Redfin(RDFN) - 2021 Q4 - Annual Report

PART I Business Redfin operates as a technology-powered residential real estate brokerage, integrating its own agents with proprietary technology to offer comprehensive, efficient, and cost-effective services - Redfin's core business is a residential real estate brokerage that pairs its own agents with its own technology to provide a comprehensive suite of services, including mortgage, title, direct home buying (iBuying), and rentals[17][18] - The company aims to provide a complete, integrated customer solution by combining brokerage, rentals, mortgage, title services, and instant offers, believing this approach is more efficient than using separate stand-alone companies[22] Key Business Achievements and Statistics (as of 2021) | Metric | Value | | :--- | :--- | | Homes Bought/Sold (cumulative through 2021) | > 400,000 | | Aggregate Home Value (cumulative through 2021) | > $200 billion | | Customer Savings (cumulative since 2006) | > $1 billion | | Monthly Average Visitors (2021) | > 47 million | | Seller Commission Rate | 1% to 1.5% | | Average Homebuyer Refund (2021) | > $1,900 | - Redfin employs its lead agents, paying them a salary and benefits, which resulted in a median income over 2.5 times higher than competing agents in 2021 and a 17% higher retention rate from 2020 to 2021[32] Risk Factors The company faces significant risks from U.S. residential real estate market health, intense competition, geographic concentration, and substantial indebtedness for its RedfinNow and mortgage operations - The business is highly dependent on the health of the U.S. residential real estate industry, which is susceptible to macroeconomic factors such as mortgage rates, unemployment, inflation, and consumer confidence[42][43] - A significant portion of real estate services revenue is concentrated in its top-10 metropolitan markets, making the company vulnerable to adverse local or regional economic conditions in these areas[47][48] - The RedfinNow business faces risks of overestimating home purchase prices and potential declines in the value of its owned home inventory due to market changes or unforeseen property defects[70][71] - The company has substantial indebtedness through convertible senior notes and relies on credit facilities to fund RedfinNow home purchases and Redfin Mortgage loan originations, with potential defaults if payment obligations are not met[97][101][106] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[119] Properties This item is not applicable as the company does not own material properties beyond its RedfinNow inventory - This section is not applicable as the company does not have material properties to disclose here[120] Legal Proceedings Material legal proceedings are discussed in Note 8 of the consolidated financial statements - Details on material legal proceedings are provided in Note 8 to the consolidated financial statements[121] Mine Safety Disclosures This item is not applicable to the company's business operations - This section is not applicable[122] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Redfin's common stock trades on Nasdaq under 'RDFN', with no cash dividends planned for common stock, and no equity security purchases in Q4 2021 - Redfin's common stock trades on The Nasdaq Global Select Market under the symbol 'RDFN'[125] - The company does not intend to pay cash dividends on its common stock in the foreseeable future, though it pays quarterly dividends on convertible preferred stock in common stock shares[126] - During the quarter ended December 31, 2021, there were no purchases of the company's common stock by or on behalf of Redfin[129] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, Redfin's revenue grew 117% to $1.92 billion, driven by Properties and Rentals segments, but net loss widened to $109.6 million due to lower gross margin and increased operating expenses Key Business Metrics In 2021, Redfin experienced growth in monthly average visitors, real estate services transactions, U.S. market share, and RedfinNow homes sold Key Business Metrics (2019-2021) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Monthly average visitors (thousands) | 47,113 | 42,862 | 33,473 | | Total real estate services transactions | 94,579 | 75,800 | 65,174 | | U.S. market share by value | 1.17% | 1.00% | 0.93% | | Average number of lead agents | 2,396 | 1,757 | 1,553 | | RedfinNow Homes Sold | 1,451 | 453 | 503 | Results of Operations Total revenue increased 117% to $1.92 billion in 2021, but gross margin declined to 21.0%, and the company reported a net loss of $109.6 million Consolidated Statement of Operations (in thousands) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $1,922,765 | $886,093 | $779,796 | | Cost of revenue | $1,518,945 | $653,983 | $635,693 | | Gross profit | $403,820 | $232,110 | $144,103 | | Total operating expenses | $513,773 | $231,318 | $223,349 | | (Loss) income from operations | ($109,953) | $792 | ($79,246) | | Net loss | ($109,613) | ($18,527) | ($80,805) | Revenue by Segment (2021 vs. 2020, in thousands) | Segment | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total real estate services | $903,334 | $651,208 | 39% | | Properties | $880,653 | $209,686 | 320% | | Rentals | $121,877 | $0 | N/A | | Mortgage | $19,818 | $15,835 | 25% | | Total revenue | $1,922,765 | $886,093 | 117% | Gross Margin by Segment (2021 vs. 2020) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Real estate services | 33.2% | 35.9% | | Properties | 1.2% | (2.2)% | | Rentals | 82.2% | N/A | | Mortgage | (31.7)% | 1.3% | | Total gross margin | 21.0% | 26.2% | Liquidity and Capital Resources As of December 31, 2021, Redfin held $591.0 million in cash, with liquidity supported by operations and credit facilities, alongside $1.26 billion in convertible senior notes - As of December 31, 2021, the company had cash and cash equivalents of $591.0 million and investments of $88.6 million[210] - The company has significant debt obligations, including $1.26 billion in aggregate principal of convertible senior notes and 40,000 shares of convertible preferred stock outstanding[211] Summary of Cash Flows (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($301,568) | $61,267 | ($107,610) | | Net cash used in investing activities | ($576,306) | ($57,119) | ($115,912) | | Net cash provided by financing activities | $650,341 | $694,227 | $31,883 | Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, valuation of acquired intangible assets and goodwill, and home inventory valuation - Critical policies include revenue recognition, where brokerage revenue is recognized at closing and properties revenue is recorded on a gross basis representing the home's sales price[232][233] - Valuation of acquired intangible assets and goodwill requires significant judgment regarding future cash flows, discount rates, and asset lives, impacting future depreciation and amortization[238][239] - Home inventory is stated at cost and reviewed individually, with write-downs to net realizable value recognized if a home's estimated market value falls below its cost[243] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, affecting investment income, mortgage operations, and borrowing costs, with foreign currency risk being insignificant - The primary market risk is interest rate risk, which impacts investment income, mortgage operations, and borrowing costs[249] - The mortgage business is exposed to interest rate risk on loans held for sale and IRLCs, managed through forward sales commitments[252] - Foreign currency exchange risk from Canadian operations is currently not significant[254] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021, 2020, and 2019, including balance sheets, statements of comprehensive loss, cash flows, equity changes, and accompanying notes Consolidated Balance Sheets As of December 31, 2021, total assets increased to $2.02 billion, driven by inventory, goodwill, and intangibles, while total liabilities grew to $1.67 billion due to convertible senior notes Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $591,003 | $925,276 | | Inventory | $358,221 | $49,158 | | Goodwill | $409,382 | $9,186 | | Total Assets | $2,021,972 | $1,360,520 | | Secured revolving credit facility | $199,781 | $23,949 | | Convertible senior notes, net, noncurrent | $1,214,017 | $488,268 | | Total Liabilities | $1,672,252 | $730,140 | | Total Stockholders' Equity | $309,852 | $590,557 | Consolidated Statements of Comprehensive Loss In 2021, total revenue reached $1.92 billion, but the company reported a net loss of $109.6 million, resulting in a net loss per share of ($1.12) Key P&L Figures (in thousands) | Line Item | 2021 | 2020 | | :--- | :--- | :--- | | Total revenue | $1,922,765 | $886,093 | | Gross profit | $403,820 | $232,110 | | (Loss) income from operations | ($109,953) | $792 | | Net loss | ($109,613) | ($18,527) | | Net loss per share—basic and diluted | ($1.12) | ($0.23) | Notes to Consolidated Financial Statements These notes detail accounting policies, including the RentPath acquisition, segment revenue, legal proceedings, debt instruments, and a subsequent acquisition of Bay Equity - Note 2 (Business Combinations): On April 2, 2021, Redfin acquired RentPath for $608 million in cash, resulting in $400.2 million of goodwill and $211 million of identifiable intangible assets[356][358][359] - Note 8 (Commitments and Contingencies): The company is involved in several material legal proceedings, including lawsuits alleging Fair Housing Act violations and agent misclassification[387][388] - Note 15 (Debt): The company utilizes warehouse credit facilities totaling $115 million and a secured revolving credit facility of $200 million, alongside three series of convertible senior notes[437][440][443] - Note 16 (Subsequent Event): On January 10, 2022, Redfin agreed to acquire Bay Equity, a full-service mortgage lender, for a premium of $72.5 million over its tangible book value at closing[455][456] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired RentPath - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[460] - Management's report on internal control over financial reporting concluded that controls were effective as of December 31, 2021, with the evaluation excluding the recently acquired RentPath[461][462] PART III Part III incorporates information by reference from the 2022 proxy statement, covering directors, executive compensation, security ownership, related transactions, and accounting fees Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2022 proxy statement[467] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 proxy statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2022 proxy statement[468] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2022 proxy statement - Information regarding security ownership is incorporated by reference from the forthcoming 2022 proxy statement[469] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2022 proxy statement - Information regarding related transactions and director independence is incorporated by reference from the forthcoming 2022 proxy statement[470] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2022 proxy statement - Information regarding principal accounting fees and services is incorporated by reference from the forthcoming 2022 proxy statement[471] PART IV Part IV lists all exhibits filed with the Form 10-K, including governance documents, material contracts, debt indentures, and CEO/CFO certifications, with financial statements included in Item 8 Exhibits, Financial Statement Schedules This section lists all exhibits filed with the annual report, including financial statements, merger agreements, corporate governance documents, and debt indentures - This item lists the financial statements included under Item 8 and all exhibits filed with the annual report[474][475] Form 10-K Summary The company indicates that there is no Form 10-K summary provided - This section is not applicable[477]