Zillow Group Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

z-20200331

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


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36853

_____________________________________________________

ZILLOW GROUP, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________


Washington						47-1645716
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

1301 Second Avenue, Floor 31,

Seattle, Washington 98101

(Address of principal executive offices) (Zip Code)

(206) 470-7000

@ZillowGroup

(Registrant’s telephone number, including area code)

_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	ZG	The Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per share	Z	The Nasdaq Global Select Market

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 (§232.405 of this chapter) 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 April 30, 2020, 59,476,313 shares of Class A common stock, 6,217,447 shares of Class B common stock, and 147,230,433 shares of Class C capital stock were outstanding.

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ZILLOW GROUP, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended March 31, 2020

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As used in this Quarterly Report on Form 10-Q, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item IA (Risk Factors) in this Quarterly Report on Form 10-Q, including, but not limited to:

•the impact of the novel coronavirus (“COVID-19”) pandemic and any associated economic downturn on our future financial position, operations and financial performance;

•the magnitude, duration and severity of the COVID-19 pandemic;

•the impact of actions taken by governments, businesses, and individuals in response to the COVID-19 pandemic;

•the current and future health and stability of the economy and residential housing market, including any extended slowdown in the real estate markets as a result of COVID-19;

•changes in laws or regulations applicable to our business, employees, products or services, including current and future laws, regulations and orders that limit our ability to operate in light of COVID-19;

•changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit;

•actual or anticipated fluctuations in our financial condition and results of operations;

•changes in projected operational and financial results;

•addition or loss of significant customers;

•actual or anticipated changes in our growth rate relative to that of our competitors;

•acquisitions, strategic partnerships, joint ventures, capital-raising activities, or other corporate transactions or commitments by us or our competitors;

•actual or anticipated changes in technology, products, markets or services by us or our competitors;

•ability to obtain or maintain licenses and permits to support our current and future businesses;

•actual or anticipated changes to our products and services;

•ability to maintain or establish relationships with listings and data providers;

•fluctuations in the valuation of companies perceived by investors to be comparable to us; and

•issuance of new or updated research or reports by securities analysts.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

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WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission, or SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, are available on our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this quarterly report on Form 10-Q or any other document we file with the SEC.

Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters and for complying with its disclosure obligations under Regulation FD:

•Zillow Group Investor Relations Webpage (http://investors.zillowgroup.com)

•Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)

•Zillow Group Twitter Account (https://twitter.com/zillowgroup)

The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this quarterly report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and Twitter account are as inactive textual references only.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)


	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,567,710	$	1,141,263
Short-term investments	993,258		1,280,989
Accounts receivable, net of allowance for doubtful accounts of $4,495 and $4,522 at March 31, 2020 and December 31, 2019, respectively	71,782		67,005
Mortgage loans held for sale	36,848		36,507
Inventory	533,989		836,627
Prepaid expenses and other current assets	57,635		58,117
Restricted cash	56,428		89,646
Total current assets	3,317,650		3,510,154
Contract cost assets	46,565		45,209
Property and equipment, net	188,032		170,489
Right of use assets	205,688		212,153
Goodwill	1,984,907		1,984,907
Intangible assets, net	112,274		190,567
Other assets	16,624		18,494
Total assets	$	5,871,740	$	6,131,973
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	17,819	$	8,343
Accrued expenses and other current liabilities	88,897		85,442
Accrued compensation and benefits	32,838		37,805
Borrowings under credit facilities	466,647		721,951
Deferred revenue	35,347		39,747
Lease liabilities, current portion	20,290		17,592
Convertible senior notes, current portion	9,637		9,637
Total current liabilities	671,475		920,517
Lease liabilities, net of current portion	216,122		220,445
Long-term debt	1,565,949		1,543,402
Deferred tax liabilities and other long-term liabilities	2,433		12,188
Total liabilities	2,455,979		2,696,552
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 59,476,188 and 58,739,989 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	6		6
Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding as of March 31, 2020 and December 31, 2019	1		1
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 147,219,504 and 144,109,419 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	15		14
Additional paid-in capital	4,551,866		4,412,200
Accumulated other comprehensive income	4,286		340
Accumulated deficit	(1,140,413)		(977,140)
Total shareholders’ equity	3,415,761		3,435,421
Total liabilities and shareholders’ equity	$	5,871,740	$	6,131,973

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data, unaudited)


	Three Months Ended March 31,
	2020		2019
Revenue:
Homes	$	769,873	$	128,472
IMT	330,666		298,272
Mortgages	25,282		27,360
Total revenue	1,125,821		454,104
Cost of revenue (exclusive of amortization) (1):
Homes	732,199		122,419
IMT	24,318		24,251
Mortgages	5,155		4,678
Total cost of revenue	761,672		151,348
Sales and marketing	204,648		161,587
Technology and development	134,918		107,770
General and administrative	92,285		95,774
Impairment costs	76,800		—
Integration costs	—		352
Total costs and expenses	1,270,323		516,831
Loss from operations	(144,502)		(62,727)
Other income	9,593		9,168
Interest expense	(37,592)		(16,466)
Loss before income taxes	(172,501)		(70,025)
Income tax benefit	9,228		2,500
Net loss	$	(163,273)	$	(67,525)
Net loss per share — basic and diluted	$	(0.78)	$	(0.33)
Weighted-average shares outstanding — basic and diluted	210,674		204,514
____________________ (1) Amortization of website development costs and intangible assets included in technology and development	$	17,184	$	14,400

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, unaudited)


	Three Months Ended March 31,
	2020		2019
Net loss	$	(163,273)	$	(67,525)
Other comprehensive income:
Unrealized gains on investments	3,602		1,144
Reclassification adjustment for net investment losses included in net loss	434		—
Net unrealized gains on investments	4,036		1,144
Currency translation adjustments	(90)		(42)
Total other comprehensive income	3,946		1,102
Comprehensive loss	$	(159,327)	$	(66,423)

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data, unaudited)


	Class A Common Stock, Class B Common Stock and Class C Capital Stock							Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders’ Equity

		Shares			Amount
Balance at December 31, 2019	209,066,855		$	21		$	4,412,200	$	(977,140)	$	340	$	3,435,421
Issuance of common and capital stock upon exercise of stock options	3,207,375		1			92,201		—		—		92,202
Vesting of restricted stock units	638,909		—			—		—		—		—
Share-based compensation expense	—		—			47,465		—		—		47,465
Net loss	—		—			—		(163,273)		—		(163,273)
Other comprehensive income	—		—			—		—		3,946		3,946
Balance at March 31, 2020	212,913,139		$	22		$	4,551,866	$	(1,140,413)	$	4,286	$	3,415,761


	Class A Common Stock, Class B Common Stock and Class C Capital Stock							Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity

		Shares			Amount
Balance at December 31, 2018	203,904,265		$	21		$	3,939,842	$	(671,779)	$	(905)	$	3,267,179
Issuance of common and capital stock upon exercise of stock options	729,788		—			13,564		—		—		13,564
Vesting of restricted stock units	496,347		—			—		—		—		—
Shares and value of restricted stock units withheld for tax liability	(68)		—			(2)		—		—		(2)
Share-based compensation expense	—		—			68,814		—		—		68,814
Net loss	—		—			—		(67,525)		—		(67,525)
Other comprehensive income	—		—			—		—		1,102		1,102
Balance at March 31, 2019	205,130,332		$	21		$	4,022,218	$	(739,304)	$	197	$	3,283,132

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Three Months Ended March 31,
	2020		2019
Operating activities
Net loss	$	(163,273)	$	(67,525)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	29,026		20,525
Share-based compensation expense	43,795		66,124
Amortization of right of use assets	6,465		4,440
Amortization of contract cost assets	8,415		8,746
Amortization of discount and issuance costs on convertible senior notes maturing in 2021, 2023, 2024 and 2026	22,547		8,840
Impairment costs	76,800		—
Deferred income taxes	(9,228)		(2,500)
Loss on disposal of property and equipment and other assets	1,952		1,704
Credit loss expense	558		128
Net loss on investment securities	434		—
Accretion of bond discount	(473)		(1,733)
Changes in operating assets and liabilities:
Accounts receivable	(5,335)		(4,650)
Mortgage loans held for sale	(341)		5,940
Inventory	302,593		(162,325)
Prepaid expenses and other assets	(2,916)		(8,537)
Lease liabilities	(1,625)		(7,010)
Contract cost assets	(9,771)		(9,103)
Accounts payable	7,673		(133)
Accrued expenses and other current liabilities	4,588		328
Accrued compensation and benefits	(4,967)		(1,088)
Deferred revenue	(4,400)		2,025
Other long-term liabilities	(527)		290
Net cash provided by (used in) operating activities	301,990		(145,514)
Investing activities
Proceeds from maturities of investments	296,272		302,187
Proceeds from sales of investments	53,997		—
Purchases of investments	(58,459)		(176,412)
Purchases of property and equipment	(32,966)		(14,202)
Purchases of intangible assets	(4,503)		(3,269)
Net cash provided by investing activities	254,341		108,304
Financing activities
Proceeds from borrowings on credit facilities	34,460		129,328
Repayments of borrowings on credit facilities	(294,150)		—
Net borrowings (repayments) on warehouse lines of credit and repurchase agreement	4,386		(5,025)
Proceeds from exercise of stock options	92,202		13,564
Value of equity awards withheld for tax liability	—		2
Net cash provided by (used in) financing activities	(163,102)		137,869
Net increase in cash, cash equivalents and restricted cash during period	393,229		100,659
Cash, cash equivalents and restricted cash at beginning of period	1,230,909		663,443
Cash, cash equivalents and restricted cash at end of period	$	1,624,138	$	764,102
Supplemental disclosures of cash flow information
Cash paid for interest	$	17,038	$	4,956
Noncash transactions:
Capitalized share-based compensation	$	3,670	$	2,690
Write-off of fully depreciated property and equipment	$	4,143	$	6,269
Write-off of fully amortized intangible assets	$	—	$	3,200
Property and equipment purchased on account	$	9,445	$	4,792

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Organization and Description of Business

Zillow Group, Inc., the largest portfolio of real estate brands on mobile and the web, is building an on-demand real estate experience. Whether selling, buying, renting or financing, customers can turn to the businesses of its flagship brand, Zillow, to find and get into their next home with speed, certainty and ease.

In addition to Zillow’s for-sale and rental listings, Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Closing Services now offers title and escrow services as another important step to unify the real estate transaction. Zillow Home Loans, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase.

Other consumer brands include Trulia, StreetEasy, HotPads, Naked Apartments and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions which include Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia, Inc. (“Trulia”). Upon the closing of the Trulia acquisition in February 2015, each of Zillow, Inc. and Trulia became wholly owned subsidiaries of Zillow Group.

Certain Significant Risks and Uncertainties

We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic; rates of revenue growth; our ability to manage advertising inventory or pricing; engagement and usage of our products; our investment of resources to pursue strategies that may not prove effective; competition in our market; the stability of the residential real estate market and the impact of interest rate changes; changes in technology, products, markets or services by us or our competitors; addition or loss of significant customers; our ability to maintain or establish relationships with listings and data providers; our ability to obtain or maintain licenses and permits to support our current and future businesses; actual or anticipated changes to our products and services; changes in government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; management of our growth; our ability to attract and retain qualified employees and key personnel; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; protection of customers’ information and other privacy concerns; protection of our brand and intellectual property; and intellectual property infringement and other claims, among other things.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 19, 2020. The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2020, and our results of operations, comprehensive loss, shareholders’ equity and cash flows for the three month periods ended March 31, 2020 and 2019. The results of the three month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any interim period or for any other future year.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the net realizable value of inventory, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets with definite lives, share-based compensation, income taxes, business combinations and the recoverability of goodwill and indefinite-lived intangible assets, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The COVID-19 pandemic has introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the estimates previously listed, among others.

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance related to a customer’s accounting for implementation costs incurred in hosting arrangements. The guidance conforms the requirements for capitalizing implementation costs incurred in cloud computing arrangements that are service contracts with the accounting guidance that provides for the capitalization of costs incurred to develop or obtain internal-use software. Under the guidance, implementation costs that are capitalized should be characterized in financial statements in the same manner as other service costs and assets related to service costs and amortized over the term of the hosting arrangement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. Entities are permitted to apply either a retrospective or prospective transition approach to adopt this guidance. We adopted this guidance on January 1, 2020 using the prospective transition approach under which we apply the guidance to all eligible costs incurred subsequent to adoption. Under the guidance, we capitalize eligible implementation costs associated with cloud computing arrangements that are service contracts within prepaid expenses and other current assets or other long-term assets in our condensed consolidated balance sheets, depending on the length of the underlying cloud computing contract. We amortize these costs on a straight-line basis over the term of the hosting arrangement. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. This guidance removes, modifies and adds disclosures related to certain assets and liabilities measured at fair value. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim and annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We adopted this guidance on January 1, 2020. We have not historically recorded material amounts of Level 3 assets and liabilities or material transfers of assets or liabilities between levels within the fair value hierarchy and therefore, the adoption of this guidance did not have a material impact on our disclosures. Refer to Note 3 for further information regarding the assets and liabilities we measure at fair value.

In June 2016, and subsequently amended in April 2019, May 2019 and November 2019, the FASB issued guidance on the measurement of credit losses on financial assets. This guidance requires an entity to measure and recognize expected credit losses for certain financial instruments and financial assets, including trade receivables. This guidance requires an entity to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument on initial recognition and at each reporting period, whereas current guidance employs an incurred loss methodology. This guidance is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The adoption of this guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We adopted this guidance on January 1, 2020 with no material impact to our financial position, results of operation or cash flows.

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Recently Issued Accounting Standards Not Yet Adopted

In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We expect to apply some of the expedients and exceptions provided in this guidance to our credit facilities, warehouse line of credit and master repurchase agreement, all of which reference LIBOR in the applicable interest rate. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations or cash flows.

Note 3. Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

We applied the following methods and assumptions in estimating our fair value measurements:

Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets. The fair value measurement of commercial paper is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Restricted cash — Restricted cash consists of cash received from the resale of homes through Zillow Offers which may be used to repay amounts borrowed on our credit facilities (see Note 12) and amounts held in escrow related to funding home purchases in our mortgage origination business. The carrying value of restricted cash approximates fair value due to the short period of time amounts borrowed on the credit facilities are outstanding and amounts are held in escrow.

Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics.

Interest rate lock commitments — The fair value of interest rate lock commitments “IRLCs” is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. We generally only issue IRLCs for products that meet specific purchaser guidelines. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an interest rate lock commitment will ultimately result in a closed loan.

The pull-through rate is based on estimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within Mortgages revenue in our condensed consolidated statements of operations.

Table of Contents

The following table presents the range and weighted average pull-through rates used in determining the fair value of IRLCs as of the periods presented:


	March 31, 2020	December 31, 2019
Range	43% - 100%	56% - 100%
Weighted average	75%	78%

Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments are calculated by reference to quoted prices for similar assets.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands):


	March 31, 2020
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,356,139	$	1,356,139	$	—	$	—
Commercial paper	9,389		—		9,389		—
Short-term investments:
U.S. government agency securities	713,581		—		713,581		—
Commercial paper	103,646		—		103,646		—
Treasury bills	82,578		—		82,578		—
Corporate notes and bonds	69,265		—		69,265		—
Municipal securities	23,192		—		23,192		—
Certificates of deposit	996		—		996		—
Mortgage origination-related:
Mortgage loans held for sale	36,848		—		36,848		—
IRLCs	2,225		—		—		2,225
Forward contracts - other current liabilities	2,039		—		2,039		—
Total	$	2,399,898	$	1,356,139	$	1,041,534	$	2,225

Table of Contents


	December 31, 2019
	Total		Level 1		Level 2
Cash equivalents:
Money market funds	$	872,431	$	872,431	$	—
U.S. government agency securities	35,009		—		35,009
Commercial paper	31,113		—		31,113
Treasury bills	6,441		—		6,441
Corporate notes and bonds	1,065		—		1,065
Certificates of deposit	249		—		249
Short-term investments:

Price	29.53	EPS	-1
Shares	207	P/E	-30
MCap	6,113	P/FCF	-9
Net Debt	-920	EBIT	-208
TEV	5,193	TEV/EBIT	-25
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-02-19
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-02-21
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-06-30	Filed 2018-08-06
10-Q	2018-03-31	Filed 2018-05-08
10-K	2017-12-31	Filed 2018-02-15
10-Q	2017-09-30	Filed 2017-11-07
10-Q	2017-06-30	Filed 2017-08-08
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-02-07
10-Q	2016-09-30	Filed 2016-11-02
10-Q	2016-06-30	Filed 2016-08-05
10-Q	2016-03-31	Filed 2016-05-04
10-K	2015-12-31	Filed 2016-02-12
10-Q	2015-09-30	Filed 2015-11-05
10-Q	2015-06-30	Filed 2015-08-05
10-Q	2015-03-31	Filed 2015-05-12

EX-10.1	q12020form10-qex101.htm
EX-31.1	q12020form10-qex311.htm
EX-31.2	q12020form10-qex312.htm
EX-32.1	q12020form10-qex321.htm
EX-32.2	q12020form10-qex322.htm


		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	56

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 6.	Exhibits	60

	Signatures	61

8-K	2020-06-09
8-K	2020-06-02
8-K	2020-05-15
8-K	2020-05-12
8-K	2020-05-07
8-K	2020-04-06
8-K	2020-03-23
8-K	2020-03-23
8-K	2020-03-17
8-K	2020-02-19
8-K	2019-11-18
8-K	2019-11-07
8-K	2019-10-04
8-K	2019-09-04
8-K	2019-09-04
8-K	2019-09-03
8-K	2019-08-07
8-K	2019-06-04
8-K	2019-05-09
8-K	2019-05-03
8-K	2019-04-23
8-K	2019-02-21
8-K	2018-11-13
8-K	2018-11-06
8-K	2018-10-31
8-K	2018-10-16
8-K	2018-08-03
8-K	2018-08-02
8-K	2018-06-28
8-K	2018-06-28
8-K	2018-06-25
8-K	2018-05-31
8-K	2018-05-03
8-K	2018-04-12
8-K	2018-02-08

Z 10Q Quarterly Report

Zillow Group Earnings 2020-03-31