ANGI Homeservices Inc. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2017. The filing reflects a transformative period for ANGI Homeservices Inc. (formerly HomeAdvisor), marked by the completion of its combination with Angie's List on September 29, 2017. The company operates a digital marketplace connecting homeowners with service professionals across 10 brands in eight countries, organized into two segments: North America and Europe. As of the filing date, IAC/InterActiveCorp held approximately 87.1% of the economic interest and 98.5% of the voting interest.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2017 |
|---|---|---|
| Revenue | $181.7 million | $513.2 million |
| Operating Loss | $(112.5) million | $(114.0) million |
| Net Loss (GAAP) | $(72.2) million | $(46.3) million |
| Net Loss Attributable to Shareholders | $(71.8) million | $(44.9) million |
| Adjusted EBITDA | $(2.3) million | $22.9 million |
| Cash and Cash Equivalents | $59.5 million | $59.5 million (Ending Balance) |
| Long-Term Debt (Related Party) | $79.5 million | $79.5 million (Ending Balance) |
| Operating Cash Flow | N/A | $52.0 million |
Note: GAAP net loss for the nine months ended September 30, 2017, includes a significant income tax benefit of $71.1 million, largely driven by the adoption of ASU No. 2016-09 regarding stock-based compensation tax benefits.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 36% year-over-year for the quarter and 37% for the nine-month period. North America revenue grew 33% (quarter) and 35% (nine months), driven by a 25% increase in Marketplace Paying Service Professionals (172,000) and a 36% increase in Service Requests (5.0 million). Europe revenue surged 75% (quarter) and 58% (nine months) due to acquisitions (MyBuilder, MyHammer) and organic growth.
- Expense Surge: Operating expenses increased significantly due to the Angie's List combination.
- Stock-Based Compensation: Total expense was $104.0 million for the quarter and $120.3 million for the nine months, compared to $2.4 million and $6.7 million in the prior year periods. This spike is primarily due to $96.9 million in charges related to the modification and acceleration of equity awards in connection with the combination.
- Transaction Costs: The company incurred $26.0 million in transaction-related costs for the quarter and $29.7 million for the nine months.
- Profitability: The company shifted from an operating income of $8.8 million in the prior year quarter to an operating loss of $112.5 million. Adjusted EBITDA declined from $14.0 million to a loss of $2.3 million for the quarter, and from $32.6 million to $22.9 million for the nine months, reflecting heavy investment in marketing and transaction costs.
Outlook, Risks, and Unusual Items
- Subsequent Event (Financing): On November 1, 2017, the company entered into a credit agreement for a $275 million Term Loan. Proceeds were used to repay intercompany notes to IAC and for general corporate purposes. The loan bears interest at LIBOR plus 200 basis points.
- Accounting Changes: The company adopted ASU No. 2016-09 on January 1, 2017, which resulted in recognizing excess tax benefits from stock-based awards as a reduction to the income tax provision rather than equity. This contributed to the $71.1 million tax benefit for the nine-month period.
- Legal Proceedings: The company is defending a putative class action regarding service professional practices (Airquip, Inc. v. HomeAdvisor). Securities class actions challenging the Angie's List combination were dismissed with prejudice in September/October 2017 following supplemental disclosures.
- Risk Factors: Key risks include the ability to realize anticipated synergies from the Angie's List combination, integration challenges, foreign currency exchange fluctuations (9% of revenue is international), and reliance on IAC for certain services and financing.
Investor Verification Checklist
- Stock-Based Compensation Impact: Verify the sustainability of operating margins excluding the one-time $96.9 million equity award modification charge.
- Debt Structure: Review the terms of the new $275 million Term Loan and the remaining related-party debt obligations to IAC.
- Integration Progress: Monitor the integration of Angie's List systems and the realization of projected cost synergies.
- Adjusted EBITDA Trend: Assess whether the decline in Adjusted EBITDA is temporary due to transaction costs or indicative of structural margin pressure from increased marketing spend.
- Legal Exposure: Track the status of the Airquip class action litigation regarding service professional leads.