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4-Traders Homepage  >  Equities  >  Nasdaq  >  ANGI Homeservices Inc    ANGI

ANGI HOMESERVICES INC (ANGI)
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ANGI HOMESERVICES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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05/10/2018 | 11:39pm CEST

GENERAL

Management Overview
ANGI Homeservices Inc. ("ANGI Homeservices," the "Company," "ANGI," "we," "our,"
or "us") connects millions of homeowners to home service professionals through
its portfolio of digital home service brands, including HomeAdvisor® and Angie's
List®. Combined, these leading marketplaces allow homeowners to match, research,
and connect on-demand to the largest network of service professionals either
online, through our mobile apps, or by voice assistants. The network of service
professionals across our platforms is supported by 15 million consumer reviews
submitted on hundreds of thousands of professionals, collected over the course
of 20 years. ANGI Homeservices owns and operates brands across eight countries.
The Company has two operating segments: (i) North America, which primarily
includes HomeAdvisor's operations in the United States, Angie's List, mHelpDesk
and HomeStars, and (ii) Europe, which includes Travaux.com, MyHammer, MyBuilder,
Werkspot and Instapro.
For a more detailed description of the Company's operating businesses, see the
Company's Annual Report on Form 10-K for the year ended December 31, 2017.
Operating Metrics:
In connection with the management of our businesses we identify, measure and
assess a variety of operating metrics. The principal metrics we use in managing
our business are set forth below:
•      Marketplace Revenue includes revenue from the HomeAdvisor domestic
       marketplace service, including consumer connection revenue for consumer
       matches and membership subscription revenue from service professionals. It
       excludes other operating subsidiaries within the North America segment.


•      Advertising & Other Revenue includes Angie's List revenue (revenue from
       service professionals under contract for advertising and membership
       subscription fees from consumers) as well as revenue from mHelpDesk,
       HomeStars and Felix.


•      Marketplace Service Requests are fully completed and submitted domestic
       customer service requests to HomeAdvisor.


•      Marketplace Paying Service Professionals ("Marketplace Paying SPs") are
       the number of HomeAdvisor domestic service professionals that had an
       active subscription and/or paid for consumer matches in the last month of
       the period.


•      Advertising Service Professionals are the total number of Angie's List
       service professionals under contract for advertising at the end of the
       period.


Components of Results of Operations
Revenue
Marketplace Revenue is primarily derived from (i) consumer connection revenue,
which includes fees paid by service professionals for consumer matches
(regardless of whether the professional ultimately provides the requested
service), and (ii) membership subscription fees paid by service professionals.
Consumer connection revenue varies based upon several factors, including the
service requested, type of match and geographic location of service. Effective
with the Combination (described below), revenue is also derived from Angie's
List (i) sales of time-based website, mobile and call center advertising to
service professionals and (ii) membership subscription fees from consumers.
Operating Costs and Expenses:
•      Cost of revenue - consists primarily of traffic acquisition costs, credit
       card processing fees, costs associated with publishing and distributing
       the Angie's List Magazine and hosting fees. Traffic acquisition costs
       include amounts based on revenue share arrangements.



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•      Selling and marketing expense - consists primarily of advertising
       expenditures, which include online marketing, including fees paid to
       search engines, offline marketing, which is primarily television
       advertising, and partner-related payments to those who direct traffic to
       our brands, compensation (including stock-based compensation expense) and
       other employee-related costs for personnel engaged in selling and
       marketing and sales support and software license and maintenance costs.


•      General and administrative expense - consists primarily of compensation
       (including stock-based compensation expense) and other employee-related
       costs for personnel engaged in executive management, finance, legal, tax,
       human resources and customer service functions, fees for professional
       services, bad debt expense, facilities costs and software license and
       maintenance costs. Our customer service function includes personnel who
       operate our call centers and provide support to our service professionals
       and consumers.


•      Product development expense - consists primarily of compensation
       (including stock-based compensation expense) and other employee-related
       costs that are not capitalized for personnel engaged in the design,
       development, testing and enhancement of product offerings and related
       technology and software license and maintenance costs.


Non-GAAP financial measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") is a non-GAAP financial measure. See "  Principles of
Financial Reporting  " for the definition of Adjusted EBITDA.
The Combination
On September 29, 2017, IAC/InterActiveCorp's ("IAC") HomeAdvisor business and
Angie's List Inc. ("Angie's List") combined under a new publicly traded company
called ANGI Homeservices Inc. (the "Combination"). At March 31, 2018, IAC owned
86.8% and 98.5% of the economic and voting interest, respectively, of ANGI
Homeservices. During the three months ended March 31, 2018, the Company incurred
$2.5 million in costs related to this transaction (including severance,
retention and integration related costs) as well as a deferred revenue write-off
of $2.8 million. The Company expects the remaining aggregate amount of
transaction-related expenses, including the deferred revenue write-off, during
2018 to be approximately $5 million. The Company also incurred $19.1 million in
stock-based compensation expense during the three months ended March 31, 2018
related to the modification of previously issued HomeAdvisor equity awards and
the expense related to previously issued Angie's List equity awards, both of
which were converted into ANGI Homeservices' equity awards in the Combination,
and the acceleration of expense related to certain converted equity awards
resulting from the termination of Angie's List employees in connection with the
Combination. Stock-based compensation expense arising from the Combination is
expected to be approximately $50 million for the remainder of 2018, and
approximately $40 million in 2019 and $25 million in 2020.
First Quarter 2018 Consolidated Results
For the three months ended March 31, 2018, the Company delivered $104.6 million,
or 69% revenue growth. Despite the revenue increase, operating income decreased
$12.1 million to an operating loss of $10.8 million in 2018 while Adjusted
EBITDA increased $26.4 million, or 259%. Revenue growth was primarily driven by
a full quarter contribution from Angie's List of $57.9 million, which reflects
the write-off of deferred revenue due to the Combination of $2.8 million; $36.0
million, or 28%, Marketplace growth; and $6.6 million, or 52%, growth in Europe.
Operating income decreased primarily due to an increase of $20.4 million in
stock-based compensation expense due primarily to modification and acceleration
charges of $19.1 related to the Combination, an increase of $14.9 million in
amortization of intangibles principally due to the Combination and an increase
of $3.2 million in depreciation. Adjusted EBITDA increased primarily due to an
increase of $104.6 million in revenue, partially offset by an increase in
marketing expense of $27.2 million, higher compensation expense due, in part, to
increased headcount and the inclusion in 2018 of $2.5 million in costs related
to the Combination (including severance, retention and integration related
costs) and increases of $6.8 million in cost of revenue, $4.8 million in
software license and maintenance costs, $3.5 million in bad debt expense, and
$1.1 million in outsourced customer service expense. Operating loss and Adjusted
EBITDA in 2018 benefited from a reduction in sales commissions expense of $6.1
million due to the adoption of Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers on January 1, 2018. As a result of the
adoption of ASU No. 2014-09, sales commissions, which represent the incremental
direct costs of obtaining a service professional contract, are now capitalized
and amortized over the estimated life of a service professional; these costs
were expensed as incurred prior to January 1, 2018.

                                       25

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Other events affecting year-over-year comparability that occurred prior to 2018 include the acquisitions of controlling interests in HomeStars Inc. ("HomeStars") on February 8, 2017 (reflected in the North America segment) and MyBuilder Limited ("MyBuilder") on March 24, 2017 (reflected in the Europe segment).

                                       26

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Results of Operations for the three months ended March 31, 2018 compared to the
three months ended March 31, 2017
Revenue
                                              Three Months Ended March 31,
                                     2018         $ Change      % Change       2017
                                                 (Amounts in thousands)
Revenue:
Marketplace:

Consumer connection revenue $ 149,060 $ 33,060 29% $ 116,000 Membership subscription revenue 15,627

            2,875      23%          12,752
Other revenue                           921               29       3%             892
Total Marketplace Revenue           165,608           35,964      28%         129,644
Advertising & Other Revenue          70,418           61,990      736%          8,428
North America                       236,026           97,954      71%         138,072
Europe                               19,285            6,612      52%          12,673
Total Revenue                     $ 255,311     $    104,566      69%      $  150,745

Percentage of Total Revenue:
North America                            92 %                                      92 %
Europe                                    8 %                                       8 %
Total Revenue                           100 %                                     100 %

Operating metrics:
Marketplace Service Requests          5,031            1,375      38%           3,656
Marketplace Paying SPs                  194               38      24%             156
Advertising Service Professionals        41             NA         NA              NA


________________________

NA = Not applicable
North America revenue increased $98.0 million, or 71%, due to increases of $62.0
million, or 736%, in Advertising & Other Revenue and $36.0 million, or 28%, in
Marketplace Revenue. The increase in Advertising & Other Revenue includes $57.9
million from Angie's List in 2018, which reflects the write-off of deferred
revenue due to the Combination of $2.8 million. The increase in Marketplace
Revenue is due to an increase of $33.1 million, or 29%, in consumer connection
revenue, which was driven by a 38% increase in Marketplace Service Requests to
5.0 million and an increase of $2.9 million, or 23%, in membership subscription
revenue due to a 24% increase in Marketplace Paying SPs to 194,000.
Europe revenue grew $6.6 million, or 52%, driven by the acquisition of a
controlling interest in MyBuilder on March 24, 2017, as well as organic growth
across other regions.
Cost of revenue
                                               Three Months Ended March 31,
                                        2018       $ Change     % Change       2017
                                                  (Dollars in thousands)

Cost of revenue (exclusive of depreciation shown separately below) $13,595 $6,765 99% $6,830 Percentage of revenue

                    5%                                     5%


North America cost of revenue increased $6.4 million, or 95%, driven by an increase of $2.0 million in credit card processing fees, due to $1.3 million from the inclusion of Angie's List and higher Marketplace Revenue, $1.7 million in costs

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associated with publishing and distributing the Angie's List Magazine, and increases of $1.6 million in traffic acquisition costs and $0.8 million in hosting fees, principally from the inclusion of Angie's List. Europe cost of revenue increased $0.4 million, or 592%, driven by an increase of $0.2 million in hosting fees. Selling and marketing expense

                                    Three Months Ended March 31,
                                2018     $ Change   % Change    2017
                                       (Dollars in thousands)

Selling and marketing expense $137,932 $42,066 44% $95,866 Percentage of revenue

           54%                              64%


North America selling and marketing expense increased $38.9 million, or 45%,
driven by increases in marketing expense of $25.3 million and compensation
expense of $11.1 million, both reflecting the impact from the inclusion of
Angie's List. The increase in marketing expense is due primarily to increased
investments in online marketing and television spend. Compensation expense
increased due primarily to growth in the sales force. Compensation expense in
2018 also reflects a reduction in sales commissions expense of $6.0 million due
to the adoption of ASU No. 2014-09.
Europe selling and marketing expense increased $3.2 million, or 33%, driven by
$2.1 million of expense from the inclusion of MyBuilder, principally related to
marketing, and an increase in compensation expense of $0.7 million due, in part,
to an increase in the sales force.
General and administrative expense
                                        Three Months Ended March 31,
                                    2018     $ Change   % Change    2017
                                           (Dollars in thousands)

General and administrative expense $76,270 $39,548 108% $36,722 Percentage of revenue

                30%                             24%


North America general and administrative expense increased $39.0 million, or 130%, due primarily to higher compensation expense of $29.6 million. The increase in compensation expense is due principally to an increase of $18.2 million in stock-based compensation expense, an increase in headcount from business growth reflecting the impact of Angie's List and the inclusion of $1.9 million in severance and retention costs in 2018 related to the Combination. The increase in stock-based compensation expense arising from the Combination includes $12.6 million in expense due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards and $4.1 million in expense related to previously issued Angie's List equity awards including the acceleration of expense related to certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination. North America general and administrative expense also includes increases of $3.4 million in bad debt expense, due to higher Marketplace Revenue, $2.3 million in software license and maintenance costs, reflecting the impact from the inclusion of Angie's List, and $1.1 million in outsourced customer service expense. Europe general and administrative expense increased $0.5 million, or 8%, due primarily to $1.0 million of expense from the inclusion of MyBuilder and an increase of $0.2 million in compensation expense due, in part, to increased headcount, partially offset by the inclusion in 2017 of $0.7 million of transaction-related costs primarily related to the acquisition of MyBuilder. Product development expense

                                 Three Months Ended March 31,
                             2018     $ Change   % Change    2017
                                    (Dollars in thousands)
Product development expense $15,780   $10,204      183%     $5,576
Percentage of revenue         6%                              4%



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North America product development expense increased $8.8 million, or 184%, due primarily to an increase in compensation expense of $6.8 million and an increase in software license and maintenance costs of $1.4 million, reflecting the impact from the inclusion of Angie's List. The increase in compensation expense is due primarily to increased headcount as well as an increase of $2.2 million in stock-based compensation expense due principally to the modification and acceleration charges related to the Combination. Europe product development expense increased $1.4 million, or 180%, due to an increase of $0.7 million in compensation expense due, in part, to increased headcount, $0.3 million of expense from the inclusion of MyBuilder and an increase in software license and maintenance costs of $0.2 million. Depreciation

                          Three Months Ended March 31,
                       2018    $ Change   % Change    2017
                             (Dollars in thousands)

Depreciation $6,184 $3,188 106% $2,996 Percentage of revenue 2%

                             2%


North America depreciation increased $2.7 million, or 93%, of which $1.3 million was from the inclusion of Angie's List, and Europe depreciation increased $0.5 million, or 452% due primarily to increased depreciation related to continued growth, including internally developed capitalized software to support our products and services that was placed in service since March 31, 2017. Operating (loss) income

                              Three Months Ended March 31,
                          2018      $ Change    % Change    2017
                                 (Dollars in thousands)
Operating (loss) income $(10,756)   $(12,144)      NM      $1,388
Percentage of revenue     (4)%                               1%


________________________
NM = Not meaningful
North America operating income decreased $11.8 million to an operating loss of
$5.4 million in 2018 versus operating income of $6.4 million in 2017, despite an
increase of $25.4 million in Adjusted EBITDA described below, primarily due to
increases of $20.6 million in stock-based compensation expense, $13.9 million in
amortization of intangibles and $2.7 million in depreciation. The increase in
stock-based compensation expense was due primarily to modification and
acceleration charges of $19.1 million related to the Combination. The increase
in amortization of intangibles was due principally to the Combination.
Europe operating loss increased $0.4 million, or 7%, despite a reduction in
Adjusted EBITDA loss of $1.0 million described below, primarily due to increases
of $1.0 million in amortization of intangibles and $0.5 million in depreciation,
partially offset by a decrease in stock-based compensation expense of $0.1
million. The increase in amortization of intangibles was due to the acquisition
of MyBuilder.
Operating loss in 2018 benefited from a reduction in sales commissions expense
of $6.1 million, $6.0 million for North America and $0.1 million for Europe, due
to the adoption of ASU No. 2014-09 on January 1, 2018.
At March 31, 2018, there was $157.8 million of unrecognized compensation cost,
net of estimated forfeitures, related to all equity-based awards, which is
expected to be recognized over a weighted average period of approximately 2.3
years.

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Adjusted EBITDA
                           Three Months Ended March 31,
                       2018     $ Change   % Change    2017
                              (Dollars in thousands)

Adjusted EBITDA $36,640 $26,428 259% $10,212 Percentage of revenue 14%

                             7%


For a reconciliation of operating (loss) income for the Company's reportable segments and net (loss) earnings attributable to ANGI Homeservices Inc.'s shareholders to Adjusted EBITDA, see " Note 9-Segment Information " to the consolidated and combined financial statements included in " Item 1. Consolidated and Combined Financial Statements ." North America Adjusted EBITDA increased $25.4 million, or 179%, due primarily to an increase of $98.0 million in revenue, which reflects the write-off of deferred revenue related to the Combination of $2.8 million, partially offset by an increase in marketing expense of $25.3 million, higher compensation expense due, in part, to increased headcount, the inclusion in 2018 of $2.5 million in costs related to the Combination (including severance, retention and integration related costs) and, as described above, increases of $6.4 million in cost of revenue, $4.7 million in software license and maintenance costs, $3.4 million in bad debt expense, and $1.1 million in outsourced customer service expense. Europe Adjusted EBITDA loss decreased $1.0 million, or 25%, due primarily to an increase of $6.6 million in revenue, of which $4.1 million was from MyBuilder, partially offset by higher compensation expense of $2.8 million primarily due to increased organic headcount and increased investment in marketing of $2.0 million primarily related to the acquisition of MyBuilder. Adjusted EBITDA in 2018 benefited from a reduction in sales commissions expense of $6.1 million, $6.0 million for North America and $0.1 million for Europe, due to the adoption of ASU No. 2014-09 on January 1, 2018. Interest expense

                                   Three Months Ended March 31,
                                2018    $ Change   % Change   2017
                                      (Dollars in thousands)

Interest expense-third party $2,654 $2,654 NA $- Interest expense-related party 45 (1,547) (97)% 1,592

Interest expense-third party relates to interest on the Term Loan, which commenced on November 1, 2017. Interest expense-related party includes interest charged by IAC and its subsidiaries on related party notes, which were primarily related to acquisitions. All related party notes were settled prior to the Combination, with the exception of a promissory note payable to a foreign subsidiary of IAC. Other income, net

                     Three Months Ended March 31,
                  2018    $ Change   % Change   2017
                        (Dollars in thousands)
Other income, net $356      $125       54%      $231

Other income, net in 2018 includes third party interest income of $0.7 million, partially offset by net foreign currency exchange losses of $0.3 million. Other income, net in 2017 principally includes net foreign currency exchange gains.

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Income tax benefit
                               Three Months Ended March 31,
                           2018    $ Change    % Change    2017
                                  (Dollars in thousands)

Income tax benefit $3,985 $(21,875) (85)% $25,860 Effective income tax rate 30%

                              NM


In 2018, the effective income tax rate is higher than the statutory rate of 21%
due primarily to excess tax benefits generated by the settlement and exercise of
stock-based awards and state taxes, partially offset by unbenefited foreign
losses.
The 2017 income tax benefit is due primarily to excess tax benefits generated by
the settlement and exercise of stock-based awards.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax
Act"). The Tax Act implemented a number of changes that took effect on January
1, 2018, including but not limited to, a reduction of the U.S. federal corporate
tax rate from 35% to 21% and a new minimum tax on global intangible low-taxed
income earned by foreign subsidiaries.  While the Company was able to make a
reasonable estimate of the impacts of the Tax Act, certain amounts are
provisional as the Company gathers additional data.  Any adjustment of the
Company's provisional tax expense will be reflected as a change in estimate in
its results in the period in which the change in estimate is made in accordance
with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of
the Tax Cuts and Jobs Act, which is also included in the FASB issued ASU No.
2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC
Staff Accounting Bulletin No. 118, which was issued and adopted by the Company
in March 2018.  In addition, our estimates may also be impacted and adjusted as
the law is clarified and additional guidance is issued at the federal and state
levels.  No adjustment was made in the three months ended March 31, 2018 to the
Company's provisional tax expense.
For further details of income tax matters, see "  Note 3-Income Taxes  " to the
consolidated and combined financial statements included in "  Item 1.
Consolidated and Combined Financial Statements  ."
Net loss attributable to noncontrolling interests
Noncontrolling interests represent the noncontrolling holders' percentage share
of earnings or losses from the subsidiaries in which the Company holds a
majority, but less than 100%, ownership interest and the results of which are
included in our consolidated and combined financial statements.
                                                     Three Months Ended March 31,
                                                  2018    $ Change   % Change   2017
                                                        (Dollars in thousands)

Net loss attributable to noncontrolling interests $229 $(497) (68)% $726

Net loss attributable to noncontrolling interests in 2018 represents the net losses attributable to the noncontrolling interests in MyHammer, mHelpDesk and HomeStars, partially offset by net earnings attributable to the noncontrolling interest in MyBuilder. Net loss attributable to noncontrolling interests in 2017 represents the net losses attributable to the noncontrolling interests in mHelpDesk, HomeStars and MyHammer.


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                       Principles of Financial Reporting
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted
accounting principles ("GAAP"). This measure is one of the primary metrics by
which we evaluate the performance of our businesses, on which our internal
budgets are based and by which management is compensated. We believe that
investors should have access to, and we are obligated to provide, the same set
of tools that we use in analyzing our results. This non-GAAP measure should be
considered in addition to results prepared in accordance with GAAP, but should
not be considered a substitute for or superior to GAAP results. We endeavor to
compensate for the limitations of the non-GAAP measure presented by providing
the comparable GAAP measure with equal or greater prominence and descriptions of
the reconciling items, including quantifying such items, to derive the non-GAAP
measure. We encourage investors to examine the reconciling adjustments between
the GAAP and non-GAAP measure, which we discuss below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") 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. We believe this measure is useful for analysts
and investors as this measure allows a more meaningful comparison between our
performance and that of our competitors. Moreover, our management uses this
measure internally to evaluate the performance of our business as a whole and
our individual business segments, and this measure is one of the primary metrics
on which our internal budgets are based and by which management is compensated.
The above items are excluded from our Adjusted EBITDA measure because these
items are non-cash in nature. Adjusted EBITDA has certain limitations in that it
does not take into account the impact to our consolidated and combined statement
of operations of certain expenses.
For a reconciliation of operating (loss) income by reportable segment and net
(loss) earnings attributable to ANGI Homeservices Inc. shareholders to Adjusted
EBITDA for the three months ended March 31, 2018 and 2017, see "  Note 9-Segment
Information  " to the consolidated and combined financial statements included in
"  Item 1. Consolidated and Combined Financial Statements  ."
Non-cash expenses that are excluded from Non-GAAP Measure
Stock-based compensation expense consists principally of expense associated with
the grants, including unvested grants assumed in acquisitions (including the
Combination), of stock options, stock appreciation rights, restricted stock
units, or RSUs, and performance-based RSUs. These expenses are not paid in cash,
and we include the related shares in our fully diluted shares outstanding using
the treasury stock method; however, performance-based RSUs are included only to
the extent the applicable performance condition(s) have been met (assuming the
end of the reporting period is the end of the contingency period). To the extent
stock-based awards are settled on a net basis, the Company remits the required
tax-withholding amounts from its current funds.
Depreciation is a non-cash expense relating to our property and equipment and is
computed using the straight-line method to allocate the cost of depreciable
assets to operations over their estimated useful lives, or, in the case of
leasehold improvements, the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible
assets are non-cash expenses related primarily to acquisitions (including the
Combination). At the time of an acquisition, the identifiable definite-lived
intangible assets of the acquired company, such as contractor and service
professional relationships, technology, memberships, customer lists and user
base, and trade names are valued and amortized over their estimated lives. Value
is also assigned to acquired indefinite-lived intangible assets, which comprise
trade names and trademarks, and goodwill that are not subject to amortization.
An impairment is recorded when the carrying value of an intangible asset or
goodwill exceeds its fair value. We believe that intangible assets represent
costs incurred by the acquired company to build value prior to acquisition and
the related amortization and impairment charges of intangible assets or
goodwill, if applicable, are not ongoing costs of doing business.


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              Financial Position, Liquidity and Capital Resources
Financial position
                                                           March 31, 2018       December 31, 2017
                                                                       (In thousands)
Cash and cash equivalents:
United States                                            $        222,162     $           214,803
All other countries(a)                                              6,582                   6,718
Total cash and cash equivalents                          $        228,744     $           221,521

Long-term debt-third party
Term Loan due November 1, 2022                           $        271,563     $           275,000
Less: current portion of Term Loan                                 13,750                  13,750
Less: unamortized debt issuance costs                               2,786                   2,938
Total long-term debt-third party, net                    $        255,027     $           258,312

Long-term debt-related party
Other                                                               2,403                   2,813
Less: current portion of long-term debt-related party                   -                     816
Total long-term debt-related party, net                  $          2,403     $             1,997


_________________________________________________________________________

(a) If needed for U.S. operations, the cash and cash equivalents held by the

Company's foreign subsidiaries could be repatriated without significant

tax consequences.


For a detailed description of long-term debt-net, see "  Note 6-Long-term
Debt  " and for a detailed description of long-term debt-related party, see
"  Note 11-Related Party Transactions with IAC  " to the consolidated and
combined financial statements included in "  Item 1. Consolidated and Combined
Financial Statements  ."
Cash flow information
In summary, the Company's cash flows are as follows:
                                   Three Months Ended March 31,
                                      2018                2017
                                          (In thousands)
Net cash provided by (used in):
Operating activities            $       11,101       $      8,100
Investing activities                     1,524            (56,112 )
Financing activities                    (5,424 )           42,951

Net cash provided by operating activities consists of earnings adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense, amortization of intangibles, bad debt expense, depreciation and deferred income taxes. 2018 Adjustments to earnings consist primarily of $24.9 million of stock-based compensation expense, $16.3 million of amortization of intangibles, $9.4 million of bad debt expense and $6.2 million of depreciation, partially offset by $4.2 million of deferred income taxes. The deferred income tax benefit primarily relates to stock-based compensation expense. The decrease from changes in working capital consists primarily of an increase in accounts receivable of $17.7 million, an increase in other assets of $13.7 million and a decrease in accounts payable and other liabilities of $5.3 million, partially offset by an increase in deferred revenue of $4.2 million. The increase in accounts receivable is primarily due to revenue growth in North

                                       33

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America. The increase in other assets is due to increases in capitalized sales
commissions, prepaid marketing and prepaid software license and maintenance
costs. The decrease in accounts payable and other liabilities is primarily due
to a decrease in accrued employee compensation and benefits mainly related to
the payment of 2017 cash bonuses in 2018, partially offset by an increase in
accrued advertising. The increase in deferred revenue is due mainly to growth in
subscription sales to service professionals.
Net cash provided by investing activities includes $10.4 million in net proceeds
from the sale of Angie's List's campus located in Indianapolis, partially offset
by $8.9 million of capital expenditures, primarily related to investments in the
development of capitalized software to support the Company's products and
services, leasehold improvements and computer hardware.
Net cash used in financing activities includes a $3.4 million principal payment
on the Term Loan and $2.9 million for the payment of withholding taxes on behalf
of employees for stock-based awards that were net settled, partially offset by
$1.8 million in proceeds from the exercise of ANGI stock options.
2017
Adjustments to earnings consist primarily of $5.9 million of bad debt expense,
$4.5 million of stock-based compensation expense, $3.0 million of depreciation
and $2.3 million of deferred income taxes. The deferred income tax provision
primarily relates to the settlement and exercise of stock-based awards. The
decrease from changes in working capital consists primarily of a decrease in
income taxes payable and receivable of $28.5 million, an increase in accounts
receivable of $14.5 million, an increase in other assets of $10.7 million,
partially offset by an increase of $14.6 million in accounts payable and other
liabilities and an increase in deferred revenue of $4.2 million. The decrease in
income taxes payable and receivable primarily relates to the settlement and
exercise of stock-based awards. The increase in accounts receivable is primarily
due to revenue growth in North America. The increase in other assets is due to
an increase in prepaid marketing. The increase in accounts payable and other
liabilities is due to an increase in accrued advertising. The increase in
deferred revenue is due to growth in subscription sales to service
professionals.
Net cash used in investing activities includes $52.4 million of cash used for
the acquisitions of controlling interests in MyBuilder and HomeStars, and
capital expenditures of $3.7 million, primarily related to investments in the
development of capitalized software to support the Company's products and
services and computer hardware.
Net cash provided by financing activities includes proceeds from the borrowings
of related party debt of $51.9 million to fund the acquisitions of controlling
interests in MyBuilder and HomeStars and cash transfers of $6.2 million from IAC
pursuant to IAC's centrally managed U.S. treasury management function, partially
offset by the purchase of noncontrolling interests of $12.3 million and
principal payments on related party debt of $2.8 million.
Liquidity and capital resources
In periods prior to the Combination, the Company received funding from IAC,
including loans from certain IAC foreign subsidiaries, the proceeds of which
were primarily used to fund acquisitions.
All outstanding long-term debt-related party amounts due between certain IAC
subsidiaries and the HomeAdvisor business were settled prior to the completion
of the Combination, with the exception of a promissory note payable to a foreign
subsidiary of IAC, which at March 31, 2018 was €1.9 million ($2.4 million).
On November 1, 2017, the Company borrowed $275 million under a five-year term
loan facility ("Term Loan"). The Term Loan is guaranteed by the Company's
wholly-owned material domestic subsidiaries and is secured by substantially all
assets of the Company and the guarantors, subject to certain exceptions. At
March 31, 2018, the Term Loan bears interest at LIBOR plus 2.00%, which is
subject to change in future periods based on ANGI Homeservices' consolidated net
leverage ratio, or 3.78%. Interest payments are due at least quarterly through
the term of the loan and quarterly principal payments of 1.25% of the original
principal amount in the first three years, 2.5% in the fourth year and 3.75% in
the fifth year are required.
In connection with the Combination, previously issued stock appreciation rights
related to common stock of HomeAdvisor (US) were converted into ANGI stock
appreciation rights that are settleable in Class A shares of ANGI. IAC may
require those awards to be settled in either shares of IAC common stock or in
Class A shares of the Company's common stock and, to the extent shares of IAC
common stock are issued in settlement, the Company will reimburse IAC for the
cost of those shares by issuing to IAC additional Class A shares of the
Company's common stock. Assuming all vested and unvested converted stock
appreciation rights outstanding on March 31, 2018, which can only be exercised
on a net basis, were exercised

                                       34

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on that date, 17.4 million Class A shares of the Company's common stock would
have been issued either (i) to IAC as reimbursement if the awards were settled
in IAC shares or (ii) directly to award holders if IAC did not exercise its
right to settle these awards in IAC shares. In either case, the Company would
have remitted $236.1 million in cash in withholding taxes (assuming a 50%
withholding rate) on behalf of the employees.
The Company believes its existing cash, cash equivalents and expected positive
cash flows generated from operations will be sufficient to fund its normal
operating requirements, including capital expenditures, debt service, the
payment of withholding taxes on behalf of employees for net-settled stock-based
awards, and investing and other commitments, for the foreseeable future. The
Company's 2018 capital expenditures are expected to be higher than 2017 by
approximately 65%, driven, in part, by investments in its new corporate
headquarters in Denver and expansion of office space in Indianapolis, and the
development of capitalized software to support the Company's products and
services. The Company's liquidity could be negatively affected by a decrease in
demand for its products and services. The Company expects the Tax Act to
favorably impact its future liquidity, primarily as a result of a reduction in
the corporate tax rate from 35% to 21%, which will lower its effective tax rate
and annual tax liability.
The Company's indebtedness could limit its ability to: (i) obtain additional
financing to fund working capital needs, acquisitions, capital expenditures or
debt service or other requirements; and (ii) use operating cash flow to make
certain acquisitions or investments, in the event a default has occurred or, in
certain circumstances, if its leverage ratio (as defined in the Term Loan)
exceeds the ratios set forth in the Term Loan.
At March 31, 2018, IAC holds Class B shares of ANGI Homeservices which represent
86.8% of the economic interest and 98.5% of the voting interest of ANGI
Homeservices. As a result, IAC has the ability to control ANGI Homeservices'
financing activities, including the issuance of additional debt and equity
securities by ANGI Homeservices or any of its subsidiaries, or the incurrence of
other indebtedness generally. While ANGI Homeservices is expected to have the
ability to access debt and equity markets if needed, such transactions may
require the approval of IAC due to its control of the majority of the
outstanding voting power of ANGI Homeservices' capital stock and its
representation on the ANGI Homeservices board of directors. Additional financing
may not be available on terms favorable to the Company or at all.

                                       35

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                            Contractual Obligations

At March 31, 2018, there have been no material changes to the Company's contractual obligations and off-balance sheet arrangements since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2017.


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Financials ($)
Sales 2018 1 036 M
EBIT 2018 66,2 M
Net income 2018 42,1 M
Finance 2018 70,2 M
Yield 2018 -
P/E ratio 2018 173,69
P/E ratio 2019 60,29
EV / Sales 2018 6,48x
EV / Sales 2019 5,08x
Capitalization 6 790 M
Chart ANGI HOMESERVICES INC
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ANGI Homeservices Inc Technical Analysis Chart | ANGI | US0347541015 | 4-Traders
Technical analysis trends ANGI HOMESERVICES INC
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 11
Average target price 15,6 $
Spread / Average Target 6,6%
EPS Revisions
Managers
NameTitle
Christopher S. Terrill Chief Executive Officer & Director
Craig Smith President & Chief Operating Officer
Joseph M. Levin Non-Executive Chairman
Glenn H. Schiffman Chief Financial Officer & Director
William B. Ridenour Chief Technology & Product Officer
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