Summary of Zillow Group, Inc. Annual Shareholders Meeting Company Overview - **Company**: Zillow Group, Inc. (NASDAQ:Z) - **Date of Meeting**: June 14, 2022 - **Participants**: Rich Barton (Co-Founder and CEO), Brad Owens (General Counsel and Corporate Secretary), Tom Cooper (Inspector of Elections), Brad Berning (VP of IR and Strategy) [1][2][3] Key Points Discussed Meeting Structure - The meeting was conducted virtually with a structured agenda and rules of conduct for the business portion and Q&A session [4][5] - A quorum was confirmed with more than a majority of votes represented [5] Proposals Voted On 1. **Election of Directors**: - Three directors were nominated: Rich Barton, Lloyd Frink, and April Underwood, recommended for election until the 2025 Annual Meeting [6][7] 2. **Ratification of Independent Auditors**: - Proposal to ratify Deloitte & Touche LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2022, was also presented [7] Voting Results - Both proposals were approved: - All three nominated directors were reelected [8] - The ratification of Deloitte & Touche LLP passed with a majority vote [8][9] Additional Information - A final report of the voting results will be filed with the SEC within four business days [9] - The meeting concluded with no questions from shareholders, and Rich Barton expressed gratitude for the support of Zillow Group [9]

Financial Data and Key Metrics Changes - Zillow reported Q1 2022 Home segment revenue of $3.7 billion, exceeding the outlook range of $2.6 billion to $2.9 billion, primarily due to higher resell velocity [28] - The company ended Q1 with $3.6 billion in cash, an increase of $500 million from the previous quarter, including a $348 million share repurchase [10][33] - IMT segment revenue was $490 million, growing 10% year-over-year, slightly above the $487 million midpoint of the outlook range [30] - The company reduced its exposure to housing inventory risk to approximately $500 million and reduced related asset-backed debt by $2.6 billion in the quarter [9] Business Line Data and Key Metrics Changes - The Home segment EBITDA was $23 million, better than the outlook of a loss of $20 million [28] - Premier Agent revenue grew 9% year-over-year, outperforming industry growth of 4% in Q1 [30] - Rentals revenue was down 5% year-over-year and flat sequentially, in line with expectations due to high occupancy rates [32] - Mortgages segment revenue was $46 million, near the midpoint of the Q1 outlook range, with adjusted EBITDA showing a loss of $12 million [32] Market Data and Key Metrics Changes - The housing market is experiencing uncertainty, with existing home sales forecasts ranging from 5.5 million to 6.5 million for 2022, compared to 6.1 million in 2021 [7] - Total consumer transaction value growth trends are softening, with low levels of inventory down 23% year-over-year in March [7][8] - Average page views per listing reached a record high in Q1, indicating strong intent to move despite rising interest rates [8] Company Strategy and Development Direction - Zillow is focused on building a housing super app, targeting $5 billion in revenue and a 45% EBITDA margin by 2025 [12][20] - The company is executing on a product roadmap centered around five growth pillars: touring, financing, expanding seller services, enhancing the partner network, and integrating services [12][24] - Zillow aims to increase its share of customer transactions from 3% to 6% by 2025, leveraging technology and product innovation [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current market cycle, highlighting a strong cash position and positive cash flow from core business operations [10][26] - The company acknowledged macroeconomic headwinds affecting revenue but remains committed to its long-term growth strategy [75] - Management noted that the current housing market dynamics are temporary and do not alter the growth trajectory towards 2025 targets [75] Other Important Information - Zillow has nearly completed the wind-down of its iBuying operations, with expectations to finish selling remaining inventory in Q2 [29] - The company has authorized an additional $1 billion share repurchase, reflecting confidence in its cash generation capabilities [34][76] Q&A Session Summary Question: Guidance for Premier Agent revenue growth - Management acknowledged macro headwinds affecting revenue guidance, indicating a likely muted growth for the remainder of the year [41][43] Question: IMT EBITDA margin guidance - The decrease in EBITDA margin is aligned with planned investments for building infrastructure for the super app experience [44][46] Question: ROI for agents in tough times - Management noted that while macro factors impact agents, they continue to drive higher-intent customers to high-performing agents [50] Question: Flex model in Raleigh and Denver - The decision to test the flex model in these markets is aimed at minimizing financial risk for partners while gathering insights for broader application [51][54] Question: Impact of market conditions on 2025 targets - Management indicated that the primary driver for achieving 2025 targets is increasing transaction penetration rather than market performance [66] Question: Premier Agent mix and Flex growth - Management confirmed that both monetization models are effective, with Flex expected to grow as part of the overall strategy [70]

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, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36853 _____________________________________________________ | --- | ...

Financial Data and Key Metrics Changes - The home segment revenue for Q4 2021 was $3.3 billion, exceeding the updated outlook range of $2.3 billion to $2.9 billion [32] - IMT segment revenue grew 14% year-over-year to $483 million, with adjusted EBITDA of $220 million and a margin of 46% [35][37] - The total cash and investments at the end of the quarter stood at $3.1 billion, slightly down from $3.2 billion at the end of Q3 [39] Business Line Data and Key Metrics Changes - Premier Agent revenue grew 13% year-over-year, outperforming industry growth of 4% [35] - Rentals revenue remained flat year-over-year but showed stronger-than-expected customer interest [36] - The mortgages segment revenue was $51 million, with an adjusted EBITDA loss of $14 million [38] Market Data and Key Metrics Changes - In 2021, 6.1 million existing homes were sold in the U.S., with Zillow estimating that 4.1 million of those buyers used their platform [20][21] - Zillow's buy-side market share is approximately 5%, with a goal to increase it to 6% by 2025 [22][44] Company Strategy and Development Direction - The company aims to create a "housing super app" to integrate the fragmented moving process and enhance customer experience [12][30] - Zillow plans to leverage its strong brand and user base to drive innovation and increase transaction share [14][28] - The company is focusing on expanding seller solutions and enhancing the partner agent network [25][26] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current macroeconomic uncertainty but remains optimistic about the housing market due to strong demand signals [63][66] - The company expects to achieve $5 billion in annual revenue by the end of 2025, with a target EBITDA margin of 45% [28][44] - Management emphasizes the importance of innovation and integration in driving future growth [45] Other Important Information - The company has successfully sold or entered agreements to sell over 85% of its homes in the iBuying segment [8][33] - The wind-down of iBuying operations is expected to be cash flow positive, improving from previous expectations of being cash flow neutral [35] Q&A Session Summary Question: What are the keys to execution for the 24% annualized growth target? - Management believes that converting daily app users into transacting customers is crucial for achieving growth targets [47][48] Question: How is Zillow monetizing seller leads? - Management indicates that a significant portion of homebuyers also sell their homes, providing a strong foundation for monetizing seller leads [55] Question: What is the outlook for the housing market? - Management forecasts a strong housing market driven by demographic trends, despite current inventory challenges [64][66] Question: What are the challenges in increasing transaction share from 3% to 6%? - Management identifies improving the home tour reservation system and enhancing conversion rates as key areas for growth [70][71]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________ FORM 10-K _____________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36853 _____________________________________________________ ZILLOW GR ...

Zillow Group, Inc. (NASDAQ:Z) Q3 2021 Earnings Conference Call November 2, 2021 5:00 PM ET Company Participants Brad Berning - Vice President-Investor Relations Rich Barton - Co-Founder & Chief Executive Officer Allen Parker - Chief Financial Officer Conference Call Participants Brad Erickson - RBC Capital Markets Ryan McKeveny - Zelman & Associates Brent Thill - Jefferies Mark Mahaney - Evercore ISI Ygal Arounian - Wedbush Securities Andrew Boone - JMP Securities Operator Good afternoon. My name is Ailee, ...

PART I – FINANCIAL INFORMATION This section presents Zillow Group's unaudited condensed consolidated financial statements and notes, detailing the Zillow Offers wind-down and a significant inventory write-down [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Zillow Group's unaudited condensed consolidated financial statements and notes, detailing balance sheets, operations, and cash flows - Zillow Group is reimagining real estate, offering an on-demand experience for selling, buying, renting, or financing homes, with key services including Zillow Offers and Zillow Home Loans[367](index=367&type=chunk)[368](index=368&type=chunk) - The company decided to wind down Zillow Offers operations due to home pricing unpredictability, capacity constraints, and operational challenges, leading to a 25% workforce reduction and reporting as a discontinued operation[506](index=506&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------------- | :------------------ | | Total current assets | $7,830,901 | $4,964,880 | | Inventory | $3,758,207 | $491,293 | | Total assets | $10,837,639 | $7,486,560 | | Total current liabilities | $3,110,268 | $908,641 | | Borrowings under credit facilities | $2,674,335 | $670,209 | | Total liabilities | $5,066,653 | $2,744,744 | | Total shareholders' equity | $5,770,986 | $4,741,816 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $1,736,643 | $656,692 | $4,265,063 | $2,550,865 | | Total cost of revenue | $1,496,060 | $243,773 | $2,978,965 | $1,523,654 | | Gross profit | $240,583 | $412,919 | $1,286,098 | $1,027,211 | | Income (loss) from operations | $(281,627) | $76,447 | $(132,309) | $(130,740) | | Net income (loss) | $(328,174) | $39,570 | $(266,569) | $(208,151) | | Basic EPS | $(1.29) | $0.17 | $(1.07) | $(0.95) | | Diluted EPS | $(1.29) | $0.16 | $(1.07) | $(0.95) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(2,961,321) | $750,158 | | Net cash provided by (used in) investing activities | $620,564 | $(683,983) | | Net cash provided by financing activities | $3,088,207 | $651,804 | | Cash, cash equivalents and restricted cash at end of period | $2,526,385 | $1,948,888 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of Zillow Group's financial position, detailing assets, liabilities, and shareholders' equity as of September 30, 2021, and December 31, 2020 [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents Zillow Group's financial performance, including revenue, cost of revenue, operating expenses, and net income (loss) for the periods ended September 30, 2021, and 2020 [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details Zillow Group's comprehensive income (loss), which includes net income (loss) and other comprehensive income (loss) items, for the periods ended September 30, 2021, and 2020 [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in Zillow Group's shareholders' equity, including common stock, additional paid-in capital, accumulated other comprehensive income (loss), and retained earnings, for the periods ended September 30, 2021, and 2020 [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents Zillow Group's cash inflows and outflows from operating, investing, and financing activities for the periods ended September 30, 2021, and 2020 [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering significant accounting policies, fair value measurements, and segment information [Note 1. Organization and Description of Business](index=16&type=section&id=Note%201.%20Organization%20and%20Description%20of%20Business) This note describes Zillow Group's core business as a leading U.S. real estate website and outlines key services and associated industry risks - Zillow Group is a leading real estate website in the U.S., offering an on-demand experience for selling, buying, renting, or financing homes, with key services including Zillow Offers, Zillow Home Loans, and various consumer brands and marketing software solutions[367](index=367&type=chunk)[368](index=368&type=chunk) - The company operates in a dynamic industry and faces significant risks, including disruptions from the wind-down of Zillow Offers, financing availability, impacts of the COVID-19 pandemic, changes in the residential real estate market, competition, regulatory changes, and litigation[369](index=369&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=16&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the accounting principles and policies used in preparing Zillow Group's financial statements, including reclassifications and upcoming standard changes - The financial statements are prepared in conformity with U.S. GAAP and SEC interim reporting rules, with management's estimates and assumptions being crucial, and the COVID-19 pandemic introducing additional uncertainty[370](index=370&type=chunk)[372](index=372&type=chunk)[377](index=377&type=chunk) - Reclassifications were made in the condensed consolidated statements of operations to present a gross profit subtotal, moving certain depreciation and amortization expenses into cost of revenue and sales and marketing expenses to enhance comparability[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) - Upcoming accounting standard changes include simplifying convertible instrument accounting (effective Jan 1, 2022, expected to reclassify conversion feature balances from equity to debt and decrease interest expense) and optional expedients for LIBOR reform (expected to be economically neutral)[378](index=378&type=chunk)[379](index=379&type=chunk) [Note 3. Fair Value Measurements](index=18&type=section&id=Note%203.%20Fair%20Value%20Measurements) This note explains Zillow Group's fair value measurement hierarchy and lists key financial instruments valued at fair value - Fair value measurements are categorized into Level 1 (quoted market prices), Level 2 (observable market-based inputs), and Level 3 (significant unobservable inputs)[380](index=380&type=chunk)[382](index=382&type=chunk)[384](index=384&type=chunk) - Key financial instruments measured at fair value include cash equivalents, short-term investments, restricted cash, mortgage loans held for sale, forward contracts, interest rate lock commitments (IRLCs), and beneficial interest in securitization[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[384](index=384&type=chunk) Fair Value of Assets and Liabilities (in thousands) | Category | September 30, 2021 Total | December 31, 2020 Total | | :---------------------------------------- | :----------------------- | :---------------------- | | Cash equivalents | $1,811,382 | $1,489,612 | | Short-term investments | $1,020,083 | $2,218,108 | | Beneficial interest in securitization | $24,902 | — | | Mortgage origination-related (net) | $220,869 | $340,492 | | **Total** | **$3,087,228** | **$4,048,212** | Interest Rate Lock Commitments (IRLCs) Pull-Through Rates | Metric | September 30, 2021 | December 31, 2020 | | :----------------- | :------------------- | :------------------ | | Range | 38% - 100% | 47% - 100% | | Weighted-average | 86% | 75% | [Note 4. Cash and Cash Equivalents, Investments and Restricted Cash](index=21&type=section&id=Note%204.%20Cash%20and%20Cash%20Equivalents,%20Investments%20and%20Restricted%20Cash) This note provides a detailed breakdown of Zillow Group's cash, cash equivalents, investments, and restricted cash balances Cash, Cash Equivalents, Investments, and Restricted Cash (in thousands) | Category | September 30, 2021 (Amortized Cost) | September 30, 2021 (Estimated Fair Market Value) | December 31, 2020 (Amortized Cost) | December 31, 2020 (Estimated Fair Market Value) | | :---------------------------------- | :---------------------------------- | :--------------------------------------------- | :--------------------------------- | :-------------------------------------------- | | Cash | $383,984 | $383,984 | $213,518 | $213,518 | | Cash equivalents (Money market funds) | $1,811,382 | $1,811,382 | $1,486,384 | $1,486,384 | | Short-term investments | $1,019,994 | $1,019,983 | $2,218,044 | $2,218,108 | | Restricted cash | $331,019 | $331,019 | $75,805 | $75,805 | | Beneficial interest in securitization | $24,833 | $24,902 | — | — | | **Total** | **$3,571,312** | **$3,571,370** | **$3,996,980** | **$3,997,043** | Available-for-Sale Investments by Contractual Maturity (September 30, 2021, in thousands) | Maturity | Amortized Cost | Estimated Fair Market Value | | :----------------- | :------------- | :-------------------------- | | Due in one year or less | $587,120 | $587,164 | | Due after one year | $457,807 | $457,821 | | **Total** | **$1,044,927** | **$1,044,985** | [Note 5. Inventory](index=22&type=section&id=Note%205.%20Inventory) This note details Zillow Group's inventory components and discloses a significant write-down related to Zillow Offers homes Inventory Components (in thousands) | Component | September 30, 2021 | December 31, 2020 | | :---------------- | :------------------- | :------------------ | | Finished goods | $2,039,284 | $339,372 | | Work-in-process | $1,718,923 | $151,921 | | **Total Inventory** | **$3,758,207** | **$491,293** | - A **$304.4 million write-down to inventory** was recorded for the three and nine months ended September 30, 2021, due to homes being purchased at higher prices than current estimates of future selling prices after selling costs, with no material write-downs prior to this period[399](index=399&type=chunk) [Note 6. Contract Balances](index=22&type=section&id=Note%206.%20Contract%20Balances) This note presents Zillow Group's contract assets and revenue recognized from deferred revenue, primarily from Premier Agent Flex and rentals Contract Assets (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :------------- | :------------------- | :------------------ | | Contract assets | $67,100 | $20,800 | - Contract assets primarily relate to Premier Agent Flex and rentals pay-per-lease offerings, where revenue is recognized based on estimated closed transactions or qualified leases[399](index=399&type=chunk) Revenue Recognized from Deferred Revenue (in thousands) | Period | Revenue Recognized | | :-------------------------------- | :----------------- | | Three months ended Sep 30, 2021 | $50,800 | | Three months ended Sep 30, 2020 | $43,200 | | Nine months ended Sep 30, 2021 | $48,200 | | Nine months ended Sep 30, 2020 | $37,000 | [Note 7. Contract Cost Assets](index=22&type=section&id=Note%207.%20Contract%20Cost%20Assets) This note provides information on Zillow Group's contract cost assets and their associated amortization expense Contract Cost Assets (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :----------------- | :------------------- | :------------------ | | Contract cost assets | $41,200 | $50,700 | Amortization Expense for Contract Cost Assets (in thousands) | Period | Amortization Expense | | :-------------------------------- | :------------------- | | Three months ended Sep 30, 2021 | $11,700 | | Three months ended Sep 30, 2020 | $9,500 | | Nine months ended Sep 30, 2021 | $31,900 | | Nine months ended Sep 30, 2020 | $26,600 | [Note 8. Property and Equipment, net](index=23&type=section&id=Note%208.%20Property%20and%20Equipment,%20net) This note details Zillow Group's property and equipment, net of accumulated depreciation and amortization, and related expenses Property and Equipment, Net (in thousands) | Category | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | Website development costs | $150,457 | $95,466 | | Leasehold improvements | $103,142 | $110,280 | | Office equipment, furniture and fixtures | $31,482 | $39,607 | | Computer equipment | $19,445 | $20,433 | | Construction-in-progress | $13,273 | $44,151 | | Property and equipment, total | $317,799 | $309,937 | | Less: accumulated amortization and depreciation | $(115,349) | $(113,785) | | **Property and equipment, net** | **$202,450** | **$196,152** | Depreciation and Amortization Expense (in thousands) | Period | Depreciation (excl. website) | Amortization (website dev. costs) | | :-------------------------------- | :--------------------------- | :-------------------------------- | | Three months ended Sep 30, 2021 | $8,600 | $8,300 | | Three months ended Sep 30, 2020 | $7,300 | $6,200 | | Nine months ended Sep 30, 2021 | $23,600 | $24,700 | | Nine months ended Sep 30, 2020 | $26,200 | $17,600 | [Note 9. Acquisition and Equity Investment](index=23&type=section&id=Note%209.%20Acquisition%20and%20Equity%20Investment) This note describes Zillow Group's acquisition of ShowingTime.com, Inc. and an equity investment, including purchase price allocation and impairment - On September 30, 2021, Zillow Group acquired ShowingTime.com, Inc. for approximately **$511.7 million in cash**, accounted for as a business combination with **goodwill of $389.9 million** recognized and included in the IMT segment[405](index=405&type=chunk)[407](index=407&type=chunk)[413](index=413&type=chunk) Preliminary Purchase Price Allocation for ShowingTime Acquisition (in thousands) | Category | Amount | | :----------------------------------- | :------- | | Cash and cash equivalents | $14,973 | | Identifiable intangible assets | $111,100 | | Goodwill | $389,894 | | Other acquired assets | $6,119 | | Deferred tax liability | $(3,920) | | Other assumed liabilities | $(6,452) | | **Total preliminary estimated purchase price** | **$511,714** | Identifiable Intangible Assets Acquired (in thousands) | Asset | Preliminary Estimated Fair Value | Estimated Weighted-Average Useful Life (in years) | | :----------------------- | :------------------------------- | :------------------------------------------------ | | Customer relationships | $54,500 | 8 | | Developed technology | $47,600 | 4 | | Trade names and trademarks | $9,000 | 10 | | **Total** | **$111,100** | | - In March 2020, a **$5.3 million non-cash impairment charge** was recognized related to a 10% equity interest in a privately held real estate entity, which was subsequently sold in June 2020 for $10.0 million, resulting in a **$5.3 million gain**[411](index=411&type=chunk) [Note 10. Goodwill](index=24&type=section&id=Note%2010.%20Goodwill) This note presents Zillow Group's goodwill balances by reportable segment, including additions from the ShowingTime acquisition Goodwill by Reportable Segment (in thousands) | Segment | September 30, 2021 | December 31, 2020 | | :-------- | :------------------- | :------------------ | | IMT | $2,176,310 | $1,786,416 | | Mortgages | $198,491 | $198,491 | | **Total** | **$2,374,801** | **$1,984,907** | - Goodwill from the ShowingTime acquisition is included in the IMT segment and is not deductible for tax purposes, with no goodwill attributable to the Homes segment[413](index=413&type=chunk) [Note 11. Intangible Assets, net](index=25&type=section&id=Note%2011.%20Intangible%20Assets,%20net) This note details Zillow Group's intangible assets, net of accumulated amortization, and related impairment charges Intangible Assets, Net (in thousands) | Category | September 30, 2021 (Net) | December 31, 2020 (Net) | | :----------------------- | :----------------------- | :---------------------- | | Customer relationships | $59,465 | $14,299 | | Developed technology | $53,683 | $15,794 | | Software | $42,345 | $17,032 | | Trade names and trademarks | $37,828 | $32,678 | | Intangibles-in-progress | $1,319 | $11,863 | | Purchased content | $398 | $3,101 | | **Total** | **$195,038** | **$94,767** | Amortization Expense for Intangible Assets (in thousands) | Period | Amortization Expense | | :-------------------------------- | :------------------- | | Three months ended Sep 30, 2021 | $13,200 | | Three months ended Sep 30, 2020 | $12,800 | | Nine months ended Sep 30, 2021 | $39,500 | | Nine months ended Sep 30, 2020 | $37,700 | - No impairment costs were recorded for intangible assets in the nine months ended September 30, 2021, while in the prior year, a **$71.5 million non-cash impairment charge** was recognized for the Trulia trade names and trademarks intangible asset due to COVID-19 impacts[417](index=417&type=chunk) [Note 12. Debt](index=26&type=section&id=Note%2012.%20Debt) This note outlines Zillow Group's debt structure, including Homes and Mortgages segment debt, and convertible senior notes, along with related transactions Zillow Group's Debt Carrying Values (in thousands) | Category | September 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------------- | :------------------ | | Homes segment debt | $2,934,622 | $361,166 | | Mortgages segment debt | $208,326 | $309,043 | | Convertible senior notes | $1,297,625 | $1,613,523 | | **Total debt** | **$4,440,573** | **$2,283,732** | - The Homes segment utilizes revolving credit facilities and a securitization transaction (closed August 2021) to finance Zillow Offers home purchases, with total assets of SPEs and titling trust at **$4.1 billion** as of September 30, 2021, primarily inventory[421](index=421&type=chunk)[422](index=422&type=chunk)[428](index=428&type=chunk) - The Mortgages segment uses master repurchase agreements and a warehouse line of credit for short-term financing of mortgage loans, classified as current liabilities and recourse to Zillow Home Loans[437](index=437&type=chunk)[439](index=439&type=chunk) - Convertible senior notes (2026, 2025, 2024, 2023 Notes) are senior unsecured obligations, with **$366.4 million of 2023 Notes converted** into Class C capital stock and **$1.3 million redeemed for cash** in Q3 2021, resulting in a **$14.8 million loss on extinguishment of debt**[445](index=445&type=chunk)[448](index=448&type=chunk)[450](index=450&type=chunk) [Note 13. Income Taxes](index=33&type=section&id=Note%2013.%20Income%20Taxes) This note provides information on Zillow Group's income tax benefit (expense), valuation allowance, and accumulated tax losses - Zillow Group is subject to federal and state income taxes in the U.S. and Canada, maintaining a valuation allowance against net deferred tax assets due to uncertainty of realization, with accumulated federal tax losses of approximately **$1.7 billion** and state tax losses of **$53.2 million** (tax effected) as of December 31, 2020[454](index=454&type=chunk)[455](index=455&type=chunk) Income Tax Benefit (Expense) (in thousands) | Period | Income Tax Benefit (Expense) | | :-------------------------------- | :--------------------------- | | Three months ended Sep 30, 2021 | $11,011 | | Nine months ended Sep 30, 2021 | $591 | | Three months ended Sep 30, 2020 | $(425) | | Nine months ended Sep 30, 2020 | $8,124 | - The income tax benefit in 2021 was primarily due to state income taxes and a decrease in valuation allowance from the ShowingTime acquisition, while the 2020 benefit was largely from a **$9.7 million tax benefit** related to the **$71.5 million Trulia intangible asset impairment**[455](index=455&type=chunk) [Note 14. Shareholders' Equity](index=33&type=section&id=Note%2014.%20Shareholders'%20Equity) This note describes Zillow Group's capital structure, including different classes of common stock and equity distribution agreement activity - Zillow Group has Class A Common Stock (one vote per share), Class B Common Stock (ten votes per share, convertible to Class A), and Class C Capital Stock (non-voting, except in limited circumstances), with no preferred stock issued or outstanding[456](index=456&type=chunk)[457](index=457&type=chunk)[459](index=459&type=chunk) - An equity distribution agreement allows the sale of up to **$1.0 billion of Class C capital stock**, with **3,163,502 shares issued** for net proceeds of **$544.6 million** during the nine months ended September 30, 2021[458](index=458&type=chunk)[459](index=459&type=chunk) [Note 15. Share-Based Awards](index=34&type=section&id=Note%2015.%20Share-Based%20Awards) This note details Zillow Group's share-based award activity for option awards and restricted stock units, along with compensation expense Option Award Activity (Nine Months Ended Sep 30, 2021) | Metric | Number of Shares Subject to Existing Options | | :----------------------------------- | :------------------------------------------- | | Outstanding at January 1, 2021 | 20,051,051 | | Granted | 8,821,381 | | Exercised | (2,524,170) | | Forfeited or cancelled | (910,178) | | **Outstanding at September 30, 2021** | **25,438,084** | | Vested and exercisable at September 30, 2021 | 11,590,546 | Restricted Stock Units Activity (Nine Months Ended Sep 30, 2021) | Metric | Restricted Stock Units | | :----------------------------------- | :--------------------- | | Unvested outstanding at January 1, 2021 | 7,316,557 | | Granted | 1,558,892 | | Vested | (2,304,124) | | Forfeited | (699,512) | | **Unvested outstanding at September 30, 2021** | **5,871,813** | Share-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $2,573 | $1,855 | $8,233 | $4,621 | | Sales and marketing | $12,733 | $8,631 | $35,970 | $24,740 | | Technology and development | $28,077 | $19,555 | $89,119 | $59,664 | | General and administrative | $36,022 | $18,918 | $98,151 | $56,080 | | **Total** | **$79,405** | **$48,959** | **$231,473** | **$145,105** | [Note 16. Net Income (Loss) Per Share](index=35&type=section&id=Note%2016.%20Net%20Income%20(Loss)%20Per%20Share) This note explains the calculation of Zillow Group's basic and diluted net income (loss) per share, including weighted-average shares outstanding and antidilutive securities - Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of Class A, Class B, and Class C shares outstanding[468](index=468&type=chunk) - Diluted EPS includes potentially dilutive equivalents using the treasury stock method and, since July 1, 2020, the if-converted method for convertible notes[469](index=469&type=chunk)[470](index=470&type=chunk) Weighted-Average Shares Outstanding (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Denominator for basic calculation | 254,074 | 229,719 | 248,564 | 219,989 | | Effect of dilutive securities (Option awards) | — | 8,933 | — | — | | Effect of dilutive securities (Unvested restricted stock units) | — | 3,980 | — | — | | **Denominator for diluted calculation** | **254,074** | **242,632** | **248,564** | **219,989** | Antidilutive Securities Excluded from Diluted EPS (in thousands) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Weighted-average Class A/C option awards | 17,339 | 518 | 18,218 | 27,333 | | Weighted-average Class C restricted stock units | 6,151 | 62 | 6,735 | 8,367 | | Class A common stock from 2020 convertible notes | — | 314 | — | 374 | | Class C capital stock from 2021, 2023, 2024, 2025, 2026 Notes | 33,927 | 45,203 | 38,026 | 17,580 | | **Total equivalents** | **57,417** | **46,097** | **62,979** | **53,654** | [Note 17. Commitments and Contingencies](index=36&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) This note outlines Zillow Group's contractual commitments, including IRLCs, lease agreements, purchase commitments, and details ongoing legal proceedings - Commitments include interest rate lock commitments (IRLCs) for mortgage originations, non-cancelable operating lease agreements for office space and equipment (expiring 2021-2030), and purchase commitments for content and cloud services[476](index=476&type=chunk)[477](index=477&type=chunk)[478](index=478&type=chunk) - As of September 30, 2021, the value of homes under contract for Zillow Offers was **$3.3 billion**, with non-refundable escrow amounts of **$7.7 million**, though these contracts can be canceled without significant penalty[478](index=478&type=chunk)[631](index=631&type=chunk) - Outstanding letters of credit totaled **$16.9 million**, securing lease obligations, and surety bonds of **$10.9 million** were outstanding as guarantees of performance[479](index=479&type=chunk)[480](index=480&type=chunk) - Zillow Group is involved in several legal proceedings, including class action lawsuits, shareholder derivative lawsuits, and patent infringement lawsuits filed by IBM, with management believing outcomes will not materially affect financial position, results of operations, or cash flow, though a loss is reasonably possible for IBM complaints but not estimable[481](index=481&type=chunk)[482](index=482&type=chunk)[484](index=484&type=chunk)[485](index=485&type=chunk)[487](index=487&type=chunk)[488](index=488&type=chunk) [Note 18. Employee Benefit Plan](index=39&type=section&id=Note%2018.%20Employee%20Benefit%20Plan) This note describes Zillow Group's 401(k) retirement plan and the associated company contribution expense - Zillow Group offers a 401(k) retirement plan with immediate vesting for employee contributions and earnings, and the company matches up to **4% of employee contributions**[490](index=490&type=chunk) 401(k) Plan Expense (in thousands) | Period | Total Expense | | :-------------------------------- | :------------ | | Three months ended Sep 30, 2021 | $8,300 | | Three months ended Sep 30, 2020 | $6,100 | | Nine months ended Sep 30, 2021 | $24,000 | | Nine months ended Sep 30, 2020 | $18,900 | [Note 19. Segment Information and Revenue](index=39&type=section&id=Note%2019.%20Segment%20Information%20and%20Revenue) This note provides detailed financial information for Zillow Group's Homes, IMT, and Mortgages segments, including revenue and income (loss) before income taxes - Zillow Group operates three reportable segments: Homes (Zillow Offers, Zillow Closing Services), Internet, Media & Technology (IMT) (Premier Agent, rentals, new construction, dotloop, display, ShowingTime), and Mortgages (Zillow Home Loans, mortgage advertising)[491](index=491&type=chunk)[492](index=492&type=chunk) - Due to the decision to wind down Zillow Offers, the Homes segment will be reported as a discontinued operation once disposition is complete[492](index=492&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Homes | $1,186,158 | $187,105 | $2,667,455 | $1,411,230 | | IMT | $480,195 | $415,389 | $1,402,613 | $1,026,394 | | Mortgages | $70,290 | $54,198 | $194,995 | $113,241 | | **Total Revenue** | **$1,736,643** | **$656,692** | **$4,265,063** | **$2,550,865** | Segment Income (Loss) Before Income Taxes (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Homes | $(421,604) | $(75,617) | $(539,424) | $(253,633) | | IMT | $130,151 | $139,956 | $407,299 | $117,615 | | Mortgages | $(5,643) | $10,594 | $(25,148) | $(2,791) | | Corporate items | $(42,089) | $(34,938) | $(109,887) | $(77,466) | | **Consolidated Income (Loss) Before Income Taxes** | **$(339,185)** | **$39,995** | **$(267,160)** | **$(216,275)** | [Note 20. Subsequent Events](index=42&type=section&id=Note%2020.%20Subsequent%20Events) This note discloses significant events occurring after the reporting period, including a securitization transaction and the decision to wind down Zillow Offers operations - On October 1, 2021, Zillow closed its 2021-2 securitization transaction for Zillow Offers, issuing **$700.0 million in revolving notes** secured by a term loan with a 36-month term, a 30-month reinvestment period, and a weighted-average interest rate of **2.63%** for fixed-rate components[504](index=504&type=chunk) - On October 18, 2021, Zillow Offers paused signing new contracts to buy homes through the end of 2021 due to renovation and operational capacity constraints[505](index=505&type=chunk) - On November 2, 2021, the Board of Directors decided to wind down Zillow Offers operations, citing home pricing unpredictability and operational challenges, which is expected to take several quarters and result in a **25% workforce reduction**, with a **$304.4 million inventory write-down** recorded in Q3 2021 due to this decision[506](index=506&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Zillow Group's financial condition and operational results for the three and nine months ended September 30, 2021, detailing revenue and cost drivers, the Zillow Offers wind-down impact, key metrics, liquidity, and capital resources - Zillow Group's business overview emphasizes its role in reimagining real estate through Zillow Offers, Zillow Home Loans, and various consumer and professional brands, aiming for a seamless end-to-end service[509](index=509&type=chunk)[510](index=510&type=chunk) - The company's three reportable segments are Homes (Zillow Offers, Zillow Closing Services), IMT (Premier Agent, rentals, new construction, dotloop, display, ShowingTime), and Mortgages (Zillow Home Loans, mortgage advertising), with Zillow Offers to be reported as a discontinued operation due to the wind-down decision[511](index=511&type=chunk)[512](index=512&type=chunk) - Total revenue increased by **164% year-over-year** for the three months ended September 30, 2021, primarily driven by Zillow Offers (up **531%**), Premier Agent (up **20%**), and Mortgages (up **30%**)[518](index=518&type=chunk)[519](index=519&type=chunk) - Gross profit decreased by **42% year-over-year** for the three months ended September 30, 2021, largely due to a **$304.4 million inventory write-down** in the Homes segment, resulting from purchasing homes at higher prices than estimated future selling prices[520](index=520&type=chunk) - The decision to wind down Zillow Offers operations, announced November 2, 2021, was driven by home pricing unpredictability and operational challenges, leading to a **25% workforce reduction** and Zillow Offers being reported as a discontinued operation[522](index=522&type=chunk)[523](index=523&type=chunk) [Overview of our Business](index=37&type=section&id=Overview%20of%20our%20Business) This section provides a high-level description of Zillow Group's business model and strategic objectives in the real estate market [Reportable Segments and Revenue Overview](index=37&type=section&id=Reportable%20Segments%20and%20Revenue%20Overview) This section outlines Zillow Group's operational segments and provides a summary of revenue performance across each segment [Financial Highlights](index=44&type=section&id=Financial%20Highlights) This section summarizes Zillow Group's key financial performance indicators and significant events for the reporting period [COVID-19 Impact](index=45&type=section&id=COVID-19%20Impact) This section discusses the effects of the COVID-19 pandemic on Zillow Group's business operations and financial results [Key Metrics](index=45&type=section&id=Key%20Metrics) Management tracks visits, unique users, homes sold through Zillow Offers, and loan origination volume through Zillow Home Loans as key indicators of business performance and customer engagement - Key metrics include visits, unique users, homes sold through Zillow Offers, and loan origination volume through Zillow Home Loans, which are used to assess financial condition and operations[528](index=528&type=chunk) Visits to Mobile Applications and Websites (in millions) | Period | Visits | | :------------------------------ | :------- | | Three Months Ended Sep 30, 2021 | 2,661.7 | | Three Months Ended Sep 30, 2020 | 2,786.2 | | % Change (2020 to 2021) | (4)% | Average Monthly Unique Users (in millions) | Period | Average Monthly Unique Users | | :------------------------------ | :--------------------------- | | Three Months Ended Sep 30, 2021 | 226.6 | | Three Months Ended Sep 30, 2020 | 236.2 | | % Change (2020 to 2021) | (4)% | Homes Sold Through Zillow Offers | Period | Number of Homes Sold | | :------------------------------ | :------------------- | | Three Months Ended Sep 30, 2021 | 3,032 | | Three Months Ended Sep 30, 2020 | 583 | | % Change (2020 to 2021) | 420% | Loan Origination Volume for Zillow Home Loans (in thousands) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | % Change (2020 to 2021) | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------- | | 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%** | [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Zillow Group's results of operations show a significant increase in total revenue, primarily driven by the Homes segment, but also a substantial net loss due to the Zillow Offers inventory write-down, while IMT demonstrated solid revenue growth and Mortgages saw revenue growth but declining gross margin - Total revenue increased by **$1.1 billion (164%)** to **$1.7 billion** for the three months ended September 30, 2021, and by **$1.7 billion (67%)** to **$4.3 billion** for the nine months ended September 30, 2021[546](index=546&type=chunk)[549](index=549&type=chunk) - The Homes segment revenue surged by **534%** (three months) and **89%** (nine months) due to increased Zillow Offers home sales and higher average selling prices, recovering from the 2020 COVID-19 pause[546](index=546&type=chunk)[549](index=549&type=chunk) - IMT segment revenue grew by **16%** (three months) and **37%** (nine months), driven by a **26% increase in Premier Agent revenue per visit** and growth in rentals marketplace revenue[547](index=547&type=chunk)[551](index=551&type=chunk) - Mortgages segment revenue increased by **30%** (three months) and **72%** (nine months), primarily due to a **115% increase in loan origination volume**, though partially offset by a **40% decrease in gain on sale margin** due to industry compression[548](index=548&type=chunk)[552](index=552&type=chunk) Consolidated Income (Loss) Before Income Taxes (in thousands) | Period | Income (Loss) Before Income Taxes | | :----------------------------------- | :-------------------------------- | | Three Months Ended Sep 30, 2021 | $(339,185) | | Three Months Ended Sep 30, 2020 | $39,995 | | Nine Months Ended Sep 30, 2021 | $(267,160) | | Nine Months Ended Sep 30, 2020 | $(216,275) | Adjusted EBITDA by Segment (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Homes | $(380,783) | $(59,176) | $(443,823) | $(195,079) | | IMT | $206,870 | $195,465 | $633,216 | $353,044 | | Mortgages | $5,172 | $15,895 | $5,622 | $15,177 | | **Total Adjusted EBITDA** | **$(168,741)** | **$152,184** | **$195,015** | **$173,142** | [Revenue](index=48&type=section&id=Revenue) This section details Zillow Group's revenue performance across its Homes, IMT, and Mortgages segments, highlighting growth drivers and trends [Costs and Expenses, Gross Profit and Other Items](index=54&type=section&id=Costs%20and%20Expenses,%20Gross%20Profit%20and%20Other%20Items) This section details the changes in cost of revenue, gross profit, and various operating expenses, as well as other income and expenses, with a significant inventory write-down heavily impacting gross profit, while increased operational activities and acquisitions drove up most expense categories Costs and Expenses, Gross Profit and Other Items (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $1,496,060 | $243,773 | $2,978,965 | $1,523,654 | | Gross profit | $240,583 | $412,919 | $1,286,098 | $1,027,211 | | Sales and marketing | $294,354 | $155,894 | $721,743 | $525,005 | | Technology and development | $111,491 | $94,774 | $360,255 | $292,762 | | General and administrative | $113,130 | $85,804 | $328,686 | $263,384 | | Impairment costs | — | — | — | $76,800 | | Acquisition-related costs | $3,235 | — | $7,723 | — | | Loss on extinguishment of debt | $(14,785) | — | $(17,119) | $6,391 | | Other income | $1,964 | $3,018 | $5,990 | $22,726 | | Interest expense | $(44,737) | $(39,470) | $(123,722) | $(114,652) | | Income tax benefit (expense) | $11,011 | $(425) | $591 | $8,124 | [Cost of Revenue](index=55&type=section&id=Cost%20of%20Revenue) This section analyzes the changes in Zillow Group's cost of revenue, primarily driven by home acquisition costs and an inventory write-down in the Homes segment - Cost of revenue increased by **$1.3 billion (514%)** for the three months ended September 30, 2021, primarily due to a **$1.2 billion increase in the Homes segment**, driven by a **$905.0 million increase in home acquisition costs** and a **$304.4 million inventory write-down**[571](index=571&type=chunk)[572](index=572&type=chunk) - For the nine months ended September 30, 2021, cost of revenue increased by **$1.5 billion (96%)**, with the Homes segment contributing **$1.4 billion** due to higher home acquisition costs and the inventory write-down, and the Mortgages segment also seeing an increase due to lead acquisition costs and headcount expenses[573](index=573&type=chunk)[574](index=574&type=chunk) - Future cost of revenue for the Homes segment is expected to increase in Q4 2021 and Q1 2022 as existing inventory is sold and losses on homes under contract are recognized, then decrease from Q2 2022 due to the Zillow Offers wind-down[572](index=572&type=chunk) [Gross Profit](index=56&type=section&id=Gross%20Profit) This section examines the fluctuations in Zillow Group's gross profit and gross margin, significantly impacted by the Homes segment's inventory write-down and Mortgages segment margin compression - Gross profit decreased by **$172.3 million (42%)** for the three months ended September 30, 2021, primarily due to a **$240.8 million decrease in the Homes segment's gross profit**, driven by the **$304.4 million inventory write-down**, causing total gross margin to fall from **63% to 14%**[576](index=576&type=chunk)[577](index=577&type=chunk) - For the nine months ended September 30, 2021, gross profit increased by **$258.9 million (25%)**, but total gross margin decreased from **40% to 30%**, with the Homes segment's gross profit decreasing by **$165.1 million**, while IMT and Mortgages segments saw increases[578](index=578&type=chunk)[579](index=579&type=chunk) - Mortgages segment gross margin declined from **80% to 69%** (three months) and **78% to 68%** (nine months) due to increased cost of revenue (lead acquisition, headcount) outpacing revenue growth, driven by industry margin compression[577](index=577&type=chunk)[579](index=579&type=chunk) [Sales and Marketing](index=56&type=section&id=Sales%20and%20Marketing) This section details the increases in Zillow Group's sales and marketing expenses across all segments, driven by higher home selling costs, advertising, and headcount - Sales and marketing expenses increased by **$138.5 million (89%)** for the three months ended September 30, 2021, with significant increases across Homes (**$74.2 million**), IMT (**$50.8 million**), and Mortgages (**$13.5 million**) segments[582](index=582&type=chunk) - Homes segment's increase was driven by **$50.8 million in home holding and selling costs** due to higher sales volume, and increased headcount-related and marketing expenses, while IMT's increase was due to **$38.7 million in marketing and advertising costs**, recovering from prior year's discretionary spending pause[583](index=583&type=chunk)[584](index=584&type=chunk) - For the nine months ended September 30, 2021, sales and marketing expenses increased by **$196.7 million (37%)**, with IMT (**$80.0 million**), Homes (**$75.5 million**), and Mortgages (**$41.2 million**) segments all contributing to the rise[585](index=585&type=chunk)[586](index=586&type=chunk)[587](index=587&type=chunk)[588](index=588&type=chunk) - Sales and marketing expenses for the Homes segment are expected to decrease throughout 2022 due to the wind-down of Zillow Offers operations[583](index=583&type=chunk) [Technology and Development](index=58&type=section&id=Technology%20and%20Development) This section analyzes the growth in Zillow Group's technology and development expenses, primarily due to increased headcount-related costs across segments - Technology and development expenses increased by **$16.7 million (18%)** for the three months ended September 30, 2021, primarily due to increases in headcount-related expenses in the IMT (**$11.0 million**) and Homes (**$3.9 million**) segments as the company invested in human capital[589](index=589&type=chunk)[590](index=590&type=chunk) - For the nine months ended September 30, 2021, these expenses rose by **$67.5 million (23%)**, with IMT (**$47.6 million**), Homes (**$12.5 million**), and Mortgages (**$7.4 million**) segments all showing increases in headcount-related expenses[590](index=590&type=chunk)[591](index=591&type=chunk) - Technology and development expenses within the Homes segment are expected to decrease throughout 2022 due to the wind-down of Zillow Offers operations[590](index=590&type=chunk) [General and Administrative](index=58&type=section&id=General%20and%20Administrative) This section details the increase in Zillow Group's general and administrative expenses, mainly driven by higher headcount-related costs across all segments - General and administrative expenses increased by **$27.3 million (32%)** for the three months ended September 30, 2021, driven by higher headcount-related expenses across Homes (**$13.3 million**), IMT (**$8.3 million**), and Mortgages (**$5.8 million**) segments[592](index=592&type=chunk)[593](index=593&type=chunk) - For the nine months ended September 30, 2021, these expenses increased by **$65.3 million (25%)**, with IMT (**$23.4 million**), Homes (**$21.4 million**), and Mortgages (**$20.5 million**) segments all contributing due to continued investment in human capital[593](index=593&type=chunk)[594](index=594&type=chunk) - General and administrative expenses within the Homes segment are expected to decrease throughout 2022 due to the wind-down of Zillow Offers operations[593](index=593&type=chunk) [Impairment Costs](index=59&type=section&id=Impairment%20Costs) This section reports on Zillow Group's impairment costs, noting no charges in the current period but significant charges in the prior year related to intangible assets and an equity investment - No impairment costs were recorded for the nine months ended September 30, 2021, while in the prior year, impairment costs totaled **$76.8 million**, including a **$71.5 million non-cash impairment** for the Trulia trade names and trademarks intangible asset and a **$5.3 million non-cash impairment** for an equity investment[596](index=596&type=chunk) [Acquisition-Related Costs](index=59&type=section&id=Acquisition-Related%20Costs) This section details Zillow Group's acquisition-related costs, primarily stemming from the ShowingTime acquisition in 2021 Acquisition-Related Costs (in thousands) | Period | Acquisition-Related Costs | | :-------------------------------- | :------------------------ | | Three months ended Sep 30, 2021 | $3,235 | | Nine months ended Sep 30, 2021 | $7,723 | | Three months ended Sep 30, 2020 | — | | Nine months ended Sep 30, 2020 | — | - Acquisition-related costs in 2021 were primarily due to the September 2021 acquisition of ShowingTime[597](index=597&type=chunk) [Gain (Loss) on Extinguishment of Debt](index=59&type=section&id=Gain%20(Loss)%20on%20Extinguishment%20of%20Debt) This section reports on Zillow Group's gains or losses from the extinguishment of debt, primarily due to convertible note conversions and redemptions - A **$14.8 million loss on extinguishment of debt** was recorded for the three months ended September 30, 2021, related to the conversion and redemption of 2023 Notes, and for the nine months ended September 30, 2021, a **$17.1 million loss** was recorded from conversions of 2023, 2024, and 2026 Notes[598](index=598&type=chunk) - In the nine months ended September 30, 2020, a **$6.4 million gain on extinguishment of debt** was recorded from the partial repurchase of 2021 Notes[598](index=598&type=chunk) [Other Income](index=59&type=section&id=Other%20Income) This section discusses Zillow Group's other income, mainly from interest on investments, noting a decrease due to lower yields and a prior-year gain from an equity sale - Other income primarily consists of interest earned on cash, cash equivalents, and short-term investments[599](index=599&type=chunk) - Other income decreased by **$1.1 million (35%)** for the three months and **$16.7 million (74%)** for the nine months ended September 30, 2021, mainly due to a greater mix of lower-risk investments with lower yields and lower market yields[600](index=600&type=chunk) - The nine months ended September 30, 2020, included a **$5.3 million gain** from the sale of an equity investment in the IMT segment[600](index=600&type=chunk) [Interest Expense](index=59&type=section&id=Interest%20Expense) This section analyzes Zillow Group's interest expense across corporate, Homes, and Mortgages segments, driven by increased financing for homes and convertible note settlements - Corporate interest expense includes interest on convertible senior notes and amortization of debt discount/issuance costs[601](index=601&type=chunk) - Homes segment interest expense includes interest on credit facilities and the securitization term loan/variable funding line, which bear floating (LIBOR-based) or fixed rates[602](index=602&type=chunk) - Mortgages segment interest expense covers the warehouse line of credit and master repurchase agreements, bearing floating rates based on LIBOR[603](index=603&type=chunk) - Interest expense increased by **$5.3 million (13%)** for the three months ended September 30, 2021, driven by a **$14.1 million increase in the Homes segment** (due to increased financing for homes) partially offset by a **$9.4 million decrease in corporate interest expense** (due to convertible note settlements)[604](index=604&type=chunk)[605](index=605&type=chunk) - For the nine months ended September 30, 2021, interest expense increased by **$9.1 million (8%)**, with increases in Homes (**$11.6 million**) and Mortgages (**$2.9 million**) segments, partially offset by a **$5.4 million decrease in corporate interest expense**[605](index=605&type=chunk)[606](index=606&type=chunk)[607](index=607&type=chunk) [Income Taxes](index=61&type=section&id=Income%20Taxes) This section details Zillow Group's income tax benefit (expense), influenced by state income taxes, valuation allowance adjustments, and prior-year impairment benefits - Zillow Group maintains a valuation allowance against net deferred tax assets due to uncertainty of realization, with accumulated federal tax losses of approximately **$1.7 billion** and state tax losses of **$53.2 million** (tax effected) as of December 31, 2020[608](index=608&type=chunk) - An income tax benefit of **$11.0 million** was recorded for the three months ended September 30, 2021, and **$0.6 million** for the nine months, primarily from state income taxes and a decrease in valuation allowance related to the ShowingTime acquisition[609](index=609&type=chunk) - The nine months ended September 30, 2020, included an **$8.1 million income tax benefit**, largely due to a **$9.7 million benefit** from the **$71.5 million non-cash impairment** of the Trulia intangible asset[609](index=609&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) Zillow Group's liquidity and capital resources are significantly impacted by its cash and inventory-intensive businesses, particularly Zillow Offers and Zillow Home Loans, relying on credit facilities, securitization, and equity offerings for funding, with the Zillow Offers wind-down expected to decrease home financing needs but also presenting transition risks Cash Flow Data (Nine Months Ended Sep 30, in thousands) | Metric | 2021 | 2020 | | :----------------------------------------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $(2,961,321) | $750,158 | | Net cash provided by (used in) investing activities | $620,564 | $(683,983) | | Net cash provided by financing activities | $3,088,207 | $651,804 | - As of September 30, 2021, Zillow Group had **$3.6 billion** in cash, cash equivalents, investments, and restricted cash, and was in compliance with all debt covenants[611](index=611&type=chunk) - Net cash used in operating activities was **$3.0 billion** for the nine months ended September 30, 2021, primarily due to a **$3.6 billion increase in inventory** from Zillow Offers home purchases outpacing sales[621](index=621&type=chunk) - Net cash provided by financing activities was **$3.1 billion** for the nine months ended September 30, 2021, largely from **$2.1 billion in net borrowings** on Zillow Offers credit facilities, **$544.6 million** from Class C capital stock issuance, and **$443.4 million** from the 2021-1 term loan[627](index=627&type=chunk) - The wind-down of Zillow Offers is expected to decrease home financing needs starting in 2022, and the company believes current liquidity and cash from operations will be sufficient for at least the next 12 months[615](index=615&type=chunk)[618](index=618&type=chunk) [Cash Flows Provided By (Used In) Operating Activities](index=63&type=section&id=Cash%20Flows%20Provided%20By%20(Used%20In)%20Operating%20Activities) This section details Zillow Group's cash flows from operating activities, primarily impacted by changes in inventory related to Zillow Offers [Cash Flows Provided By (Used In) Investing Activities](index=64&type=section&id=Cash%20Flows%20Provided%20By%20(Used%20In)%20Investing%20Activities) This section outlines Zillow Group's cash flows from investing activities, including acquisitions and changes in investments [Cash Flows Provided By Financing Activities](index=64&type=section&id=Cash%20Flows%20Provided%20By%20Financing%20Activities) This section details Zillow Group's cash flows from financing activities, including borrowings, equity issuances, and debt conversions [Off-Balance Sheet Arrangements](index=64&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes Zillow Group's off-balance sheet arrangements, including commitments for homes under contract and letters of credit [Contractual Obligations and Other Commitments](index=65&type=section&id=Contractual%20Obligations%20and%20Other%20Commitments) This section details Zillow Group's contractual obligations, including debt, interest payments, and other commitments, excluding certain cancellable contracts Contractual Obligations as of September 30, 2021 (in thousands) | Obligation | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :----------------------------------- | :---------- | :--------------- | :---------- | :---------- | :---------------- | | Convertible senior notes | $1,672,182 | — | $608,382 | $1,063,800 | — | | Interest on convertible senior notes | $110,133 | $26,960 | $53,918 | $29,255 | — | | Homes segment credit facilities | $2,433,494 | $2,433,494 | — | — | — | | Homes segment securitization | $512,515 | $32,515 | $480,000 | — | — | | Interest on Homes segment securitization | $23,511 | $10,682 | $12,829 | — | — | | Mortgages segment credit facilities | $208,326 | $208,326 | — | — | — | | Escrow on homes under contract | $7,700 | $7,700 | — | — | — | | **Total contractual obligations** | **$4,967,861** | **$2,719,677** | **$1,155,129** | **$1,093,055** | **—** | - Contractual obligations include convertible senior notes, interest payments, Homes segment credit facilities and securitization, Mortgages segment credit facilities, and escrow on homes under contract, notably excluding **$3.3 billion** in homes under contract as they can be canceled without significant penalty[631](index=631&type=chunk) - Outstanding letters of credit totaled **$16.9 million**, securing lease obligations, and surety bonds of **$10.9 million** were outstanding as guarantees of performance[632](index=632&type=chunk) [Critical Accounting Policies and Estimates](index=66&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights Zillow Group's critical accounting policies and estimates, emphasizing the impact of management judgments and the uncertainties from the COVID-19 pandemic and Zillow Offers wind-down - The preparation of financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts, which are evaluated continuously, and actual results may differ, with the COVID-19 pandemic and the Zillow Offers wind-down introducing significant additional uncertainty[634](index=634&type=chunk) - No material changes to critical accounting policies and estimates were reported since the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[634](index=634&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines Zillow Group's exposure to market risks, primarily focusing on interest rate fluctuations, managing its investment portfolio to preserve principal and liquidity, while its debt instruments include both fixed and floating rates, with the Zillow Offers wind-down expected to impact interest expense related to floating-rate credit facilities - Zillow Group is exposed to market risks, primarily fluctuations in interest rates, which can affect investment yields and debt expenses[636](index=636&type=chunk)[637](index=637&type=chunk) [Interest Rate Risk](index=67&type=section&id=Interest%20Rate%20Risk) This section details Zillow Group's exposure to interest rate fluctuations, affecting investment yields and floating-rate debt, and outlines the impact of potential rate changes - The investment policy prioritizes principal preservation, liquidity, and yield maximization, with short-term investments and beneficial interest in securitization exposed to interest rate fluctuations, but a **10% increase** is not expected to materially affect the portfolio's fair value[637](index=637&type=chunk) - Convertible senior notes and the Homes segment securitization term loan bear fixed interest rates, limiting direct financial statement risk from interest rate changes, though their fair values can fluctuate with market conditions[638](index=638&type=chunk) Outstanding Convertible Senior Notes as of September 30, 2021 (in thousands) | Maturity Date | Aggregate Principal Amount | Stated Interest Rate | | :---------------- | :------------------------- | :------------------- | | September 1, 2026 | 498,800 | 1.375 % | | May 15, 2025 | 565,000 | 2.75 % | | September 1, 2024 | 608,382 | 0.75 % | | **Total** | **1,672,182** | | - Borrowings under Homes segment credit facilities and variable funding lines (**$2.5 billion outstanding** as of Sep 30, 2021) and Mortgages segment warehouse line of credit and repurchase agreements (**$208.3 million outstanding**) bear floating interest rates (LIBOR-based), where a **one percentage point increase in LIBOR** would increase annual interest expense by approximately **$24.7 million** for Homes and **$2.1 million** for Mortgages[639](index=639&type=chunk)[640](index=640&type=chunk) - The transition away from LIBOR as a reference rate is not expected to have a material impact on financial position, results of operations, or cash flows[641](index=641&type=chunk) [Inflation Risk](index=67&type=section&id=Inflation%20Risk) This section assesses the impact of inflation on Zillow Group's business, noting no material effect to date but potential future harm if costs cannot be offset - Inflation has not had a material effect on the business, results of operations, or financial condition, but significant inflationary pressures could harm the business if higher costs cannot be offset by price increases[642](index=642&type=chunk) [Foreign Currency Exchange Risk](index=68&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section evaluates Zillow Group's exposure to foreign currency exchange risk, concluding no material effect due to limited foreign currency balances - Foreign currency exchange risk has not had a material effect on the business, results of operations, or financial condition, as the company does not maintain a significant balance of foreign currency, and a **10% fluctuation in exchange rates** is not expected to have a material impact[643](index=643&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of Zillow Group's disclosure controls and procedures as of September 30, 2021, based on an evaluation by the CEO and CFO, with no material changes in internal control over financial reporting identified during the quarter - Management, under the supervision of the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2021, and concluded they were effective[645](index=645&type=chunk) - No changes in internal control over financial reporting were identified during the three months ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[646](index=646&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=62&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of Zillow Group's disclosure controls and procedures based on management's evaluation [Changes in Internal Control Over Financial Reporting](index=62&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in Zillow Group's internal control over financial reporting during the quarter PART II – OTHER INFORMATION This section provides additional information beyond the financial statements, including legal proceedings, risk factors, equity sales, and required exhibits and signatures [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 17 in Part I for detailed information on Zillow Group's legal proceedings, which include class action lawsuits, shareholder derivative lawsuits, and patent infringement claims by IBM, with management believing the outcomes will not materially affect the company's financial position, results of operations, or cash flow, though a loss is reasonably possible for IBM complaints but not estimable - Zillow Group is involved in various legal proceedings, including class action lawsuits, shareholder derivative lawsuits, and patent infringement claims by IBM, as detailed in Note 17 of the financial statements[648](index=648&type=chunk) - Management believes the outcomes of these proceedings will not have a material effect on the company's financial position, results of operations, or cash flow, however, for the IBM complaints, a reasonable possibility of loss exists, but the amount is not estimable[481](index=481&type=chunk)[485](index=485&type=chunk)[487](index=487&type=chunk)[488](index=488&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the significant risks associated with the wind-down of Zillow Offers operations, including potential adverse impacts on financing, operational disruptions, workforce challenges, and financial performance due to uncertainties in estimates and costs, with the extent of these impacts being highly uncertain and potentially material - The wind-down of Zillow Offers operations poses significant risks, including adverse impacts on financing, operational disruptions, workforce morale and retention, and financial projections[651](index=651&type=chunk) - Financing for Zillow Offers may be adversely impacted, potentially requiring the use of cash and current investments and incurring prepayment penalties, while operational disruptions could lead to longer hold times for homes, increased costs, and decreased profitability[651](index=651&type=chunk) - Workforce challenges, including staffing issues, morale impacts, and difficulty retaining key employees, could negatively affect other business lines and critical functions, and financial performance may be impacted by the accuracy of wind-down estimates, additional charges, and loss of synergies[651](index=651&type=chunk) - The full extent of the wind-down's impact is highly uncertain and unpredictable, potentially delaying the process, increasing costs, and disrupting other businesses[652](index=652&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proc