Redfin(RDFN) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section details the company's unaudited financial performance, condition, market risks, and internal controls Item 1. Financial Statements (unaudited) This section presents the company's unaudited consolidated financial statements, including balance sheets, statements of comprehensive loss, and cash flows, along with their accompanying notes Consolidated Financial Statements This subsection presents the company's consolidated balance sheets, statements of comprehensive loss, and cash flows Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $612,680 | $591,003 | | Inventory | $245,487 | $358,221 | | Total current assets | $1,099,231 | $1,246,064 | | Total assets | $1,867,153 | $2,021,972 | | Liabilities & Equity | | | | Total current liabilities | $300,366 | $401,812 | | Convertible senior notes, net, noncurrent | $1,238,585 | $1,214,017 | | Total liabilities | $1,591,651 | $1,672,252 | | Total stockholders' equity | $235,623 | $309,852 | Consolidated Statements of Comprehensive Loss (in thousands) | Account | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total revenue | $597,346 | $268,319 | | Gross profit | $72,538 | $42,358 | | Loss from operations | ($85,120) | ($34,513) | | Net loss | ($90,806) | ($35,784) | | Net loss per share | ($0.86) | ($0.37) | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $79,001 | ($50,765) | | Net cash used in investing activities | ($73,192) | ($9,573) | | Net cash (used in) provided by financing activities | ($75,359) | $457,562 | | Net change in cash, cash equivalents, and restricted cash | ($69,554) | $397,225 | Notes to Consolidated Financial Statements This subsection provides detailed notes supporting the consolidated financial statements, including acquisition details and debt information - On April 2, 2021, Redfin acquired RentPath Holdings, Inc. for $608 million in cash to enter the real estate rentals market. The acquisition resulted in the recognition of $400.2 million in goodwill and $211.0 million in intangible assets[37][39] Segment Gross Profit (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Real estate services | $23,703 | $40,393 | | Properties | $20,887 | $1,596 | | Rentals | $30,851 | — | | Mortgage | ($2,600) | ($158) | | Total | $72,538 | $42,358 | - As of March 31, 2022, the company had three tranches of convertible senior notes outstanding with a total net carrying amount of $1.24 billion[53][122] - Subsequent to the quarter end, on April 1, 2022, Redfin completed the acquisition of Bay Equity LLC, a full-service mortgage lender, for an estimated purchase price of $137.8 million[132][134] - On April 29, 2022, the company settled a lawsuit alleging violations of the Fair Housing Act (FHA). The settlement includes payments totaling $4 million and changes to business practices[137] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant revenue growth driven by the Properties segment and RentPath acquisition, alongside declining gross margins, rising operating expenses, and the company's liquidity position Key Business Metrics This subsection presents key operational metrics used to evaluate the company's performance Key Operating Metrics Comparison | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Monthly average visitors (thousands) | 51,287 | 46,202 | | Total real estate services transactions | 18,418 | 18,261 | | U.S. market share by value | 1.18% | 1.16% | | RedfinNow homes sold | 617 | 171 | Results of Operations This subsection details the company's revenue, gross profit, and operating expenses by segment Revenue by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Total real estate services | $177,487 | $168,609 | 5% | | Properties | $379,753 | $92,726 | 310% | | Rentals | $38,044 | — | N/A | | Mortgage | $2,917 | $5,711 | (49)% | | Total revenue | $597,346 | $268,319 | 123% | Gross Margin by Segment | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Real estate services | 13.4% | 24.0% | | Properties | 5.5% | 1.7% | | Rentals | 81.1% | N/A | | Mortgage | (89.1)% | (2.8)% | | Total gross margin | 12.1% | 15.8% | - Operating expenses increased by 105% YoY to $157.7 million. This was driven by the inclusion of RentPath's operating expenses ($46.3 million), a $16.2 million increase in marketing media costs, and a $6.9 million increase in technology personnel costs[193][194][195] Liquidity and Capital Resources This subsection discusses the company's cash position, debt obligations, and cash flow activities - As of March 31, 2022, the company had $612.7 million in cash and cash equivalents and $151.7 million in investments[204] - The company has $1.26 billion in aggregate principal of convertible senior notes outstanding, maturing between 2023 and 2027[205] - Net cash provided by operating activities was $79.0 million for Q1 2022, a significant improvement from the $50.8 million used in Q1 2021, primarily due to a $112.7 million decrease in inventory[212][214][215] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations, which affect its investment portfolio, mortgage operations (loans held for sale, IRLCs), and borrowings under its secured revolving credit facility. Foreign currency risk from Canadian operations is considered insignificant - The company is exposed to interest rate risk on its mortgage loans held for sale and Interest Rate Lock Commitments (IRLCs), which it manages through the use of forward sales commitments[243] - Borrowings under the secured revolving credit facility are subject to interest rate risk, but a hypothetical 10% change in rates is not expected to have a material impact[244] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022. No material changes to internal control over financial reporting were identified during the quarter - Based on an evaluation, the principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2022[247] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[248] PART II - OTHER INFORMATION This section provides information on legal proceedings, key risk factors, and a list of exhibits filed with the quarterly report Item 1. Legal Proceedings This section refers to Note 8 of the consolidated financial statements for details on material, pending legal proceedings - For a discussion of material, pending legal proceedings, the report refers to Note 8 of the consolidated financial statements[252] Item 1A. Risk Factors The company highlights new risks related to its mortgage business, including secondary market disruptions, fair value estimation challenges for MSRs, and reliance on warehouse credit facilities - A key risk is the potential for disruption in the secondary mortgage market, which could hinder the ability of the newly acquired Bay Equity to sell its originated mortgage loans on favorable terms[254] - The company faces risk from the difficulty in accurately estimating the fair value of mortgage servicing rights (MSRs), which are sensitive to factors like prepayment rates and delinquencies[255][256] - Bay Equity's reliance on warehouse credit facilities to fund its mortgage originations presents a risk; if these facilities become unavailable, it could adversely affect the ability to originate new loans[258] Item 6. Exhibits This section provides a list of exhibits filed or furnished with the quarterly report, including the Merger Agreement for the Bay Equity acquisition, officer certifications, and interactive data files - This section lists the exhibits filed with the Form 10-Q, including officer certifications (31.1, 31.2, 32.1, 32.2) and interactive data files (101, 104)[261]