Document
As filed with the Securities and Exchange Commission on November 9, 2018

 
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, 2018
Or
o

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. 001-38220
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12540992&doc=12
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 ý    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 ý

 
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 2, 2018, the following shares of the registrant's common stock were outstanding:
Class A Common Stock
74,873,502

Class B Common Stock
420,980,478

Class C Common Stock

Total outstanding Common Stock
495,853,980

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of November 2, 2018 was $1,419,808,435. For the purpose of the foregoing calculation only, 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 BALANCE SHEET
(Unaudited)
 
September 30, 2018
 
December 31, 2017
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
279,489

 
$
221,521

Marketable securities
34,865

 

Accounts receivable, net of allowance and reserves of $17,540 and $9,263, respectively
44,394

 
28,085

Other current assets
61,858

 
12,772

Total current assets
420,606

 
262,378

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $34,689 and $24,368, respectively
58,775

 
53,292

Goodwill
769,131

 
770,226

Intangible assets, net of accumulated amortization of $79,506 and $36,289, respectively
280,645

 
328,571

Deferred income taxes
42,471

 
50,723

Other non-current assets
7,427

 
2,072

TOTAL ASSETS   
$
1,579,055

 
$
1,467,262

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Current portion of long-term debt
$
13,750

 
$
13,750

Current portion of long-term debt—related party

 
816

Accounts payable
18,722

 
18,933

Deferred revenue
66,666

 
62,371

Accrued expenses and other current liabilities
81,471

 
75,171

Total current liabilities
180,609

 
171,041

 
 
 
 
Long-term debt, net
248,455

 
258,312

Long-term debt—related party, net
1,048

 
1,997

Deferred income taxes
3,615

 
5,626

Other long-term liabilities
11,610

 
5,892

 
 
 
 
Redeemable noncontrolling interests
21,942

 
21,300

 
 
 
 
Commitments and contingencies


 


 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Class A common stock, $0.001 par value; authorized 2,000,000 shares; 66,073 and 62,818 shares issued and outstanding, respectively
66

 
63

Class B convertible common stock, $0.001 par value; authorized 1,500,000 shares; 415,904 and 415,186 shares issued and outstanding, respectively
416

 
415

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

 

Additional paid-in capital
1,156,486

 
1,112,400

Accumulated deficit
(55,484
)
 
(121,764
)
Accumulated other comprehensive income
1,278

 
2,232

Total ANGI Homeservices Inc. shareholders' equity
1,102,762

 
993,346

Noncontrolling interests
9,014

 
9,748

Total shareholders' equity
1,111,776

 
1,003,094

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   
$
1,579,055

 
$
1,467,262

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,
 
2018
 
2017
 
2018
 
2017
 
(In thousands, except per share data)
Revenue
$
303,116

 
$
181,717

 
$
853,249

 
$
513,173

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
14,015

 
7,999

 
42,313

 
22,391

Selling and marketing expense
136,412

 
130,866

 
416,187

 
337,654

General and administrative expense
82,154

 
129,088

 
238,112

 
217,962

Product development expense
15,309

 
20,010

 
44,751

 
32,529

Depreciation
6,100

 
3,491

 
18,170

 
9,705

Amortization of intangibles
15,611

 
2,768

 
47,695

 
6,885

Total operating costs and expenses
269,601

 
294,222

 
807,228

 
627,126

Operating income (loss)
33,515

 
(112,505
)
 
46,021

 
(113,953
)
Interest expense—third party
(3,132
)
 

 
(8,797
)
 

Interest expense—related party
(23
)
 
(1,864
)
 
(102
)
 
(5,538
)
Other income, net
1,566

 
1,364

 
2,975

 
2,100

Earnings (loss) before income taxes
31,926

 
(113,005
)
 
40,097

 
(117,391
)
Income tax (provision) benefit
(5,140
)
 
40,847

 
598

 
71,095

Net earnings (loss)
26,786

 
(72,158
)
 
40,695

 
(46,296
)
Net (earnings) loss attributable to noncontrolling interests
(169
)
 
397

 
(64
)
 
1,402

Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders
$
26,617

 
$
(71,761
)
 
$
40,631

 
$
(44,894
)
 
 
 
 
 
 
 
 
Per share information attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
Basic earnings (loss) per share
$
0.06

 
$
(0.17
)
 
$
0.08

 
$
(0.11
)
Diluted earnings (loss) per share
$
0.05

 
$
(0.17
)
 
$
0.08

 
$
(0.11
)
 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$

 
$
9

 
$

 
$
19

Selling and marketing expense
868

 
19,709

 
2,526

 
20,402

General and administrative expense
19,326

 
71,732

 
60,331

 
86,650

Product development expense
2,280

 
12,530

 
6,576

 
13,209

Total stock-based compensation expense
$
22,474

 
$
103,980

 
$
69,433

 
$
120,280


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,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Net earnings (loss)
$
26,786

 
$
(72,158
)
 
$
40,695

 
$
(46,296
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(177
)
 
3,579

 
(1,628
)
 
5,592

Change in unrealized gains and losses on available-for-sale debt securities
(3
)
 

 
(3
)
 

Total other comprehensive (loss) income
(180
)
 
3,579

 
(1,631
)
 
5,592

Comprehensive income (loss)
26,606

 
(68,579
)
 
39,064

 
(40,704
)
Components of comprehensive loss (income) attributable to noncontrolling interests:
 
 
 
 
 
 
 
Net (earnings) loss attributable to noncontrolling interests
(169
)
 
397

 
(64
)
 
1,402

Change in foreign currency translation adjustment attributable to noncontrolling interests
367

 
(1
)
 
677

 
(523
)
Comprehensive loss attributable to noncontrolling interests
198

 
396

 
613

 
879

Comprehensive income (loss) attributable to ANGI Homeservices Inc. shareholders
$
26,804

 
$
(68,183
)
 
$
39,677

 
$
(39,825
)

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


5


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2018
(Unaudited)

 
 
 
 
ANGI Homeservices Inc. Shareholders' Equity
 
 
 
 
 
 
 
 
Class A
Common Stock
$0.001
Par Value
 
Class B
Convertible Common Stock
$0.001
Par Value
 
Class C
Common Stock
$0.001
Par Value
 
 
 
 
 
 
 
Total
ANGI Homeservices Inc. Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive Income
 
 
 
 
Total
Shareholders'
Equity
 
Redeemable
Noncontrolling
Interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Deficit
 
 
 
Noncontrolling
Interests
 
 
 
 
$
 
Shares
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2017
$
21,300

 
 
$
63

 
62,818

 
$
415

 
415,186

 
$

 

 
$
1,112,400

 
$
(121,764
)
 
$
2,232

 
$
993,346

 
$
9,748

 
$
1,003,094

Cumulative effect of adoption of ASU No. 2014-09

 
 

 

 

 

 

 

 

 
25,649

 

 
25,649

 

 
25,649

Net (loss) earnings
(142
)
 
 

 

 

 

 

 

 

 
40,631

 

 
40,631

 
206

 
40,837

Other comprehensive loss
(590
)
 
 

 

 

 

 

 

 

 

 
(954
)
 
(954
)
 
(87
)
 
(1,041
)
Stock-based compensation expense
1,084

 
 

 

 

 

 

 

 
68,349

 

 

 
68,349

 

 
68,349

Issuance of common stock pursuant to stock-based awards, net of withholding taxes

 
 
3

 
3,255

 

 

 

 

 
(23,545
)
 

 

 
(23,542
)
 

 
(23,542
)
Issuance of common stock to IAC pursuant to the employee matters agreement

 
 

 

 
1

 
718

 

 

 
(1
)
 

 

 

 

 

Purchase of noncontrolling interests
(53
)
 
 

 

 

 

 

 

 

 

 

 

 
(1,236
)
 
(1,236
)
Adjustment of redeemable noncontrolling interests to fair value
304

 
 

 

 

 

 

 

 
(304
)
 

 

 
(304
)
 

 
(304
)
Other
39

 
 

 

 

 

 

 

 
(413
)
 

 

 
(413
)
 
383

 
(30
)
Balance as of September 30, 2018
$
21,942

 
 
$
66

 
66,073

 
$
416

 
415,904

 
$

 

 
$
1,156,486

 
$
(55,484
)
 
$
1,278

 
$
1,102,762

 
$
9,014

 
$
1,111,776


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
 
Nine Months Ended September 30,
 
2018
 
2017
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
40,695

 
$
(46,296
)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
69,433

 
120,280

Amortization of intangibles
47,695

 
6,885

Bad debt expense
34,844

 
20,625

Depreciation
18,170

 
9,705

Deferred income taxes
(2,041
)
 
(71,446
)
Other adjustments, net
(107
)
 
(1,328
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(52,021
)
 
(30,080
)
Other assets
(19,040
)
 
(5,782
)
Accounts payable and other liabilities
11,303

 
45,480

Income taxes payable and receivable
1,402

 
22

Deferred revenue
3,378

 
7,788

Net cash provided by operating activities   
153,711

 
55,853

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired

 
(66,378
)
Capital expenditures
(32,886
)
 
(16,278
)
Purchases of marketable debt securities
(34,816
)
 

Proceeds from sale of fixed assets
10,412

 

Net cash used in investing activities   
(57,290
)
 
(82,656
)
Cash flows from financing activities:
 
 
 
Principal payments on term loan
(10,313
)
 

Proceeds from issuance of related party debt

 
131,360

Principal payments on related party debt
(1,904
)
 
(104,894
)
Proceeds from the exercise of stock options
2,876

 

Withholding taxes paid on behalf of employees on net settled stock-based awards
(27,206
)
 

Transfers from IAC/InterActiveCorp for periods prior to the Combination

 
24,178

Purchase of noncontrolling interests
(1,289
)
 
(12,574
)
Other, net
39

 
34

Net cash (used in) provided by financing activities   
(37,797
)
 
38,104

Total cash provided
58,624

 
11,301

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(223
)
 
1,507

Net increase in cash, cash equivalents, and restricted cash
58,401

 
12,808

Cash, cash equivalents, and restricted cash at beginning of period
221,521

 
46,925

Cash, cash equivalents, and restricted cash at end of period   
$
279,922

 
$
59,733

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
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 have collected more than 15 million reviews over the course of 20 years, allowing homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps, or by voice assistants. 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 September 30, 2018, IAC owned 86.3% and 98.4% of the economic and voting interest, respectively, of ANGI Homeservices.
The Company has two operating segments: (i) North America, which 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 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

8


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 fair value of the marketable debt securities; 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
ASU No. 2014-09, Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, which superseded nearly all previous revenue recognition guidance. 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 $8.0 million. See "Note 2—Revenue Recognition" for additional information on the impact to the Company.
The Company's disaggregated revenue disclosures are presented in "Note 9—Segment Information."
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 nine months ended September 30, 2018.

9


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



 
Three Months Ended September 30, 2018
 
Nine Months Ended September 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
$
286,594

 
$
286,594

 
$

 
$
800,125

 
$
800,125

 
$

Europe
16,522

 
16,522

 

 
53,124

 
53,124

 

Total
$
303,116

 
$
303,116

 
$

 
$
853,249

 
$
853,249

 
$

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 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
$
250,477

 
$
250,286

 
$
191

 
$
743,263

 
$
751,177

 
$
(7,914
)
Europe
19,124

 
19,066

 
58

 
63,965

 
64,013

 
(48
)
Total
$
269,601

 
$
269,352

 
$
249

 
$
807,228

 
$
815,190

 
$
(7,962
)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 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
$
36,117

 
$
36,308

 
$
(191
)
 
$
56,862

 
$
48,948

 
$
7,914

Europe
(2,602
)
 
(2,544
)
 
(58
)
 
(10,841
)
 
(10,889
)
 
48

Total
$
33,515

 
$
33,764

 
$
(249
)
 
$
46,021

 
$
38,059

 
$
7,962

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 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
$
26,786

 
$
26,933

 
$
(147
)
 
$
40,695

 
$
34,664

 
$
6,031

ASU No. 2016-18, Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, 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.

10


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



The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the total amounts shown in the consolidated statement of cash flows:
 
September 30, 2018
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Cash and cash equivalents
$
279,489

 
$
221,521

 
$
59,543

 
$
36,377

Restricted cash included in other current assets

 

 
190

 

Restricted cash included in other assets
433

 

 

 
10,548

Total cash, cash equivalents and restricted cash as shown on the consolidated statement of cash flows
$
279,922

 
$
221,521

 
$
59,733

 
$
46,925

Restricted cash at December 31, 2016 primarily includes 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
ASU No. 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, which supersedes existing guidance on accounting for leases 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. The Company will adopt the new lease guidance effective January 1, 2019. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, 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 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 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 solution to implement ASU No. 2016-02;
the Company has input lease summaries into the software solution;
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 internal controls related to the new standard.
Development of our selected software solution is ongoing, as it is not yet fully compliant with the requirements of ASU No. 2016-02. The timely readiness of the software solution is critical to ensure an efficient and effective adoption of ASU No. 2016-02. The Company's ability to calculate an estimate of the right of use asset and related liability is dependent upon the readiness of the software solution.
NOTE 2—REVENUE RECOGNITION

11


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



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
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 deferred revenue is 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 nine months ended September 30, 2018, the Company recognized $58.0 million of revenue that was included in the deferred revenue balance as of January 1, 2018. The deferred revenue balance as of June 30, 2018 is $70.4 million. During the three

12


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



months ended September 30, 2018, the Company recognized $36.5 million of revenue that was included in the deferred revenue balance as of July 1, 2018. The current and non-current deferred revenue balances at September 30, 2018 are $66.7 million and $0.7 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 nine months ended September 30, 2018, the Company recognized expense of $13.2 million and $36.9 million, respectively, related to the amortization of these costs. The current and non-current contract asset balances at September 30, 2018 are $37.3 million and $4.6 million, respectively. The current and non-current contract assets are included in “Other current assets” and "Other non-current assets," respectively, in the accompanying consolidated balance sheet.
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.

13


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



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 months ended September 30, 2018, the Company recorded an income tax provision of $5.1 million, which represents an effective income tax rate of 16% and is lower than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards. For the nine months ended September 30, 2018, the Company recorded an income tax benefit, despite pre-tax income, of $0.6 million due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards. For the three months ended September 30, 2017, the Company recorded an income tax benefit of $40.8 million which represents an effective income tax rate of 36%. The effective income tax rate was higher than the statutory rate of 35% due primarily to state income taxes, partially offset by unbenefited losses in separate jurisdictions. For the nine months ended September 30, 2017, the Company recorded an income tax benefit of $71.1 million 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. The Company was able to make a reasonable estimate of the impacts of the Tax Act in the fourth quarter of 2017. In the third quarter of 2018, the Company finalized its calculations related to the impacts of the Tax Act. No adjustment was made in the three and nine months ended September 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.
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 December 31, 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 not accurately anticipate actual outcomes and, therefore, may require periodic adjustments. 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 September 30, 2018 and December 31, 2017, unrecognized tax benefits, including interest, are $2.1 million and $1.5 million, respectively, for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at September 30, 2018 are subsequently recognized, income tax provision would be reduced by $2.1 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 September 30, 2018, the Company has a gross deferred tax asset of $79.9 million that the Company expects to fully utilize on a more likely than not basis.

14


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



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 September 30, 2018, the Company's ownership stake in MyHammer is approximately 83%.
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 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 equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination. The transaction related costs include severance and retention costs of $12.0 million related to the Combination.
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
 
(In thousands, except per share data)
Revenue
$
251,995

 
$
731,920

Net loss attributable to ANGI Homeservices Inc. shareholders
$
(7,172
)
 
$
(2,178
)
Basic loss per share attributable to ANGI Homeservices Inc. shareholders
$
(0.02
)
 
$
(0.01
)
Diluted loss per share attributable to ANGI Homeservices Inc. shareholders
$
(0.02
)
 
$
(0.01
)

15


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



NOTE 5—FINANCIAL INSTRUMENTS
Marketable Securities
At September 30, 2018, current available-for-sale marketable debt securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
(In thousands)
Treasury discount notes
$
34,867

 
$

 
$
(2
)
 
$
34,865

     Total available-for-sale marketable debt securities
$
34,867

 
$

 
$
(2
)
 
$
34,865

The Company did not hold any available-for-sale marketable debt securities prior to the third quarter of 2018.
The contractual maturities of debt securities classified as current available-for-sale at September 30, 2018 are within one year. There are no investments in available-for-sale marketable debt securities that have been in a continuous unrealized loss position for longer than twelve months as of September 30, 2018.
The specific-identification method is used to determine the cost of available-for-sale marketable debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. There were no proceeds from maturities and sales of available-for-sale marketable debt securities or gross realized gains or losses from the maturities and sales of available-for-sale marketable debt securities for the three months ended September 30, 2018.
Fair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
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.

16


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



The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
 
September 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
$
158,648

 
$

 
$

 
$
158,648

Commercial paper

 
48,048

 

 
48,048

Treasury discount notes

 
44,960

 

 
44,960

Time deposits

 
15,000

 

 
15,000

Marketable securities:
 
 
 
 
 
 
 
Treasury discount notes

 
34,865

 

 
34,865

Total
$
158,648

 
$
142,873

 
$

 
$
301,521

 
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
$
189,207

 
$
6,695

 
$

 
$
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:

17


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



 
September 30, 2018
 
December 31, 2017
 
Carrying value
 
Fair value
 
Carrying value
 
Fair value
 
(In thousands)
Current portion of long term debt
$
(13,750
)
 
$
(13,664
)
 
$
(13,750
)
 
$
(13,802
)
Long-term debt, net (a)
(248,455
)
 
(249,369
)
 
(258,312
)
 
(262,230
)
Current portion of long-term debt—related party

 

 
(816
)
 
(837
)
Long-term debt—related party, net
(1,048
)
 
(1,155
)
 
(1,997
)
 
(2,048
)
_________________
(a) 
At September 30, 2018 and December 31, 2017, the carrying value of long-term debt, net includes unamortized debt issuance costs of $2.5 million and $2.9 million, respectively.
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:
 
September 30, 2018
 
December 31, 2017
 
(In thousands)
Term Loan due November 1, 2022
$
264,688

 
$
275,000

Less: current portion of Term Loan
13,750

 
13,750

Less: unamortized debt issuance costs
2,483

 
2,938

Total long-term debt, net
$
248,455

 
$
258,312

See "Note 11—Related Party Transactions with IAC" for a description of related-party long-term debt.
At September 30, 2018 and December 31, 2017, the outstanding balance of the five-year term loan facility ("Term Loan") was $264.7 million and $275.0 million, respectively. The Term Loan bears interest at LIBOR plus 1.75%, or 4.10% at September 30, 2018, which is subject to change in future periods based on the Company's consolidated net leverage ratio. The Term Loan bore interest at LIBOR plus 2.00%, or 3.38%, at December 31, 2017. 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
The following tables present the components of accumulated other comprehensive income (loss) and items reclassified
out of accumulated other comprehensive income into earnings:

18


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



 
Three Months Ended September 30, 2018
 
Foreign
Currency
Translation
Adjustment
 
Unrealized Losses On Available-For-Sale Debt Securities
 
Accumulated
Other
Comprehensive
Income
 
(In thousands)
Balance at July 1
$
1,091

 
$

 
$
1,091

Other comprehensive income (loss)
190

 
(3
)
 
187

Balance at September 30
$
1,281

 
$
(3
)
 
$
1,278

 
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

 
Nine Months Ended September 30, 2018
 
Foreign
Currency
Translation
Adjustment
 
Unrealized Losses On Available-For-Sale Debt Securities
 
Accumulated
Other
Comprehensive
Income (Loss)
 
(In thousands)
Balance at January 1
$
2,232

 
$

 
$
2,232

Other comprehensive loss before reclassifications
(899
)
 
(3
)
 
(902
)
Amounts reclassified to earnings
(52
)
 

 
(52
)
Net current period other comprehensive loss
(951
)
 
(3
)
 
(954
)
Balance at September 30
$
1,281

 
$
(3
)
 
$
1,278

 
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

The amount reclassified out of foreign currency translation adjustment into earnings for the nine months ended September 30, 2018 relates to the liquidation of an international subsidiary.
At September 30, 2018 and 2017, there was no tax benefit or provision on the accumulated other comprehensive income.
NOTE 8—EARNINGS (LOSS) PER SHARE
The following tables set forth the computation of basic and diluted earnings (loss) per share attributable to ANGI Homeservices shareholders:

19


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



 
Three Months Ended September 30,
 
2018
 
2017
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
26,786

 
$
26,786

 
$
(72,158
)
 
$
(72,158
)
Net (earnings) loss attributable to noncontrolling interests
(169
)
 
(169
)
 
397

 
397

Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders
$
26,617

 
$
26,617

 
$
(71,761
)
 
$
(71,761
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
481,570

 
481,570

 
415,420

 
415,420

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

 
39,269

 

 

Denominator for earnings per share—weighted average shares
481,570

 
520,839

 
415,420

 
415,420

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
Earnings (loss) per share
$
0.06

 
$
0.05

 
$
(0.17
)
 
$
(0.17
)
 
Nine Months Ended September 30,
 
2018
 
2017
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
40,695

 
$
40,695

 
$
(46,296
)
 
$
(46,296
)
Net (earnings) loss attributable to noncontrolling interests
(64
)
 
(64
)
 
1,402

 
1,402

Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders
$
40,631

 
$
40,631

 
$
(44,894
)
 
$
(44,894
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
480,178

 
480,178

 
414,978

 
414,978

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

 
31,452

 

 

Denominator for earnings per share—weighted average shares
480,178

 
511,630

 
414,978

 
414,978

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
Earnings (loss) per share
$
0.08

 
$
0.08

 
$
(0.11
)
 
$
(0.11
)
________________________
(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 nine months ended September 30, 2018, 0.2 million and 0.3 million potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
(b) 
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.

20


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



Accordingly, the weighted average basic shares outstanding were used to compute diluted earnings per share amounts.
(c) 
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 respective reporting periods. For both the three and nine months ended September 30, 2018, 1.2 million shares underlying PSUs were excluded from the calculation of diluted earnings per share because the performance condition(s) had not been met.
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.
The following table presents revenue by reportable segment:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
North America
$
286,594

 
$
167,104

 
$
800,125

 
$
470,667

Europe
16,522

 
14,613

 
53,124

 
42,506

Total
$
303,116

 
$
181,717

 
$
853,249

 
$
513,173

The following table presents revenue disaggregated by service for the Company's reportable segments:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
North America
 
 
 
 
 
 
 
Marketplace:
 
 
 
 
 
 
 
Consumer connection revenue(a)
$
195,065

 
$
141,055

 
$
531,297

 
$
398,218

Membership subscription revenue
17,034

 
14,486

 
49,226

 
40,942

Other revenue
950

 
1,060

 
2,869

 
2,840

Marketplace revenue
213,049

 
156,601

 
583,392

 
442,000

Advertising & Other revenue(b)
73,545

 
10,503

 
216,733

 
28,667

Total North America revenue
286,594

 
167,104

 
800,125

 
470,667

Europe
 
 
 
 
 
 
 
Consumer connection revenue(a)
12,022

 
10,001

 
38,885

 
29,636

Membership subscription revenue
4,217

 
4,320

 
13,405

 
12,198

Advertising and other revenue
283

 
292

 
834

 
672

Total Europe revenue
16,522

 
14,613

 
53,124

 
42,506

Total revenue
$
303,116

 
$
181,717

 
$
853,249

 
$
513,173

___________________________
(a) 
Fees paid by service professionals for consumer matches.
(b) 
Includes Angie's List revenue from service professionals under contract for advertising and Angie's List membership subscription fees from consumers, as well as revenue from mHelpDesk, HomeStars and Felix.

21


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



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,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Revenue
 
 
 
 
 
 
 
United States
$
283,672

 
$
164,999

 
$
791,932

 
$
466,134

All other countries
19,444

 
16,718

 
61,317

 
47,039

Total
$
303,116

 
$
181,717

 
$
853,249

 
$
513,173

 
September 30, 2018
 
December 31, 2017
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets)
 
 
 
United States
$
53,635

 
$
49,356

All other countries
5,140

 
3,936

Total
$
58,775

 
$
53,292

The following tables present operating income (loss) and Adjusted EBTIDA by reportable segment:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
North America
$
36,117

 
$
(107,687
)
 
$
56,862

 
$
(99,479
)
Europe
(2,602
)
 
(4,818
)
 
(10,841
)
 
(14,474
)
Total
$
33,515

 
$
(112,505
)
 
$
46,021

 
$
(113,953
)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Adjusted EBITDA(c):
 
 
 
 
 
 
 
North America
$
78,613

 
$
60

 
$
186,306

 
$
31,356

Europe
$
(913
)
 
$
(2,326
)
 
$
(4,987
)
 
$
(8,439
)
___________________________
(c) 
The Company’s primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of amortization of intangible assets and impairments of goodwill and intangible assets, if applicable. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our 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.
The following tables reconcile operating income (loss) for the Company’s reportable segments and net earnings (loss) attributable to ANGI Homeservices Inc. shareholders to Adjusted EBITDA:

22


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



 
Three Months Ended September 30, 2018
 
Operating
income
(loss)
 
Stock-based
compensation expense
 
Depreciation
 
Amortization
of intangibles
 
Adjusted
EBITDA
 
(In thousands)
North America
$
36,117

 
$
22,256

 
$
5,563

 
$
14,677

 
$
78,613

Europe
(2,602
)
 
$
218

 
$
537

 
$
934

 
$
(913
)
Operating income
33,515

 
 
 
 
 
 
 
 
Interest expense—third party
(3,132
)
 
 
 
 
 
 
 
 
Interest expense—related party
(23
)
 
 
 
 
 
 
 
 
Other income, net
1,566

 
 
 
 
 
 
 
 
Earnings before income taxes
31,926

 
 
 
 
 
 
 
 
Income tax provision
(5,140
)
 
 
 
 
 
 
 
 
Net earnings
26,786

 
 
 
 
 
 
 
 
Net earnings attributable to noncontrolling interests
(169
)
 
 
 
 
 
 
 
 
Net earnings attributable to ANGI Homeservices Inc. shareholders
$
26,617

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
Operating
loss
 
Stock-based
compensation expense
 
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
)
Operating loss
(112,505
)
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 

23


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



 
Nine Months Ended September 30, 2018
 
Operating
income
(loss)
 
Stock-based
compensation expense
 
Depreciation
 
Amortization
of intangibles
 
Adjusted
EBITDA
 
(In thousands)
North America
$
56,862

 
$
68,652

 
$
16,491

 
$
44,301

 
$
186,306

Europe
(10,841
)
 
$
781

 
$
1,679

 
$
3,394

 
$
(4,987
)
Operating income
46,021

 
 
 
 
 
 
 
 
Interest expense—third party
(8,797
)
 
 
 
 
 
 
 
 
Interest expense—related party
(102
)