Redfin(RDFN) - 2020 Q4 - Annual Report

Form 10-K Filing Information General Information This section provides the basic filing details for Redfin Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, including its SEC file number, state of incorporation, and principal executive offices - Redfin Corporation filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2020[1] Registrant Details | Detail | Value | | :--- | :--- | | Exact name of registrant | Redfin Corporation | | State of incorporation | Delaware | | I.R.S. Employer Identification No. | 74-3064240 | | Address of Principal Executive Offices | 1099 Stewart Street Suite 600, Seattle WA 98101 | | Registrant's telephone number | (206) 576-8333 | Securities and Filer Status Redfin's common stock is listed on The Nasdaq Global Select Market under the symbol 'RDFN'. The company is classified as a well-known seasoned issuer and a large accelerated filer, indicating its market capitalization and compliance with SEC filing requirements Securities Registered | Title of each class | Trading Symbol | Name of each exchange on which registered | | :--- | :--- | :--- | | Common Stock, $0.001 par value per share | RDFN | The Nasdaq Global Select Market | - Redfin Corporation is a well-known seasoned issuer and has filed all required reports during the preceding 12 months[2] Filer Status | Filer Type | Status | | :--- | :--- | | Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☐ | - The aggregate market value of common stock held by non-affiliates was $4.02 billion as of the last business day of the most recently completed second fiscal quarter. There were 103,206,434 shares of common stock outstanding as of February 10, 2021[3][4] Table of Contents Table of Contents Preliminary Notes Note Regarding Forward-Looking Statements This section advises readers that the annual report contains forward-looking statements about future operating results, financial position, business strategy, market growth, and objectives. It highlights that these statements are subject to risks, uncertainties, and assumptions, and actual results may differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, market growth, and objectives[11] - Forward-looking statements are identified by words such as 'believe,' 'may,' 'will,' 'estimate,' 'continue,' 'anticipate,' 'intend,' 'expect,' 'could,' 'would,' 'project,' 'plan,' 'hope,' 'potentially,' 'preliminary,' 'likely,' and similar expressions[11] - Readers are cautioned not to rely on forward-looking statements as predictions of future events due to inherent risks, uncertainties, and assumptions, including those detailed in Item 1A[11] Note Regarding Industry and Market Data This note clarifies that the report includes information from industry publications, which are believed to be reliable but have not been independently verified by Redfin. The company has not ascertained the underlying economic assumptions of this third-party data - The annual report contains information from industry publications, which are generally considered reliable but may not be accurate or complete[13] - Redfin has not independently verified third-party data or ascertained the underlying economic assumptions[13] PART I Item 1. Business Redfin Corporation operates as a residential real estate brokerage, leveraging its own agents and technology to facilitate home buying and selling. The company also offers mortgage origination, title and settlement services, and direct home purchases (RedfinNow), aiming to provide a comprehensive, customer-centric solution - Redfin is a residential real estate brokerage operating in over 95 markets in the U.S. and Canada, combining proprietary technology with employed agents to offer a faster, better, and more cost-effective service[15] - The company's mission is to redefine real estate in the consumer's favor, offering reduced commissions for sellers (1% to 1.5% vs. 2.5%-3% traditionally) and refunds for homebuyers (average $1,750 in 2020)[17][18] - Redfin's long-term goal is to integrate brokerage, mortgage, title services, and instant offers (RedfinNow) into a single, streamlined solution for consumers[20] Overview - Redfin helps people buy and sell homes, operating in over 95 markets in the United States and Canada as a residential real estate brokerage[15] - The company combines its own agents with proprietary technology to deliver a service that is faster, better, and costs less[15] - Redfin also offers mortgage loan origination, title and settlement services, and direct home purchases (RedfinNow)[16] Representing Customers - Redfin shares brokerage efficiency savings with customers, charging 1% to 1.5% commission for sellers (vs. 2.5%-3% traditionally) and refunding homebuyers an average of $1,750 per transaction in 2020[18] - Through 2020, Redfin helped customers buy or sell over 310,000 homes worth more than $152 billion, saving them nearly $1 billion since 2006[20] - The company's website and mobile application attracted over 42 million monthly average visitors in 2020, a 28% increase from 2019[20] - Redfin maintains partnerships with over 6,800 agents at other brokerages to serve customers when its own agents are unavailable due to high demand or geographic limitations, earning referral fees[19] Complete Customer Solution - Redfin's long-term vision is to integrate brokerage, mortgage, title services, and instant offers (RedfinNow) into a single, seamless solution for consumers[20] - Redfin Mortgage operates in 56 markets, originating and selling loans to third-party investors without retaining or servicing them[21] - Title Forward offers title and settlement services in 27 markets[22] - RedfinNow buys homes directly from homeowners for immediate sale and resells them, currently active in 16 markets[23] Competition - The residential brokerage industry is highly fragmented and rapidly evolving, with Redfin competing against traditional, hybrid, and non-traditional brokerages[24] - Key competitive factors for Redfin include access to data, website/mobile app traffic, service speed and quality, agent retention, pricing, consumer awareness, technological innovation, and local referral networks[25][26] - For mortgage origination, Redfin competes on service, product selection, interest rates, and origination fees. For title services, it competes on timeliness and fees. For RedfinNow, competition is primarily based on the prices offered to homeowners[25][26] Seasonality - The impact of seasonality on Redfin's business is discussed under 'Quarterly Results of Operations and Key Business Metrics' in Item 7[27] Our Lead Agents - Redfin employs its lead agents, paying them a salary, offering cash and equity compensation, and providing benefits, unlike traditional brokerages that use independent contractors[28] - In 2020, Redfin's lead agents earned a median income twice that of competing agents and were nearly three times more productive, leading to 13% higher retention rates[28] - As of December 31, 2020, Redfin had 4,185 employees, with an average of 1,757 lead agents for the year[29] Our Executive Officers - Key executive officers include Glenn Kelman (CEO), Bridget Frey (CTO), Ee Lyn Khoo (Chief HR Officer), Scott Nagel (President of Real Estate Operations), Chris Nielsen (CFO), Christian Taubman (Chief Product Officer), and Adam Wiener (Chief Growth Officer)[31][32] Our Regulatory Environment - The residential real estate industry is heavily regulated by federal, state, and local governments, impacting Redfin's integrated service model (brokerage, mortgage, title, instant offers)[33] - Regulations like the Real Estate Settlement Procedures Act of 1974 (RESPA) restrict kickbacks and referral fees, while the Fair Housing Act of 1968 (FHA) prohibits discrimination in home sales[34] - Each of Redfin's business lines (brokerage, mortgage, title) requires specific state licenses, and some employees also need individual licenses, which can be costly to obtain and maintain[35] Our Website and Public Filings - Redfin's website, www.redfin.com, provides free access to its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments filed with the SEC[36] Item 1A. Risk Factors This section details significant risks that could materially and adversely affect Redfin's business, operating results, financial condition, and competitive position. These risks span macroeconomic factors, industry-specific challenges, operational dependencies, legal and regulatory compliance, and financial obligations related to debt and preferred stock - The occurrence of any single risk or combination of risks could materially and adversely affect Redfin's business, operating results, financial condition, liquidity, or competitive position, potentially leading to slower growth, fluctuating revenue, continued losses, and reputational harm[38] Risks Related to Our Business and Industry - Redfin's success is highly dependent on the health of the U.S. residential real estate industry, which is influenced by macroeconomic factors such as economic growth, unemployment, inflation, mortgage rates, and home inventory levels[39] - The COVID-19 pandemic has affected and may continue to affect residential real estate transaction volume and home prices, impacting all of Redfin's revenue streams[41][44] - Intense competition from numerous brokerages, including those with greater resources and brand recognition, poses a risk to Redfin's market share and growth[49] - Inability to maintain or improve technology offerings, obtain accurate real estate listings, or attract customers to its website and mobile application could harm the business[50][55][58] - Redfin's model of employing lead agents incurs costs not faced by competitors and creates challenges in agent hiring, retention, and productivity, especially during demand fluctuations[64][65][66] - RedfinNow faces risks of overestimating home purchase prices and declines in home value, particularly due to its geographic concentration in six states[73][74] - The pending acquisition of RentPath may not yield anticipated benefits and could incur substantial integration costs or impairment charges[83] Risks Related to Our Indebtedness - Redfin may lack sufficient cash flow to meet payments on its convertible senior notes, potentially leading to acceleration of principal amounts and bankruptcy[98][101][102] - Conversion of a significant principal amount of convertible senior notes could dilute stockholder ownership and depress common stock price[103] - RedfinNow relies on a secured revolving credit facility for home purchases, and insufficient sale proceeds or early repayment obligations could lead to default and loss of assets[104][105][107] - Redfin Mortgage's growth depends on sufficient financing from warehouse credit facilities; inability to obtain this could hinder its mortgage origination business[109] - Cross-acceleration and cross-default provisions in debt agreements could trigger immediate repayment of all outstanding indebtedness if a single agreement is breached[111] - The discontinuation of LIBOR could lead to increased borrowing costs and uncertainty for Redfin's secured revolving credit facility and warehouse credit facilities[112] Risks Related to Our Convertible Preferred Stock - Redfin may be required to make cash payments to preferred stockholders for dividends or redemptions before the final redemption date of November 30, 2024, which could materially reduce net working capital[113][114][115] Risks Relating to Ownership of Our Common Stock - Redfin's restated certificate of incorporation designates specific Delaware and U.S. federal district courts as exclusive forums for certain stockholder actions, potentially limiting stockholders' ability to choose a favorable judicial forum[116][117][118] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[120] Item 2. Properties Redfin Corporation does not own any properties - No properties were reported[121] Item 3. Legal Proceedings This section outlines material pending legal proceedings, including a patent infringement lawsuit by David Eraker (dismissed with prejudice), a Fair Housing Act violation lawsuit, and two lawsuits alleging misclassification of independent contractors - David Eraker's complaint against Redfin, alleging concealment of a patent application, was voluntarily dismissed with prejudice on November 20, 2020[123] - A lawsuit filed on May 11, 2020, by Appliance Computing III, Inc. (d/b/a Surefield) alleges Redfin is infringing on Surefield's patents, seeking unspecified damages and an injunction[375] - A group of ten organizations filed a lawsuit on October 28, 2020, alleging Redfin's business policies and practices violate the Fair Housing Act, specifically regarding service availability in non-white communities and pricing structures[376] - Two lawsuits, filed by Devin Cook (August 28, 2019) and Jason Bell (November 20, 2020), allege misclassification of independent contractor sales associates as employees, seeking unpaid wages, penalties, and other relief[377][378] Item 4. Mine Safety Disclosures This item is not applicable to Redfin Corporation - This item is not applicable[124] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides information on Redfin's common stock market, shareholder details, dividend policy, stock performance, and equity security transactions. As of February 10, 2021, Redfin had 225 holders of record for its common stock - Redfin's common stock is listed on The Nasdaq Global Select Market under the symbol 'RDFN'[127] - As of February 10, 2021, there were 225 holders of record of Redfin's common stock[127] - On April 1, 2020, Redfin issued 40,000 shares of convertible preferred stock at $1,000 per share, with dividends accruing at 5.5% per annum, payable quarterly in common stock if certain conditions are met, or in cash otherwise[128] - Redfin has no intention of paying cash dividends on common stock in the foreseeable future[128] - No equity securities were sold unregistered under the Securities Act of 1933 during the reporting period, and no common stock was purchased by or on behalf of Redfin during the quarter ended December 31, 2020[130][133] Item 6. Selected Financial Data This item is not applicable - This item is not applicable[134] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of Redfin's financial condition and results of operations for the years ended December 31, 2020, 2019, and 2018. It covers key business metrics, revenue and cost components, year-over-year comparisons, quarterly performance, liquidity, cash flows, contractual obligations, and critical accounting policies - Redfin's mission is to redefine real estate in the consumer's favor by combining technology and local service to help people buy and sell homes, originate mortgages, and offer title and settlement services[141] Overview - Redfin operates as a residential real estate brokerage in over 95 markets in the United States and Canada, using its own agents and technology[139] - The company also provides mortgage loan origination, title and settlement services, and directly purchases homes through RedfinNow[140] Key Business Metrics Key Business Metrics (Year Ended December 31) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Monthly average visitors (in thousands) | 42,862 | 33,473 | 27,261 | | Real estate services transactions (Total) | 75,800 | 65,174 | 54,562 | | Brokerage transactions | 60,510 | 53,235 | 42,954 | | Partner transactions | 15,290 | 11,939 | 11,608 | | Aggregate home value of real estate services transactions (in millions) | $37,359 | $30,532 | $25,812 | | U.S. market share by value | 1.00 % | 0.93 % | 0.81 % | | Revenue from top-10 Redfin markets as a percentage of real estate services revenue | 63 % | 63 % | 67 % | | Average number of lead agents | 1,757 | 1,553 | 1,390 | | Properties transactions | 453 | 503 | 99 | | Properties revenue per transaction | $462,883 | $478,146 | $454,470 | - Monthly average visitors to Redfin's website and mobile application increased by 28% in 2020 compared to 2019, serving as a leading indicator of business activity[143][144] - Total real estate services transactions increased by 16.3% in 2020, with brokerage transactions up 13.7% and partner transactions up 28.1%[143] - U.S. market share by value grew from 0.93% in 2019 to 1.00% in 2020[143] Components of Our Results of Operations - Revenue is primarily generated from commissions and fees on real estate services transactions (brokerage and partner revenue) and from the sale of homes (properties revenue)[161] - Other revenue includes fees from mortgage origination, title settlement, Walk Score data, and advertising[165] - Cost of revenue includes personnel costs, transaction bonuses, home-touring and field expenses, listing expenses, and home costs for the properties segment[167] - Operating expenses are categorized into Technology and Development, Marketing, and General and Administrative[169][170][171] - Interest income is primarily from cash, cash equivalents, and investments, while interest expense includes interest on convertible senior notes and secured revolving credit facilities[172][173][174] Results of Operations Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $886,093 | $779,796 | $486,920 | | Cost of revenue | $653,983 | $635,693 | $367,496 | | Gross profit | $232,110 | $144,103 | $119,424 | | Total operating expenses | $231,318 | $223,349 | $163,358 | | Income (loss) from operations | $792 | $(79,246) | $(43,934) | | Net loss | $(18,527) | $(80,805) | $(41,978) | Revenue Breakdown (Year Ended December 31, in thousands) | Revenue Type | 2020 | 2019 | Change (2020 vs 2019) | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Brokerage revenue | $607,513 | $496,480 | $111,033 | 22 % | | Partner revenue | $43,695 | $27,060 | $16,635 | 61 % | | Total real estate services revenue | $651,208 | $523,540 | $127,668 | 24 % | | Properties revenue | $209,686 | $240,507 | $(30,821) | (13)% | | Other revenue | $28,212 | $17,634 | $10,578 | 60 % | | Total revenue | $886,093 | $779,796 | $106,297 | 14 % | - Total revenue increased by 14% in 2020, primarily driven by a 24% increase in real estate services revenue, while properties revenue decreased by 13% due to lower average inventory and a pause in new home offers in response to COVID-19[180] - Gross margin increased by 770 basis points in 2020, reaching 26.2%, mainly due to the properties business contributing a lesser proportion of revenue and improvements in real estate services and other gross margins[182] - Marketing expenses decreased by 28% in 2020 due to a temporary cessation of advertising campaigns during Q2 2020 in response to COVID-19[187] - Net loss decreased significantly from $(80,805) thousand in 2019 to $(18,527) thousand in 2020, while income from operations turned positive at $792 thousand in 2020 from a loss of $(79,246) thousand in 2019[177] Quarterly Results of Operations and Key Business Metrics Quarterly Revenue (in thousands) | Quarter | Dec. 31, 2020 | Sep. 30, 2020 | Jun. 30, 2020 | Mar. 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $244,517 | $236,916 | $213,665 | $190,995 | Quarterly Net Income (Loss) (in thousands) | Quarter | Dec. 31, 2020 | Sep. 30, 2020 | Jun. 30, 2020 | Mar. 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $14,035 | $34,166 | $(6,611) | $(60,117) | - Redfin's revenue typically follows the seasonal pattern of the residential real estate industry, increasing sequentially from Q1 to Q2 and Q3, then declining in Q4[203] - In 2020, this pattern was disrupted by COVID-19, with negative impacts on revenue in Q2, followed by a rebound and sequential increases in Q3 and Q4[204] - Marketing expenses were significantly reduced in March and April 2020 due to COVID-19, with campaigns restarting in May[206] - General and administrative expenses in Q2 2020 included a $7,525 thousand charge related to employee reductions and furloughs in response to COVID-19, partially offset by CARES Act employee retention credits[207] Liquidity and Capital Resources Liquidity Position (as of December 31, 2020, in thousands) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $925,276 | | Investments | $143,500 | | Convertible senior notes outstanding (aggregate principal) | $686,900 | - Redfin expects existing cash, investments, future operations, and borrowings from credit facilities to provide sufficient liquidity for operational needs, debt obligations, and the pending RentPath acquisition[215] - The company entered an agreement on February 19, 2021, to acquire RentPath for $608.0 million in cash, with a $60.8 million escrow deposit made[211] - RedfinNow relies on a secured revolving credit facility for home purchases, and Redfin Mortgage uses warehouse credit facilities to fund mortgage loan originations[213][214] Cash Flows Summary of Cash Flows (Year Ended December 31, in thousands) | Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $61,267 | $(107,610) | $(36,702) | | Net cash used in investing activities | $(57,119) | $(115,912) | $(10,303) | | Net cash provided by financing activities | $694,227 | $31,883 | $273,402 | - Net cash provided by operating activities was $61.3 million in 2020, a significant improvement from a net cash outflow of $107.6 million in 2019, driven by a lower net loss and non-cash adjustments[218][219] - Net cash provided by financing activities was $694.2 million in 2020, primarily from the issuance of 2025 notes ($647.5 million) and common/preferred stock ($109.5 million), partially offset by repurchases of 2023 notes[226] Contractual Obligations Contractual Obligations (as of December 31, 2020, in thousands) | Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Convertible senior notes | $686,876 | $1,849 | $23,777 | $661,250 | $— | | Interest on convertible senior notes | $1,058 | $416 | $642 | $— | $— | | Operating leases | $74,158 | $15,335 | $27,903 | $19,963 | $10,957 | | Finance leases | $697 | $206 | $398 | $93 | $— | | Purchase obligations | $71,761 | $63,586 | $8,175 | $— | $— | | Total | $834,550 | $81,392 | $60,895 | $681,306 | $10,957 | - Purchase obligations primarily relate to noncancelable commitments for network infrastructure, annual employee meetings, and homes under contract to purchase[230] Critical Accounting Policies and Estimates - Critical accounting policies and estimates include valuation of deferred income taxes, stock-based compensation, net realizable value of inventory, capitalization of software development costs, incremental borrowing rates for leases, and fair value of convertible senior notes[232][286] - Redfin accounts for its 2025 convertible senior notes by separating proceeds into liability and equity components, with the liability component valued using a discounted cash flow analysis and risk-adjusted yield[233][234] - Revenue recognition for brokerage services occurs upon transaction closing, less refunds/promotional offers, while properties revenue is recorded at closing based on the home's sales price[236][237] - Inventory (homes for resale) is stated at cost and reviewed for lower of cost or net realizable value write-downs, with write-downs recognized if market value is lower than cost[240] Recent Accounting Standards - Redfin adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), in January 2020, which did not have a material impact on consolidated financial statements[344] - Redfin elected to early adopt ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, as of January 1, 2021, using the modified retrospective approach. This is expected to reduce non-cash interest expense for future periods[347][348][349] Off-Balance Sheet Arrangements - Redfin has no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K[243] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section discusses Redfin's exposure to market risks, primarily fluctuations in interest rates, and its strategies for managing these risks. The company's investment policy prioritizes liquidity and capital preservation, and it uses forward sales commitments to manage interest rate risk on mortgage loans - Redfin's primary market risk exposure is to fluctuations in interest rates, particularly U.S. treasury and mortgage interest rates[244] Interest Rate Risk - As of December 31, 2020, Redfin had $925.3 million in cash and cash equivalents and $143.5 million in investments, primarily short-term U.S. treasury securities[246] - Redfin manages interest rate risk on mortgage loans held for sale and Interest Rate Lock Commitments (IRLCs) using forward sales commitments[247] - A hypothetical 10% change in interest rates is not expected to have a material impact on financial results for Q1 2021, given the short-term nature of investments and current outstanding borrowings[246][248] Foreign Currency Exchange Risk - Redfin does not currently face significant foreign currency exchange rate risk due to limited operations in Canada and a non-significant balance of foreign currency[249] Item 8. Financial Statements and Supplementary Data This section presents Redfin's audited consolidated financial statements, including balance sheets, statements of comprehensive loss, cash flows, and changes in equity, along with the independent registered public accounting firm's reports and detailed notes to the financial statements - Deloitte & Touche LLP issued an unqualified opinion on Redfin's consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020[253][254][263][264] - A critical audit matter identified was the accounting for the Convertible Senior Notes due 2025, due to the complexity of applying the accounting framework and significant estimates in determining the fair value of the liability component[258][260] Reports of Independent Registered Public Accounting Firm - Deloitte & Touche LLP provided an unqualified opinion on Redfin's consolidated financial statements for the three years ended December 31, 2020, and on the effectiveness of internal control over financial reporting as of December 31, 2020[253][254][263][264] - The critical audit matter identified was the accounting for the Convertible Senior Notes due 2025, specifically the separation into liability and equity components and the fair value determination of the liability component[258][260] Consolidated Balance Sheets Consolidated Balance Sheet (in thousands) | Asset/Liability | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $925,276 | $234,679 | | Total current assets | $1,240,826 | $451,593 | | Total assets | $1,360,520 | $596,213 | | Liabilities | | | | Total current liabilities | $185,721 | $85,182 | | Convertible senior notes, net, noncurrent | $488,268 | $119,716 | | Total liabilities | $730,140 | $264,767 | | Equity | | | | Series A convertible preferred stock | $39,823 | $— | | Total stockholders' equity | $590,557 | $331,446 | - Total assets increased significantly from $596.2 million in 2019 to $1.36 billion in 2020, primarily driven by a substantial increase in cash and cash equivalents[270] - Total liabilities more than doubled from $264.8 million in 2019 to $730.1 million in 2020, largely due to an increase in noncurrent convertible senior notes[270] Consolidated Statements of Comprehensive Loss Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total revenue | $886,093 | $779,796 | $486,920 | | Total cost of revenue | $653,983 | $635,693 | $367,496 | | Gross profit | $232,110 | $144,103 | $119,424 | | Total operating expenses | $231,318 | $223,349 | $163,358 | | Income (loss) from operations | $792 | $(79,246) | $(43,934) | | Net loss | $(18,527) | $(80,805) | $(41,978) | | Net loss attributable to common stock | $(22,981) | $(80,805) | $(41,978) | | Net loss per share attributable to common stock—basic and diluted | $(0.23) | $(0.88) | $(0.49) | - Redfin achieved a positive income from operations of $792 thousand in 2020, a significant improvement from losses of $(79,246) thousand in 2019 and $(43,934) thousand in 2018[273] - Total revenue increased by 14% in 2020 to $886.1 million, following a 60% increase in 2019[273] - Net loss attributable to common stock decreased from $(80,805) thousand in 2019 to $(22,981) thousand in 2020[273] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $61,267 | $(107,610) | $(36,702) | | Net cash used in investing activities | $(57,119) | $(115,912) | $(10,303) | | Net cash provided by financing activities | $694,227 | $31,883 | $273,402 | | Net change in cash, cash equivalents, and restricted cash | $698,372 | $(191,607) | $226,397 | | Cash, cash equivalents, and restricted cash: End of period | $945,820 | $247,448 | $439,055 | - Operating activities generated $61.3 million in cash in 2020, a reversal from significant cash usage in prior years[277] - Financing activities provided $694.2 million in 2020, primarily from the issuance of convertible senior notes and equity[277] - Cash, cash equivalents, and restricted cash increased by $698.4 million in 2020, reaching $945.8 million at year-end[277] Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity Changes in Equity (in thousands) | Metric | December 31, 2020 | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | :--- | | Total stockholders' equity (beginning) | $331,446 | $371,938 | $235,430 | | Issuance of convertible preferred stock, net | $39,823 | $— | $— | | Issuance of common stock, net | $69,701 | $— | $107,593 | | Equity component of convertible senior notes, net | $165,257 | $— | $27,951 | | Stock-based compensation | $39,321 | $29,095 | $20,960 | | Net loss | $(18,527) | $(80,805) | $(41,978) | | Total stockholders' equity (ending) | $590,557 | $331,446 | $371,938 | - Total stockholders' equity increased from $331.4 million in 2019 to $590.6 million in 2020, primarily due to the issuance of convertible preferred stock, common stock, and the equity component of convertible senior notes[278] - Stock-based compensation expense increased to $39.3 million in 2020 from $29.1 million in 2019[278] Notes to Consolidated Financial Statements Note 1: Description of Business and Summary of Significant Accounting Policies - Redfin operates an online real estate marketplace, providing real estate services, title and settlement services, mortgage origination, and direct home buying/selling[282] - The company's financial statements are prepared in accordance with GAAP and include accounts of Redfin and its wholly-owned subsidiaries[283] - Key business uncertainties include macroeconomic factors, COVID-19 impact, intense competition, technology maintenance, accurate listings, and ability to attract customers[284] - In April 2020, Redfin reduced its workforce by approximately 400 employees and furloughed 1,000, incurring a $7,864 thousand charge, partially offset by $1,348 thousand in CARES Act employee retention credits[285] - Critical estimates include valuation of deferred income taxes, stock-based compensation, net realizable value of inventory, and fair value of convertible senior notes[286] Note 2: Segment Reporting and Revenue - Redfin has five operating segments and two reportable segments: real estate services and properties[350] Segment Revenue and Gross Profit (Year Ended December 31, in thousands) | Segment | 2020 Revenue | 2020 Gross Profit | 2019 Revenue | 2019 Gross Profit | 2018 Revenue | 2018 Gross Profit | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Real estate services | $651,208 | $234,068 | $523,540 | $150,390 | $432,168 | $123,099 | | Properties | $209,686 | $(4,696) | $240,507 | $(4,682) | $44,993 | $(1,620) | | Other | $28,212 | $2,738 | $17,634 | $(1,605) | $9,882 | $(2,055) | | Intercompany eliminations | $(3,013) | $— | $(1,885) | $— | $(123) | $— | | Consolidated | $886,093 | $232,110 | $779,796 | $144,103 | $486,920 | $119,424 | - Real estate services revenue increased by 24% in 2020, while properties revenue decreased by 13%[352] - Gross profit for real estate services increased by 56% in 2020, while properties segment continued to report a gross loss[352] Note 3: Financial Instruments - Redfin uses forward sales commitments on whole loans and mortgage-backed securities to manage interest rate and price risk on loans held for sale[354] - Interest Rate Lock Commitments (IRLCs) are considered free-standing derivatives and are recorded at fair value, subject to fallout risk[355] Derivative Notional Amounts (as of December 31, in thousands) | Instrument | 2020 Notional Amount | 2019 Notional Amount | | :--- | :--- | :--- | | Forward sales commitments | $130,109 | $39,447 | | IRLCs | $88,923 | $37,453 | - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs). IRLCs primarily use Level 3 inputs (pull-through rate)[294][295][296][360] - An impairment charge of $1,919 thousand was recognized in 2020 related to a cost method investment in a privately-held company[365] Note 4: Inventory Inventory Components (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Properties for sale | $17,153 | $36,982 | | Properties not available for sale | $7,225 | $3,163 | | Properties under improvement | $24,780 | $34,445 | | Total Inventory | $49,158 | $74,590 | - Inventory decreased from $74.6 million in 2019 to $49.2 million in 2020[368] - Inventory is stated at cost and reviewed for lower of cost or net realizable value write-downs, which were $29 thousand in 2020 and $143 thousand in 2019[368] Note 5: Property and Equipment Property and Equipment, Net (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Property and equipment, gross | $79,909 | $68,149 | | Accumulated depreciation and amortization | $(41,614) | $(29,047) | | Construction in progress | $5,693 | $475 | | Property and equipment, net | $43,988 | $39,577 | - Net property and equipment increased to $44.0 million in 2020 from $39.6 million in 2019[369] - Capitalized software development costs, including stock-based compensation, were $11.4 million in 2020[369] Note 6: Leases Lease Cost (Year Ended December 31, in thousands) | Lease Type | 2020 | 2019 | | :--- | :--- | :--- | | Total operating lease cost | $12,941 | $11,618 | | Total finance lease cost | $150 | $23 | Maturity of Lease Liabilities (as of December 31, 2020, in thousands) | Year | Operating Lease Liabilities | Financing Lease Liabilities | | :--- | :--- | :--- | | 2021 | $14,194 | $206 | | 2022 | $13,582 | $206 | | 2023 | $12,572 | $192 | | 2024 | $10,761 | $93 | | 2025 | $7,364 | $— | | Thereafter | $9,536 | $— | | Total lease payments | $68,009 | $697 | - Weighted average remaining operating lease term was 5.2 years, and the weighted average discount rate for operating leases was 4.4% as of December 31, 2020[373] Note 7: Commitments and Contingencies - Redfin is involved in legal proceedings, including a patent infringement lawsuit by Surefield, a Fair Housing Act violation lawsuit, and two misclassification lawsuits[374][375][376][377][378] - The company cannot estimate a range of reasonably possible losses for these material pending legal proceedings[374] Other Commitments (as of December 31, 2020, in thousands) | Year | Amount | | :--- | :--- | | 2021 | $63,586 | | 2022 | $7,430 | | 2023 | $745 | | Total future minimum payments | $71,761 | - Other commitments include homes under contract to purchase through the properties business and network infrastructure[379] Note 8: Acquired Intangible Assets Intangible Assets, Net (as of December 31, in thousands) | Category | 2020 Net | 2019 Net | | :--- | :--- | :--- | | Trade names | $390 | $494 | | Developed technology | $1,118 | $1,416 | | Customer relationship | $322 | $408 | | Total | $1,830 | $2,318 | - Intangible assets, primarily trade names, developed technology, and customer relationships, are amortized over estimated useful lives of ten years[311] - Amortization expense totaled $488 thousand for both 2020 and 2019, with $1,830 thousand remaining to be recognized over four years[381] Note 9: Accrued Liabilities Accrued Liabilities (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Accrued compensation and benefits | $49,238 | $30,462 | | Miscellaneous accrued liabilities | $9,722 | $7,021 | | Payroll tax liability deferred by the CARES Act | $6,812 | $— | | Customer contract liabilities | $3,688 | $539 | | Total accrued liabilities | $69,460 | $38,022 | - Total accrued liabilities increased from $38.0 million in 2019 to $69.5 million in 2020, largely due to increases in accrued compensation and benefits and deferred payroll tax liability under the CARES Act[382] Note 10: Other Payables Other Payables (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Customer deposits | $11,183 | $7,109 | | Miscellaneous payables | $2,001 | $775 | | Total other payables | $13,184 | $7,884 | - Other payables primarily consist of customer deposits held in escrow for real estate buyers, with a corresponding asset in restricted cash[383] Note 11: Mezzanine Equity - On April 1, 2020, Redfin issued 40,000 shares of Series A Convertible Preferred Stock at $1,000 per share, classified as mezzanine equity[385] - The carrying value of convertible preferred stock, net of issuance costs, was $39,823 thousand as of December 31, 2020[387] - Dividends accrue daily at 5.5% per annum and are payable quarterly in common stock (if conditions met) or cash. Holders have participation, conversion, and liquidation rights[388][389][390][391][392][393][394] Note 12: Equity and Equity Compensation Plans - Redfin has two equity incentive plans: the Amended and Restated 2004 Equity Incentive Plan (terminated for new grants in 2017) and the 2017 Equity Incentive Plan (2017 EIP)[396][397] Shares Reserved for Future Issuance under 2017 EIP (as of December 31) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Stock options issued and outstanding | 5,733,738 | 7,792,181 | | Restricted stock units outstanding | 4,459,743 | 5,023,412 | | Shares available for future equity grants | 11,309,377 | 7,100,499 | | Total shares reserved for future issuance | 21,502,858 | 19,916,092 | - The 2017 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at a discount, with 3,009,662 shares available for issuance at the end of 2020[399][400] - Total stock-based compensation expense was $36,973 thousand in 2020, with $113,101 thousand of unrecognized compensation related to restricted stock units remaining as of December 31, 2020[405][403] Note 13: Net Loss per Share Attributable to Common Stock Net Loss per Share Attributable to Common Stock (Year Ended December 31) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net loss attributable to common stock (in thousands) | $(22,981) | $(80,805) | $(41,978) | | Weighted average shares—basic and diluted | 98,574,529 | 91,583,533 | 85,669,039 | | Net loss per share attributable to common stock—basic and diluted | $(0.23) | $(0.88) | $(0.49) | - The calculation uses the two-class method, as convertible preferred stock is considered a participating security but does not share in losses[407] - Common stock equivalents, including convertible notes, preferred stock, stock options, and restricted stock units, were excluded from diluted EPS calculation due to their anti-dilutive effect in periods of net loss[409][410] Note 14: Income Taxes Deferred Income Tax Assets and Liabilities (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Gross deferred income tax assets | $102,841 | $84,487 | | Valuation allowance | $(44,307) | $(62,274) | | Total deferred income tax assets, net of valuation allowance | $58,534 | $22,213 | | Total deferred income tax liabilities | $(58,534) | $(22,213) | | Net deferred income tax assets and liabilities | $— | $— | - Redfin has a full valuation allowance against its U.S. deferred tax assets due to historical operating losses and lack of taxable income[323] Net Operating Loss (NOL) Carryforwards (as of December 31, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Federal | $227,751 | $195,133 | | Various states | $12,576 | $10,421 | | Foreign | $2,050 | $1,212 | - The effective income tax rate was 0% for 2020, 2019, and 2018, primarily due to the full valuation allowance[418] Note 15: Debt Warehouse Credit Facilities (as of December 31, 2020, in thousands) | Lender | Borrowing Capacity | Outstanding Borrowings | Weighted Average Interest Rate | | :--- | :--- | :--- | :--- | | Western Alliance Bank | $50,000 | $18,277 | 3.25 % | | Texas Capital Bank, N.A. | $40,000 | $12,903 | 3.35 % | | Flagstar Bank, FSB | $15,000 | $7,849 | 3.00 % | | Total | $105,000 | $39,029 | — % | Secured Revolving Credit Facility (as of December 31, 2020, in thousands) | Lender | Borrowing Capacity | Outstanding Borrowings | Weighted Average Interest Rate | | :--- | :--- | :--- | :--- | | Goldman Sachs Bank USA | $100,000 | $23,949 | 4.40 % | Convertible Senior Notes (as of December 31, 2020, in thousands) | Issuance | Aggregate Principal Amount | Unamortized Debt Discount | Unamortized Debt Issuance Costs | Net Carrying Amount | | :--- | :--- | :--- | :--- | :--- | | 2023 notes | $25,626 | $2,776 | $368 | $22,482 | | 2025 notes | $661,250 | $163,077 | $9,905 | $488,268 | - The 2023 notes became convertible at holders' option during Q1 2021 and were reclassified as current liabilities[433] - In October 2020, Redfin repurchased and retired $116,914 thousand aggregate principal amount of its 2023 notes, recognizing a $4,586 thousand loss on extinguishment[434] Note 16: Subsequent Events - On January 12, 2021, RedfinNow Borrower amended its secured revolving credit facility with Goldman Sachs, increasing borrowing capacity to $125,000 thousand and extending maturity to July 12, 2022[436][437] - On February 19, 2021, Redfin entered an agreement to acquire RentPath Holdings, Inc. for $608,000 thousand in cash, subject to antitrust and bankruptcy court approvals[438] - A $60,800 thousand deposit was made into an escrow account for the RentPath acquisition[439] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[442] Item 9A. Controls and Procedures Redfin's management concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020. The company also maintained effective internal control over financial reporting, as attested by its independent registered public accounting firm - Management, with the participation of principal executive and financial officers, concluded that disclosure controls and procedures were effective as of December 31, 2020[443] - Redfin maintained effective internal control over financial reporting as of December 31, 2020, based on the COSO framework, with an unqualified attestation report from Deloitte & Touche LLP[444] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect controls during the quarter ended December 31, 2020[445] - Management acknowledges the inherent limitations of control systems, which can only provide reasonable, not absolute, assurance[446] Item 9B. Other information No other information was reported under this item - No other information was reported[447] PART III Item 10. Directors, Executive Officers and Corporate Governance The information required for this item is incorporated by reference from Redfin's proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[450] Item 11. Executive Compensation The information required for this item is incorporated by reference from Redfin's proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[451] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item is incorporated by reference from Redfin's proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[452] Item 13. Certain Relationships and Related Transactions, and Director Independence The information required for this item is incorporated by reference from Redfin's proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[453] Item 14. Principal Accounting Fees and Services The information required for this item is incorporated by reference from Redfin's proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[454] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and schedules filed as part of the annual report, along with a comprehensive list of exhibits, including agreements, plans, and certifications - Financial statements and schedules are included under Item 8[457] - Exhibits include various agreements (e.g., Asset Purchase Agreement for RentPath, Indentures for Convertible Senior Notes), equity incentive plans, and certifications[458][459] Item 16. Form 10-K Summary No Form 10-K Summary was reported - No Form 10-K Summary was reported[460] Signatures This section contains the required signatures for the Annual Report on Form 10-K, including those of the Chief Executive Officer, Chief Financial Officer, and members of the Board of Directors, certifying the report's accuracy - The report is signed by Glenn Kelman (Chief Executive Officer) and Chris Nielsen (Chief Financial Officer) on February 24, 2021[463][464] - Signatures from the Chairman of the Board and other Directors are also included[464]