanding indebtedness. Certain of these and other risks and uncertainties are set forth and discussed under the caption "Risk Factors" in the proxy statement/prospectus dated August 30, 2017 filed by the Companyour filings with the SEC, pursuant to Rule 424(b)(3)including in Part I-Item 1A-Risk Factors of our Annual Report on Form 10-K for the Securities Act of 1933, as amended (the "Combination Prospectus").fiscal year ended December 31, 2018.
The Company did not purchase any shares of its common stock during the quarter ended SeptemberJune 30, 2017.2019. As of that date, 15,000,000 shares of ANGI Class A common stock remained available for repurchase under the Company's previously announced February 2019 repurchase authorization. The Company may repurchase shares pursuant to this repurchase authorization over an indefinite period of time in the open market and in privately negotiated transactions, depending on those factors ANGI management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.