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Table of Contents
As filed with the Securities and Exchange Commission on May 9, 2019

 
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 March 31, 2019
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. 001-38220
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12893439&doc=13
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.)
3601 Walnut Street, Denver, CO 80205
 (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 ý
 
Accelerated filer o
 
Non-accelerated filer o

 
Smaller reporting
 company o
 
Emerging growth
company o
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 o
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Class A Common Stock, par value $0.001
 
ANGI
 
The Nasdaq Stock Market LLC
As of May 3, 2019, the following shares of the registrant's common stock were outstanding:
Class A Common Stock
85,070,957

Class B Common Stock
421,452,486

Class C Common Stock

Total outstanding Common Stock
506,523,443

The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of May 3, 2019 was $1,565,336,645. For the purpose of the foregoing calculation only, 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 Financial Statements
ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
345,351

 
$
336,984

Marketable securities

 
24,947

Accounts receivable, net of allowance and reserves of $17,953 and $16,603, respectively
52,255

 
27,263

Other current assets
81,948

 
84,933

Total current assets
479,554

 
474,127

 
 
 
 
Right of use assets
91,650

 

Property and equipment, net of accumulated depreciation and amortization of $41,397 and $36,473, respectively
79,618

 
70,859

Goodwill
915,932

 
894,709

Intangible assets, net of accumulated amortization of $100,358 and $85,589, respectively
290,172

 
304,295

Deferred income taxes
54,870

 
40,837

Other non-current assets
8,406

 
23,200

TOTAL ASSETS
$
1,920,202

 
$
1,808,027

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

 
$
13,750

Accounts payable
21,803

 
20,083

Deferred revenue
62,941

 
61,417

Accrued expenses and other current liabilities
120,466

 
105,987

Total current liabilities
218,960

 
201,237

 
 
 
 
Long-term debt, net
241,664

 
244,971

Long-term debt—related party

 
1,015

Deferred income taxes
3,513

 
3,808

Other long-term liabilities
100,922

 
16,846

 
 
 
 
Redeemable noncontrolling interests
23,242

 
18,163

 
 
 
 
Commitments and contingencies


 


 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Class A common stock, $0.001 par value; authorized 2,000,000 shares; 84,718 and 80,515 shares issued and outstanding
85

 
81

Class B convertible common stock, $0.001 par value; authorized 1,500,000 shares; 421,452 and 421,118 shares issued and outstanding
421

 
421

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

 

Additional paid-in capital
1,331,371

 
1,333,097

Accumulated deficit
(8,828
)
 
(18,797
)
Accumulated other comprehensive loss
(191
)
 
(1,861
)
Total ANGI Homeservices Inc. shareholders' equity
1,322,858

 
1,312,941

Noncontrolling interests
9,043

 
9,046

Total shareholders' equity
1,331,901

 
1,321,987

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,920,202

 
$
1,808,027

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

3

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands, except per share data)
Revenue
$
303,443

 
$
255,311

Operating costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
10,011

 
13,595

Selling and marketing expense
175,302

 
137,932

General and administrative expense
84,429

 
76,270

Product development expense
15,804

 
15,780

Depreciation
6,999

 
6,184

Amortization of intangibles
14,539

 
16,306

Total operating costs and expenses
307,084

 
266,067

Operating loss
(3,641
)
 
(10,756
)
Interest expense—third party
(2,994
)
 
(2,654
)
Interest expense—related party
(16
)
 
(45
)
Other income, net
2,287

 
356

Loss before income taxes
(4,364
)
 
(13,099
)
Income tax benefit
14,215

 
3,985

Net earnings (loss)
9,851

 
(9,114
)
Net loss attributable to noncontrolling interests
118

 
229

Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders
$
9,969

 
$
(8,885
)
 
 
 
 
Per share information attributable to ANGI Homeservices Inc. shareholders:
Basic earnings (loss) per share
$
0.02

 
$
(0.02
)
Diluted earnings (loss) per share
$
0.02

 
$
(0.02
)
 
 
 
 
Stock-based compensation expense by function:
 
 
 
Cost of revenue
$

 
$

Selling and marketing expense
959

 
661

General and administrative expense
16,107

 
21,694

Product development expense
2,216

 
2,551

Total stock-based compensation expense
$
19,282

 
$
24,906


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


4

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Net earnings (loss)
$
9,851

 
$
(9,114
)
Other comprehensive income (loss):
 
 
 
Change in foreign currency translation adjustment
1,865

 
4,504

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

Total other comprehensive income
1,862

 
4,504

Comprehensive income (loss)
11,713

 
(4,610
)
Components of comprehensive loss (income) attributable to noncontrolling interests:
 
 
 
Net loss attributable to noncontrolling interests
118

 
229

Change in foreign currency translation adjustment attributable to noncontrolling interests
(192
)
 
(512
)
Comprehensive loss attributable to noncontrolling interests
(74
)
 
(283
)
Comprehensive income (loss) attributable to ANGI Homeservices Inc. shareholders
$
11,639

 
$
(4,893
)

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


5

Table of Contents

ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2019 and 2018
(Unaudited)

 
 
 
 
ANGI Homeservices Inc. Shareholders' Equity
 
 
 
 
 
 
 
 
Class A
Common Stock
$0.001
Par Value
 
Class B
Convertible Common Stock
$0.001
Par Value
 
Class C
Common Stock
$0.001
Par Value
 
 
 
 
 
 
 
Total
ANGI Homeservices Inc. Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive (Loss) Income
 
 
 
 
Total
Shareholders'
Equity
 
Redeemable
Noncontrolling
Interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Deficit
 
 
 
Noncontrolling
Interests
 
 
 
 
$
 
Shares
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2018
$
18,163

 
 
$
81

 
80,515

 
$
421

 
421,118

 
$

 

 
$
1,333,097

 
$
(18,797
)
 
$
(1,861
)
 
$
1,312,941

 
$
9,046

 
$
1,321,987

Net (loss) earnings
(109
)
 
 

 

 

 

 

 

 

 
9,969

 

 
9,969

 
(9
)
 
9,960

Other comprehensive income
186

 
 

 

 

 

 

 

 

 

 
1,670

 
1,670

 
6

 
1,676

Stock-based compensation expense
42

 
 

 

 

 

 

 

 
19,240

 

 

 
19,240

 

 
19,240

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

 
 
4

 
4,203

 

 

 

 

 
(15,191
)
 

 

 
(15,187
)
 

 
(15,187
)
Issuance of common stock to IAC pursuant to the employee matters agreement

 
 

 

 

 
334

 

 

 
(795
)
 

 

 
(795
)
 

 
(795
)
Adjustment of redeemable noncontrolling interests to fair value
4,960

 
 

 

 

 

 

 

 
(4,960
)
 

 

 
(4,960
)
 

 
(4,960
)
Other

 
 

 

 

 

 

 

 
(20
)
 

 

 
(20
)
 

 
(20
)
Balance as of March 31, 2019
$
23,242

 
 
$
85

 
84,718

 
$
421

 
421,452

 
$

 

 
$
1,331,371

 
$
(8,828
)
 
$
(191
)
 
$
1,322,858

 
$
9,043

 
$
1,331,901

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
(111
)
 
 

 

 

 

 

 

 

 
(8,885
)
 

 
(8,885
)
 
(118
)
 
(9,003
)
Other comprehensive income
375

 
 

 

 

 

 

 

 

 

 
3,992

 
3,992

 
137

 
4,129

Stock-based compensation expense
410

 
 

 

 

 

 

 

 
24,496

 

 

 
24,496

 

 
24,496

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

 
 

 
535

 

 

 

 

 
(1,143
)
 

 

 
(1,143
)
 

 
(1,143
)
Issuance of common stock to IAC pursuant to the employee matters agreement

 
 

 

 
1

 
699

 

 

 
(1
)
 

 

 

 

 

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 

 
(269
)
 
(269
)
Adjustment of redeemable noncontrolling interests to fair value
643

 
 

 

 

 

 

 

 
(643
)
 

 

 
(643
)
 

 
(643
)
Other
38

 
 

 

 

 

 

 

 
(85
)
 

 

 
(85
)
 
85

 

Balance as of March 31, 2018
$
22,655

 
 
$
63

 
63,353

 
$
416

 
415,885

 
$

 

 
$
1,135,024

 
$
(105,000
)
 
$
6,224

 
$
1,036,727

 
$
9,583

 
$
1,046,310


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

6

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ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
9,851

 
$
(9,114
)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
19,282

 
24,906

Amortization of intangibles
14,539

 
16,306

Bad debt expense
14,310

 
9,434

Depreciation
6,999

 
6,184

Deferred income taxes
(14,377
)
 
(4,178
)
Other adjustments, net
1,352

 
(63
)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
(39,729
)
 
(17,650
)
Other assets
1,159

 
(13,748
)
Accounts payable and other liabilities
11,856

 
(5,329
)
Income taxes payable and receivable
146

 
162

Deferred revenue
1,314

 
4,191

Net cash provided by operating activities
26,702

 
11,101

Cash flows from investing activities:
 
 
 
Acquisition, net of cash acquired
(20,341
)
 

Capital expenditures
(15,177
)
 
(8,886
)
Proceeds from maturities of marketable debt securities
25,000

 

Net proceeds from the sale of a business
23,655

 

Proceeds from sale of fixed assets

 
10,410

Other, net
(103
)
 

Net cash provided by investing activities
13,034

 
1,524

Cash flows from financing activities:
 
 
 
Principal payments on term loan
(3,438
)
 
(3,438
)
Principal payments on related party debt
(1,008
)
 
(618
)
Proceeds from the exercise of stock options
573

 
1,752

Withholding taxes paid on behalf of employees on net settled stock-based awards
(16,544
)
 
(2,925
)
Distribution to IAC pursuant to the tax sharing agreement
(11,355
)
 

Purchase of noncontrolling interests

 
(234
)
Other, net

 
39

Net cash used in financing activities
(31,772
)
 
(5,424
)
Total cash provided
7,964

 
7,201

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
401

 
22

Net increase in cash, cash equivalents, and restricted cash
8,365

 
7,223

Cash, cash equivalents, and restricted cash at beginning of period
338,821

 
221,521

Cash, cash equivalents, and restricted cash at end of period
$
347,186

 
$
228,744

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

7

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

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
ANGI Homeservices Inc. connects quality home service pros across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers. Over 250,000 service professionals find work through ANGI Homeservices, and consumers turn to at least one of our brands to find a pro for more than 20 million projects each year. We’ve established category-transforming products with brands such as HomeAdvisor®, Angie’s List® and Handy.
At March 31, 2019, IAC owned 83.3% and 98.0% of the economic and voting interest, respectively, of ANGI Homeservices.
The Company has two operating segments (i) North America (United States and Canada), which includes HomeAdvisor, Angie's List, Handy, mHelpDesk, HomeStars, Fixd Repair, LLC and Fixd Services LLC (collectively, "Fixd Repair") and Felix, for periods prior to its sale on December 31, 2018, and (ii) Europe, which includes Travaux, MyHammer, My Builder, Werkspot and Instapro.
As used herein, "ANGI Homeservices," the "Company," "ANGI," "we," "our" or "us" and similar terms refer to ANGI Homeservices Inc and its subsidiaries (unless the context requires otherwise).
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated.
For the purpose of these financial statements, income taxes have been computed as if ANGI Homeservices filed on a standalone, separate tax return basis.
In management's opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and 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 financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated 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 values of cash equivalents and 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.

8

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



Adoption of ASU No. 2016-02, Leases (Topic 842)
The Company adopted Accounting Standards Update 2016-02, Leases (Topic 842) ("ASC 842") effective January 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.
The adoption of ASC 842 resulted in the recognition of $69.4 million of right of use assets ("ROU assets") and related lease liabilities as of January 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. In addition, the adoption of ASC 842 did not impact the leverage calculation set forth in the agreement governing the Company's outstanding debt and revolving credit facility because, in each circumstance, the leverage calculation is not affected by the lease liabilities that were recorded upon adoption of ASC 842.
The Company adopted ASC 842 prospectively and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.
See "Note 3—Leases" for additional information on the adoption of ASC 842.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—REVENUE RECOGNITION
General Revenue Recognition
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 expects to be entitled to in exchange for those services or goods.
The Company's disaggregated revenue disclosures are presented in "Note 10—Segment Information."
Deferred Revenue
Deferred revenue consists of payments that are received or are contractually 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 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 current and non-current deferred revenue balances at December 31, 2018 are $61.4 million and $0.5 million, respectively. During the three months ended March 31, 2019, the Company recognized $36.4 million of revenue that was included in the deferred revenue balance as of December 31, 2018. The current and non-current deferred revenue balances at March 31, 2019 are $62.9 million and $0.4 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.
Practical Expedients and Exemptions
As permitted under the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.
For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred. The amount of capitalized sales commissions where the customer relationship period is greater than one year is $40.3 million and $38.8 million at March 31, 2019 and December 31, 2018, respectively.

9

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



NOTE 3—LEASES
The Company leases office space and equipment used in connection with its operations under various operating leases, the majority of which contain escalation clauses. The Company does not have any financing leases.
ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the present value of the Company’s obligation to make payments arising from leases. ROU assets and related lease liabilities are based on the present value of fixed lease payments over the lease term using the Company's incremental borrowing rate on the lease commencement date or January 1, 2019 for leases that commenced prior to that date. The Company combines the lease and non-lease components of lease payments in determining ROU assets and related lease liabilities. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option. Leases with an initial term of twelve months or less ("short-term leases") are not recorded on the accompanying consolidated balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases
 
Balance Sheet Classification
 
March 31, 2019
 
 
 
 
(In thousands)
Assets:
 
 
 
 
Right of use assets
 
Right of use assets
 
$
91,650

 
 
 
 
 
Liabilities:
 
 
 
 
Current lease liabilities
 
Accrued expenses and other current liabilities
 
11,706

Long-term lease liabilities
 
Other long-term liabilities
 
99,720

Total lease liabilities
 
 
 
$
111,426


Lease Cost
 
Income Statement Classification
 
Three Months Ended March 31, 2019
 
 
 
 
(In thousands)
Fixed lease cost
 
Selling and marketing expense
 
$
1,911

Fixed lease cost
 
General and administrative expense
 
1,785

Fixed lease cost
 
Product development expense
 
300

Total fixed lease cost (a)
 
 
 
3,996

Variable lease cost
 
Selling and marketing expense
 
304

Variable lease cost
 
General and administrative expense
 
191

Variable lease cost
 
Product development expense
 
30

Total variable lease cost
 
 
 
525

Net lease cost
 
 
 
$
4,521

________________________
(a) Includes approximately $0.3 million of short-term lease cost.

10

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



Maturities of lease liabilities(b):
 
 
March 31, 2019
 
 
(In thousands)
2019
 
$
12,387

2020
 
18,511

2021
 
17,919

2022
 
16,905

2023
 
16,035

After 2023
 
60,764

Total
 
142,521

     Less: Interest
 
31,095

Present value of lease liabilities
 
$
111,426

________________________
(b)    Lease payments exclude $30.8 million of legally binding minimum lease payments for leases signed but not yet commenced.
The following are the weighted average assumptions used for lease term and discount rate:
 
 
March 31, 2019
Remaining lease term
 
7.9 years

Discount rate
 
5.97
%

 
 
Three Months Ended March 31, 2019
 
 
(In thousands)
Other Information:
 
 
Right of use assets obtained in exchange for lease liabilities
 
$
27,862

Cash paid for amounts included in the measurement of lease liabilities
 
$
4,753


NOTE 4—INCOME TAXES
The Company 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. The Company’s 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 statement of cash flows. The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters. 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 for GAAP are payable to or receivable from IAC and are reflected as adjustments to additional paid-in capital.
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of

11

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



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 March 31, 2019, the Company recorded an income tax benefit of $14.2 million, which represents an effective income tax rate of 326% and is higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards. For the three months ended March 31, 2018, the Company recorded an income tax benefit of $4.0 million, which represents an effective income tax rate of 30% and was higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards and state taxes, partially offset by unbenefited foreign losses.
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 2015 has been extended to December 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 adjustment. 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 March 31, 2019 and December 31, 2018, unrecognized tax benefits, including interest, are $2.5 million and $2.4 million, respectively, for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at March 31, 2019 are subsequently recognized, the income tax provision would be reduced by $2.5 million. The comparable amount as of December 31, 2018 is $2.4 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $1.0 million due to potential settlements, which would reduce the income tax provision.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, 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 March 31, 2019, the Company has a U.S. gross deferred tax asset of $130.3 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $33.6 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $96.7 million will be utilized based on forecasts of future taxable income.
NOTE 5—BUSINESS COMBINATION
On October 19, 2018, the Company acquired 100% of Handy Technologies, Inc. ("Handy"), a leading platform in the United States for connecting individuals looking for household services. The Company's purchase accounting is not yet complete, including the determination of purchase price, the value of the indemnified liabilities and related assets and the allocation of purchase price to the fair value of assets acquired and liabilities assumed. There were no material adjustments recorded during the first quarter of 2019 related to purchase accounting and the preliminary values are not expected to be finalized until the fourth quarter of 2019.

12

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



Unaudited pro forma financial information
The unaudited pro forma financial information in the table below presents the combined results of the Company and Handy as if this acquisition had occurred on January 1, 2017. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisition actually occurred on January 1, 2017.
 
Three Months Ended March 31, 2018
 
(In thousands, except per share data)
Revenue
$
261,904

Net loss attributable to ANGI Homeservices Inc. shareholders
$
(10,723
)
Basic loss per share attributable to ANGI Homeservices Inc. shareholders
$
(0.02
)
Diluted loss per share attributable to ANGI Homeservices Inc. shareholders
$
(0.02
)

NOTE 6—FINANCIAL INSTRUMENTS
Marketable Debt Securities
The Company did not hold any available-for sale marketable debt securities at March 31, 2019.
At December 31, 2018, current available-for-sale marketable debt securities were as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
(In thousands)
Treasury discount notes
$
24,947

 
$
1

 
$
(1
)
 
$
24,947

Total available-for-sale marketable debt securities
$
24,947

 
$
1

 
$
(1
)
 
$
24,947


For the three months ended March 31, 2019, proceeds from maturities of available-for-sale marketable debt securities were $25.0 million. 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 gross realized gains or losses from the maturities of available-for-sale marketable debt securities for the three months ended March 31, 2019. The Company did not hold any available-for-sale marketable debt securities prior to the third quarter of 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.

13

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



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:
 
March 31, 2019
 
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
60,802

 
$

 
$

 
$
60,802

Treasury discount notes

 
147,339

 

 
147,339

Commercial paper

 
34,967

 

 
34,967

Time deposits

 
15,000

 

 
15,000

Total
$
60,802

 
$
197,306

 
$

 
$
258,108

 
December 31, 2018
 
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
137,359

 
$

 
$

 
$
137,359

Treasury discount notes

 
99,914

 

 
99,914

Commercial paper

 
52,931

 

 
52,931

Time deposits

 
15,000

 

 
15,000

Marketable securities:
 
 
 
 
 
 
 
Treasury discount notes

 
24,947

 

 
24,947

Total
$
137,359

 
$
192,792

 
$

 
$
330,151


Assets measured at fair value on a nonrecurring basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value only when an impairment 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:

14

Table of Contents
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



 
March 31, 2019
 
December 31, 2018
 
Carrying value
 
Fair value
 
Carrying value
 
Fair value
 
(In thousands)
Current portion of long-term debt
$
(13,750
)
 
$
(13,243
)
 
$
(13,750
)
 
$
(12,753
)
Long-term debt, net (a)
(241,664
)
 
(235,064
)
 
(244,971
)
 
(229,556
)
Long-term debt—related party, net

 

 
(1,015
)
 
(1,092
)
_________________
(a) 
At March 31, 2019 and December 31, 2018, the carrying value of long-term debt, net includes unamortized debt issuance costs of $2.4 million and $2.5 million, respectively.
At March 31, 2019 and December 31, 2018, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs. The fair value of long-term debt—related party, net was based on Level 3 inputs and was estimated by discounting the future cash flows based on current market conditions.
NOTE 7—LONG-TERM DEBT
Long-term debt consists of:
 
March 31, 2019
 
December 31, 2018
 
(In thousands)
Term Loan due November 5, 2023
$
257,813

 
$
261,250

Less: current portion of Term Loan
13,750

 
13,750

Less: unamortized debt issuance costs
2,399

 
2,529

Total long-term debt, net
$
241,664

 
$
244,971


See "Note 13—Related Party Transactions with IAC" for a description of long-term debt—related party.
Term Loan and Credit Facility
At March 31, 2019 and December 31, 2018, the outstanding balance of the five-year term loan facility ("Term Loan") was $257.8 million and $261.3 million, respectively. At both March 31, 2019 and December 31, 2018, the Term Loan bears interest at LIBOR plus 1.50%. The spread over LIBOR is subject to change in future periods based on the Company's consolidated net leverage ratio. The interest rate was 4.00% and 3.98% at March 31, 2019 and December 31, 2018, respectively. Interest payments are due at least quarterly through the term of the loan. Additionally, there are quarterly principal payments of $3.4 million through December 31, 2021, $6.9 million for the one year period ending December 31, 2022 and $10.3 million through maturity of the loan when the final amount of $161.6 million is due.
The terms of the Term Loan require the Company to maintain a consolidated net leverage ratio of not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less than 2.0 to 1.0 (in each case as defined in the credit agreement). The Term Loan also contains covenants that would limit the Company's ability to pay dividends, make distributions or repurchase its stock in the event a default has occurred or its consolidated net leverage ratio exceeds 4.25 to 1.0. There are additional covenants under the Term Loan that limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions.
On November 5, 2018, the Company entered into a five-year $250 million revolving credit facility (the "Credit Facility"). At March 31, 2019 and December 31, 2018, there were no outstanding borrowings under the Credit Facility. The annual commitment fee on undrawn funds is based on the consolidated net leverage ratio most recently reported, and is 25 basis points at both March 31, 2019 and December 31, 2018. Borrowings under the Credit Facility bear interest, at the Company's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is based on the Company's consolidated net leverage ratio. The financial and other covenants are the same as those for the Term Loan.

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



The Term Loan and Credit Facility are guaranteed by the Company's wholly-owned material domestic subsidiaries and are secured by substantially all assets of the Company and the guarantors, subject to certain exceptions.
NOTE 8—ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive income into earnings:
 
Three Months Ended March 31, 2019
 
Foreign
Currency
Translation
Adjustment
 
Unrealized Gains (Losses) On Available-For-Sale Debt Securities
 
Accumulated
Other
Comprehensive (Loss) Income
 
(In thousands)
Balance at January 1
$
(1,864
)
 
$
3

 
$
(1,861
)
Other comprehensive income (loss)
1,673

 
(3
)
 
1,670

Balance at March 31
$
(191
)
 
$

 
$
(191
)

 
Three Months Ended March 31, 2018
 
Foreign
Currency
Translation
Adjustment
 
Accumulated
Other
Comprehensive
Income
 
(In thousands)
Balance at January 1
$
2,232

 
$
2,232

Other comprehensive income before reclassifications
3,853

 
3,853

Amounts reclassified to earnings
139

 
139

Net current period other comprehensive income
3,992

 
3,992

Balance at March 31
$
6,224

 
$
6,224


The amount reclassified out of foreign currency translation adjustment into earnings for the three months ended March 31, 2018 relates to the liquidation of an international subsidiary.
At both March 31, 2019 and 2018, there was no tax benefit or provision on the accumulated other comprehensive (loss) income.
NOTE 9—EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to ANGI Homeservices shareholders:

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Table of Contents
ANGI HOMESERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



 
Three Months Ended March 31,
 
2019
 
2018
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
9,851

 
$
9,851

 
$
(9,114
)
 
$
(9,114
)
Net loss attributable to noncontrolling interests
118

 
118

 
229

 
229

Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders
$
9,969

 
$
9,969

 
$
(8,885
)
 
$
(8,885
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
504,404

 
504,404

 
478,309

 
478,309

Dilutive securities (a) (b) (c)

 
18,721

 

 

Denominator for earnings per share—weighted average shares
504,404

 
523,125

 
478,309

 
478,309

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
Earnings (loss) per share
$
0.02

 
$
0.02