NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
ANGI Homeservices Inc. connects millions of homeowners to home service professionals through its portfolio of digital home service brands, including HomeAdvisor® and Angie’s List®. Combined, these leading marketplaces allow homeowners to match, research, and connect on-demand to the largest network of service professionals either online, through our mobile apps, or by voice assistants. The network of service professionals across our platforms is supported by
15 million
consumer reviews submitted on hundreds of thousands of service professionals, collected over the course of
20 years
. ANGI Homeservices owns and operates brands in eight countries.
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, 2018
, IAC owned
86.4%
and
98.5%
of the economic and voting interest, respectively, of ANGI Homeservices.
The Company has
two
operating segments: (i) North America, which primarily includes HomeAdvisor, Angie's List, mHelpDesk and HomeStars, and (ii) Europe, which includes Travaux.com, MyHammer, MyBuilder, Werkspot and Instapro.
All references to "ANGI Homeservices," the "Company," "ANGI," "we," "our" or "us" in this report are to ANGI Homeservices Inc.
Basis of Presentation and Consolidation
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 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.
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. However, the allocations may not reflect the expenses that the Company may have incurred as a standalone public company for the periods presented. 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 between and among the Company and its subsidiaries have been eliminated. All intercompany transactions between (i) ANGI Homeservices and (ii) IAC and its subsidiaries, with the exception of a promissory note payable to a foreign subsidiary of IAC, are considered to be effectively settled for cash at the time the transaction is recorded. The promissory note payable to a foreign subsidiary of IAC is included in “Long-term debt—related party” in the accompanying consolidated balance sheet. See "
Note 11—Related Party Transactions with IAC
" for additional information on transactions between ANGI Homeservices and IAC.
In the opinion of management, the assumptions underlying the historical consolidated and combined financial statements, including the basis on which certain corporate expenses have been allocated from IAC, are reasonable and the unaudited interim consolidated and combined financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim consolidated and combined financial statements should be read in conjunction with the audited consolidated and
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
combined financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
Accounting Estimates
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 recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; unrecognized tax benefits; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Recent accounting pronouncements
Accounting Pronouncements 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
. ASU No. 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP. The Company adopted ASU No. 2014-09 effective January 1, 2018 using the modified retrospective transition method for open contracts as of the date of initial application. The effect of the adoption of ASU No. 2014-09 is that commissions paid to employees pursuant to certain sales incentive programs, which represent the incremental direct costs of obtaining a service professional contract, are now capitalized and amortized over the estimated life of a service professional (also referred to as the estimated customer relationship period). These costs were expensed as incurred prior to January 1, 2018. The cumulative effect of the adoption of ASU No. 2014-09 was the establishment of a current and non-current asset for capitalized sales commissions of
$29.7 million
and
$4.2 million
, respectively, and a related deferred tax liability of
$8.3 million
, resulting in a net increase to retained earnings of
$25.6 million
on January 1, 2018.
The adoption of ASU No. 2014-09 is expected to reduce sales commissions expense for the year ending December 31, 2018 by approximately
$10.0 million
. See "
Note 2—Revenue Recognition
" for additional information on the impact to the Company.
The following tables present the impact of the adoption of ASU No. 2014-09 by segment under Accounting Standards Codification ("ASC") 606,
Revenue from Contracts with Customers
, as reported, and ASC 605,
Revenue Recognition
, for the
three and six months ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
(In thousands)
|
Revenue by segment:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
277,505
|
|
|
$
|
277,505
|
|
|
$
|
—
|
|
|
$
|
513,531
|
|
|
$
|
513,531
|
|
|
$
|
—
|
|
Europe
|
17,317
|
|
|
17,317
|
|
|
—
|
|
|
36,602
|
|
|
36,602
|
|
|
—
|
|
Total
|
$
|
294,822
|
|
|
$
|
294,822
|
|
|
$
|
—
|
|
|
$
|
550,133
|
|
|
$
|
550,133
|
|
|
$
|
—
|
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
(In thousands)
|
Operating costs and expenses by segment:
|
|
|
|
|
|
|
|
|
North America
|
$
|
251,395
|
|
|
$
|
253,460
|
|
|
$
|
(2,065
|
)
|
|
$
|
492,786
|
|
|
$
|
500,891
|
|
|
$
|
(8,105
|
)
|
Europe
|
20,165
|
|
|
20,218
|
|
|
(53
|
)
|
|
44,841
|
|
|
44,947
|
|
|
(106
|
)
|
Total
|
$
|
271,560
|
|
|
$
|
273,678
|
|
|
$
|
(2,118
|
)
|
|
$
|
537,627
|
|
|
$
|
545,838
|
|
|
$
|
(8,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
(In thousands)
|
Operating income (loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
26,110
|
|
|
$
|
24,045
|
|
|
$
|
2,065
|
|
|
$
|
20,745
|
|
|
$
|
12,640
|
|
|
$
|
8,105
|
|
Europe
|
(2,848
|
)
|
|
(2,901
|
)
|
|
53
|
|
|
(8,239
|
)
|
|
(8,345
|
)
|
|
106
|
|
Total
|
$
|
23,262
|
|
|
$
|
21,144
|
|
|
$
|
2,118
|
|
|
$
|
12,506
|
|
|
$
|
4,295
|
|
|
$
|
8,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
Under ASC 606
(as reported)
|
|
Under ASC 605
|
|
Effect of adoption of ASU No. 2014-09
|
|
(In thousands)
|
Net earnings
|
$
|
23,023
|
|
|
$
|
21,445
|
|
|
$
|
1,578
|
|
|
$
|
13,909
|
|
|
$
|
7,731
|
|
|
$
|
6,178
|
|
In November 2016, the FASB issued ASU No. 2016-18,
Restricted Cash
, which requires companies to explain the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Therefore, amounts generally described as restricted cash or restricted cash equivalents are combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. ASU No. 2016-18 also requires companies to disclose the nature of their restricted cash and restricted cash equivalents balances. Additionally, when cash, cash equivalents, restricted cash, and restricted cash equivalents are presented within different captions on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. ASU No. 2016-18 is effective for reporting periods beginning after December 15, 2017. The Company's adoption of ASU No. 2016-18 effective January 1, 2018, on a retrospective basis, did not have a material effect on its consolidated and combined financial statements.
The only restricted cash held by the Company was
$10.6 million
at December 31, 2016, which was included in "Other assets" in the combined balance sheet and is now included in the beginning of the period balance in the statement of cash flows for the six months ended June 30, 2017. The restricted cash at December 31, 2016 comprised funds held in escrow for the MyHammer tender offer, which were returned to the Company in the first quarter of 2017.
Accounting Pronouncement not yet adopted by the Company
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which supersedes 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 provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11, which provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the adoption date and recognize a cumulative-effect
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to implement the transition method option provided by ASU No. 2018-11. The Company will adopt the new lease guidance effective January 1, 2019.
The Company is not a lessor, has no capitalized leases and does not expect to enter into any capitalized leases prior to the adoption of ASU No. 2016-02. Accordingly, the Company does not expect the amount or classification of rent expense in its statement of operations to be affected by the adoption of ASU No. 2016-02. The primary effect of the adoption of ASU No. 2016-02 will be the recognition of a right of use asset and related liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to provide the additional disclosures stipulated in ASU No. 2016-02.
The adoption of ASU No. 2016-02 will not have an impact on the leverage calculation set forth in the Company's term loan facility because the leverage calculation is not affected by the liability that will be recorded upon adoption of the new standard.
While the Company's evaluation of the impact of the adoption of ASU No. 2016-02 on its consolidated financial statements continues, outlined below is a summary of the status of the Company's progress:
|
|
•
|
the Company has selected a software package to assist in the determination of the right of use asset and related liability as of January 1, 2019 and to provide the required information following the adoption;
|
|
|
•
|
the Company has prepared summaries of its leases for input into the software package;
|
|
|
•
|
the Company is assessing the other inputs required in connection with the adoption of ASU No. 2016-02; and
|
|
|
•
|
the Company is developing its accounting policy, procedures and controls related to the new standard.
|
The Company does not expect to have a preliminary estimate of the right of use asset and related liability as of the adoption date until the fourth quarter of 2018.
NOTE 2—REVENUE RECOGNITION
General Revenue Recognition
The Company accounts for a contract when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services or goods is transferred to our customers, and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods.
Revenue is primarily derived from (i) consumer connection revenue, which comprises fees paid by service professionals for consumer matches (regardless of whether the professional ultimately provides the requested service), and (ii) membership subscription fees paid by service professionals. Consumer connection revenue varies based upon several factors, including the service requested, type of match and geographic location of service. The Company’s consumer connection revenue is generated and recognized when an in-network service professional is delivered a consumer match. Membership subscription revenue from service professionals is initially deferred and is recognized using the straight-line method over the applicable subscription period, which is typically one year. Consumer connection revenue is generally billed one week following a consumer match; with payment due upon receipt of invoice.
Revenue is also derived from Angie's List (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers. Angie's List service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. Angie's List website, mobile and call center advertising revenue is recognized ratably over the contract term. Revenue from the sale of advertising in the
Angie’s List Magazine
is recognized in the period in which the publication is distributed. Angie's List prepaid consumer membership subscription fees are recognized as revenue using the straight-line method over the term of the applicable subscription period, which is typically one year.
Transaction Price
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
The Company excludes from the measurement of transaction price all taxes
assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included
as a component of net revenue or cost of revenue.
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under ASU No. 2014-09 applicable to such contracts and does not consider the time value of money.
Accounts Receivables, net of allowance for doubtful accounts and revenue reserves
Accounts receivable include amounts billed and currently due from customers. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivables that will not be collected. The allowance for doubtful accounts is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history and the specific customer’s ability to pay its obligation to the Company. The term between the Company issuance of and invoice and payment due date is not significant. The Company also maintains allowances to reserve for potential credits issued to service professionals or other revenue adjustments. The amounts of these reserves are based primarily upon historical experience.
Deferred Revenue
Deferred revenue consists of payments that are received or due in advance of the Company's performance. The Company’s liabilities are reported on a contract by contract basis at the end of each reporting period. The Company generally classifies deferred revenue as current when the term of the applicable subscription period or expected completion of our performance obligation is one year or less. The deferred revenue balance as of January 1, 2018 is
$64.1 million
. During the
three months ended
June 30, 2018
, the Company recognized
$41.0 million
of revenue that was included in the deferred revenue balance as of April 1, 2018. During the
six months ended
June 30, 2018
, the Company recognized
$54.1 million
of revenue that was included in the deferred revenue balance as of January 1, 2018. The current and non-current deferred revenue balances at
June 30, 2018
are
$69.4 million
and
$1.0 million
, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or based on an estimate if not directly observable.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs, meet the requirements to be capitalized as a cost of obtaining a contract. Capitalized sales commissions are amortized over the estimated customer relationship period. The Company calculates the estimated customer relationship period as the average customer life, which is based on historical data. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred.
During the
three and six months ended
June 30, 2018
, the Company recognized expense of
$12.5 million
and
$23.7 million
, respectively, related to the amortization of these costs. The contract asset balance at
June 30, 2018
is
$42.1 million
.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Performance Obligations
As permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.
NOTE 3—INCOME TAXES
ANGI Homeservices is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, current and deferred income tax benefit and provision have been computed for the Company on an as if standalone, separate return basis. ANGI Homeservices’ payments to IAC for its share of IAC’s consolidated federal and state tax return liabilities have been reflected within cash flows from operating activities in the accompanying consolidated and combined statement of cash flows. The 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 agreement and the current tax provision computed on an as if standalone, separate return basis are reflected as adjustments to additional paid-in capital.
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of 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 six months ended
June 30, 2018
, the Company recorded an income tax benefit, despite pre-tax income, of
$1.8 million
and
$5.7 million
, respectively, due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards. For the
three and six months ended
June 30, 2017
, the Company recorded an income tax benefit of
$4.4 million
and
$30.2 million
, respectively, due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from
35%
to
21%
and a new minimum tax on global intangible low-taxed income earned by foreign subsidiaries. While the Company was able to make a reasonable estimate of the impacts of the Tax Act, certain amounts are provisional as the Company gathers additional data. Any adjustment of the Company’s provisional tax expense will be reflected as a change in estimate in its results in the period in which the change in estimate is made in accordance with Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
, which is also included in the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
, which was issued and adopted by the Company in March 2018. In addition, our estimates may also be impacted and adjusted as the law is clarified and additional guidance is issued at the federal and state levels. No adjustment was made in the
three and six months ended
June 30, 2018
to the Company’s previously recorded provisional tax expense.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Accruals for interest and penalties are not material.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC’s federal income tax returns for the years ended December 31, 2010 through 2016, which includes the operations of the HomeAdvisor business. The statute of limitations for the years 2010 through 2012 has been extended to June 30, 2019, and the statute of limitations for the years 2013 and 2014 has been extended to March 31, 2019. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
At
June 30, 2018
and
December 31, 2017
, unrecognized tax benefits, including interest, are
$1.7 million
and
$1.5 million
, respectively, for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at
June 30, 2018
are subsequently recognized, income tax provision would be reduced by
$1.6 million
. The comparable amount as of
December 31, 2017
is
$1.5 million
.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. As of
June 30, 2018
, the Company has a gross deferred tax asset of
$85.1 million
that the Company expects to fully utilize on a more likely than not basis.
NOTE 4—BUSINESS COMBINATIONS
Angie's List Combination
Through the Combination, the Company acquired
100%
of the common stock of Angie's List on
September 29, 2017
for a total purchase price valued at
$781.4 million
.
HomeStars Acquisition
The Company acquired a
90%
voting interest in HomeStars on February 8, 2017. The purchase price was
$16.6
CAD million (or
$12.7 million
) in cash. 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
).
MyBuilder Acquisition
The Company acquired a
75%
voting interest in MyBuilder Limited on March 24, 2017. The purchase price was
£32.6 million
(or
$40.7 million
) in cash. 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
).
MyHammer Acquisition
On November 3, 2016, the Company acquired a
70%
voting interest in MyHammer. The purchase price was
€17.7 million
(or
$19.7 million
) in cash. 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
). At
June 30, 2018
, the Company's ownership stake in MyHammer is approximately
83%
.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Unaudited 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 MyHammer as if these acquisitions had occurred on January 1, 2016. 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 acquisitions actually occurred on January 1, 2016. For the
three and six months ended
June 30, 2017
, pro forma adjustments include increases in stock-based compensation expense of
$11.6 million
and
$26.3 million
, respectively, and amortization of intangibles of
$10.9 million
and
$23.2 million
, respectively.
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Six Months Ended June 30, 2017
|
|
(In thousands, except per share data)
|
Revenue
|
$
|
253,222
|
|
|
$
|
479,920
|
|
Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
|
$
|
(9,454
|
)
|
|
$
|
7,066
|
|
Basic (loss) earnings per share attributable to ANGI Homeservices Inc. shareholders
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
Diluted (loss) earnings per share attributable to ANGI Homeservices Inc. shareholders
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
NOTE 5—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
|
|
•
|
Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
|
|
|
•
|
Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
|
|
|
•
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
$
|
243,357
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,357
|
|
Certificates of deposit
|
—
|
|
|
960
|
|
|
—
|
|
|
960
|
|
Total
|
$
|
243,357
|
|
|
$
|
960
|
|
|
$
|
—
|
|
|
$
|
244,317
|
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
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
|
$
|
189,207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
189,207
|
|
Treasury discount notes
|
500
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Certificates of deposit
|
—
|
|
|
6,195
|
|
|
—
|
|
|
6,195
|
|
Total
|
$
|
189,707
|
|
|
$
|
6,195
|
|
|
$
|
—
|
|
|
$
|
195,902
|
|
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
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Carrying value
|
|
Fair value
|
|
Carrying value
|
|
Fair value
|
|
(In thousands)
|
Current portion of long term debt
|
$
|
(13,750
|
)
|
|
$
|
(13,613
|
)
|
|
$
|
(13,750
|
)
|
|
$
|
(13,802
|
)
|
Long-term debt, net
|
(251,740
|
)
|
|
(251,831
|
)
|
|
(258,312
|
)
|
|
(262,230
|
)
|
Current portion of long-term debt—related party
|
—
|
|
|
—
|
|
|
(816
|
)
|
|
(837
|
)
|
Long-term debt—related party, net
|
(1,576
|
)
|
|
(1,743
|
)
|
|
(1,997
|
)
|
|
(2,048
|
)
|
The fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs. The fair value of long-term debt—related party, including the current portion, is based on Level 3 inputs and is estimated by discounting the future cash flows based on current market conditions.
NOTE 6—LONG-TERM DEBT
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Term Loan due November 1, 2022
|
$
|
268,125
|
|
|
$
|
275,000
|
|
Less: current portion of Term Loan
|
13,750
|
|
|
13,750
|
|
Less: unamortized debt issuance costs
|
2,635
|
|
|
2,938
|
|
Total long-term debt, net
|
$
|
251,740
|
|
|
$
|
258,312
|
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
At
June 30, 2018
and
December 31, 2017
, the outstanding balance of the five-year term loan facility ("Term Loan") was
$268.1 million
and
$275.0 million
respectively. The Term Loan bears interest at LIBOR plus
2.00%
, which is subject to change in future periods based on the Company's consolidated net leverage ratio, and was
4.36%
and
3.38%
at
June 30, 2018
and
December 31, 2017
respectively. Interest payments are due at least quarterly through the term of the loan and quarterly principal payments of
1.25%
of the original principal amount in the first three years,
2.5%
in the fourth year and
3.75%
in the fifth year are required.
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
2.5
to 1.0 (in each case as defined in the credit agreement). 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. The Term Loan is guaranteed by the Company's wholly-owned material domestic subsidiaries and is secured by substantially all assets of the Company and the guarantors, subject to certain exceptions.
NOTE 7—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the
three and six months ended
June 30, 2018
and
2017
, the Company's accumulated other comprehensive income (loss) relates to foreign currency translation adjustments, which is presented in the table below.
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Balance at April 1
|
$
|
6,224
|
|
|
$
|
(560
|
)
|
Other comprehensive (loss) income before reclassifications
|
(4,942
|
)
|
|
330
|
|
Amounts reclassified to earnings
|
(191
|
)
|
|
—
|
|
Net current period other comprehensive (loss) income
|
(5,133
|
)
|
|
330
|
|
Balance at June 30
|
$
|
1,091
|
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Balance at January 1
|
$
|
2,232
|
|
|
$
|
(1,721
|
)
|
Other comprehensive (loss) income before reclassifications
|
(1,089
|
)
|
|
1,491
|
|
Amounts reclassified to earnings
|
(52
|
)
|
|
—
|
|
Net current period other comprehensive (loss) income
|
(1,141
|
)
|
|
1,491
|
|
Balance at June 30
|
$
|
1,091
|
|
|
$
|
(230
|
)
|
The amount reclassified out of accumulated other comprehensive income into earnings for both the
three and six months ended
June 30, 2018
relates to the liquidation of an international subsidiary.
At
June 30, 2018
and
2017
, there was
no
tax benefit or provision on the accumulated other comprehensive income (loss).
NOTE 8—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share attributable to ANGI Homeservices shareholders:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
(In thousands, except per share data)
|
Numerator:
|
|
|
|
|
|
|
|
Net earnings (loss)
|
$
|
23,023
|
|
|
$
|
23,023
|
|
|
$
|
(25
|
)
|
|
$
|
(25
|
)
|
Net (earnings) loss attributable to noncontrolling interests
|
(124
|
)
|
|
(124
|
)
|
|
279
|
|
|
279
|
|
Net earnings attributable to ANGI Homeservices Inc. shareholders
|
$
|
22,899
|
|
|
$
|
22,899
|
|
|
$
|
254
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
480,618
|
|
|
480,618
|
|
|
414,754
|
|
|
414,754
|
|
Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards
(a)(b)
|
—
|
|
|
28,145
|
|
|
—
|
|
|
—
|
|
Denominator for earnings per share—weighted average shares
(c)
|
480,618
|
|
|
508,763
|
|
|
414,754
|
|
|
414,754
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to ANGI Homeservices Inc. shareholders:
|
|
|
|
|
Earnings per share
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
(In thousands, except per share data)
|
Numerator:
|
|
|
|
|
|
|
|
Net earnings
|
$
|
13,909
|
|
|
$
|
13,909
|
|
|
$
|
25,862
|
|
|
$
|
25,862
|
|
Net loss attributable to noncontrolling interests
|
105
|
|
|
105
|
|
|
1,005
|
|
|
1,005
|
|
Net earnings attributable to ANGI Homeservices Inc. shareholders
|
$
|
14,014
|
|
|
$
|
14,014
|
|
|
$
|
26,867
|
|
|
$
|
26,867
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
479,470
|
|
|
479,470
|
|
|
414,754
|
|
|
414,754
|
|
Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards
(a)(b)
|
—
|
|
|
27,544
|
|
|
—
|
|
|
—
|
|
Denominator for earnings per share—weighted average shares
(c)
|
479,470
|
|
|
507,014
|
|
|
414,754
|
|
|
414,754
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to ANGI Homeservices Inc. shareholders:
|
|
|
|
|
Earnings per share
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
________________________
|
|
(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 ("RSUs"). For the
three and six months ended
June 30, 2018
,
0.1 million
and
0.3 million
potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
|
|
|
(b)
|
Performance-based stock units (“PSUs”) are considered contingently issuable shares. Shares issuable upon vesting of PSUs are included in the denominator for earnings per share if (i) the applicable performance condition(s) has been met and (ii) the inclusion of the PSUs is dilutive for the
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
respective reporting periods. For both the three and six months ended June 30, 2018,
1.3 million
shares underlying PSUs were excluded from the calculation of diluted earnings per share because the performance condition(s) had not been met.
|
|
(c)
|
The Company computed basic and diluted earnings per share for both the
three and six months ended
June 30, 2017
using the shares issued to IAC for the contribution of the HomeAdvisor business.
|
NOTE 9—SEGMENT INFORMATION
The overall concept that ANGI employs in determining its operating segments is to present the financial information in a manner consistent with: how the chief operating decision maker views the businesses; how the businesses are organized as to segment management; and the focus of the businesses with regards to the types of services or products offered or the target market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
North America
|
$
|
277,505
|
|
|
$
|
165,491
|
|
|
$
|
513,531
|
|
|
$
|
303,563
|
|
Europe
|
17,317
|
|
|
15,220
|
|
|
36,602
|
|
|
27,893
|
|
Total
|
$
|
294,822
|
|
|
$
|
180,711
|
|
|
$
|
550,133
|
|
|
$
|
331,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
North America
|
$
|
26,110
|
|
|
$
|
1,784
|
|
|
$
|
20,745
|
|
|
$
|
8,208
|
|
Europe
|
(2,848
|
)
|
|
(4,620
|
)
|
|
(8,239
|
)
|
|
(9,656
|
)
|
Total
|
$
|
23,262
|
|
|
$
|
(2,836
|
)
|
|
$
|
12,506
|
|
|
$
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Adjusted EBITDA
(a)
:
|
|
|
|
|
|
|
|
North America
|
$
|
68,088
|
|
|
$
|
17,112
|
|
|
$
|
107,693
|
|
|
$
|
31,296
|
|
Europe
|
$
|
(1,109
|
)
|
|
$
|
(2,141
|
)
|
|
$
|
(4,074
|
)
|
|
$
|
(6,113
|
)
|
___________________________
|
|
(a)
|
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 businesses, and this measure is one of the primary metrics on 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. Adjusted EBITDA has certain limitations in that it does not take into account the impact to ANGI Homeservices Inc.'s statement of operations of certain expenses.
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents revenue disaggregated by service for the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
North America
|
|
|
|
|
|
|
|
Marketplace:
|
|
|
|
|
|
|
|
Consumer connection revenue
(b)
|
$
|
187,172
|
|
|
$
|
141,163
|
|
|
$
|
336,232
|
|
|
$
|
257,163
|
|
Membership subscription revenue
|
16,565
|
|
|
13,704
|
|
|
32,192
|
|
|
26,456
|
|
Other revenue
|
998
|
|
|
888
|
|
|
1,919
|
|
|
1,780
|
|
Marketplace revenue
|
204,735
|
|
|
155,755
|
|
|
370,343
|
|
|
285,399
|
|
Advertising & Other revenue
(c)
|
72,770
|
|
|
9,736
|
|
|
143,188
|
|
|
18,164
|
|
Total North America revenue
|
277,505
|
|
|
165,491
|
|
|
513,531
|
|
|
303,563
|
|
Europe
|
|
|
|
|
|
|
|
Consumer connection revenue
(b)
|
12,496
|
|
|
11,170
|
|
|
26,863
|
|
|
19,635
|
|
Membership subscription revenue
|
4,517
|
|
|
3,872
|
|
|
9,188
|
|
|
7,878
|
|
Advertising and other revenue
|
304
|
|
|
178
|
|
|
551
|
|
|
380
|
|
Total Europe revenue
|
17,317
|
|
|
15,220
|
|
|
36,602
|
|
|
27,893
|
|
Total revenue
|
$
|
294,822
|
|
|
$
|
180,711
|
|
|
$
|
550,133
|
|
|
$
|
331,456
|
|
___________________________
|
|
(b)
|
Fees paid by service professionals for consumer matches.
|
|
|
(c)
|
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 and Felix.
|
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 June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Revenue
|
|
|
|
|
|
|
|
United States
|
$
|
274,785
|
|
|
$
|
163,669
|
|
|
$
|
508,260
|
|
|
$
|
301,135
|
|
All other countries
|
20,037
|
|
|
17,042
|
|
|
41,873
|
|
|
30,321
|
|
Total
|
$
|
294,822
|
|
|
$
|
180,711
|
|
|
$
|
550,133
|
|
|
$
|
331,456
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Long-lived assets (excluding goodwill and intangible assets)
|
|
|
|
United States
|
$
|
48,684
|
|
|
$
|
49,356
|
|
All other countries
|
4,712
|
|
|
3,936
|
|
Total
|
$
|
53,396
|
|
|
$
|
53,292
|
|
The following tables reconcile operating income (loss) for the Company’s reportable segments and net earnings attributable to ANGI Homeservices Inc. shareholders to Adjusted EBITDA:
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Operating
income
(loss)
|
|
Stock-based
compensation expense
|
|
Depreciation
|
|
Amortization
of intangibles
|
|
Adjusted
EBITDA
|
|
(In thousands)
|
North America
|
$
|
1,784
|
|
|
$
|
11,395
|
|
|
$
|
2,892
|
|
|
$
|
1,041
|
|
|
$
|
17,112
|
|
Europe
|
(4,620
|
)
|
|
$
|
444
|
|
|
$
|
326
|
|
|
$
|
1,709
|
|
|
$
|
(2,141
|
)
|
Operating loss
|
(2,836
|
)
|
|
|
|
|
|
|
|
|
Interest expense—related party
|
(2,082
|
)
|
|
|
|
|
|
|
|
|
Other income, net
|
505
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(4,413
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit
|
4,388
|
|
|
|
|
|
|
|
|
|
Net loss
|
(25
|
)
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
279
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to ANGI Homeservices Inc. shareholders
|
$
|
254
|
|
|
|
|
|
|
|
|
|
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Operating
income
(loss)
|
|
Stock-based
compensation expense
|
|
Depreciation
|
|
Amortization
of intangibles
|
|
Adjusted
EBITDA
|
|
(In thousands)
|
North America
|
$
|
8,208
|
|
|
$
|
15,396
|
|
|
$
|
5,777
|
|
|
$
|
1,915
|
|
|
$
|
31,296
|
|
Europe
|
(9,656
|
)
|
|
$
|
904
|
|
|
$
|
437
|
|
|
$
|
2,202
|
|
|
$
|
(6,113
|
)
|
Operating loss
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
Interest expense—related party
|
(3,674
|
)
|
|
|
|
|
|
|
|
|
Other income, net
|
736
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(4,386
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit
|
30,248
|
|
|
|
|
|
|
|
|
|
Net earnings
|
25,862
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
1,005
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to ANGI Homeservices Inc. shareholders
|
$
|
26,867
|
|
|
|
|
|
|
|
|
|
NOTE 10—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
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 3—Income Taxes
" for additional information related to income tax contingencies.
NOTE 11—RELATED PARTY TRANSACTIONS WITH IAC
For periods prior to the Combination, the Company’s 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, was
$1.7 million
and
$3.1 million
, respectively, for the
three and six months ended
June 30, 2017
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.
Relationship with IAC following the Combination
In connection with the Combination, ANGI Homeservices and IAC entered into certain agreements to govern our relationship following the Combination. These agreements include: a contribution agreement; an investor rights agreement; a services agreement; a tax sharing agreement; and an employee matters agreement.
There were
no
shares issued to IAC pursuant to the employee matters agreement for the three months ended
June 30, 2018
. For the six months ended
June 30, 2018
,
0.7 million
shares of ANGI Homeservices Class B common stock were issued to IAC pursuant to the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by ANGI Homeservices employees.
For the
three and six months ended
June 30, 2018
, the Company was charged
$1.2 million
and
$2.7 million
, respectively, by IAC for services rendered pursuant to the services agreement which were paid in full by the Company at
June 30, 2018
. At
December 31, 2017
, the Company had outstanding payables due to IAC of
$0.4 million
pursuant to the services agreement and
$2.0 million
related primarily to transaction related costs incurred in connection with the Combination. These amounts were paid in full during the first quarter of 2018.
Long-term debt—related party
Immediately prior to the Combination, the Company, through a foreign subsidiary, sold a promissory note due December 31, 2020 in the amount of
€2.4 million
to a foreign subsidiary of IAC. The amounts outstanding on the promissory note at
June 30, 2018
and
December 31, 2017
are
€1.4 million
and
€2.4 million
(
$1.6 million
and
$2.8 million
), respectively.
NOTE 12—TRANSACTION AND INTEGRATION RELATED COSTS IN CONNECTION WITH THE COMBINATION
During the
three and six months ended
June 30, 2018
, the Company incurred
$0.8 million
and
$3.3 million
, respectively, in costs related to the Combination (including severance, retention and integration related costs) as well as deferred revenue write-offs of
$1.8 million
and
$4.6 million
, respectively. The Company also incurred
$16.7 million
and
$35.8 million
, respectively, in stock-based compensation expense during the
three and six months ended
June 30, 2018
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.
A summary of the costs incurred, payments made and the related accrual is presented below.
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
|
(In thousands)
|
Integration related costs
|
|
$
|
819
|
|
|
$
|
3,323
|
|
Stock-based compensation expense
|
|
16,723
|
|
|
35,829
|
|
Total
|
|
$
|
17,542
|
|
|
$
|
39,152
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
(In thousands)
|
Accrual as of January 1
|
|
$
|
8,480
|
|
Charges incurred
|
|
3,323
|
|
Payments made
|
|
(10,526
|
)
|
Accrual as of June 30
|
|
$
|
1,277
|
|
The costs are allocated as follows in the accompanying consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
Integration Related Costs
|
|
Stock-based Compensation Expense
|
|
Total
|
|
Integration Related Costs
|
|
Stock-based Compensation Expense
|
|
Total
|
|
(In thousands)
|
Cost of revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling and marketing expense
|
—
|
|
|
690
|
|
|
690
|
|
|
—
|
|
|
1,100
|
|
|
1,100
|
|
General and administrative expense
|
819
|
|
|
14,825
|
|
|
15,644
|
|
|
3,323
|
|
|
31,529
|
|
|
34,852
|
|
Product development expense
|
—
|
|
|
1,208
|
|
|
1,208
|
|
|
—
|
|
|
3,200
|
|
|
3,200
|
|
Total
|
$
|
819
|
|
|
$
|
16,723
|
|
|
$
|
17,542
|
|
|
$
|
3,323
|
|
|
$
|
35,829
|
|
|
$
|
39,152
|
|