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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Washington
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47-1645716
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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1301 Second Avenue, Floor 31, Seattle, Washington
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98101
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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x
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Accelerated filer
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☐
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Non-accelerated filer
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☐ (Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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•
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Zillow Group Investor Relations Webpage (http://investors.zillowgroup.com)
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•
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Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)
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•
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Zillow Group Twitter Account (https://twitter.com/zillowgroup)
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March 31,
2018 |
|
December 31,
2017 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
397,393
|
|
|
$
|
352,095
|
|
Short-term investments
|
425,593
|
|
|
410,444
|
|
||
Accounts receivable, net of allowance for doubtful accounts of $4,917 and $5,341 at March 31, 2018 and December 31, 2017, respectively
|
54,558
|
|
|
54,396
|
|
||
Prepaid expenses and other current assets
|
44,703
|
|
|
24,590
|
|
||
Total current assets
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922,247
|
|
|
841,525
|
|
||
Contract cost assets
|
42,465
|
|
|
—
|
|
||
Property and equipment, net
|
114,828
|
|
|
112,271
|
|
||
Goodwill
|
1,931,076
|
|
|
1,931,076
|
|
||
Intangible assets, net
|
307,919
|
|
|
319,711
|
|
||
Other assets
|
25,602
|
|
|
25,934
|
|
||
Total assets
|
$
|
3,344,137
|
|
|
$
|
3,230,517
|
|
Liabilities and shareholders’ equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
5,194
|
|
|
$
|
3,587
|
|
Accrued expenses and other current liabilities
|
55,034
|
|
|
61,373
|
|
||
Accrued compensation and benefits
|
22,746
|
|
|
19,109
|
|
||
Deferred revenue
|
35,297
|
|
|
31,918
|
|
||
Deferred rent, current portion
|
2,426
|
|
|
2,400
|
|
||
Total current liabilities
|
120,697
|
|
|
118,387
|
|
||
Deferred rent, net of current portion
|
18,214
|
|
|
21,330
|
|
||
Long-term debt
|
389,624
|
|
|
385,416
|
|
||
Deferred tax liabilities and other long-term liabilities
|
47,161
|
|
|
44,561
|
|
||
Total liabilities
|
575,696
|
|
|
569,694
|
|
||
Commitments and contingencies (Note 16)
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding
|
—
|
|
|
—
|
|
||
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 57,288,985 and 56,629,103 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
|
6
|
|
|
6
|
|
||
Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding as of March 31, 2018 and December 31, 2017
|
1
|
|
|
1
|
|
||
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 129,437,894 and 127,268,598 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
|
13
|
|
|
13
|
|
||
Additional paid-in capital
|
3,340,387
|
|
|
3,254,146
|
|
||
Accumulated other comprehensive loss
|
(1,454
|
)
|
|
(1,100
|
)
|
||
Accumulated deficit
|
(570,512
|
)
|
|
(592,243
|
)
|
||
Total shareholders’ equity
|
2,768,441
|
|
|
2,660,823
|
|
||
Total liabilities and shareholders’ equity
|
$
|
3,344,137
|
|
|
$
|
3,230,517
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Revenue
|
$
|
299,879
|
|
|
$
|
245,775
|
|
Costs and expenses:
|
|
|
|
||||
Cost of revenue (exclusive of amortization) (1)
|
23,919
|
|
|
20,232
|
|
||
Sales and marketing
|
137,291
|
|
|
105,940
|
|
||
Technology and development
|
93,933
|
|
|
72,868
|
|
||
General and administrative
|
56,073
|
|
|
45,466
|
|
||
Acquisition-related costs
|
27
|
|
|
105
|
|
||
Total costs and expenses
|
311,243
|
|
|
244,611
|
|
||
Income (loss) from operations
|
(11,364
|
)
|
|
1,164
|
|
||
Other income
|
2,446
|
|
|
953
|
|
||
Interest expense
|
(7,073
|
)
|
|
(6,723
|
)
|
||
Loss before income taxes
|
(15,991
|
)
|
|
(4,606
|
)
|
||
Income tax expense
|
(2,600
|
)
|
|
—
|
|
||
Net loss
|
$
|
(18,591
|
)
|
|
$
|
(4,606
|
)
|
Net loss per share — basic and diluted
|
$
|
(0.10
|
)
|
|
$
|
(0.03
|
)
|
Weighted-average shares outstanding — basic and diluted
|
191,464
|
|
|
183,158
|
|
||
____________________
(1) Amortization of website development costs and intangible assets included in technology and development
|
$
|
22,549
|
|
|
$
|
23,261
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Net loss
|
$
|
(18,591
|
)
|
|
$
|
(4,606
|
)
|
Other comprehensive loss:
|
|
|
|
||||
Unrealized losses on investments
|
(332
|
)
|
|
(25
|
)
|
||
Currency translation adjustments
|
(22
|
)
|
|
—
|
|
||
Total other comprehensive loss
|
(354
|
)
|
|
(25
|
)
|
||
Comprehensive loss
|
$
|
(18,945
|
)
|
|
$
|
(4,631
|
)
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Operating activities
|
|
|
|
||||
Net loss
|
$
|
(18,591
|
)
|
|
$
|
(4,606
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
26,906
|
|
|
27,135
|
|
||
Share-based compensation expense
|
30,741
|
|
|
26,395
|
|
||
Amortization of contract cost assets
|
9,296
|
|
|
—
|
|
||
Amortization of discount and issuance costs on 2021 Notes
|
4,708
|
|
|
4,353
|
|
||
Deferred income taxes
|
2,600
|
|
|
—
|
|
||
Loss on disposal of property and equipment
|
1,803
|
|
|
999
|
|
||
Bad debt expense
|
(267
|
)
|
|
718
|
|
||
Deferred rent
|
(3,090
|
)
|
|
190
|
|
||
Amortization of bond premium
|
(137
|
)
|
|
223
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
105
|
|
|
(2,059
|
)
|
||
Prepaid expenses and other assets
|
(19,923
|
)
|
|
4,737
|
|
||
Contract cost assets
|
(11,440
|
)
|
|
—
|
|
||
Accounts payable
|
1,672
|
|
|
53
|
|
||
Accrued expenses and other current liabilities
|
(6,747
|
)
|
|
4,683
|
|
||
Accrued compensation and benefits
|
3,637
|
|
|
2,539
|
|
||
Deferred revenue
|
3,379
|
|
|
1,598
|
|
||
Net cash provided by operating activities
|
24,652
|
|
|
66,958
|
|
||
Investing activities
|
|
|
|
||||
Proceeds from maturities of investments
|
61,386
|
|
|
49,107
|
|
||
Purchases of investments
|
(76,729
|
)
|
|
(84,008
|
)
|
||
Purchases of property and equipment
|
(15,791
|
)
|
|
(14,163
|
)
|
||
Purchases of intangible assets
|
(1,098
|
)
|
|
(5,308
|
)
|
||
Proceeds from divestiture of a business
|
—
|
|
|
579
|
|
||
Cash paid for acquisition, net
|
—
|
|
|
(6,002
|
)
|
||
Net cash used in investing activities
|
(32,232
|
)
|
|
(59,795
|
)
|
||
Financing activities
|
|
|
|
||||
Proceeds from exercise of stock options
|
52,906
|
|
|
11,006
|
|
||
Value of equity awards withheld for tax liability
|
(28
|
)
|
|
(237
|
)
|
||
Net cash provided by financing activities
|
52,878
|
|
|
10,769
|
|
||
Net increase in cash and cash equivalents during period
|
45,298
|
|
|
17,932
|
|
||
Cash and cash equivalents at beginning of period
|
352,095
|
|
|
243,592
|
|
||
Cash and cash equivalents at end of period
|
$
|
397,393
|
|
|
$
|
261,524
|
|
Supplemental disclosures of cash flow information
|
|
|
|
||||
Noncash transactions:
|
|
|
|
||||
Capitalized share-based compensation
|
$
|
2,120
|
|
|
$
|
2,868
|
|
Write-off of fully depreciated property and equipment
|
$
|
7,379
|
|
|
$
|
3,446
|
|
Write-off of fully amortized intangible assets
|
$
|
10,687
|
|
|
$
|
5,280
|
|
Computer equipment
|
2 to 3 years
|
Office equipment, furniture and fixtures
|
5 to 7 years
|
Leasehold improvements
|
Shorter of expected useful life or lease term
|
|
|
New Guidance
|
|
Prior Guidance
|
|
Change
|
||||||
Condensed Consolidated Statement of Operations:
|
|
|
|
|
|
|
||||||
Sales and marketing
|
|
$
|
137,291
|
|
|
$
|
139,434
|
|
|
$
|
(2,143
|
)
|
Total costs and expenses
|
|
311,243
|
|
|
313,386
|
|
|
(2,143
|
)
|
|||
Loss from operations
|
|
(11,364
|
)
|
|
(13,507
|
)
|
|
2,143
|
|
|||
Loss before income taxes
|
|
(15,991
|
)
|
|
(18,134
|
)
|
|
2,143
|
|
|||
Income tax expense
|
|
(2,600
|
)
|
|
(3,290
|
)
|
|
690
|
|
|||
Net loss
|
|
(18,591
|
)
|
|
(21,424
|
)
|
|
2,833
|
|
|||
Net loss per share - basic and diluted
|
|
(0.10
|
)
|
|
(0.11
|
)
|
|
0.01
|
|
|||
Condensed Consolidated Balance Sheet:
|
|
|
|
|
|
|
||||||
Contract cost assets
|
|
42,465
|
|
|
—
|
|
|
42,465
|
|
|||
Total assets
|
|
3,344,137
|
|
|
3,301,672
|
|
|
42,465
|
|
|||
Deferred tax liabilities and other long-term liabilities
|
|
47,161
|
|
|
47,851
|
|
|
(690
|
)
|
|||
Total liabilities
|
|
575,696
|
|
|
576,386
|
|
|
(690
|
)
|
|||
Accumulated deficit
|
|
(570,512
|
)
|
|
(613,667
|
)
|
|
43,155
|
|
|||
Total shareholders’ equity
|
|
2,768,441
|
|
|
2,725,286
|
|
|
43,155
|
|
|||
Total liabilities and shareholders’ equity
|
|
3,344,137
|
|
|
3,301,672
|
|
|
42,465
|
|
•
|
Level 1—Quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2—Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
|
|
March 31, 2018
|
||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
||||||
Cash equivalents:
|
|
|
|
|
|
||||||
Money market funds
|
$
|
233,712
|
|
|
$
|
233,712
|
|
|
$
|
—
|
|
Commercial paper
|
7,483
|
|
|
—
|
|
|
7,483
|
|
|||
U.S. government agency securities
|
3,999
|
|
|
—
|
|
|
3,999
|
|
|||
Certificates of deposit
|
249
|
|
|
—
|
|
|
249
|
|
|||
Short-term investments:
|
|
|
|
|
|
||||||
U.S. government agency securities
|
320,930
|
|
|
—
|
|
|
320,930
|
|
|||
Commercial paper
|
40,264
|
|
|
—
|
|
|
40,264
|
|
|||
Corporate notes and bonds
|
39,870
|
|
|
—
|
|
|
39,870
|
|
|||
Municipal securities
|
15,616
|
|
|
—
|
|
|
15,616
|
|
|||
Certificates of deposit
|
8,913
|
|
|
—
|
|
|
8,913
|
|
|||
Total
|
$
|
671,036
|
|
|
$
|
233,712
|
|
|
$
|
437,324
|
|
|
December 31, 2017
|
||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
||||||
Cash equivalents:
|
|
|
|
|
|
||||||
Money market funds
|
$
|
233,508
|
|
|
$
|
233,508
|
|
|
$
|
—
|
|
Corporate notes and bonds
|
6,199
|
|
|
—
|
|
|
6,199
|
|
|||
Commercial paper
|
3,987
|
|
|
—
|
|
|
3,987
|
|
|||
U.S. government agency securities
|
1,748
|
|
|
—
|
|
|
1,748
|
|
|||
Certificates of deposit
|
249
|
|
|
—
|
|
|
249
|
|
|||
Short-term investments:
|
|
|
|
|
|
||||||
U.S. government agency securities
|
298,758
|
|
|
—
|
|
|
298,758
|
|
|||
Corporate notes and bonds
|
44,607
|
|
|
—
|
|
|
44,607
|
|
|||
Commercial paper
|
39,325
|
|
|
—
|
|
|
39,325
|
|
|||
Municipal securities
|
11,459
|
|
|
—
|
|
|
11,459
|
|
|||
Certificates of deposit
|
10,297
|
|
|
—
|
|
|
10,297
|
|
|||
Foreign government securities
|
5,998
|
|
|
—
|
|
|
5,998
|
|
|||
Total
|
$
|
656,135
|
|
|
$
|
233,508
|
|
|
$
|
422,627
|
|
|
March 31, 2018
|
||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Market
Value
|
||||||||
Cash
|
$
|
151,950
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151,950
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
233,712
|
|
|
—
|
|
|
—
|
|
|
233,712
|
|
||||
Commercial paper
|
7,483
|
|
|
—
|
|
|
—
|
|
|
7,483
|
|
||||
U.S. government agency securities
|
3,999
|
|
|
—
|
|
|
—
|
|
|
3,999
|
|
||||
Certificates of deposit
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
U.S. government agency securities
|
322,244
|
|
|
—
|
|
|
(1,314
|
)
|
|
320,930
|
|
||||
Commercial paper
|
40,264
|
|
|
—
|
|
|
—
|
|
|
40,264
|
|
||||
Corporate notes and bonds
|
39,972
|
|
|
—
|
|
|
(102
|
)
|
|
39,870
|
|
||||
Municipal securities
|
15,677
|
|
|
—
|
|
|
(61
|
)
|
|
15,616
|
|
||||
Certificates of deposit
|
8,914
|
|
|
1
|
|
|
(2
|
)
|
|
8,913
|
|
||||
Total
|
$
|
824,464
|
|
|
$
|
1
|
|
|
$
|
(1,479
|
)
|
|
$
|
822,986
|
|
|
December 31, 2017
|
||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Market
Value
|
||||||||
Cash
|
$
|
106,404
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
106,404
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
233,508
|
|
|
—
|
|
|
—
|
|
|
233,508
|
|
||||
Corporate notes and bonds
|
6,200
|
|
|
—
|
|
|
(1
|
)
|
|
6,199
|
|
||||
Commercial paper
|
3,987
|
|
|
—
|
|
|
—
|
|
|
3,987
|
|
||||
U.S. government agency securities
|
1,748
|
|
|
—
|
|
|
—
|
|
|
1,748
|
|
||||
Certificates of deposit
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
U.S. government agency securities
|
299,814
|
|
|
—
|
|
|
(1,056
|
)
|
|
298,758
|
|
||||
Corporate notes and bonds
|
44,661
|
|
|
1
|
|
|
(55
|
)
|
|
44,607
|
|
||||
Commercial paper
|
39,325
|
|
|
—
|
|
|
—
|
|
|
39,325
|
|
||||
Municipal securities
|
11,494
|
|
|
—
|
|
|
(35
|
)
|
|
11,459
|
|
||||
Certificates of deposit
|
10,296
|
|
|
2
|
|
|
(1
|
)
|
|
10,297
|
|
||||
Foreign government securities
|
6,000
|
|
|
—
|
|
|
(2
|
)
|
|
5,998
|
|
||||
Total
|
$
|
763,686
|
|
|
$
|
3
|
|
|
$
|
(1,150
|
)
|
|
$
|
762,539
|
|
|
Amortized
Cost
|
|
Estimated Fair
Market Value
|
||||
Due in one year or less
|
$
|
341,729
|
|
|
$
|
340,800
|
|
Due after one year through two years
|
85,342
|
|
|
84,793
|
|
||
Total
|
$
|
427,071
|
|
|
$
|
425,593
|
|
Balance as of January 1, 2018
|
$
|
5,341
|
|
Bad debt expense
|
(267
|
)
|
|
Less: write-offs, net of recoveries and other adjustments
|
(157
|
)
|
|
Balance as of March 31, 2018
|
$
|
4,917
|
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Website development costs
|
$
|
137,479
|
|
|
$
|
130,072
|
|
Leasehold improvements
|
54,170
|
|
|
47,321
|
|
||
Computer equipment
|
28,267
|
|
|
30,071
|
|
||
Construction-in-progress
|
23,700
|
|
|
28,150
|
|
||
Office equipment, furniture and fixtures
|
23,406
|
|
|
22,887
|
|
||
Property and equipment
|
267,022
|
|
|
258,501
|
|
||
Less: accumulated amortization and depreciation
|
(152,194
|
)
|
|
(146,230
|
)
|
||
Property and equipment, net
|
$
|
114,828
|
|
|
$
|
112,271
|
|
|
March 31, 2018
|
||||||||||
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
||||||
Purchased content
|
$
|
35,395
|
|
|
$
|
(22,980
|
)
|
|
$
|
12,415
|
|
Software
|
19,496
|
|
|
(9,985
|
)
|
|
9,511
|
|
|||
Customer relationships
|
103,900
|
|
|
(50,038
|
)
|
|
53,862
|
|
|||
Developed technology
|
111,980
|
|
|
(60,010
|
)
|
|
51,970
|
|
|||
Trade names and trademarks
|
4,900
|
|
|
(4,208
|
)
|
|
692
|
|
|||
Intangibles-in-progress
|
2,469
|
|
|
—
|
|
|
2,469
|
|
|||
Total
|
$
|
278,140
|
|
|
$
|
(147,221
|
)
|
|
$
|
130,919
|
|
|
December 31, 2017
|
||||||||||
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
||||||
Purchased content
|
$
|
35,260
|
|
|
$
|
(20,480
|
)
|
|
$
|
14,780
|
|
Software
|
18,957
|
|
|
(8,899
|
)
|
|
10,058
|
|
|||
Customer relationships
|
103,900
|
|
|
(46,365
|
)
|
|
57,535
|
|
|||
Developed technology
|
113,380
|
|
|
(56,664
|
)
|
|
56,716
|
|
|||
Trade names and trademarks
|
4,900
|
|
|
(3,943
|
)
|
|
957
|
|
|||
Advertising relationships
|
9,000
|
|
|
(8,525
|
)
|
|
475
|
|
|||
Intangibles-in-progress
|
2,190
|
|
|
—
|
|
|
2,190
|
|
|||
Total
|
$
|
287,587
|
|
|
$
|
(144,876
|
)
|
|
$
|
142,711
|
|
Balance as of January 1, 2018
|
$
|
31,918
|
|
Deferral of revenue
|
238,121
|
|
|
Less: Revenue recognized
|
(234,742
|
)
|
|
Balance as of March 31, 2018
|
$
|
35,297
|
|
|
Outstanding
Principal
Amount
|
|
Unamortized
Debt Discount
and Debt
Issuance Costs
|
|
Carrying
Value
|
||||||
March 31, 2018
|
$
|
460,000
|
|
|
$
|
(80,013
|
)
|
|
$
|
379,987
|
|
December 31, 2017
|
$
|
460,000
|
|
|
$
|
(84,721
|
)
|
|
$
|
375,279
|
|
|
Three Months Ended
March 31, |
||
|
2018
|
|
2017
|
Expected volatility
|
43%-45%
|
|
48%-49%
|
Expected dividend yield
|
—
|
|
—
|
Risk-free interest rate
|
2.52%-2.65%
|
|
1.75%-1.84%
|
Weighted-average expected life
|
4.50-5.00 years
|
|
4.25-4.75 years
|
Weighted-average fair value of options granted
|
$20.88
|
|
$14.21
|
|
Restricted
Stock Units
|
|
Weighted-
Average Grant-
Date Fair
Value
|
|||
Unvested outstanding at January 1, 2018
|
4,016,405
|
|
|
$
|
33.22
|
|
Granted
|
1,916,215
|
|
|
52.90
|
|
|
Vested
|
(394,844
|
)
|
|
31.60
|
|
|
Forfeited or cancelled
|
(191,376
|
)
|
|
36.70
|
|
|
Unvested outstanding at March 31, 2018
|
5,346,400
|
|
|
40.29
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Cost of revenue
|
$
|
955
|
|
|
$
|
903
|
|
Sales and marketing
|
5,162
|
|
|
5,530
|
|
||
Technology and development
|
11,542
|
|
|
8,491
|
|
||
General and administrative
|
13,082
|
|
|
11,471
|
|
||
Total
|
$
|
30,741
|
|
|
$
|
26,395
|
|
|
Three Months Ended
March 31, |
||||
|
2018
|
|
2017
|
||
Weighted-average Class A common stock and Class C capital stock option awards outstanding
|
25,222
|
|
|
27,994
|
|
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding
|
4,346
|
|
|
4,042
|
|
Class A common stock issuable upon conversion of the 2020 Notes
|
403
|
|
|
444
|
|
Class C capital stock issuable related to conversion spread on the 2021 Notes
|
235
|
|
|
—
|
|
Total Class A common stock and Class C capital stock equivalents
|
30,206
|
|
|
32,480
|
|
2018
|
$
|
—
|
|
2019
|
764
|
|
|
2020
|
2,318
|
|
|
2021
|
2,397
|
|
|
2022
|
2,477
|
|
|
All future years
|
5,190
|
|
|
Total future minimum lease payments
|
$
|
13,146
|
|
|
Three Months Ended
March 31, |
|
2017 to 2018
% Change
|
|||||
|
2018
|
|
2017
|
|
||||
|
(in millions)
|
|
|
|||||
Average Monthly Unique Users
|
175.5
|
|
|
166.6
|
|
|
5
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
|
(in thousands, except per share data, unaudited)
|
||||||
Statements of Operations Data:
|
|
|
|
||||
Revenue
|
$
|
299,879
|
|
|
$
|
245,775
|
|
Costs and expenses:
|
|
|
|
||||
Cost of revenue (exclusive of amortization) (1)(2)
|
23,919
|
|
|
20,232
|
|
||
Sales and marketing (1)
|
137,291
|
|
|
105,940
|
|
||
Technology and development (1)
|
93,933
|
|
|
72,868
|
|
||
General and administrative (1)
|
56,073
|
|
|
45,466
|
|
||
Acquisition-related costs
|
27
|
|
|
105
|
|
||
Total costs and expenses
|
311,243
|
|
|
244,611
|
|
||
Income (loss) from operations
|
(11,364
|
)
|
|
1,164
|
|
||
Other income
|
2,446
|
|
|
953
|
|
||
Interest expense
|
(7,073
|
)
|
|
(6,723
|
)
|
||
Loss before income taxes
|
(15,991
|
)
|
|
(4,606
|
)
|
||
Income tax expense
|
(2,600
|
)
|
|
—
|
|
||
Net loss
|
$
|
(18,591
|
)
|
|
$
|
(4,606
|
)
|
Net loss per share — basic and diluted
|
$
|
(0.10
|
)
|
|
$
|
(0.03
|
)
|
Weighted-average shares outstanding — basic and diluted
|
191,464
|
|
|
183,158
|
|
||
Other Financial Data:
|
|
|
|
||||
Adjusted EBITDA (3)
|
$
|
46,310
|
|
|
$
|
54,799
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
|
(in thousands, unaudited)
|
||||||
(1) Includes share-based compensation as follows:
|
|
|
|
||||
Cost of revenue
|
$
|
955
|
|
|
$
|
903
|
|
Sales and marketing
|
5,162
|
|
|
5,530
|
|
||
Technology and development
|
11,542
|
|
|
8,491
|
|
||
General and administrative
|
13,082
|
|
|
11,471
|
|
||
Total
|
$
|
30,741
|
|
|
$
|
26,395
|
|
(2) Amortization of website development costs and intangible assets included in technology and development
|
$
|
22,549
|
|
|
$
|
23,261
|
|
(3) See “Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.
|
•
|
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
|
•
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
•
|
Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
|
•
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
|
•
|
Adjusted EBITDA does not reflect acquisition-related costs;
|
•
|
Adjusted EBITDA does not reflect interest expense or other income;
|
•
|
Adjusted EBITDA does not reflect income taxes; and
|
•
|
Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
|
(in thousands, unaudited)
|
||||||
Reconciliation of Adjusted EBITDA to Net Loss:
|
|
|
|
||||
Net loss
|
$
|
(18,591
|
)
|
|
$
|
(4,606
|
)
|
Other income
|
(2,446
|
)
|
|
(953
|
)
|
||
Depreciation and amortization expense
|
26,906
|
|
|
27,135
|
|
||
Share-based compensation expense
|
30,741
|
|
|
26,395
|
|
||
Acquisition-related costs
|
27
|
|
|
105
|
|
||
Interest expense
|
7,073
|
|
|
6,723
|
|
||
Income tax expense
|
2,600
|
|
|
—
|
|
||
Adjusted EBITDA
|
$
|
46,310
|
|
|
$
|
54,799
|
|
|
Three Months Ended
March 31, |
||||
|
2018
|
|
2017
|
||
|
(unaudited)
|
||||
Percentage of Total Revenue:
|
|
|
|
||
Premier Agent
|
71
|
%
|
|
71
|
%
|
Rentals
|
10
|
|
|
9
|
|
Mortgages
|
6
|
|
|
8
|
|
Other
|
13
|
|
|
12
|
|
Total revenue
|
100
|
%
|
|
100
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
|
(in thousands, unaudited)
|
||||||
Cash Flow Data:
|
|
|
|
||||
Net cash provided by operating activities
|
$
|
24,652
|
|
|
$
|
66,958
|
|
Net cash used in investing activities
|
(32,232
|
)
|
|
(59,795
|
)
|
||
Net cash provided by financing activities
|
52,878
|
|
|
10,769
|
|
•
|
increase the number of consumers who use our products and services, provide them with tools to promote engagement between real estate market participants, and enhance their user experience so we can retain them;
|
•
|
offer an attractive return on investment to our advertisers for their advertising spending with us;
|
•
|
continue to develop our advertising products and services to increase adoption by and engagement with advertising customers;
|
•
|
keep pace with and anticipate changes in technology to provide industry-leading products and services to advertisers and consumers; and
|
•
|
compete effectively for advertising dollars with other online media companies.
|
•
|
diversion of management time and focus from operating our business to acquisition integration challenges;
|
•
|
consumer and industry acceptance of products and services offered by the acquired company;
|
•
|
implementation or remediation of controls, procedures and policies at the acquired company;
|
•
|
coordination of product, engineering and sales and marketing functions;
|
•
|
retention of employees from the acquired company;
|
•
|
liability for activities of the acquired company before the acquisition;
|
•
|
litigation or other claims arising in connection with the acquired company; and
|
•
|
impairment charges associated with goodwill and other acquired intangible assets.
|
•
|
product development;
|
•
|
sales and marketing;
|
•
|
technology infrastructure;
|
•
|
strategic opportunities, including commercial relationships and acquisitions; and
|
•
|
general and administrative expenses, including legal and accounting expenses related to being a public company.
|
•
|
actual or anticipated fluctuations in our financial condition and results of operations;
|
•
|
changes in projected operational and financial results;
|
•
|
addition or loss of significant customers;
|
•
|
actual or anticipated changes in our growth rate relative to that of our competitors;
|
•
|
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;
|
•
|
announcements of technological innovations or new offerings by us or our competitors;
|
•
|
additions or departures of key personnel;
|
•
|
changes in laws or regulations applicable to our services;
|
•
|
fluctuations in the valuation of companies perceived by investors to be comparable to us;
|
•
|
the inclusion, exclusion, or deletion of our Class A common stock and Class C capital stock from any trading indices, such as the S&P 500 Index;
|
•
|
issuance of new or updated research or reports by securities analysts;
|
•
|
sales of our Class A common stock and Class C capital stock by us or our shareholders;
|
•
|
issuances of our Class A common stock upon conversion of the 2020 Notes and issuances of our Class C capital stock upon conversion of our 2021 Notes;
|
•
|
stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
|
•
|
general economic and market conditions.
|
•
|
set forth the structure of our capital stock, which concentrates voting control of matters submitted to a vote of our shareholders with the holders of our Class B common stock, which is held or controlled by our founders;
|
•
|
authorize our board of directors to issue, without further action by our shareholders, up to 30,000,000 shares of undesignated preferred stock, subject, prior to the threshold date, to the approval rights of the holders of our Class B common stock;
|
•
|
establish that our board of directors will be divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms;
|
•
|
prohibit cumulative voting in the election of directors;
|
•
|
provide that, after the threshold date, our directors may be removed only for cause;
|
•
|
provide that, after the threshold date, vacancies on our board of directors may be filled only by the affirmative vote of a majority of directors then in office or by the sole remaining director;
|
•
|
provide that only our board of directors may change the board’s size;
|
•
|
specify that special meetings of our shareholders can be called only by the chair of our board of directors, our board of directors, our chief executive officer, our president or, prior to the threshold date, holders of at least 25% of all the votes entitled to be cast on any issue proposed to be considered at any such special meeting;
|
•
|
establish an advance notice procedure for shareholder proposals to be brought before a meeting of shareholders, including proposed nominations of persons for election to our board of directors;
|
•
|
require the approval of our board of directors or the holders of at least two-thirds of all the votes entitled to be cast by shareholders generally in the election of directors, voting together as a single group, to amend or repeal our bylaws; and
|
•
|
require the approval of not less than two-thirds of all the votes entitled to be cast on a proposed amendment, voting together as a single group, to amend certain provisions of our articles of incorporation.
|
Exhibit
Number
|
|
Description
|
|
|
|
10.1*
|
|
|
|
|
|
31.1
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31.2
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32.1
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32.2
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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*
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Indicates a management contract or compensatory plan or arrangement.
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Dated:
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May 8, 2018
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ZILLOW GROUP, INC.
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By:
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/s/ K
ATHLEEN
P
HILIPS
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Name:
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Kathleen Philips
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Title:
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Chief Financial Officer, Chief Legal Officer, and Secretary
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Signature
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FULL NAME (print or type)
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By
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Its
Chief Operating Officer
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Title
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Date
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Identifying Number
or Brief Description
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Signature of Employee:
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Print Name of Employee:
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Date:
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Signature of Employee:
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Print Name of Employee:
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Date:
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Signature of Employee:
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Print Name of Employee:
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Date:
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1.
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I have reviewed this report on Form 10-Q of Zillow Group, Inc. for the fiscal quarter ended
March 31, 2018
;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ S
PENCER
M. R
ASCOFF
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Name:
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Spencer M. Rascoff
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Title:
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Chief Executive Officer
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Date:
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May 8, 2018
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1.
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I have reviewed this report on Form 10-Q of Zillow Group, Inc. for the fiscal quarter ended
March 31, 2018
;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ K
ATHLEEN
P
HILIPS
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Name:
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Kathleen Philips
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Title:
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Chief Financial Officer, Chief Legal Officer, and Secretary
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Date:
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May 8, 2018
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ S
PENCER
M. R
ASCOFF
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Name:
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Spencer M. Rascoff
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Title:
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Chief Executive Officer
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Date:
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May 8, 2018
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ K
ATHLEEN
P
HILIPS
|
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Name:
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Kathleen Philips
|
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Title:
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Chief Financial Officer, Chief Legal Officer, and Secretary
|
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Date:
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May 8, 2018
|