Document
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As filed with the Securities and Exchange Commission on May 8, 2020

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2020
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
 
https://cdn.kscope.io/1e41b94aa2cc5b48ae5260fb2258d666-angifinala15.jpg
ANGI HOMESERVICES INC.
(Exact name of registrant as specified in its charter)
Delaware
 
82-1204801
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3601 Walnut Street, Denver, CO 80205
(Address of registrant's principal executive offices)
(303963-7200
(Registrant's telephone number, including area code)
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

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     No 
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     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 

As of May 1, 2020, the following shares of the registrant's common stock were outstanding:
Class A Common Stock
73,414,282

Class B Common Stock
421,756,247

Class C Common Stock

Total outstanding Common Stock
495,170,529





TABLE OF CONTENTS
 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




2


PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
March 31, 2020
 
December 31, 2019
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
384,230

 
$
390,565

Accounts receivable, net of allowance and reserves of $22,421 and $20,293, respectively
44,238

 
41,669

Other current assets
65,661

 
67,759

Total current assets
494,129

 
499,993

 
 
 
 
Capitalized software, leasehold improvements and equipment, net of accumulated depreciation and amortization
103,806

 
103,361

Goodwill
879,093

 
883,960

Intangible assets, net of accumulated amortization
237,733

 
251,725

Deferred income taxes
80,901

 
72,581

Other non-current assets
107,082

 
109,991

TOTAL ASSETS
$
1,902,744

 
$
1,921,611

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

 
$
13,750

Accounts payable
33,999

 
25,987

Deferred revenue
57,869

 
58,220

Accrued expenses and other current liabilities
134,406

 
116,997

Total current liabilities
240,024

 
214,954

 
 
 
 
Long-term debt, net
228,643

 
231,946

Deferred income taxes
3,422

 
3,441

Other long-term liabilities
115,832

 
121,055

 
 
 
 
Redeemable noncontrolling interests
23,813

 
26,663

 
 
 
 
Commitments and contingencies


 


 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Class A common stock, $0.001 par value; authorized 2,000,000 shares; issued 87,624 and 87,007 shares, respectively, and outstanding 75,061 and 79,681, respectively
88

 
87

Class B convertible common stock, $0.001 par value; authorized 1,500,000 shares; 421,757 and 421,570 shares issued and outstanding
422

 
422

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

 

Additional paid-in capital
1,379,079

 
1,357,075

Retained earnings
7,074

 
16,032

Accumulated other comprehensive loss
(7,993
)
 
(1,379
)
Treasury stock, 12,562 and 7,326 shares, respectively
(96,920
)
 
(57,949
)
Total ANGI Homeservices Inc. shareholders' equity
1,281,750

 
1,314,288

Noncontrolling interests
9,260

 
9,264

Total shareholders' equity
1,291,010

 
1,323,552

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,902,744

 
$
1,921,611

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

3


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands, except per share data)
Revenue
$
343,650

 
$
303,443

Operating costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
33,229

 
10,011

Selling and marketing expense
189,959

 
175,302

General and administrative expense
94,556

 
84,429

Product development expense
17,084

 
15,804

Depreciation
12,138

 
6,999

Amortization of intangibles
12,980

 
14,539

Total operating costs and expenses
359,946

 
307,084

Operating loss
(16,296
)
 
(3,641
)
Interest expense
(2,274
)
 
(2,994
)
Other income, net
421

 
2,271

Loss before income taxes
(18,149
)
 
(4,364
)
Income tax benefit
8,965

 
14,215

Net (loss) earnings
(9,184
)
 
9,851

Net loss attributable to noncontrolling interests
226

 
118

Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
$
(8,958
)
 
$
9,969

 
 
 
 
(Loss) earnings per share information attributable to ANGI Homeservices Inc. shareholders:
 
 
 
Basic (loss) earnings per share
$
(0.02
)
 
$
0.02

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

 
 
 
 
Stock-based compensation expense by function:
 
 
 
Selling and marketing expense
$
1,003

 
$
959

General and administrative expense
22,980

 
16,107

Product development expense
1,592

 
2,216

Total stock-based compensation expense
$
25,575

 
$
19,282


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


4


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Net (loss) earnings
$
(9,184
)
 
$
9,851

Other comprehensive (loss) income:
 
 
 
Change in foreign currency translation adjustment
(6,568
)
 
1,865

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

 
(3
)
Total other comprehensive (loss) income
(6,568
)
 
1,862

Comprehensive (loss) income
(15,752
)
 
11,713

Components of comprehensive loss (income) attributable to noncontrolling interests:
 
 
 
Net loss attributable to noncontrolling interests
226

 
118

Change in foreign currency translation adjustment attributable to noncontrolling interests
(46
)
 
(192
)
Comprehensive loss (income) attributable to noncontrolling interests
180

 
(74
)
Comprehensive (loss) income attributable to ANGI Homeservices Inc. shareholders
$
(15,572
)
 
$
11,639


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


5


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2020 and 2019
(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
 
Retained Earnings (Accumulated Deficit)
 
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
 
 
 
$
 
Shares
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2019
$
26,663

 
 
$
87

 
87,007

 
$
422

 
421,570

 
$

 

 
$
1,357,075

 
$
16,032

 
$
(1,379
)
 
$
(57,949
)
 
$
1,314,288

 
$
9,264

 
$
1,323,552

Net (loss) earnings
(275
)
 
 

 

 

 

 

 

 

 
(8,958
)
 

 

 
(8,958
)
 
49

 
(8,909
)
Other comprehensive income (loss)
99

 
 

 

 

 

 

 

 

 

 
(6,614
)
 

 
(6,614
)
 
(53
)
 
(6,667
)
Stock-based compensation expense
15

 
 

 

 

 

 

 

 
22,211

 

 

 

 
22,211

 

 
22,211

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

 
 
1

 
617

 

 

 

 

 
(2,553
)
 

 

 

 
(2,552
)
 

 
(2,552
)
Issuance of common stock to IAC pursuant to the employee matters agreement

 
 

 

 

 
187

 

 

 
(791
)
 

 

 

 
(791
)
 

 
(791
)
Purchase of treasury stock

 
 

 

 

 

 

 

 

 

 

 
(38,971
)
 
(38,971
)
 

 
(38,971
)
Purchase of redeemable noncontrolling interests
(3,165
)
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to fair value
476

 
 

 

 

 

 

 

 
(476
)
 

 

 

 
(476
)
 

 
(476
)
Adjustment pursuant to the tax sharing agreement

 
 

 

 

 

 

 

 
3,613

 

 

 

 
3,613

 

 
3,613

Balance as of March 31, 2020
$
23,813

 
 
$
88

 
87,624

 
$
422

 
421,757

 
$

 

 
$
1,379,079

 
$
7,074

 
$
(7,993
)
 
$
(96,920
)
 
$
1,281,750

 
$
9,260

 
$
1,291,010

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


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

6


ANGI HOMESERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net (loss) earnings
$
(9,184
)
 
$
9,851

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
25,575

 
19,282

Amortization of intangibles
12,980

 
14,539

Bad debt expense
17,807

 
14,310

Depreciation
12,138

 
6,999

Deferred income taxes
(8,348
)
 
(14,377
)
Other adjustments, net
3,216

 
1,352

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
(21,226
)
 
(39,729
)
Other assets
3,043

 
1,159

Accounts payable and other liabilities
21,008

 
11,856

Income taxes payable and receivable
(873
)
 
146

Deferred revenue
(230
)
 
1,314

Net cash provided by operating activities
55,906

 
26,702

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

 
(20,341
)
Capital expenditures
(13,236
)
 
(15,177
)
Proceeds from maturities of marketable debt securities

 
25,000

Net proceeds from the sale of a business
767

 
23,655

Other, net

 
(103
)
Net cash (used in) provided by investing activities
(12,469
)
 
13,034

Cash flows from financing activities:
 
 
 
Principal payments on term loan
(3,438
)
 
(3,438
)
Principal payments on related party debt

 
(1,008
)
Purchase of treasury stock
(38,512
)
 

Proceeds from the exercise of stock options

 
573

Withholding taxes paid on behalf of employees on net settled stock-based awards
(3,222
)
 
(16,544
)
Distribution to IAC pursuant to the tax sharing agreement

 
(11,355
)
Purchase of noncontrolling interests
(3,165
)
 

Net cash used in financing activities
(48,337
)
 
(31,772
)
Total cash (used) provided
(4,900
)
 
7,964

Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1,327
)
 
401

Net (decrease) increase in cash and cash equivalents and restricted cash
(6,227
)
 
8,365

Cash and cash equivalents and restricted cash at beginning of period
391,478

 
338,821

Cash and cash equivalents and restricted cash at end of period
$
385,251

 
$
347,186

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

7



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 professionals across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers. Approximately 250,000 domestic service professionals find work through ANGI Homeservices, and consumers turn to at least one of our brands to find a professional for more than 25 million projects each year. We’ve established category-transforming products with brands such as HomeAdvisor, Angie’s List, Handy and Fixd Repair.
At March 31, 2020, IAC owned 84.9% and 98.3% of the economic interest 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 and Fixd Repair and (ii) Europe, which includes Travaux, MyHammer, MyBuilder, 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).
COVID-19 Update
The Company's business could be materially and adversely affected by the outbreak of COVID-19, which has been declared a "pandemic" by the World Health Organization.
To date, the Company has experienced a decline in demand for home services requests, driven primarily by decreases in demand in certain categories of jobs (particularly non-essential projects) and decreases in demand in regions most affected by the COVID-19 outbreak, which the Company attributes both to the unwillingness of consumers to interact with service professionals face-to-face or have service professionals in their homes, and to lower levels of consumer confidence and discretionary income generally.
The extent to which developments related to the COVID-19 outbreak and measures designed to curb its spread continue to impact the Company’s business, financial condition and results of operations will depend on future developments, all of which are highly uncertain and many of which are beyond the Company’s control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel, non-essential services (including those provided by certain of our service professionals) and other activity, and public reactions to these developments. For example, these developments and measures have resulted in rapid and adverse changes to the operating environment in which we do business, as well as significant uncertainty concerning the near and long term economic ramifications of the COVID-19 outbreak, which have adversely impacted our ability to forecast our results and respond in a timely and effective manner to trends related to the COVID-19 outbreak. The longer the global outbreak and measures designed to curb the spread of the virus continue to adversely affect levels of consumer confidence, discretionary spending and the willingness of consumers to interact with other consumers, vendors and service providers face-to-face (and in turn, adversely affect demand for the Company’s various products and services), the greater the adverse impact is likely to be on the Company’s business, financial condition and results of operations and the more limited will be the Company’s ability to try and make up for delayed or lost revenues.
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).

8

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



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 tax returns on a standalone, separate tax return basis. Any differences between taxes currently payable to or receivable from IAC under the tax sharing agreement between the Company and IAC and the current tax provision computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital and as financing activities within the statement of cash flows.
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 the Company's consolidated financial position, consolidated results of operations and consolidated 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 financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
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 fair values of cash equivalents; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; the carrying value of right-of-use assets ("ROU assets"); the useful lives and recoverability of definite-lived intangible assets and capitalized software, leasehold improvements and equipment; the recoverability of goodwill and indefinite-lived intangible assets; 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.
General Revenue Recognition
Revenue is recognized when control of the promised services or goods is transferred to the Company's customers and in the 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 7—Segment Information."
Prior to January 1, 2020, Handy recorded revenue on a net basis. Effective January 1, 2020, the Company modified the Handy terms and conditions so that Handy, rather than the service professional, has the contractual relationship with the consumer to deliver the service and Handy, rather than the consumer, has the contractual relationship with the service professional. Consumers request services and pay for such services directly through the Handy platform and then Handy fulfills the request with independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. This change in contractual terms requires gross revenue accounting treatment effective January 1, 2020. Also, in the case of certain tasks, HomeAdvisor provides a pre-priced product offering, pursuant to which consumers can request services through a HomeAdvisor platform and pay HomeAdvisor for the services directly. HomeAdvisor then fulfills the request with independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. Revenue from HomeAdvisor’s pre-priced product offering is also recorded on a gross basis effective January 1, 2020. In addition to changing the presentation of revenue to gross from net, the timing of revenue recognition will change for pre-priced jobs and will be later than the timing of existing consumer connection revenue for HomeAdvisor because the Company will not be able to record revenue, generally, until the service professional completes the job on the Company's behalf. The change to gross revenue reporting for Handy and HomeAdvisor’s pre-priced

9

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



product offering, effective January 1, 2020, resulted in an increase in revenue of $15.2 million during the three months ended March 31, 2020.
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 the Company's performance obligation is one year or less. The current and non-current deferred revenue balances at December 31, 2019 were $58.2 million and $0.2 million, respectively. During the three months ended March 31, 2020, the Company recognized $37.1 million of revenue that was included in the deferred revenue balance as of December 31, 2019. 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, 2020 are $57.9 million and $0.2 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 Accounting Standards Update ("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 the Company has 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 $43.2 million and $39.1 million at March 31, 2020 and December 31, 2019, respectively.
Allowance for Doubtful Accounts and Revenue Reserve
The following table presents the changes in the allowance for doubtful accounts for the three months ended March 31, 2020:
 
March 31, 2020
 
(In thousands)
Balance at January 1
$
19,066

Current period provision of bad debt
17,070

Write-offs charged against the allowance
(16,298
)
Recoveries collected
737

Balance at March 31
$
20,575


The revenue reserve was $1.8 million and $1.2 million at March 31, 2020 and December 31, 2019, respectively. The total allowance for doubtful accounts and revenue reserve was $22.4 million and $20.3 million as of March 31, 2020 and December 31, 2019, respectively.
Adoption of New Accounting Pronouncements
Adoption of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

10

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



The Company adopted ASU No. 2016-13 effective January 1, 2020. The standard significantly changes how entities measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 replaces the “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. The Company adopted ASU No. 2016-13 using the modified retrospective approach and there was no cumulative effect arising from the adoption. The adoption of ASU No. 2016-13 did not have a material impact on the Company's consolidated financial statements.
Adoption of ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
The Company adopted ASU No. 2019-12 effective January 1, 2020, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted ASU No. 2019-12 on January 1, 2020 using the modified retrospective basis for those amendments that are not applied on a prospective basis. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—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/provision have been computed for the Company on an as if standalone, separate return basis and payments to and refunds from IAC for the Company's share of IAC’s consolidated federal and state tax return liabilities/receivables calculated on this basis 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 and, therefore, ultimately governs the amount payable to or receivable from IAC with respect to income taxes. Any differences between taxes currently payable to or receivable from IAC under the tax sharing agreement and the current tax provision computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital in the consolidated statement of shareholders' equity and financing activities within the consolidated statement of cash flows.
At the end of each interim period, the Company estimates the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or the Company's 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on the Company's preliminary analysis of the CARES Act, ANGI expects to avail itself of the following:
accelerated depreciation deductions; and

11

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



a deferral of 2020 employer social security payroll taxes.

The Company continues to review and consider worldwide government programs related to the COVID-19 pandemic; however, the Company does not expect the impact of these programs to be material. 
For the three months ended March 31, 2020, the Company recorded an income tax benefit of $9.0 million, which represents an effective income tax rate of 49% and is higher than the statutory rate of 21% due primarily to a $5.7 million reduction to deferred taxes due to the true-up of the state tax rate for an indefinite-lived intangible asset, partially offset by unbenefited foreign losses. For the three months ended March 31, 2019, the Company recorded an income tax benefit of $14.2 million, which represents a rate higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards.
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 has substantially completed its audit of IAC’s federal income tax returns for the years ended December 31, 2010 through 2016, which includes the operations of the HomeAdvisor businesses, resulting in reductions to the research credits claimed. The IRS is expected to begin an audit of the year ended December 31, 2017 in the second quarter. The statute of limitations for the years 2010 through 2012 has been extended to November 30, 2020 and the statute of limitations for the years 2013 through 2016 has been extended to March 31, 2021. 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. The Company considers many factors when evaluating and estimating its 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, 2020 and December 31, 2019, unrecognized tax benefits, including interest, are $3.5 million and $4.1 million, respectively, was included in unrecognized tax positions for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at March 31, 2020 are subsequently recognized, the income tax provision would be reduced by $3.3 million. The comparable amount as of December 31, 2019 is $4.0 million. The Company believes it is reasonably possible that its unrecognized tax benefits could decrease by $0.5 million by March 31, 2021 due to settlements, all of 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, 2020, the Company has a United States ("U.S.") gross deferred tax asset of $183.0 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $64.7 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $118.3 million will be utilized based on forecasts of future taxable income.
NOTE 3—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
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.

12

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



Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities.
The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
 
March 31, 2020
 
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
$
306,515

 
$

 
$

 
$
306,515

Time deposits

 
2,776

 

 
2,776

Total
$
306,515

 
$
2,776

 
$

 
$
309,291

 
December 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
$
291,810

 
$

 
$

 
$
291,810

Time deposits

 
23,040

 

 
23,040

Total
$
291,810

 
$
23,040

 
$

 
$
314,850


Assets measured at fair value on a nonrecurring basis
The Company’s non-financial assets, such as goodwill, intangible assets, ROU assets, capitalized software, leasehold improvements 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:

13

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



 
March 31, 2020
 
December 31, 2019
 
Carrying value
 
Fair value
 
Carrying value
 
Fair value
 
(In thousands)
Current portion of long-term debt
$
(13,750
)
 
$
(13,750
)
 
$
(13,750
)
 
$
(13,681
)
Long-term debt, net (a)
(228,643
)
 
(230,313
)
 
(231,946
)
 
(232,581
)
_________________
(a) 
At March 31, 2020 and December 31, 2019, the carrying value of long-term debt, net includes unamortized debt issuance costs of $1.7 million and $1.8 million, respectively.
At March 31, 2020 and December 31, 2019, 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.
NOTE 4—LONG-TERM DEBT
Long-term debt consists of:
 
March 31, 2020
 
December 31, 2019
 
(In thousands)
Term Loan due November 5, 2023
$
244,063

 
$
247,500

Less: current portion of Term Loan
13,750

 
13,750

Less: unamortized debt issuance costs
1,670

 
1,804

Total long-term debt, net
$
228,643

 
$
231,946


See "Note 10—Related Party Transactions with IAC" for a description of long-term debt—related party.
Term Loan and Credit Facility
The outstanding balance of the term loan ("Term Loan") was $244.1 million and $247.5 million at March 31, 2020 and December 31, 2019, respectively. 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. Additionally, interest payments are due at least quarterly through the term of the loan. At both March 31, 2020 and December 31, 2019, the Term Loan bore interest at LIBOR plus 1.50%, or 2.28% and 3.25%, respectively. The spread over LIBOR is subject to change in future periods based on the Company's consolidated net leverage ratio.
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. At March 31, 2020, there were no limitations pursuant thereto. 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 $250 million revolving credit facility (the "Credit Facility") expires on November 5, 2023. At March 31, 2020 and December 31, 2019, 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 was 25 basis points at both March 31, 2020 and December 31, 2019. 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.
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.


14

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



NOTE 5—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive loss:
 
Three Months Ended March 31, 2020
 
Foreign
Currency
Translation
Adjustment
 
Accumulated
Other
Comprehensive Loss
 
(In thousands)
Balance at January 1
$
(1,379
)
 
$
(1,379
)
Other comprehensive loss
(6,614
)
 
(6,614
)
Balance at March 31
$
(7,993
)
 
$
(7,993
)

 
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
)

At both March 31, 2020 and 2019, there was no tax benefit or provision on the accumulated other comprehensive loss.
NOTE 6—(LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share attributable to ANGI Homeservices shareholders:

15

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



 
Three Months Ended March 31,
 
2020
 
2019
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net (loss) earnings
$
(9,184
)
 
$
(9,184
)
 
$
9,851

 
$
9,851

Net loss attributable to noncontrolling interests
226

 
226

 
118

 
118

Net (loss) earnings attributable to ANGI Homeservices Inc. shareholders
$
(8,958
)
 
$
(8,958
)
 
$
9,969

 
$
9,969

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
499,454

 
499,454

 
504,404

 
504,404

Dilutive securities (a) (b) (c)

 

 

 
18,721

Denominator for earnings per share—weighted average shares
499,454

 
499,454

 
504,404

 
523,125

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to ANGI Homeservices Inc. shareholders:
 
 
 
 
(Loss) earnings per share
$
(0.02
)
 
$
(0.02
)
 
$
0.02

 
$
0.02

________________________
(a) 
For the three months ended March 31, 2020, the Company had a loss from operations and as a result, approximately 38.0 million potentially dilutive securities were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute all earnings per share amounts.
(b) 
If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options, subsidiary denominated equity, and vesting of restricted stock units ("RSUs"). For the three months ended March 31, 2019, 4.2 million potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
(c) 
Market-based awards and performance-based stock units ("PSUs") are considered contingently issuable shares. Shares issuable upon exercise or vesting of market-based awards and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based awards and PSUs is dilutive for the respective reporting periods. For the three months ended March 31, 2019, 0.8 million shares underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the performance or market condition(s) had not been met.

NOTE 7—SEGMENT INFORMATION
The overall concept that the Company 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 target market.
The following table presents revenue by reportable segment:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Revenue:
 
 
 
North America
$
324,132

 
$
281,994

Europe
19,518

 
21,449

Total
$
343,650

 
$
303,443


16

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



The following table presents the revenue of the Company's segments disaggregated by type of service:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
North America
 
 
 
Marketplace:
 
 
 
Consumer connection revenue(a)
$
239,830

 
$
201,582

Service professional membership subscription revenue
14,115

 
16,517

Other revenue
4,831

 
2,401

Total Marketplace revenue
258,776

 
220,500

Advertising and other revenue(b)
65,356

 
61,494

Total North America revenue
324,132

 
281,994

Europe
 
 
 
Consumer connection revenue(a)
15,689

 
17,123

Service professional membership subscription revenue
3,299

 
3,742

Advertising and other revenue
530

 
584

Total Europe revenue
19,518

 
21,449

Total revenue
$
343,650

 
$
303,443

________________________
(a) 
Includes fees paid by service professionals for consumer matches and revenue from jobs sourced through the HomeAdvisor and Handy platforms.
(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 and HomeStars.
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below.
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Revenue
 
 
 
United States
$
319,821

 
$
278,478

All other countries
23,829

 
24,965

Total
$
343,650

 
$
303,443


 
March 31, 2020
 
December 31, 2019
 
(In thousands)
Long-lived assets (excluding goodwill, intangible assets and ROU assets)
 
 
 
United States
$
95,623

 
$
95,822

All other countries
8,183

 
7,539

Total
$
103,806

 
$
103,361


The following tables present operating (loss) income and Adjusted EBITDA by reportable segment:

17

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



 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Operating (loss) income:
 
 
 
North America
$
(8,108
)
 
$
742

Europe
(8,188
)
 
(4,383
)
Total
$
(16,296
)
 
$
(3,641
)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands)
Adjusted EBITDA(c):
 
 
 
North America
$
41,391

 
$
39,689

Europe
$
(6,994
)
 
$
(2,510
)
________________________
(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 the Company's performance and that of its competitors. The above items are excluded from the Company's Adjusted EBITDA measure because these items are non-cash in nature. Adjusted EBITDA has certain limitations because it excludes the impact of these expenses.
The following tables reconcile operating (loss) income to Adjusted EBITDA for the Company’s reportable segments:
 
Three Months Ended March 31, 2020
 
Operating
loss
 
Stock-based
compensation expense
 
Depreciation
 
Amortization
of intangibles
 
Adjusted
EBITDA
 
(In thousands)
North America
$
(8,108
)
 
$