ZILLOW GROUP, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, including in the section titled "Note Regarding Forward-Looking Statements," and also those factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and in Part II, Item 1A (Risk Factors) in this Quarterly Report on Form 10-Q . Overview of our BusinessZillow Group, Inc. is reimagining real estate to make it easier to unlock life's next chapter. As the most visited real estate website inthe United States , Zillow and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline.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. InSeptember 2020 , Zillow launchedZillow Homes, Inc. , a licensed brokerage entity, to streamline Zillow Offers transactions. Other consumer brands include Trulia, StreetEasy, HotPads and Out East. In addition,Zillow Group provides a comprehensive suite of marketing software and technology solutions which include Mortech, dotloop, Bridge Interactive, New Home Feed and ShowingTime. Reportable Segments and Revenue OverviewZillow Group has three reportable segments: the Homes segment, the Internet, Media & Technology ("IMT") segment and the Mortgages segment. The Homes segment includes the financial results fromZillow Group's purchase and sale of homes directly through the Zillow Offers service and the financial results from the title and escrow services provided through Zillow Closing Services. The IMT segment includes the financial results for the Premier Agent, rentals and new construction marketplaces, as well as dotloop, display and other advertising and business software solutions. In future periods, the IMT segment will also include the financial results associated with our acquisition ofShowingTime, Inc. ("ShowingTime"), which closed onSeptember 30, 2021 . For additional information regarding the acquisition, see Note 9 in our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. The Mortgages segment primarily includes financial results for mortgage originations throughZillow Home Loans and advertising sold to mortgage lenders and other mortgage professionals. The Homes segment primarily generates revenue through our Zillow Offers service from the resale of homes. Other Homes revenue relates to revenue associated with title and escrow services provided through Zillow Closing Services. As a result of the decision to wind down Zillow Offers operations, the Company plans to report Zillow Offers as a discontinued operation beginning with the period during which disposition of the business is complete. Premier Agent revenue is generated by the sale of advertising services, as well as marketing and technology products and services, to help real estate agents and brokers grow and manage their businesses. We offer these products and services through our Premier Agent and Premier Broker programs. Premier Agent and Premier Broker advertising products, which include the delivery of validated consumer connections, or leads, are primarily offered on a share of voice basis. Connections are distributed to Premier Agents and Premier Brokers in proportion to their share of voice, or an agent advertiser's share of total advertising purchased in a particular zip code. Connections are delivered when consumer contact information is provided to Premier Agents and Premier Brokers. Connections are provided as part of our suite of advertising services for Premier Agent and Premier Brokers; we do not charge a separate fee for these consumer leads. We also offer a pay for performance pricing model called "Flex" for Premier Agent and Premier Broker advertising services in limited markets. We offer this pricing model to select partners and provide it alongside our legacy market-based pricing model. With the Flex model, Premier Agents and Premier Brokers are provided with validated leads at no upfront cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads. 37 -------------------------------------------------------------------------------- Table of Contents Other IMT revenue includes revenue generated by rentals, new construction and display advertising, as well as revenue from the sale of various other advertising and business technology solutions for real estate professionals, including dotloop. Rentals revenue includes advertising sold to property managers, landlords and other rental professionals on a cost per lead, click, lease, listing or impression basis or for a fixed fee for certain advertising packages. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee. New construction revenue primarily includes advertising services sold to home builders on a cost per residential community or cost per impression basis. Display revenue consists of graphical mobile and web advertising sold on a cost per impression or cost per click basis to advertisers promoting their brands on our mobile applications and websites. In our Mortgages segment, we primarily generate revenue through mortgage originations and the related sale of mortgages on the secondary market throughZillow Home Loans and from advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services. As ofSeptember 30, 2021 , we had 7,999 full-time employees compared to 5,504 full-time employees as ofDecember 31, 2020 . Financial Highlights During the three months endedSeptember 30, 2021 and 2020, we generated total revenue of$1.7 billion and$0.7 billion , respectively, representing year-over-year growth of 164%. The increase in total revenue was primarily attributable to the following: •Zillow Offers revenue increased by$986.8 million to$1.2 billion for the three months endedSeptember 30, 2021 due to the sale of 3,032 homes at an average selling price of$386.8 thousand per home. For the three months endedSeptember 30, 2020 , Zillow Offers revenue was$185.9 million due to the sale of 583 homes at an average selling price of$318.8 thousand per home. •Premier Agent revenue increased by$60.2 million to$358.9 million for the three months endedSeptember 30, 2021 compared to$298.7 million for the three months endedSeptember 30, 2020 . The increase in Premier Agent revenue was primarily due to a 26% increase in Premier Agent revenue per visit, driven primarily by continued strong demand across the residential real estate industry and growth in monetization of our impressions and leads. •Mortgages segment revenue increased by$16.1 million to$70.3 million for the three months endedSeptember 30, 2021 compared to$54.2 million for the three months endedSeptember 30, 2020 , driven by an increase in revenue generated byZillow Home Loans , as total loan origination volumes increased 115%, and an increase in revenue from Custom Quote and Connect advertising services. During the three months endedSeptember 30, 2021 and 2020, we generated total gross profit of$240.6 million and$412.9 million , respectively, representing a year-over-year decrease of 42%. Gross profit was negatively impacted during the three months endedSeptember 30, 2021 by a write-down for Homes inventory lower of cost or net realizable value adjustment of$304.4 million . This adjustment was primarily due to purchasing homes at higher prices than the Company's current estimates of future selling prices. Zillow Offers Suspension of Entering into New Contracts OnOctober 18, 2021 , the Company issued a press release announcing that Zillow Offers would not sign any new, additional contracts to buy homes through the end of 2021. The Company paused new contracts in light of renovation and operational capacity constraints and to enable Zillow Offers to focus operations on purchasing homes with already-signed contracts and reducing the renovation pipeline for homes in inventory. Wind Down of Zillow Offers Operations OnNovember 2, 2021 , the Board of Directors of the Company made the determination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment. The wind down is expected to take several quarters and result in approximately a 25% reduction of the Company's workforce. During the wind down period, the Company expects to continue to complete the purchase of homes currently under contract and renovate and sell properties currently in inventory. As a result of the decision to wind down Zillow Offers operations, the Company plans to report Zillow Offers as a discontinued operation beginning with the period during which disposition of the business is complete. In connection with the preparation of financial statements for the three months ended September, 30, 2021, the Company recorded a$304.4 million write-down of inventory associated with 38 -------------------------------------------------------------------------------- Table of Contents Zillow Offers as a result of purchasing homes during the third quarter at higher prices than the Company's current estimates of the future selling prices after selling costs. COVID-19 Impact InDecember 2019 , COVID-19 was reported and subsequently spread worldwide. OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic and resulting global and economic disruptions have affected our business, as well as those of our customers and real estate partners. In response to the COVID-19 pandemic, we have taken certain measures intended to serve the needs of our customers and real estate partners, while also protecting our business and the safety of our employees, our customers and the communities in which we operate. We have taken meaningful actions to support our customers and partners throughout the pandemic. In 2020, we implemented a variety of relief initiatives to help them navigate their financial challenges. This included discounts provided to our Premier Agents and on certain of our other IMT and Mortgage marketplace products. In addition, we temporarily paused home buying in early 2020 in all markets in response to local public health orders and to help protect the safety and health of our employees, customers and partners. By earlyAugust 2020 , we had resumed home buying in all paused Zillow Offers markets with enhanced health and safety protocols and increased usage of virtual technology. For more details on these initiatives, see Part II Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . We have also taken action to promote the health and safety of our employees during the COVID-19 pandemic. We quickly transitioned the majority of our employees to work remotely and announced that most employees will have flexibility to work from home indefinitely. InSeptember 2021 , we enabled voluntary office access to certain office locations and continue to adhere to the guidelines issued by health authorities. We believe our physical offices will continue to provide our distributed workforce with another opportunity to work, learn and collaborate in-person in the future. To preserve our liquidity in response to the COVID-19 pandemic, during the first half of 2020 we temporarily paused hiring for non-critical roles, paused the majority of our advertising spending and reduced other discretionary spending. As our financial position strengthened, we increased our hiring and marketing and advertising activities. Our liquidity has also been positively impacted by certain provisions included in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") that was signed into law onMarch 27, 2020 and provides tax provisions and other stimulus measures to affected companies. Under the CARES Act, we are able to defer certain 2020 employer payroll tax payments until the fourth quarter of 2021 and 2022. The effect and extent of the impact of the COVID-19 pandemic on our business continues to be uncertain and difficult to predict. While we have seen recovery in our business and the businesses of our customers and real estate partners from the initial economic effects of the pandemic, the impact of the COVID-19 pandemic (including variants) may continue to affect our financial results in 2021. The extent to which COVID-19 (including any variants) continues to impact our results and financial position will depend on future developments, which are uncertain and difficult to predict. Key Metrics Management has identified visits, unique users, the number of homes sold through Zillow Offers and the volume of loans originated throughZillow Home Loans as relevant to investors' and others' assessment of our financial condition and results of operations. Visits The number of visits is an important metric because it is an indicator of consumers' level of engagement with our mobile applications, websites and other services. We believe highly engaged consumers are more likely to participate in our Zillow Offers program, use Zillow Homes Loans or be transaction-ready real estate market participants and therefore are more sought-after by our Premier Agent and Premier Broker real estate partners. We define a visit as a group of interactions by users with the Zillow, Trulia and StreetEasy mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months. 39 -------------------------------------------------------------------------------- Table of Contents Zillow and StreetEasy measure visits withSeptember 30, 2021 , visits decreased 4% compared to the three months endedSeptember 30, 2020 , driven primarily by strong residential real estate industry recovery in the comparable prior year period coupled with more normalized seasonality impacts during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Unique Users Measuring unique users is important to us because much of our revenue depends in part on our ability to connect home buyers and sellers, renters and individuals with or looking for a mortgage to real estate, rental and mortgage professionals, products and services. Growth in consumer traffic to our mobile applications and websites increases the number of impressions, clicks, connections, leads and other events we can monetize to generate revenue. For example, our Homes segment and Mortgages segment revenue depend in part on users accessing our mobile applications and websites to engage in the sale, purchase and financing of homes with Zillow Offers andZillow Home Loans , and our Premier Agent revenue and display revenue depend on advertisements being served to users of our mobile applications and websites. We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy and HotPads measure unique users withwho access our mobile applications and websites during the period. During the three months endedSeptember 30, 2021 , unique users decreased 4% compared to the three months endedSeptember 30, 2020 , driven primarily by strong residential real estate industry recovery in the comparable prior year period coupled with more normalized seasonality impacts during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . 40 -------------------------------------------------------------------------------- Table of Contents The following table presents our average monthly unique users for the periods presented (in millions): Three Months Ended September 30, 2020 to 2021 2021 2020 % Change Average monthly unique users 226.6 236.2 (4) % Homes Sold The number of homes sold through Zillow Offers is an important metric as it is an indicator of customers' adoption of the Zillow Offers service as well as our ability to generate revenue through the service. Growth in the number of homes sold through Zillow Offers suggests increased adoption of the service by home buyers and generally results in growth in Homes segment revenue. The following table presents the number of homes sold through Zillow Offers for the periods presented: Three Months Ended September 30, 2020 to 2021 2021 2020 % Change Number of homes sold 3,032 583 420 % Loan Origination Volume Loan origination volume is an important metric as it is a measure of how successful we are at growing originations and subsequent sales of mortgage loan products through our mortgage origination business,Zillow Home Loans , which directly impacts our Mortgages segment revenue. Loan origination volume represents the total value of mortgage loan originations closed throughZillow Home Loans during the period. The following table presents loan origination volume by purpose and in total forZillow Home Loans for the periods presented (in thousands): Three Months Ended September 30, 2020 to 2021 2021 2020 % Change Purchase loan origination volume$ 358,924 $ 163,728 119 % Refinance loan origination volume 753,629 353,360 113 % Total loan origination volume$ 1,112,553 $ 517,088 115 % 41
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Table of Contents
Results of Operations
Given the remaining uncertainty surrounding the COVID-19 pandemic and our plans
to wind down the Zillow Offers business, financial performance for prior and
current periods may not be indicative of future performance.
Revenue
% of Total Revenue
Three Months Ended Three Months Ended
September 30, 2020 to 2021 September 30,
2021 2020 $ Change % Change 2021 2020
(in thousands, unaudited)
Revenue:
Homes segment:
Zillow Offers $ 1,172,693 $ 185,904 $ 986,789 531 % 68 % 28 %
Other 13,465 1,201 12,264 1,021 1 -
Total Homes segment revenue 1,186,158 187,105 999,053 534 68 28
IMT segment:
Premier Agent 358,852 298,673 60,179 20 21 45
Other 121,343 116,716 4,627 4 7 18
Total IMT segment revenue 480,195 415,389 64,806 16 28 63
Mortgages segment 70,290 54,198 16,092 30 4 8
Total revenue $ 1,736,643 $ 656,692 $ 1,079,951 164 % 100 % 100 %
% of Total Revenue
Nine Months Ended Nine Months Ended
September 30, 2020 to 2021 September 30,
2021 2020 $ Change % Change 2021 2020
(in thousands, unaudited)
Revenue:
Homes segment:
Zillow Offers $ 2,645,697 $ 1,408,832 $ 1,236,865 88 % 62 % 55 %
Other 21,758 2,398 19,360 807 1 -
Total Homes segment revenue 2,667,455 1,411,230 1,256,225 89 63 55
IMT segment:
Premier Agent 1,041,924 732,741 309,183 42 24 29
Other 360,689 293,653 67,036 23 8 12
Total IMT segment revenue 1,402,613 1,026,394 376,219 37 33 40
Mortgages segment 194,995 113,241 81,754 72 5 4
Total revenue $ 4,265,063 $ 2,550,865 $ 1,714,198 67 % 100 % 100 %
42-------------------------------------------------------------------------------- Table of Contents Three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 Total revenue increased$1.1 billion , or 164%, to$1.7 billion: •Homes segment revenue increased 534% to$1.2 billion , primarily due to an increase of$986.8 million , or 531%, in Zillow Offers revenue. Zillow Offers revenue increased to$1.2 billion due to the sale of 3,032 homes at an average selling price of$386.8 thousand per home, as compared to the sale of 583 homes at an average selling price of$318.8 thousand per home in the comparable prior year period. The pause in home buying activities in Zillow Offers in response to the COVID-19 pandemic in the first half of 2020 resulted in lower inventory available for resale during the three months endedSeptember 30, 2020 . We resumed home buying activities in all markets by earlyAugust 2020 and have since significantly grown our acquisition and resale volumes, driving the year-over-year increase in revenue. We expect Zillow Offers inventory growth during the three months endedSeptember 30, 2021 to result in increased revenue during the three months endingDecember 31, 2021 andMarch 31, 2022 . However, as a result of the pause in entering into additional contracts to buy homes beginning inOctober 2021 and our subsequent decision to wind down Zillow Offers operations, we expect Zillow Offers revenue will decrease beginning with the three months endingJune 30, 2022 . •IMT segment revenue increased 16% to$480.2 million due primarily to a$60.2 million , or 20%, increase in Premier Agent revenue. The increase in Premier Agent revenue was primarily driven by an increase in Premier Agent revenue per visit, which increased by 26% to$0.135 for the three months endedSeptember 30, 2021 from$0.107 for the three months endedSeptember 30, 2020 . We calculate Premier Agent revenue per visit by dividing the revenue generated by our Premier Agent and Premier Broker programs by the number of visits in the period. The increase in Premier Agent revenue per visit was driven primarily by continued strong demand across the residential real estate industry and growth in monetization of our impressions and leads. •Mortgages segment revenue increased 30% to$70.3 million due to growth in mortgage originations revenue which drove 54% of the increase in Mortgages segment revenue, and growth in our Custom Quote and Connect advertising services revenue which accounted for 43% of the increase in Mortgages segment revenue. The increase in mortgage originations revenue was primarily due to an increase in loan origination volume from$517.1 million to$1.1 billion , or 115%, as we continued to grow our mortgage originations business. This increase was partially offset by a 40% decrease in gain on sale margin driven by industry margin compression. Gain on sale margin represents the net gain on sale of mortgage loans divided by total loan origination volume for the period. Net gain on sale of mortgage loans includes all components related to the origination and sale of mortgage loans, including the net gain on sale of loans into the secondary market, loan origination fees, unrealized gains and losses associated with changes in fair value of interest rate lock commitments and mortgage loans held for sale, realized and unrealized gains or losses from derivative financial instruments and the provision for losses relating to representations and warranties. The increase in our Custom Quote and Connect advertising revenue was primarily due to a 5% increase in leads generated from marketing products sold to mortgage professionals. We expect Mortgages segment revenue to decrease in absolute dollars in future periods due to expected decreased refinance activity driven by interest rate impacts and decreased purchase activity due to seasonality and the wind down of Zillow Offers operations. Nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 Total revenue increased$1.7 billion , or 67%, to$4.3 billion: •Homes segment revenue increased 89% to$2.7 billion , primarily due to an increase of$1.2 billion , or 88%, in Zillow Offers revenue. Zillow Offers revenue increased to$2.6 billion due to the sale of 7,083 homes at an average selling price of$373.5 thousand per home, as compared to the sale of 4,414 homes at an average selling price of$319.1 thousand per home in the comparable prior year period. Homes segment revenue for the nine months endedSeptember 30, 2020 was negatively impacted by the temporary pause in home buying activities in response to the COVID-19 pandemic, as discussed above, contributing to the year-over-year increase in revenue. 43 -------------------------------------------------------------------------------- Table of Contents •IMT segment revenue increased 37% to$1.4 billion due to a$309.2 million , or 42%, increase in Premier Agent revenue and a$67.0 million , or 23%, increase in Other IMT revenue. Premier Agent revenue was positively impacted by an increase in visits, which increased 8% to 7.9 billion for the nine months endedSeptember 30, 2021 from 7.4 billion for the nine months endedSeptember 30, 2020 . The increase in visits increased the number of impressions and leads we could monetize in our Premier Agent marketplace. Additionally, Premier Agent revenue for the nine months endedSeptember 30, 2020 was negatively impacted by discounts offered to our Premier Agent partners in response to the COVID-19 pandemic. Other IMT revenue increased primarily due to a 26% increase in revenue generated by our rentals marketplace, including our flat fee, pay per listing and rental applications products. •Mortgages segment revenue increased 72% to$195.0 million primarily due to growth in mortgage originations revenue which drove 68% of the increase in Mortgages segment revenue, while growth in our Custom Quote and Connect advertising services revenue accounted for 31% of the increase in Mortgages segment revenue. The increase in mortgage originations revenue was primarily driven by an increase in loan origination volume from$922.4 million to$3.2 billion , an increase of 243%. We believe low interest rates coupled with growth of our mortgage originations business have supported strong refinance and home purchase activity during the nine months endedSeptember 30, 2021 . This was partially offset by a 38% decrease in gain on sale margin driven by industry margin compression. The increase in our Custom Quote and Connect advertising revenue was primarily due to a 24% increase in leads generated from marketing products sold to mortgage professionals. Income (Loss) Before Income Taxes % of Revenue Three Months Ended Three Months Ended September 30, 2020 to 2021 September 30, 2021 2020 $ Change % Change 2021 2020 (in thousands, unaudited) Income (loss) before income taxes: Homes segment$ (421,604) $ (75,617) $ (345,987) (458) % (36) % (40) % IMT segment 130,151 139,956 (9,805) (7) 27 34 Mortgages segment (5,643) 10,594 (16,237) (153) (8) 20 Corporate items (1) (42,089) (34,938) (7,151) (20) N/A N/A Total income (loss) before income taxes$ (339,185) $ 39,995 $ (379,180) (948) % (20) % 6 % % of Revenue Nine Months Ended Nine Months Ended September 30, 2020 to 2021 September 30, 2021 2020 $ Change % Change 2021 2020 (in thousands, unaudited) Income (loss) before income taxes: Homes segment$ (539,424) $ (253,633) $ (285,791) (113) % (20) % (18) % IMT segment 407,299 117,615 289,684 246 29 11 Mortgages segment (25,148) (2,791) (22,357) (801) (13) (2) Corporate items (1) (109,887) (77,466) (32,421) (42) N/A
N/A
Total loss before income taxes
(24) % (6) % (8) %
(1) Certain corporate items are not directly attributable to any of our
segments, including the gain (loss) on extinguishment of debt, interest income
earned on our short-term investments included in other income and interest costs
on our convertible senior notes included in interest expense.
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Table of Contents
Adjusted EBITDA
% of Revenue
Three Months Ended Three Months Ended
September 30, 2020 to 2021 September 30,
2021 2020 $ Change % Change 2021 2020
(in thousands, unaudited)
Net income (loss) $ (328,174) $ 39,570 $ (367,744) (929) % (19) % 6 %
Adjusted EBITDA:
Homes segment $ (380,783) $ (59,176) $ (321,607) (543) % (32) % (32) %
IMT segment 206,870 195,465 11,405 6 43 47
Mortgages segment 5,172 15,895 (10,723) (67) 7 29
Total Adjusted EBITDA $ (168,741) $ 152,184 $ (320,925) (211) % (10) % 23 %
% of Revenue
Nine Months Ended Nine Months Ended
September 30, 2020 to 2021 September 30,
2021 2020 $ Change % Change 2021 2020
(in thousands, unaudited)
Net loss $ (266,569) $ (208,151) $ (58,418) (28) % (6) % (8) %
Adjusted EBITDA:
Homes segment $ (443,823) $ (195,079) $ (248,744) (128) % (17) % (14) %
IMT segment 633,216 353,044 280,172 79 45 34
Mortgages segment 5,622 15,177 (9,555) (63) 3 13
Total Adjusted EBITDA $ 195,015 $ 173,142 $ 21,873 13 % 5 % 7 %
To provide investors with additional information regarding our financial
results, we have disclosed Adjusted EBITDA in total and for each segment, each a
non-GAAP financial measure, within this Quarterly Report on Form 10-Q. We have
provided a reconciliation below of Adjusted EBITDA in total to net income (loss)
and Adjusted EBITDA by segment to income (loss) before income taxes for each
segment, the most directly comparable GAAP financial measures.
We have included Adjusted EBITDA in total and for each segment in this Quarterly
Report on Form 10-Q as they are key metrics used by our management and board of
directors to measure operating performance and trends and to prepare and approve
our annual budget. In particular, the exclusion of certain expenses in
calculating Adjusted EBITDA facilitates operating performance comparisons on a
period-to-period basis.
Our use of Adjusted EBITDA in total and for each segment has limitations as an
analytical tool, and you should not consider these measures in isolation or as a
substitute for analysis of our results as reported under GAAP. Some of these
limitations are:
•Adjusted EBITDA does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
•Adjusted EBITDA does not consider the potentially dilutive impact of
share-based compensation;
•Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future, and Adjusted
EBITDA does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect impairment costs;
•Adjusted EBITDA does not reflect acquisition-related costs;
•Adjusted EBITDA does not reflect the gain (loss) on extinguishment of debt;
•Adjusted EBITDA does not reflect interest expense or other income;
•Adjusted EBITDA does not reflect income taxes; and
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Table of Contents •Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, you should consider Adjusted EBITDA in total and for each segment alongside other financial performance measures, including various cash flow metrics, net income (loss), income (loss) before income taxes for each segment, and our other GAAP results. The following tables present a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net income (loss) on a consolidated basis and income (loss) before income taxes for each segment, for each of the periods presented (in thousands, unaudited):
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