Document


As filed with the Securities and Exchange Commission on November 9, 2017


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 0-20570
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11883472&doc=8
ANGI HOMESERVICES INC.
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
incorporation or organization)
 
82-1204801
(I.R.S. Employer
Identification No.)
 14023 Denver West Parkway, Building 64, Golden, CO 80401
 (Address of registrant's principal executive offices)
 (303) 963-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o    No ý
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller
reporting company)
 
Smaller reporting
 company o
 
Emerging growth
company ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of November 3, 2017, the following shares of the registrant's common stock were outstanding:
Class A Common Stock
62,656,140

Class B Common Stock
414,753,615

Class C Common Stock

Total outstanding Common Stock
477,409,755

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of November 3, 2017 was $753,879,613. For the purpose of the foregoing calculation only, shares held by IAC/InterActiveCorp and all directors and executive officers of the registrant are assumed to be affiliates of the registrant.



TABLE OF CONTENTS
 
 
Page
Number
 

2

Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.    Consolidated and Combined Financial Statements
ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEET
(Unaudited)
 
September 30, 2017
 
December 31, 2016
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
59,543

 
$
36,377

Accounts receivable, net of allowance and reserves of $9,839 at September 30, 2017 and $9,177 at December 31, 2016
30,684

 
18,696

Other current assets
23,386

 
8,739

Total current assets
113,613

 
63,812

Property and equipment, net of accumulated depreciation and amortization of $26,503 at September 30, 2017 and $18,077 at December 31, 2016
47,635

 
23,645

Goodwill
774,191

 
170,990

Intangible assets, net
 
343,393

 
10,792

Other non-current assets
72,918

 
26,278

TOTAL ASSETS   
$
1,351,750

 
$
295,517

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Current portion of long-term debt—related party
$

 
$
2,838

Accounts payable
50,041

 
11,544

Deferred revenue
58,955

 
18,828

Accrued expenses and other current liabilities
90,008

 
34,438

Total current liabilities
199,004

 
67,648

Long-term debt—related party
79,504

 
47,000

Deferred income taxes
5,363

 
2,228

Other long-term liabilities
4,942

 
2,247

 
 
 
 
Redeemable noncontrolling interests
18,844

 
13,781

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Class A common stock, $0.001 par value; authorized 2,000,000 shares; 61,291 shares issued and outstanding
61

 

Class B common stock, $0.001 par value; authorized 1,500,000 shares; 414,754 shares issued and outstanding
415

 

Class C common stock, $0.001 par value; authorized 1,500,000 shares; no shares issued and outstanding

 

Additional paid-in capital
1,094,046

 

Accumulated deficit
(63,540
)
 

Invested capital

 
154,852

Accumulated other comprehensive income (loss)
3,348

 
(1,721
)
Total ANGI Homeservices Inc. shareholders' equity and invested capital, respectively
1,034,330

 
153,131

Noncontrolling interests
9,763

 
9,482

Total shareholders' equity
1,044,093

 
162,613

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   
$
1,351,750

 
$
295,517

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

3


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
181,717

 
$
133,560

 
$
513,173

 
$
375,222

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
7,999

 
6,826

 
22,391

 
19,565

Selling and marketing expense
130,866

 
80,274

 
337,654

 
234,344

General and administrative expense
129,088

 
29,509

 
217,962

 
80,234

Product development expense
20,010

 
5,356

 
32,529

 
15,142

Depreciation
3,491

 
2,026

 
9,705

 
5,824

Amortization of intangibles
2,768

 
726

 
6,885

 
2,271

Total operating costs and expenses
294,222

 
124,717

 
627,126

 
357,380

Operating (loss) income
(112,505
)
 
8,843

 
(113,953
)
 
17,842

Interest expense—related party
(1,864
)
 
(156
)
 
(5,538
)
 
(240
)
Other income (expense), net
1,364

 
195

 
2,100

 
(304
)
(Loss) earnings before income taxes
(113,005
)
 
8,882

 
(117,391
)
 
17,298

Income tax benefit (provision)
40,847

 
(4,414
)
 
71,095

 
(8,723
)
Net (loss) earnings
(72,158
)
 
4,468

 
(46,296
)
 
8,575

Net loss attributable to noncontrolling interests
397

 
607

 
1,402

 
1,833

Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
$
(71,761
)
 
$
5,075

 
$
(44,894
)
 
$
10,408

 
 
 
 
 
 
 
 
Net (loss) earnings per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
Basic
$
(0.17
)
 
$
0.01

 
$
(0.11
)
 
$
0.03

Diluted
$
(0.17
)
 
$
0.01

 
$
(0.11
)
 
$
0.03

 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
9

 
$

 
$
19

 
$

Selling and marketing expense
19,709

 
225

 
20,402

 
630

General and administrative expense
71,732

 
1,837

 
86,650

 
5,138

Product development expense
12,530

 
329

 
13,209

 
917

Total stock-based compensation expense
$
103,980

 
$
2,391

 
$
120,280

 
$
6,685


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


4


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net (loss) earnings
$
(72,158
)
 
$
4,468

 
$
(46,296
)
 
$
8,575

Other comprehensive income:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
3,579

 
32

 
5,592

 
610

Total other comprehensive income
3,579

 
32

 
5,592

 
610

Comprehensive (loss) income
(68,579
)
 
4,500

 
(40,704
)
 
9,185

Comprehensive loss attributable to noncontrolling interests
396

 
607

 
879

 
1,833

Comprehensive (loss) income attributable to ANGI Homeservices Inc. shareholders
$
(68,183
)
 
$
5,107

 
$
(39,825
)
 
$
11,018


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


5


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 2017
(Unaudited)
 
 
 
 
ANGI Homeservices Inc. Shareholders' Equity and Invested Capital
 
 
 
 
 
 
 
 
Class A
Common Stock
$0.001
Par Value
 
Class B
Common Stock
$0.001
Par Value
 
Class C Common Stock
$0.001
Par Value
 
 
 
 
 
 
 
 
 
Total
ANGI Homeservices Inc. Shareholders' Equity and Invested Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
(Loss) Income
 
 
 
 
Total
Shareholders'
Equity
 
Redeemable
Noncontrolling
Interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Invested
Capital
 
 
 
Noncontrolling
Interests
 
 
 
 
$
 
Shares
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2016   
$
13,781

 
 
$

 

 
$

 

 
$

 

 
$

 
$

 
$
154,852

 
$
(1,721
)
 
$
153,131

 
$
9,482

 
$
162,613

Net (loss) earnings
(1,256
)
 
 

 

 

 

 

 

 

 
(63,540
)
 
18,646

 

 
(44,894
)
 
(146
)
 
(45,040
)
Other comprehensive income
280

 
 

 

 

 

 

 

 

 

 

 
5,069

 
5,069

 
243

 
5,312

Stock-based compensation expense
1,577

 
 

 

 

 

 

 

 
96,939

 

 

 

 
96,939

 

 
96,939

Redeemable noncontrolling interests created in acquisitions
14,692

 
 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of redeemable noncontrolling interests
(11,991
)
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 

 

 
(633
)
 
(633
)
Adjustment of redeemable noncontrolling interests to fair value
1,725

 
 

 

 

 

 

 

 

 

 
(1,725
)
 

 
(1,725
)
 

 
(1,725
)
Net increase in IAC/InterActiveCorp’s investment in HomeAdvisor prior to the Combination

 
 

 

 

 

 

 

 

 

 
46,339

 

 
46,339

 

 
46,339

Contribution of IAC/InterActiveCorp's HomeAdvisor business to ANGI Homeservices Inc. and Combination with Angie's List

 
 
61

 
61,291

 
415

 
414,754

 

 

 
997,107

 

 
(218,112
)
 

 
779,471

 

 
779,471

Other
36

 
 

 

 

 

 

 

 

 

 

 

 

 
817

 
817

Balance as of September 30, 2017
$
18,844

 
 
$
61

 
61,291

 
$
415

 
414,754

 
$

 

 
$
1,094,046

 
$
(63,540
)
 
$

 
$
3,348

 
$
1,034,330

 
$
9,763

 
$
1,044,093


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

6


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net (loss) earnings
$
(46,296
)
 
$
8,575

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
 
 
 
Bad debt expense
20,625

 
12,336

Stock-based compensation expense
120,280

 
6,685

Depreciation
9,705

 
5,824

Amortization of intangibles
6,885

 
2,271

Deferred income taxes
(71,446
)
 
(2,742
)
Other adjustments, net
(1,328
)
 
488

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(30,080
)
 
(20,999
)
Other current assets
(5,972
)
 
(925
)
Accounts payable and other current liabilities
41,847

 
18,278

Income taxes payable
22

 
4,664

Deferred revenue
7,788

 
6,171

Net cash provided by operating activities   
52,030

 
40,626

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(66,378
)
 

Capital expenditures
(16,278
)
 
(13,742
)
Net cash used in investing activities   
(82,656
)
 
(13,742
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of related party debt
131,359

 
446

Funds returned from escrow for MyHammer tender offer
10,604

 

Transfers from (to) IAC/InterActiveCorp
30,216

 
(26,485
)
Purchase of noncontrolling interests
(12,574
)
 

Principal payments on related party debt
(104,089
)
 

Other
34

 

Net cash provided by (used in) financing activities   
55,550

 
(26,039
)
Total cash provided
24,924

 
845

Effect of exchange rate changes on cash and cash equivalents
(1,758
)
 
65

Net increase in cash and cash equivalents   
23,166

 
910

Cash and cash equivalents at beginning of period
36,377

 
2,462

Cash and cash equivalents at end of period   
$
59,543

 
$
3,372

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

7


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ANGI Homeservices is creating the world's largest digital marketplace for home services, connecting millions of homeowners across the globe with home service professionals. ANGI Homeservices operates 10 brands in eight countries, including HomeAdvisor®, Angie's List, mHelpDesk, HomeStars (Canada), Travaux.com (France), MyHammer (Germany), MyBuilder (UK), Werkspot (Netherlands) and Instapro (Italy).
All references to "ANGI Homeservices," the "Company," "we," "our" or "us" in this report are to ANGI Homeservices Inc. The Company has two operating segments, North America and Europe. North America includes HomeAdvisor's operations in the United States, Angie's List, mHelpDesk and HomeStars. Europe includes Travaux.com, MyHammer, MyBuilder, Werkspot and Instapro.
Organization
On September 29, 2017, IAC/InterActiveCorp ("IAC") and Angie's List Inc. ("Angie's List") combined IAC's HomeAdvisor business and Angie's List under a new publicly traded company called ANGI Homeservices Inc. The merger agreement provided for the combination with Angie’s List by way of the merger of a direct wholly-owned subsidiary of ANGI Homeservices with and into Angie’s List (the "Combination"), with Angie’s List continuing as the surviving company in the Combination. Prior to the effective time of the Combination, IAC contributed its HomeAdvisor business, along with certain cash, to ANGI Homeservices in exchange for shares of ANGI Homeservices Class B common stock. Following the Combination, Angie’s List and the legal entity that holds the HomeAdvisor business are direct wholly-owned subsidiaries of ANGI Homeservices Inc. At September 30, 2017, IAC owned 87.1% and 98.5% of the economic and voting interest, respectively, of ANGI Homeservices. See "Note 3—Business Combinations" for additional information related to the Combination.
Nature of operations
ANGI Homeservices is the operator of the largest global home services marketplace, connecting homeowners with service professionals for home repair, maintenance and improvement projects. The Company’s marketplace provides the tools and resources to allow homeowners to find local pre-screened service professionals and instantly book appointments online or through its award-winning HomeAdvisor mobile application. The Company's marketplace also provides consumers with other home services-related resources, including access to average project costs using its HomeAdvisor True Cost Guide. Effective September 29, 2017, the Company also owns Angie's List, a nationwide marketplace for local services where consumers can research, hire, rate and review the providers of these services. Ratings and reviews assist members in identifying and hiring a provider for their local service needs. Angie's List's services are provided in markets located across the continental United States. In addition to its market-leading U.S. operations, ANGI Homeservices owns the leading home services online marketplaces in Canada (HomeStars), which was acquired on February 8, 2017, Germany (MyHammer), which was acquired on November 3, 2016, France (Travaux.com) and the Netherlands (Werkspot), as well as operations in Italy (Instapro) and the United Kingdom (MyBuilder), which was acquired on March 24, 2017. ANGI Homeservices also owns Felix, a pay-per-call advertising service, and mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses.
As of September 30, 2017, the Company's network of service professionals in the United States consisted of approximately 172,000 Marketplace Paying Service Professionals providing services in more than 500 categories ranging from simple home repairs to larger home remodeling projects in more than 400 discrete geographies. The Company generated approximately 13.9 million Marketplace Service Requests from homeowners in the United States during the nine months ended September 30, 2017. As of September 30, 2017, the Company also had 47,000 Angie's List service professionals under contract for advertising.
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

8


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


financial statements to be presented on a consistent basis for all periods presented. The combined financial statements have been prepared on a standalone basis and are derived from the historical consolidated financial statements and accounting records of IAC through September 29, 2017. The combined financial statements reflect the historical financial position, results of operations and cash flows of the businesses comprising the HomeAdvisor business since their respective dates of acquisition by IAC. The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest.
The consolidated and combined financial statements reflect the allocation to ANGI Homeservices of certain IAC corporate expenses relating to the HomeAdvisor business based on the historical consolidated financial statements and accounting records of IAC through September 29, 2017. For the purpose of these financial statements, income taxes have been computed as if ANGI Homeservices filed on a standalone, separate tax return basis.
All intercompany transactions and balances 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 notes payable due to IAC and its subsidiaries, are considered to be effectively settled for cash at the time the transaction is recorded. The notes payable due to IAC and its subsidiaries are included in “Long-term debt—related party” in the accompanying consolidated and combined balance sheet. See "Note 10—Related Party Transactions with IAC" for additional information on transactions between ANGI Homeservices and IAC.
In the opinion of management, the assumptions underlying the historical consolidated and combined financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, standalone public company for the periods presented.
The unaudited interim consolidated and combined financial statements have been prepared on the same basis as the annual combined financial statements and reflect, in management's opinion, all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim consolidated and combined financial statements should be read in conjunction with the audited combined financial statements of the HomeAdvisor business and notes thereto for the year ended December 31, 2016 included in the Company's Registration Statement on Form S-4 dated June 29, 2017 and the amendments thereto.
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; the liabilities for uncertain tax positions; 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 not yet adopted by the Company
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. ASU No. 2014-09 was subsequently amended during 2015, 2016 and 2017; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, narrow-scope improvements and practical expedients.

9


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application.
While the Company’s evaluation of the impact of the adoption of ASU No. 2014-09 on its consolidated and combined financial statements continues, it has progressed to the point where we have reached certain preliminary determinations. The Company will adopt ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. Therefore, the cumulative effect of adoption will be reflected as an adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018. The effect on the Company will be that sales commissions, which represent the incremental direct costs of obtaining a service professional contract, will be capitalized and amortized over the average life of a service professional. These costs are expensed as incurred currently. The cumulative effect of the adoption of ASU No. 2014-09 will be to establish an asset equal to the unamortized cost of the sales commissions paid to obtain a service professional and a related deferred tax liability with the net effect being recorded as an increase to retained earnings as of January 1, 2018. The ultimate amounts recorded will depend upon both the timing and amount of monthly sales commissions during the year ended December 31, 2016 and the year ending December 31, 2017 and the average life of a service professional as of January 1, 2018. The Company is in the initial stages of assessing the impact of ASU No. 2014-09 on Angie's List following the Combination. Prior to the Combination, Angie's List capitalized sales commissions and amortized the cost over the term of the applicable advertising contract. Following the Combination, Angie's List accounting policies will be conformed to the Company's accounting policies and these costs will be expensed as incurred. Following the adoption of ASU No. 2014-09, these costs will be capitalized and amortized over the average life of a service professional. Exclusive of the impact of the adoption of ASU No. 2014-09 on Angie's List, the Company estimates that the cumulative effect of adoption on the Company's combined financial position, if January 1, 2017 were the date of adoption, would have been less than 9% of total assets, less than 8% of total liabilities and less than 10% of shareholders' equity. The Company, subject to the completion of assessing Angie's List, does not expect the adoption of ASU No. 2014-09 to have a material effect on its consolidated and combined results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes pre-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. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach. The Company will adopt ASU No. 2016-02 effective January 1, 2019. The Company is currently evaluating the impact the adoption of this standard update will have on its consolidated and combined financial statements.
Accounting pronouncements adopted by the Company
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about the changes to the terms and conditions of a share-based payment award that require an entity to apply modification accounting in "Stock Compensation (Topic 718)." The provisions of ASU No. 2017-09 are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date. The Company early adopted the provisions of ASU No. 2017-09 during the third quarter of 2017 and the adoption of this standard update did not have a material impact on its consolidated and combined financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis unless it is impracticable

10


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable; early adoption is permitted. The Company early adopted the provisions of ASU No. 2016-15 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated and combined financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company adopted the provisions of ASU No. 2016-09 on January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated and combined statement of operations as a component of the provision for income taxes, rather than recognized in equity, and (ii) reflected as operating, rather than financing, cash flows in our consolidated and combined statement of cash flows. Excess tax benefits for the nine months ended September 30, 2017 were $35.6 million. Excess tax benefits of $7.6 million for the nine months ended September 30, 2016 were reclassified in the combined statement of cash flows to conform to the current year presentation. The Company continues to account for forfeitures using an estimated forfeiture rate.
In January 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The guidance eliminates the requirement to calculate the implied fair value of goodwill under today’s two-step impairment test to measure a goodwill impairment charge. The provisions of ASU No. 2017-04 are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. The provisions of ASU No. 2017-04 are to be applied on a prospective basis. The Company early adopted the provisions of ASU No. 2017-04 on January 1, 2017 and the adoption of this standard update did not and is not expected to have a material impact on its consolidated and combined financial statements.
NOTE 2—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 taxes have been computed for the entities comprising ANGI Homeservices on an as if standalone, separate return basis. The Company’s payments to IAC for its share of IAC’s consolidated federal and state income tax return liabilities have been reflected within cash flows from operating activities in the accompanying consolidated and combined statement of cash flows.

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 income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended September 30, 2017, the Company recorded an income tax benefit of $40.8 million and $71.1 million, respectively. The income tax benefit for the three months ended September 30, 2017 represents an effective income tax rate of 36%, higher than the statutory rate of 35% due primarily to state taxes, partially offset by unbenefited losses in separate jurisdictions. The income tax benefit for the nine months ended September 30, 2017 is due primarily to the effect of adopting the provisions of ASU No. 2016-09 on January 1, 2017 and state taxes, partially offset by unbenefited losses in separate jurisdictions. Under ASU No. 2016-09, excess tax benefits generated by the settlement or exercise of stock-based awards of $35.6 million for the nine months ended September 30, 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital. For the three and nine months ended September 30, 2016, the Company recorded an income tax provision of $4.4 million and $8.7 million, respectively, which represents an effective income tax rate of 50% in each period. The effective income tax rate for the three and nine months ended September 30, 2016 is higher

11


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


than the statutory rate of 35% due primarily to unbenefited losses in separate jurisdictions and state taxes, partially offset by research credits.
ANGI Homeservices is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC’s federal income tax returns for the years ended December 31, 2010 through 2012, which includes the operations of the HomeAdvisor business. The statute of limitations for the years 2010 through 2013 has been extended to June 30, 2018. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At both September 30, 2017 and December 31, 2016, the Company has not accrued any amount for the payment of either interest or penalties.
At September 30, 2017 and December 31, 2016, unrecognized tax benefits are $1.3 million and $0.6 million, respectively. Included in unrecognized tax benefits at September 30, 2017 and December 31, 2016, is $1.3 million and $0.6 million, respectively, for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at September 30, 2017 are subsequently recognized, income tax provision would be reduced by $1.3 million. The comparable amount as of December 31, 2016 is $0.6 million.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, available tax planning and historical experience, to the extent these items are applicable. As of September 30, 2017, the Company has a gross deferred tax asset of $124.1 million that the Company expects to fully utilize on a more likely than not basis. However, 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.
NOTE 3—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.
The purchase price of $781.4 million was determined based on the sum of (i) the fair value of the 61.3 million shares of Angie's List common stock outstanding immediately prior to the Combination based on the closing stock price of Angie's List common stock on the NASDAQ on September 29, 2017 of $12.46 per share; (ii) the cash consideration of $1.9 million paid to holders of Angie's List common stock who elected to receive $8.50 in cash per share; and (iii) the fair value of vested equity awards (including the pro rata portion of unvested awards attributable to pre-combination services) outstanding under Angie's List stock plans on September 29, 2017. Each stock option to purchase shares of Angie's List common stock that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an option to purchase (i) that number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List option immediately prior to the effective time of the Combination, (ii) at a per-share exercise price equal to the exercise price per share of Angie's List common stock at which such Angie's List option was exercisable immediately prior to the effective time of the Combination. Each award of Angie's List restricted stock units that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an ANGI Homeservices restricted stock unit award with respect to a number of Class A

12


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List restricted stock unit award immediately prior to the effective time of the Combination.
The table below summarizes the purchase price:
 
Angie's List
 
(In thousands)
Class A common stock
$
763,684

Cash consideration for holders who elected to receive $8.50 in cash per share of Angie's List common stock
1,913

Fair value of vested and pro rata portion of unvested stock options attributable to pre-combination services
11,749

Fair value of the pro rata portion of unvested restricted stock units attributable to pre-combination services
4,038

Total purchase price
$
781,384

The financial results of Angie's List are included in the Company's consolidated and combined financial statements, within the North America segment, beginning September 29, 2017. For both the three and nine months ended September 30, 2017, the Company included $0.7 million of revenue and $19.5 million of net losses, respectively, in its consolidated and combined statement of operations related to Angie's List. The Company is in the process of completing its determination of the fair values of assets acquired and liabilities assumed and the preliminary fair values are subject to revision. These fair values are expected to be finalized in the fourth quarter of 2017.
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of combination:
 
Angie's List
 
(In thousands)
Cash and cash equivalents
$
44,270

Other current assets
10,641

Property and equipment
16,341

Goodwill
546,851

Intangible assets
317,300

Total assets
935,403

Deferred revenue
(32,130
)
Other current liabilities
(46,106
)
Long-term debt - related party
(61,498
)
Deferred income taxes
(12,933
)
Other long-term liabilities
(1,352
)
Net assets acquired
$
781,384

The purchase price was based on the expected financial performance of Angie's List, not on the value of the net identifiable assets at the time of combination. This resulted in a significant portion of the purchase price being attributed to goodwill because Angie's List is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The preliminary estimated fair values of the identifiable intangible assets acquired at the date of combination are as follows:

13


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


 
Angie's List
 
(In thousands)
 
Weighted-average useful life
(years)
Indefinite-lived trade names and trademarks
$
137,000

 
Indefinite
Service providers
90,500

 
3
Developed technology
63,900

 
6
Memberships
15,900

 
3
User base
10,000

 
1
Total identifiable intangible assets acquired
$
317,300

 
 
Other current assets, current liabilities and other long-term liabilities of Angie's List were reviewed and adjusted to their fair values at the date of combination, as necessary. The fair value of deferred revenue was determined using an income approach that utilized a cost to fulfill analysis. The fair values of trade names and trademarks were determined using an income approach that utilized the relief from royalty methodology. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The fair values of the service providers and memberships were determined using an income approach that utilized the excess earnings methodology. The valuations of deferred revenue and intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows, cost and profit margins related to deferred revenue and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
HomeStars Acquisition
The Company acquired a 90% voting interest in HomeStars Inc. ("HomeStars"), a leading home services platform in Canada, on February 8, 2017. The purchase price for HomeStars was $16.6 CAD million (or $12.7 million) in cash and is net of a $0.3 CAD million (or $0.2 million) working capital adjustment paid in full to the Company in the third quarter of 2017. In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 10% noncontrolling interest in HomeStars, which totaled $1.9 CAD million (or $1.4 million). The determination of the fair value of noncontrolling interest was calculated using the implied value of 100% of the enterprise value of the business using the purchase price.
The financial results of HomeStars are included in the Company's consolidated and combined financial statements, within the North America segment, beginning February 8, 2017. For the three and nine months ended September 30, 2017, the Company included $2.0 million and $4.2 million of revenue, respectively, and less than $0.1 million and $1.0 million of net losses, respectively, in its consolidated and combined statement of operations related to HomeStars.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
HomeStars
 
(In thousands)
Cash and cash equivalents
$
181

Other current assets
165

Goodwill
9,841

Intangible assets
6,414

Total assets
16,601

Current liabilities
(649
)
Other long-term liabilities
(1,873
)
Net assets acquired
$
14,079


14


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The purchase price was based on the expected financial performance of HomeStars, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because HomeStars is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
 
HomeStars
 
(In thousands)
 
Weighted-average useful life
(years)
Indefinite-lived trade name
$
2,358

 
Indefinite
Contractor relationships
2,435

 
2
Developed technology
1,522

 
2
User base
99

 
1
    Total identifiable intangible assets acquired
$
6,414

 
 
Other current assets, current liabilities and other long-term liabilities of HomeStars were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
MyBuilder Acquisition
The Company acquired a 75% voting interest in MyBuilder Limited ("MyBuilder"), a leading home services platform in the United Kingdom, on March 24, 2017. The purchase price was £32.6 million (or $40.7 million) in cash and includes a £0.6 million (or $0.8 million) working capital adjustment paid in full by the Company in the third quarter of 2017. In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 25% noncontrolling interest in MyBuilder, which totaled £10.7 million (or $13.3 million). The determination of the fair value of noncontrolling interest was calculated using the implied value of 100% of the enterprise value of the business using the purchase price.
The financial results of MyBuilder are included in the Company's consolidated and combined financial statements, within the Europe segment, beginning April 1, 2017. For the three and nine months ended September 30, 2017, the Company included $2.7 million and $5.4 million of revenue, respectively, and $0.7 million and $1.0 million of net losses, respectively, in its consolidated and combined statement of operations related to MyBuilder.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

15


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


 
MyBuilder
 
(In thousands)
Cash and cash equivalents
$
6,004

Other current assets
344

Goodwill
38,521

Intangible assets
13,490

Total assets
58,359

Current liabilities
(2,065
)
Other long-term liabilities
(2,296
)
Net assets acquired
$
53,998

The purchase price was based on the expected financial performance of MyBuilder, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because MyBuilder is complementary and synergistic to the other European businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
 
MyBuilder
 
(In thousands)
 
Weighted-average useful life
(years)
Indefinite-lived trade name
$
6,245

 
Indefinite
Contractor relationships
4,122

 
2
Developed technology
1,499

 
2
User base
1,624

 
1
    Total identifiable intangible assets acquired
$
13,490

 
 
Other current assets, current liabilities and other long-term liabilities of MyBuilder were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
MyHammer Acquisition
On November 3, 2016, the Company acquired a 70% voting interest in MyHammer Holding AG ("MyHammer"), the leading home services marketplace in Germany. The purchase price was €17.7 million (or $19.7 million). In connection with the acquisition, the Company measured and recorded the acquisition date fair value of the 30% noncontrolling interest in MyHammer, which totaled €9.4 million (or $10.4 million). The determination of the fair value of noncontrolling interest was calculated using the MyHammer share price on the acquisition date.
The financial results of MyHammer are included in the Company's consolidated and combined financial statements, within the Europe segment, with effect from the date of acquisition. For the three and nine months ended September 30, 2017, the Company included $3.3 million and $9.2 million of revenue, respectively, and $0.2 million and $0.6 million of net losses, respectively, in its consolidated and combined statement of operations related to MyHammer.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

16


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


 
MyHammer
 
(In thousands)
Cash and cash equivalents
$
4,041

Other current assets
790

Goodwill
22,277

Intangible assets
8,107

Total assets
35,215

Current liabilities
(2,642
)
Other long-term liabilities
(2,447
)
Net assets acquired
$
30,126

The purchase price was based on the expected financial performance of MyHammer, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill because MyHammer is complementary and synergistic to the other European businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
 
MyHammer
 
(In thousands)
 
Weighted-average useful life
(years)
Indefinite-lived trade name
$
4,553

 
Indefinite
Contractor relationships
1,444

 
4
Developed technology
1,222

 
3
User base
888

 
1
    Total identifiable intangible assets acquired
$
8,107

 
 
Other current assets, current liabilities and other long-term liabilities of MyHammer were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of the trade name and contractor relationships were determined using variations of the income approach; specifically, in respective order, the relief from royalty and excess earnings methodologies. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
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 nine months ended September 30, 2017, pro forma adjustments include (i) reductions in stock-based compensation expense of $85.1 million and $52.9 million, respectively, and transaction related costs of $22.1 million and $26.8 million, respectively, because they are one-time in nature and will not have a continuing impact on operations; and (ii) an increase in amortization of intangibles of $11.3 million and $34.4 million, respectively. The stock-based compensation expense is primarily related to the modification of previously issued HomeAdvisor vested equity awards, which were converted into ANGI Homeservices' equity awards, and the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination. The transaction related costs include severance and retention costs of $12.0 million related to the Combination. For the three and nine months ended September 30, 2016, pro forma adjustments include a reduction in revenue of $5.1 million and $32.3 million, respectively, due to the write-off

17


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


of deferred revenue at the date of acquisition as well as increases in stock-based compensation expense of $19.7 million and $51.6 million, respectively, and amortization of intangibles of $16.0 million and $48.3 million, respectively.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
251,995

 
$
214,212

 
$
731,920

 
$
607,802

Net loss attributable to ANGI Homeservices Inc. shareholders
$
(7,172
)
 
$
(25,159
)
 
$
(2,178
)
 
$
(68,345
)
Basic and diluted loss per share attributable to ANGI Homeservices Inc. shareholders
$
(0.02
)
 
$
(0.06
)
 
$
(0.01
)
 
$
(0.16
)
NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
 
September 30,
2017
 
December 31, 2016
 
(In thousands)
Goodwill
$
774,191

 
$
170,990

Intangible assets with indefinite lives
151,735

 
4,884

Intangible assets with definite lives, net
191,658

 
5,908

Total goodwill and intangible assets, net
$
1,117,584

 
$
181,782

The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the nine months ended September 30, 2017:
 
Balance at
December 31,
2016
 
Additions
 
Deductions
 
Foreign
exchange
translation
 
Balance at September 30,
2017
 
(In thousands)
North America
$
140,930

 
$
556,692

 
$

 
$
640

 
$
698,262

Europe
30,060

 
38,643

 

 
7,226

 
75,929

Total goodwill
$
170,990

 
$
595,335

 
$

 
$
7,866

 
$
774,191

Additions relate to the acquisitions of Angie's List and HomeStars (included in the North America segment) and MyBuilder (included in the Europe segment).
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2016:
 
Balance at
December 31,
2015
 
Additions
 
(Deductions)
 
Foreign
exchange
translation
 
Balance at
December 31,
2016
 
(In thousands)
North America
$
140,930

 
$

 
$

 
$

 
$
140,930

Europe
9,700

 
21,985

 

 
(1,625
)
 
30,060

Total goodwill
$
150,630

 
$
21,985

 
$

 
$
(1,625
)
 
$
170,990


18


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Additions relate to the acquisition of MyHammer (included in the Europe segment).
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. At September 30, 2017 and December 31, 2016, intangible assets with definite lives are as follows:
 
September 30, 2017
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
Weighted-average useful life
(years)
 
(Dollars in thousands)
Contractor and service provider relationships
$
99,628

 
$
(2,989
)
 
$
96,639

 
3.0
Technology
78,761

 
(10,714
)
 
68,047

 
5.6
Memberships
15,900

 
(15
)
 
15,885

 
3.0
Customer lists and user base
13,911

 
(2,973
)
 
10,938

 
1.1
Trade names
5,612

 
(5,463
)
 
149

 
3.1
Total
$
213,812

 
$
(22,154
)
 
$
191,658

 
3.8
 
December 31, 2016
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
Weighted-average
useful life
(years)
 
(Dollars in thousands)
Contractor relationships
$
1,830

 
$
(495
)
 
$
1,335

 
4.0
Technology
11,377

 
(7,834
)
 
3,543

 
4.3
Customer lists and user base
4,136

 
(3,432
)
 
704

 
1.8
Trade names
5,260

 
(4,934
)
 
326

 
2.9
Total
$
22,603

 
$
(16,695
)
 
$
5,908

 
3.5
At September 30, 2017, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
Year Ending September 30,
(In thousands)
2018
$
64,155

2019
49,101

2020
46,446

2021
10,685

2022
10,650

Thereafter
10,621

Total
$
191,658

NOTE 5—FAIR VALUE MEASUREMENTS AND FINANCIAL 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 prices for identical assets and liabilities in active markets.

19


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Level 2: Other inputs, which are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities.
The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
 
September 30, 2017
 
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
$
1,670

 
$

 
$

 
$
1,670

Treasury discount notes
1,199

 

 

 
1,199

Certificates of deposit

 
6,199

 

 
6,199

Total
$
2,869

 
$
6,199

 
$

 
$
9,068

 
December 31, 2016
 
Quoted market prices in active markets for identical assets
(level 1)
 
Significant
other
observable
inputs
(level 2)
 
Significant
unobservable
inputs
(level 3)
 
Total
fair value
measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
28,064

 
$

 
$

 
$
28,064

Total
$
28,064

 
$

 
$

 
$
28,064

Assets measured at fair value on a nonrecurring basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Financial instruments measured at fair value only for disclosure purposes
 
September 30, 2017
 
December 31, 2016
 
Carrying
value
 
Fair
value
 
Carrying
value
 
Fair
value
 
(In thousands)
Current portion of long-term debt—related party
$

 
$

 
$
(2,838
)
 
$
(2,776
)
Long-term debt—related party, net of current portion
(79,504
)
 
(79,611
)
 
(47,000
)
 
(46,324
)

20


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The fair value of the Company’s long-term debt—related party, including current portion, is based on Level 3 inputs and is estimated by discounting the future cash flows based on current market conditions.
NOTE 6—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the components of accumulated other comprehensive income (loss):
 
Three Months Ended September 30, 2017
 
Foreign
currency
translation
adjustment
 
Accumulated
other
comprehensive
(loss) income
 
(In thousands)
Balance at July 1
$
(230
)
 
$
(230
)
Other comprehensive income
3,578

 
3,578

Balance at September 30
$
3,348

 
$
3,348

 
 
 
 
 
Three Months Ended September 30, 2016
 
Foreign
currency
translation
adjustment
 
Accumulated
other
comprehensive
(loss) income
 
(In thousands)
Balance at July 1
$
(486
)
 
$
(486
)
Other comprehensive income
32

 
32

Balance at September 30
$
(454
)
 
$
(454
)
 
Nine Months Ended September 30, 2017
 
Foreign
currency
translation
adjustment
 
Accumulated
other
comprehensive
(loss) income
 
(In thousands)
Balance at January 1
$
(1,721
)
 
$
(1,721
)
Other comprehensive income
5,069

 
5,069

Balance at September 30
$
3,348

 
$
3,348

 
 
 
 
 
Nine Months Ended September 30, 2016
 
Foreign
currency
translation
adjustment
 
Accumulated
other
comprehensive
(loss) income
 
(In thousands)
Balance at January 1
$
(1,064
)
 
$
(1,064
)
Other comprehensive income
610

 
610

Balance at September 30
$
(454
)
 
$
(454
)
At September 30, 2017 and 2016, there was no tax benefit or provision on the accumulated other comprehensive income (loss).

21


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


NOTE 7—(LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share attributable to ANGI Homeservices shareholders:
 
Three Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net (loss) earnings
$
(72,158
)
 
$
(72,158
)
 
$
4,468

 
$
4,468

Net loss attributable to noncontrolling interests
397

 
397

 
607

 
607

Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
$
(71,761
)
 
$
(71,761
)
 
$
5,075

 
$
5,075

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
415,420

 
415,420

 
414,754

 
414,754

Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards (a)

 

 

 

Denominator for earnings per share—weighted average shares (b)
415,420

 
415,420

 
414,754

 
414,754

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
(Loss) earnings per share
$
(0.17
)
 
$
(0.17
)
 
$
0.01

 
$
0.01

 
Nine Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net (loss) earnings
$
(46,296
)
 
$
(46,296
)
 
$
8,575

 
$
8,575

Net loss attributable to noncontrolling interests
1,402

 
1,402

 
1,833

 
1,833

Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
$
(44,894
)
 
$
(44,894
)
 
$
10,408

 
$
10,408

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
414,978

 
414,978

 
414,754

 
414,754

Dilutive securities including stock appreciation rights, stock options, RSUs and subsidiary denominated equity awards (a)

 

 

 

Denominator for earnings per share—weighted average shares (b)
414,978

 
414,978

 
414,754

 
414,754

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
(Loss) earnings per share
$
(0.11
)
 
$
(0.11
)
 
$
0.03

 
$
0.03

________________________

22


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


(a) 
For the three and nine months ended September 30, 2017, the Company had a loss from operations and as a result, approximately 58.3 million potentially dilutive securities were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute diluted earnings per share amounts.
(b) 
The Company computed basic and diluted earnings per share for the three and nine months ended September 30, 2016 using the shares issued to IAC for the contribution of the HomeAdvisor business.
NOTE 8—SEGMENT INFORMATION
The Company has two operating segments, North America and Europe, which are also the Company’s reportable segments. Each segment manager reports to the Company’s chief operating decision maker. The chief operating decision maker allocates resources and assesses performance at the segment level.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
North America
$
167,104

 
$
125,226

 
$
470,667

 
$
348,287

Europe
14,613

 
8,334

 
42,506

 
26,935

Total
$
181,717

 
$
133,560

 
$
513,173

 
$
375,222

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Operating (Loss) Income:
 
 
 
 
 
 
 
North America
$
(107,687
)
 
$
11,573

 
$
(99,479
)
 
$
23,202

Europe
(4,818
)
 
(2,730
)
 
(14,474
)
 
(5,360
)
Total
$
(112,505
)
 
$
8,843

 
$
(113,953
)
 
$
17,842

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Adjusted EBITDA(a):
 
 
 
 
 
 
 
North America
$
60

 
$
16,119

 
$
31,356

 
$
35,990

Europe
(2,326
)
 
(2,133
)
 
(8,439
)
 
(3,368
)
Total
$
(2,266
)
 
$
13,986

 
$
22,917

 
$
32,622

___________________________
(a) 
The Company’s primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of amortization of intangible assets and impairments of goodwill and intangible assets, if applicable. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and long-term related party debt is serviced. 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.

23


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Capital expenditures:
 
 
 
North America
$
14,472

 
$
12,238

Europe
1,806

 
1,504

Total
$
16,278

 
$
13,742

The following tables present revenue disaggregated by service for the Company's reportable segments:
 
Three Months Ended September 30,
 
2017
 
2016
 
North America
 
Europe
 
Total
 
North America
 
Europe
 
Total
 
(In thousands)
Consumer connection revenue (b)
$
141,055

 
$
10,001

 
$
151,056

 
$
104,427

 
$
6,447

 
$
110,874

Membership subscription revenue
17,826

 
4,320

 
22,146

 
12,379

 
1,704

 
14,083

Other revenue
8,223

 
292

 
8,515

 
8,420

 
183

 
8,603

Total
$
167,104

 
$
14,613

 
$
181,717

 
$
125,226

 
$
8,334

 
$
133,560

 
Nine Months Ended September 30,
 
2017
 
2016
 
North America
 
Europe
 
Total
 
North America
 
Europe
 
Total
 
(In thousands)
Consumer connection revenue (b)
$
398,218

 
$
29,636

 
$
427,854

 
$
289,952

 
$
21,010

 
$
310,962

Membership subscription revenue
48,947

 
12,198

 
61,145

 
34,774

 
5,234

 
40,008

Other revenue
23,502

 
672

 
24,174

 
23,561

 
691

 
24,252

Total
$
470,667

 
$
42,506

 
$
513,173

 
$
348,287

 
$
26,935

 
$
375,222

___________________________
(b) 
Fees paid by services professionals for consumer matches.
Geographic information about revenue and long-lived assets is presented below. Revenue by geography is based on where the customer is located.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue
 
 
 
 
 
 
 
United States
$
164,999

 
$
125,124

 
$
466,134

 
$
347,934

All other countries
16,718

 
8,436

 
47,039

 
27,288

Total
$
181,717

 
$
133,560

 
$
513,173

 
$
375,222


24


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The United States is the only country whose revenue is greater than 10% of total revenue of the Company for the three and nine months ended September 30, 2017 and 2016.
 
September 30,
 
December 31,
 
2017
 
2016
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets)
 
 
 
United States
$
44,027

 
$
21,775

All other countries
3,608

 
1,870

Total
$
47,635

 
$
23,645

The following tables reconcile operating (loss) income for the Company’s reportable segments and net (loss) earnings attributable to ANGI Homeservices Inc. shareholders to Adjusted EBITDA:
 
Three Months Ended September 30, 2017
 
Operating
loss
 
Stock-based
compensation
 
Depreciation
 
Amortization
of intangibles
 
Adjusted EBITDA
 
(In thousands)
North America
$
(107,687
)
 
$
103,565

 
$
3,085

 
$
1,097

 
$
60

Europe
(4,818
)
 
415

 
406

 
1,671

 
(2,326
)
Total
(112,505
)
 
$
103,980

 
$
3,491

 
$
2,768

 
$
(2,266
)
Interest expense—related party
(1,864
)
 
 
 
 
 
 
 
 
Other income, net
1,364

 
 
 
 
 
 
 
 
Loss before income taxes
(113,005
)
 
 
 
 
 
 
 
 
Income tax benefit
40,847

 
 
 
 
 
 
 
 
Net loss
(72,158
)
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
397

 
 
 
 
 
 
 
 
Net loss attributable to ANGI Homeservices Inc. shareholders
$
(71,761
)
 
 
 
 
 
 
 
 

25


ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)


 
Three Months Ended September 30, 2016
 
Operating
income
(loss)
 
Stock-based
compensation
 
Depreciation
 
Amortization
of intangibles
 
Adjusted EBITDA
 
(In thousands)
North America
$
11,573

 
$
1,977

 
$
1,944

 
$
625

 
$
16,119

Europe
(2,730
)
 
414

 
82

 
101

 
(2,133
)
Total
8,843

 
$
2,391

 
$
2,026

 
$
726

 
$
13,986

Interest expense—related party
(156
)
 
 
 
 
 
 
 
 
Other income, net
195

 
 
 
 
 
 
 
 
Earnings before income taxes
8,882

 
 
 
 
 
 
 
 
Income tax provision
(4,414
)