Zillow Group(US:Z)2024-08-07 20:02PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents Zillow Group's unaudited condensed consolidated financial statements for Q2 2024, showing $572 million revenue and a $17 million net loss Condensed Consolidated Balance Sheets As of June 30, 2024, total assets were $6.63 billion, a slight decrease from year-end 2023, with current liabilities rising due to reclassified convertible notes Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,628 | $6,652 | | Total Current Assets | $3,129 | $3,149 | | Goodwill | $2,818 | $2,817 | | Total Liabilities | $2,127 | $2,126 | | Total Current Liabilities | $1,478 | $971 | | Convertible senior notes, net | $1,522 | $1,607 | | Total Shareholders' Equity | $4,501 | $4,526 | Condensed Consolidated Statements of Operations For Q2 2024, Zillow reported a 13% year-over-year revenue increase to $572 million, narrowing its net loss to $17 million Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $572 | $506 | $1,101 | $975 | | Gross Profit | $442 | $402 | $848 | $779 | | Loss from Operations | ($38) | ($67) | ($83) | ($112) | | Net Loss | ($17) | ($35) | ($40) | ($57) | | Net Loss Per Share | ($0.07) | ($0.15) | ($0.17) | ($0.24) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities decreased to $135 million, while investing and financing activities used significant cash Six Months Ended June 30, Cash Flow Summary (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $135 | $193 | | Net cash provided by (used in) investing activities | ($207) | $84 | | Net cash used in financing activities | ($240) | ($177) | | Net (decrease) increase in cash | ($312) | $100 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, recent acquisitions, debt structure, and ongoing legal contingencies, including the Follow Up Boss acquisition and convertible notes - Acquired Follow Up Boss for $399 million in cash and up to $100 million in contingent consideration, adding $402 million in goodwill6061 - As of June 30, 2024, the company had $1.526 billion in aggregate principal of convertible senior notes outstanding, with maturities in 2024, 2025, and 202675 - In Q2 2024, the company repurchased 6.9 million shares of its Class A and Class C stock for a total of $292 million84 - The company is involved in ongoing legal proceedings, including patent litigation with IBM and a consolidated securities class action lawsuit, but does not believe a loss is probable for these cases9295 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Zillow's Q2 2024 performance, noting a 13% revenue increase to $572 million and a 21% rise in Adjusted EBITDA Financial and Business Overview Zillow's Q2 2024 revenue grew 13% to $572 million, driven by strong performance across Residential, Rentals, and Mortgages segments, outpacing the broader housing market Revenue by Category - Q2 2024 vs Q2 2023 (in millions) | Category | Q2 2024 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Residential | $409 | $380 | $29 | 8% | | Rentals | $117 | $91 | $26 | 29% | | Mortgages | $34 | $24 | $10 | 42% | | Other | $12 | $11 | $1 | 9% | | Total Revenue | $572 | $506 | $66 | 13% | - The company's financial performance outpaced the broader housing market, where total transaction value increased 3% in Q2 2024 year-over-year110 Key Metrics In Q2 2024, Zillow's total visits increased 4% to 2.5 billion, while loan origination volume surged 123% to $759 million, primarily from purchase loans Key Metrics (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Visits (in millions) | 2,495 | 2,391 | 4% | | Average monthly unique users (in millions) | 231 | 232 | 0% | Loan Origination Volume (in millions) | Loan Type | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Purchase | $756 | $336 | 125% | | Refinance | $3 | $4 | (25)% | | Total | $759 | $340 | 123% | Results of Operations For Q2 2024, gross profit increased 10% to $442 million, while Adjusted EBITDA grew 21% to $134 million, despite rising sales and marketing expenses Adjusted EBITDA Reconciliation (in millions) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net loss | $(17) | $(35) | | Adjustments... | | | | Share-based compensation | $113 | $130 | | Depreciation and amortization | $59 | $45 | | Adjusted EBITDA | $134 | $111 | - Cost of revenue increased 25% in Q2 2024, primarily due to higher depreciation and amortization from website development costs and increased mortgage loan processing costs148 - Sales and marketing expenses increased 18% in Q2 2024, driven by higher headcount-related costs and increased marketing investment in the rentals marketplace154 - General and administrative expenses decreased 14% in Q2 2024, mainly because the prior-year period included $17 million in share-based compensation expense for departing executives160 Liquidity and Capital Resources As of June 30, 2024, Zillow maintained a strong liquidity position with $2.6 billion in cash and investments, utilizing capital for share repurchases and mortgage originations - The company holds $2.6 billion in cash, cash equivalents, investments, and restricted cash as of June 30, 2024169 - During H1 2024, the company repurchased 7.1 million shares of its stock for an aggregate price of $301 million183 - In Q2 2024, the company repurchased $88 million principal amount of its 2025 Convertible Notes for $89 million in cash182 - Zillow Home Loans utilizes master repurchase agreements with a total capacity of $250 million to fund mortgage originations, with $182 million outstanding as of June 30, 2024184 Quantitative and Qualitative Disclosures About Market Risk The company identifies interest rate and inflation as primary market risks, impacting investment yields, debt costs, operating expenses, and consumer demand - Interest rate risk impacts the company's investment portfolio and its mortgage origination business (Zillow Home Loans), which uses floating-rate debt, managed via forward sales of MBSs193196 - Inflationary pressures have adversely impacted revenue by affecting consumer demand for advertising and mortgage services due to high mortgage rates, also increasing operating costs, particularly for labor and marketing198199 Controls and Procedures As of June 30, 2024, Zillow's CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024202 - No material changes to internal control over financial reporting were identified during the second quarter of 2024203 PART II – OTHER INFORMATION Legal Proceedings The company is involved in ongoing patent and securities lawsuits, not expected to materially impact its financial position - The company is defending against patent infringement claims from IBM; some claims have been dismissed or found unpatentable, while one remains subject to a pending appeal9293 - A consolidated federal securities class action lawsuit alleges false and misleading statements regarding the Zillow Offers business; the company's motion to dismiss was partially granted and partially denied, and the case is ongoing95 - Shareholder derivative suits related to the Zillow Offers wind-down have been filed and are currently stayed pending the outcome of the related securities suit96 Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - There have been no material changes to the risk factors affecting the business from those set forth in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023207 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, Zillow repurchased 6.885 million shares for $292 million, with $381 million remaining for future repurchases Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Total Purchase Price (millions) | | :--- | :--- | :--- | :--- | | Class A Common Stock | 981 | $41.92 | $41 | | April 2024 | 340 | $43.01 | $14.6 | | May 2024 | 528 | $41.34 | $21.8 | | June 2024 | 113 | $41.38 | $4.7 | | Class C Capital Stock | 5,904 | $42.41 | $251 | | April 2024 | 1,750 | $43.34 | $75.8 | | May 2024 | 3,055 | $41.89 | $127.9 | | June 2024 | 1,099 | $42.38 | $46.6 | | Total | 6,885 | - | $292 | - As of June 30, 2024, $381 million remained available for future repurchases of stock and/or convertible senior notes210 Other Information This section discloses that a board member and the Chief Operating Officer entered into 10b5-1 sales plans in June and February 2024, respectively - On June 10, 2024, board member Claire Cormier Thielke entered into a 10b5-1 sales plan for shares of Class C capital stock, effective September 16, 2024213 - On February 16, 2024, COO Jeremy Wacksman entered into a 10b5-1 sales plan for shares of Class C capital stock, effective May 17, 2024214 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and certifications from the CEO and CFO - The exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL data files217