Redfin(RDFN) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides Redfin Corporation's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements, including the balance sheets, statements of comprehensive loss, cash flows, and changes in equity, along with detailed notes explaining accounting policies, business combinations, segment reporting, financial instruments, and other critical financial information for Redfin Corporation and its subsidiaries Consolidated Balance Sheets This table presents a snapshot of Redfin's assets, liabilities, and equity at specific points in time, highlighting key financial positions Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :-------------- | :------------------ | | Total Assets | $2,001,075 | $1,360,520 | | Total Liabilities | $1,635,633 | $730,140 | | Total Stockholders' Equity | $325,596 | $590,557 | | Inventory | $249,003 | $49,158 | | Goodwill | $407,228 | $9,186 | | Intangibles, net | $203,782 | $1,830 | Consolidated Statements of Comprehensive Loss This table details Redfin's revenues, costs, and net loss over specific reporting periods, reflecting overall financial performance Consolidated Statements of Comprehensive Loss Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $471,315 | $213,665 | $739,634 | $404,660 | | Gross Profit | $126,136 | $46,039 | $168,494 | $58,918 | | Loss from Operations | $(30,317) | $(4,426) | $(64,829) | $(61,856) | | Net Loss | $(27,878) | $(6,611) | $(63,662) | $(66,728) | | Net Loss per Share (Basic and Diluted) | $(0.29) | $(0.08) | $(0.65) | $(0.71) | Consolidated Statements of Cash Flows This table summarizes Redfin's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Category | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(213,638) | $8,744 | | Net cash used in investing activities | $(544,078) | $(51,262) | | Net cash provided by financing activities | $599,578 | $155,546 | | Net change in cash, cash equivalents, and restricted cash | $(158,138) | $113,006 | | Cash, cash equivalents, and restricted cash (End of period) | $787,682 | $360,454 | Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity This table tracks the changes in Redfin's mezzanine equity and stockholders' equity components over time, including preferred stock and accumulated deficit Changes in Stockholders' Equity (in thousands) | Metric | Balance, December 31, 2020 | Balance, June 30, 2021 | | :-------------------------- | :------------------------- | :--------------------- | | Series A Convertible Preferred Stock | $39,823 | $39,846 | | Common Stock (Amount) | $103 | $105 | | Additional Paid-in Capital | $860,556 | $651,627 | | Accumulated Deficit | $(270,313) | $(326,213) | | Accumulated Other Comprehensive Income | $211 | $77 | | Total Stockholders' Equity | $590,557 | $325,596 | - The accumulated deficit increased from $(270.3) million at December 31, 2020, to $(326.2) million at June 30, 2021, reflecting the net loss incurred during the period[21] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies and specific financial items Note 1: Summary of Accounting Policies This note outlines the significant accounting principles and methods used in preparing Redfin's financial statements, including recent standard adoptions - Redfin early adopted ASU 2020-06 as of January 1, 2021, using the modified retrospective approach, which removes the liability and equity separation models for convertible instruments[42] Impact of ASU 2020-06 Adoption (in thousands) | Account | Ending Balance as of Dec 31, 2020 | ASU 2020-06 Adjustments | Beginning Balance as of Jan 1, 2021 | | :-------------------------------- | :-------------------------------- | :---------------------- | :-------------------------------- | | Convertible senior notes, net | $22,482 | $2,723 | $25,205 | | Convertible senior notes, net, noncurrent | $488,268 | $159,755 | $648,023 | | Additional paid-in capital | $860,556 | $(170,240) | $690,316 | | Accumulated deficit | $(270,313) | $7,762 | $(262,551) | - The $7.8 million adjustment to accumulated deficit represents a reduction to non-cash interest expense related to the accretion of the debt discount under the historical separation model[42] Note 2: Business Combinations This note details Redfin's acquisition activities, including the financial impact and valuation of acquired assets and liabilities from business combinations - On April 2, 2021, Redfin acquired RentPath Holdings, Inc. for $608 million in cash to enter the real estate rentals market[43] RentPath Acquisition Financial Impact (in thousands) | Metric | Amount | | :--------------------------------------- | :------- | | Purchase Consideration | $608,000 | | RentPath Revenue Contribution (Q2 2021) | $42,548 | | Goodwill Recognized | $398,042 | | Total Identifiable Intangible Assets | $211,000 | Preliminary Valuation of RentPath Intangible Assets (in thousands) | Intangible Asset | Estimated Fair Value | Estimated Useful Life (in years) | | :----------------------- | :------------------- | :------------------------------- | | Trade names | $70,000 | 10 | | Developed technology | $60,500 | 3 | | Customer relationships | $80,500 | 10 | | Total | $211,000 | | Note 3: Segment Reporting and Revenue This note provides a breakdown of Redfin's revenue and gross profit by its distinct operating segments, including real estate services, properties, and rentals - Redfin now has three reportable segments: real estate services, properties, and rentals, with the rentals segment added due to the RentPath acquisition[50] Revenue by Segment (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Real estate services | $252,199 | $135,049 | $420,808 | $243,685 | | Properties | $172,445 | $72,184 | $265,171 | $151,282 | | Rentals | $42,548 | $0 | $42,548 | $0 | | Other | $8,521 | $7,246 | $17,878 | $11,496 | | Total Revenue | $471,315 | $213,665 | $739,634 | $404,660 | Gross Profit by Segment (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Real estate services | $88,074 | $46,250 | $128,466 | $61,324 | | Properties | $5,025 | $(1,164) | $6,620 | $(1,365) | | Rentals | $34,978 | $0 | $34,978 | $0 | | Other | $(1,941) | $953 | $(1,570) | $(1,041) | | Total Gross Profit | $126,136 | $46,039 | $168,494 | $58,918 | Note 4: Financial Instruments This note describes Redfin's financial instruments, including derivatives and convertible senior notes, and their fair value measurements and risk management - Redfin uses forward sales commitments on whole loans and mortgage-backed securities to manage interest rate and price risk on loans held for sale[55] Notional Amounts of Derivatives (in thousands) | Instrument | June 30, 2021 | December 31, 2020 | | :------------------------ | :-------------- | :------------------ | | Forward sales commitments | $110,918 | $130,109 | | IRLCs | $115,211 | $88,923 | Fair Value of Convertible Senior Notes (in thousands) | Issuance | Net Carrying Amount (June 30, 2021) | Estimated Fair Value (June 30, 2021) | | :--------- | :---------------------------------- | :----------------------------------- | | 2023 notes | $23,428 | $50,106 | | 2025 notes | $649,403 | $747,808 | | 2027 notes | $562,114 | $571,107 | Note 5: Inventory This note details the composition and changes in Redfin's inventory, primarily properties held for sale, and related purchase and sale activities Inventory Components (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :-------------------------- | :-------------- | :------------------ | | Properties for sale | $90,391 | $17,153 | | Properties not available for sale | $45,132 | $7,225 | | Properties under improvement | $113,480 | $24,780 | | Total Inventory | $249,003 | $49,158 | - Inventory increased significantly from $49.2 million at December 31, 2020, to $249.0 million at June 30, 2021, primarily driven by increased home purchases for the properties business[67] Home Purchase and Sale Activity (in thousands) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Homes purchased | $410,960 | $70,052 | | Homes sold (cost basis) | $213,921 | $133,172 | Note 6: Property and Equipment This note provides a breakdown of Redfin's property and equipment, net of depreciation, and related capital expenditures and amortization expenses Property and Equipment, Net (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :-------------- | :------------------ | | Property and equipment, gross | $97,946 | $79,909 | | Accumulated depreciation and amortization | $(49,713) | $(41,614) | | Construction in progress | $5,674 | $5,693 | | Property and equipment, net | $53,907 | $43,988 | Depreciation and Amortization Expense (in thousands) | Period | Depreciation and Amortization Expense | | :------------------------------- | :------------------------------------ | | Three Months Ended June 30, 2021 | $4,751 | | Three Months Ended June 30, 2020 | $3,435 | | Six Months Ended June 30, 2021 | $8,970 | | Six Months Ended June 30, 2020 | $6,621 | - Capitalized software development costs, including stock-based compensation, increased to $8.4 million for the six months ended June 30, 2021, from $5.5 million in the prior year[68] Note 7: Leases This note outlines Redfin's lease arrangements, including operating and finance lease costs, weighted-average lease terms, and discount rates Lease Costs (in thousands) | Lease Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total operating lease cost | $3,976 | $3,237 | $7,417 | $6,469 | | Total finance lease cost | $161 | $20 | $226 | $39 | Lease Term and Discount Rate | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------------ | :-------------- | :------------------ | | Weighted-average remaining operating lease term (years) | 5.3 | 5.2 | | Weighted-average remaining finance lease term (years) | 3.4 | 3.5 | | Weighted-average discount rate for operating leases | 4.4 % | 4.4 % | | Weighted-average discount rate for finance leases | 5.4 % | 5.4 % | Note 8: Commitments and Contingencies This note discloses Redfin's legal proceedings, potential liabilities, and other contractual commitments that could impact its financial position - Redfin is involved in several legal proceedings, including a patent infringement lawsuit by David Eraker, a lawsuit alleging Fair Housing Act violations, and multiple lawsuits alleging misclassification of independent contractors[74][75][77][78][79] - A potential employment claim under California's PAGA was submitted, with a rejected settlement offer, and additional losses are reasonably possible but unestimable[80] - Other commitments include $222.4 million in homes under contract to purchase for the properties business as of June 30, 2021[81] Note 9: Acquired Intangible Assets and Goodwill This note details the valuation and amortization of intangible assets acquired through business combinations and the carrying amount of goodwill Acquired Intangible Assets (in thousands) | Asset | Gross Amortization (June 30, 2021) | Net (June 30, 2021) | | :-------------------- | :--------------------------------- | :------------------ | | Trade names | $71,040 | $68,588 | | Developed technology | $63,480 | $56,427 | | Customer relationships | $81,360 | $78,767 | | Total | $215,880 | $203,782 | Amortization Expense (in thousands) | Period | Amortization Expense | | :------------------------------- | :--------------------- | | Three Months Ended June 30, 2021 | $8,926 | | Three Months Ended June 30, 2020 | $122 | | Six Months Ended June 30, 2021 | $9,048 | | Six Months Ended June 30, 2020 | $244 | Goodwill Carrying Amount (in thousands) | Metric | Amount | | :-------------------------- | :------- | | Balance as of Dec 31, 2020 | $9,186 | | Goodwill resulting from acquisition | $398,042 | | Balance as of June 30, 2021 | $407,228 | Note 10: Accrued Liabilities This note provides a breakdown of Redfin's accrued liabilities, including compensation, miscellaneous accruals, and deferred payroll taxes Accrued Liabilities Components (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :------------------ | | Accrued compensation and benefits | $72,746 | $49,238 | | Miscellaneous accrued liabilities | $16,364 | $9,722 | | Payroll tax liability deferred by the CARES Act | $7,841 | $6,812 | | Customer contract liabilities | $5,394 | $3,688 | | Total Accrued Liabilities | $102,345 | $69,460 | Note 11: Other Payables This note describes the components of Redfin's other payables, primarily customer deposits held in escrow for real estate transactions - Other payables primarily consist of customer deposits held in escrow for real estate buyers using title and settlement services, recorded as a liability with a corresponding asset in restricted cash[86] Other Payables Components (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :-------------------- | :-------------- | :------------------ | | Customer deposits | $15,269 | $11,183 | | Miscellaneous payables | $2,098 | $2,001 | | Total Other Payables | $17,367 | $13,184 | Note 12: Mezzanine Equity This note explains the classification and terms of Redfin's Series A Convertible Preferred Stock, including conversion features and redemption requirements - Redfin's Series A Convertible Preferred Stock is classified as mezzanine equity due to substantive conversion features at the option of the holder[88] - As of June 30, 2021, the carrying value of convertible preferred stock, net of issuance costs, was $39.8 million, with 40,000 shares issued and outstanding[90] - Dividends accrue daily at 5.5% per annum, payable quarterly in common stock (or cash if conditions are not met)[91] - Holders can convert at a $19.51 conversion price, and automatic conversion occurs if the common stock closing price exceeds $27.32 for 30 consecutive trading days[93][94] - Mandatory redemption of any outstanding shares is required on November 30, 2024, with holders electing to receive cash, common stock, or a combination[95] Note 13: Equity and Equity Compensation Plans This note details Redfin's equity compensation plans, including stock options, restricted stock units, and the associated stock-based compensation expense Shares Reserved for Future Issuance (2017 EIP) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :-------------- | :------------------ | | Stock options issued and outstanding | 4,639,132 | 5,733,738 | | Restricted stock units outstanding | 3,699,318 | 4,459,743 | | Shares available for future equity grants | 16,711,246 | 11,309,377 | | Total shares reserved for future issuance | 25,049,696 | 21,502,858 | Stock Option Activity (Six Months Ended June 30, 2021) | Metric | Number of Options | Weighted-Average Exercise Price | | :-------------------------------- | :---------------- | :------------------------------ | | Outstanding as of January 1, 2021 | 5,733,738 | $7.23 | | Options exercised | (1,089,203) | $4.77 | | Outstanding as of June 30, 2021 | 4,639,132 | $7.80 | | Options exercisable as of June 30, 2021 | 4,489,132 | $7.14 | Restricted Stock Unit Activity (Six Months Ended June 30, 2021) | Metric | Restricted Stock Units | Weighted-Average Grant-Date Fair Value | | :--------------------------------------- | :--------------------- | :------------------------------------- | | Outstanding as of January 1, 2021 | 4,459,743 | $27.44 | | Granted | 407,853 | $59.67 | | Vested | (737,403) | $22.04 | | Outstanding or deferred as of June 30, 2021 | 3,699,318 | $32.38 | Total Stock-Based Compensation Expense (in thousands) | Period | Total Stock-Based Compensation | | :------------------------------- | :----------------------------- | | Three Months Ended June 30, 2021 | $13,743 | | Three Months Ended June 30, 2020 | $7,205 | | Six Months Ended June 30, 2021 | $26,327 | | Six Months Ended June 30, 2020 | $14,416 | Note 14: Net Loss per Share Attributable to Common Stock This note presents the calculation of Redfin's basic and diluted net loss per share attributable to common stockholders, including excluded anti-dilutive securities Net Loss per Share Attributable to Common Stock (Basic and Diluted) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stock (in thousands) | $(29,756) | $(7,895) | $(67,876) | $(68,012) | | Weighted-average shares (basic and diluted) | 104,391,337 | 98,785,318 | 103,912,212 | 96,114,012 | | Net loss per share | $(0.29) | $(0.08) | $(0.65) | $(0.71) | - The calculation uses the two-class method, and 26,395,602 common stock equivalents were excluded from diluted EPS for the three and six months ended June 30, 2021, as their effect would have been anti-dilutive[109][111] Note 15: Income Taxes This note provides information on Redfin's income tax benefit, effective tax rate, valuation allowances, and net operating loss carryforwards - Redfin recorded an income tax benefit of $5.1 million for the six months ended June 30, 2021, resulting in an effective tax rate of (7.35)%, primarily due to a deferred tax liability from the RentPath acquisition[114] - A full valuation allowance was recorded against U.S. deferred tax assets for the six months ended June 30, 2021 and 2020[115] Net Operating Loss (NOL) Carryforwards (in thousands) | Entity | As of | Federal NOLs | State NOLs (tax effected) | Foreign NOLs | Federal Business Interest Expense Carryforwards | | :------- | :------------ | :------------- | :------------------------ | :------------- | :---------------------------------------------- | | Redfin | Dec 31, 2020 | $227,751 | $12,576 | $2,050 | N/A | | RentPath | April 2, 2021 | $114,082 | N/A | N/A | $142,632 | Note 16: Debt This note details Redfin's various debt instruments, including warehouse credit facilities, secured revolving credit facilities, and convertible senior notes Warehouse Credit Facilities (in thousands) | Lender | Borrowing Capacity (June 30, 2021) | Outstanding Borrowings (June 30, 2021) | Weighted-Average Interest Rate | | :---------------------- | :--------------------------------- | :------------------------------------- | :----------------------------- | | Western Alliance Bank | $50,000 | $17,825 | 3.25% | | Texas Capital Bank, N.A. | $40,000 | $17,398 | 3.35% | | Flagstar Bank, FSB | $15,000 | $11,202 | 3.00% | | Total | $105,000 | $46,425 | | Secured Revolving Credit Facility (in thousands) | Lender | Borrowing Capacity (June 30, 2021) | Outstanding Borrowings (June 30, 2021) | Weighted-Average Interest Rate | | :---------------------- | :--------------------------------- | :------------------------------------- | :----------------------------- | | Goldman Sachs Bank USA | $125,000 | $123,770 | 3.30% | Convertible Senior Notes (in thousands) | Issuance | Maturity Date | Stated Cash Interest Rate | Aggregate Principal Amount (June 30, 2021) | Net Carrying Amount (June 30, 2021) | | :--------- | :------------ | :------------------------ | :----------------------------------------- | :---------------------------------- | | 2023 notes | July 15, 2023 | 1.75% | $23,738 | $23,428 | | 2025 notes | October 15, 2025 | 0% | $661,250 | $649,403 | | 2027 notes | April 1, 2027 | 0.50% | $575,000 | $562,114 | - The 2023 notes became convertible at a holder's option during the quarter ending September 30, 2021, due to a conditional conversion trigger, leading to their classification as current liabilities[136] - Redfin entered into 2027 capped call transactions covering 6,147,900 shares of common stock to reduce potential dilution from the 2027 notes, with initial strike prices of $93.53 per share and cap prices of $138.56 per share[140] Note 17: Subsequent Events This note discloses significant events that occurred after the reporting period but before the financial statements were issued, impacting future financial condition - On July 20, 2021, RedfinNow Borrower amended its secured revolving credit facility with Goldman Sachs, increasing the facility's borrowing capacity to $200 million[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Redfin's financial condition and operational results, including an overview of the business, key performance metrics, detailed analysis of revenue and expenses, liquidity, capital resources, and critical accounting policies. It highlights significant growth drivers, the impact of the RentPath acquisition, and changes in financial performance compared to the prior year Overview This section provides a high-level description of Redfin's business model, services, and strategic mission within the residential real estate market - Redfin operates as a residential real estate brokerage, integrating its own agents with technology to offer faster, better, and more cost-effective services in over 100 markets in the United States and Canada[146] - The company's services include originating mortgage loans, offering title and settlement services, direct home purchases (RedfinNow), and, since April 2021, connecting consumers with rental properties through digital platforms (RentPath acquisition)[147] - Redfin's mission is to redefine real estate in the consumer's favor[148] Key Business Metrics This section presents Redfin's key operational metrics, such as website visitors, transaction volumes, and market share, indicating business performance and growth Key Business Metrics Highlights | Metric | Q2 2021 | Q2 2020 | YoY Change | | :--------------------------------------- | :------ | :------ | :--------- | | Monthly average visitors (in thousands) | 48,437 | 42,537 | +13.9% | | Total Real Estate Services Transactions | 25,603 | 16,519 | +55.0% | | U.S. market share by value | 1.18% | 0.94% | +0.24 pp | | RedfinNow homes sold | 292 | 162 | +80.2% | | Revenue per RedfinNow home sold | $570,930 | $444,690 | +28.4% | - Monthly average visitors are a leading indicator of business activity, influenced by market conditions, marketing programs, seasonality, and search engine rankings[152] - Increasing real estate services transactions and U.S. market share by value are critical for revenue growth and profitability, driven by service pricing, quality, and market conditions[157][161] Components of Our Results of Operations This section explains the primary sources of Redfin's revenue and the major categories of its cost of revenue and operating expenses - Revenue is generated from real estate services (brokerage and partner commissions), properties (home sales), rentals (subscription-based internet listing services), and other services (mortgage origination, title settlement, data, advertising)[168][169][170][171][172][173] - Cost of revenue includes personnel, transaction bonuses, home-touring/field expenses, listing expenses, home costs (purchase, improvements, selling), customer fulfillment for rentals, office/occupancy, and depreciation/amortization[175] - Operating expenses are categorized into technology and development (software, data, infrastructure), marketing (media, personnel), and general and administrative (personnel, facilities, outside services)[177][178][179] Results of Operations This section provides a detailed analysis of Redfin's financial performance, comparing revenue, gross profit, and operating expenses across different periods Comparison of the Three Months Ended June 30, 2021 and 2020 This section analyzes Redfin's financial performance for the three months ended June 30, 2021, compared to the same period in the prior year Revenue Comparison (Three Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :----------------------------- | :----- | :----- | :--------------- | :--------- | | Total Revenue | $471,315 | $213,665 | $257,650 | 121% | | Real Estate Services Revenue | $252,199 | $135,049 | $117,150 | 87% | | Properties Revenue | $172,445 | $72,184 | $100,261 | 139% | | Rentals Revenue | $42,548 | — | $42,548 | n/a | Cost of Revenue and Gross Margin Comparison (Three Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :----------------------------- | :----- | :----- | :--------------- | :--------- | | Total Cost of Revenue | $345,179 | $167,626 | $177,553 | 106% | | Total Gross Profit | $126,136 | $46,039 | $80,097 | 174% | | Total Gross Margin | 26.8% | 21.5% | +530 bps | | | Real Estate Services Gross Margin | 34.9% | 34.2% | +70 bps | | | Properties Gross Margin | 2.9% | (1.6)% | +450 bps | | | Rentals Gross Margin | 82.2% | — | n/a | | Operating Expenses Comparison (Three Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :-------------------------- | :----- | :----- | :--------------- | :--------- | | Technology and development | $41,488 | $17,961 | $23,527 | 131% | | Marketing | $55,398 | $9,482 | $45,916 | 484% | | General and administrative | $59,567 | $23,022 | $36,545 | 159% | Other Income/Expense Comparison (Three Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :-------------------------- | :----- | :----- | :--------------- | :--------- | | Interest income | $135 | $437 | $(302) | (69)% | | Interest expense | $(2,813) | $(2,665) | $(148) | (6)% | | Income tax benefit | $5,052 | — | $5,052 | n/a | Comparison of the Six Months Ended June 30, 2021 and 2020 This section analyzes Redfin's financial performance for the six months ended June 30, 2021, compared to the same period in the prior year Revenue Comparison (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :----------------------------- | :----- | :----- | :--------------- | :--------- | | Total Revenue | $739,634 | $404,660 | $334,974 | 83% | | Real Estate Services Revenue | $420,808 | $243,685 | $177,123 | 73% | | Properties Revenue | $265,171 | $151,282 | $113,889 | 75% | | Rentals Revenue | $42,548 | — | $42,548 | n/a | Cost of Revenue and Gross Margin Comparison (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :----------------------------- | :----- | :----- | :--------------- | :--------- | | Total Cost of Revenue | $571,140 | $345,742 | $225,398 | 65% | | Total Gross Profit | $168,494 | $58,918 | $109,576 | 186% | | Total Gross Margin | 22.8% | 14.6% | +820 bps | | | Real Estate Services Gross Margin | 30.5% | 25.2% | +530 bps | | | Properties Gross Margin | 2.5% | (0.9)% | +340 bps | | | Rentals Gross Margin | 82.2% | — | n/a | | Operating Expenses Comparison (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :-------------------------- | :----- | :----- | :--------------- | :--------- | | Technology and development | $69,166 | $38,235 | $30,931 | 81% | | Marketing | $67,200 | $35,190 | $32,010 | 91% | | General and administrative | $96,957 | $47,349 | $49,608 | 105% | Other Income/Expense Comparison (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :-------------------------- | :----- | :----- | :--------------- | :--------- | | Interest income | $293 | $1,540 | $(1,247) | (81)% | | Interest expense | $(4,151) | $(5,109) | $958 | (19)% | | Income tax benefit | $5,052 | — | $5,052 | n/a | Liquidity and Capital Resources This section discusses Redfin's cash position, investments, debt obligations, and its ability to meet short-term and long-term financial commitments - As of June 30, 2021, Redfin had $735.4 million in cash and cash equivalents and $65.7 million in investments[216] - The company had $1,260.0 million in aggregate principal amount of convertible senior notes outstanding and 40,000 shares of convertible preferred stock outstanding as of June 30, 2021[217][218] - Redfin funds its properties business through cash on hand and a secured revolving credit facility, and its mortgage business primarily through warehouse credit facilities[219][220] - Management believes existing liquidity and expected cash generation, along with credit facilities, will be sufficient for operational needs and obligations, but acknowledges that assumptions may change, potentially requiring additional financing[221] Cash Flows This section provides a detailed breakdown of Redfin's cash flow activities, including operating, investing, and financing, and their impact on overall cash Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Category | 2021 | 2020 | | :--------------------------------------- | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(213,638) | $8,744 | | Net cash used in investing activities | $(544,078) | $(51,262) | | Net cash provided by financing activities | $599,578 | $155,546 | - Net cash used in operating activities was $213.6 million for the six months ended June 30, 2021, primarily due to a net loss of $63.7 million and a $199.8 million increase in inventory, partially offset by non-cash items and increased payables[224] - Net cash used in investing activities was $544.1 million for the six months ended June 30, 2021, mainly driven by the $608.0 million RentPath acquisition and $77.5 million in net investments[227] - Net cash provided by financing activities was $599.6 million for the six months ended June 30, 2021, primarily from $498.9 million in net proceeds from 2027 notes issuance and a $99.8 million increase in net borrowings under the secured revolving credit facility[230] Critical Accounting Policies and Estimates This section highlights Redfin's accounting policies that require significant management judgment and estimates, impacting reported financial results - Critical accounting policies include revenue recognition for brokerage transactions (single performance obligation, recognized at closing), properties revenue (gross basis at closing), and rentals revenue (straight-line over contract term)[235][236][237] - Determining the fair value of acquired intangible assets in business combinations requires significant management judgment and estimates regarding future cash flows, discount rates, and asset lives[239] - Inventory (homes for resale) is stated at cost and reviewed for lower of cost or net realizable value, which involves management judgment and estimates of market value indicators[241] Recent Accounting Standards This section refers to disclosures regarding recently adopted and issued accounting standards and their impact on Redfin's financial statements - For information on recent accounting standards, refer to Note 1 to the consolidated financial statements[243] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Redfin's exposure to market risks, primarily interest rate fluctuations, and outlines how these risks are managed across its investment portfolio, mortgage-related assets, and debt facilities. It also addresses foreign currency exchange risk Interest Rate Risk This section describes Redfin's exposure to interest rate fluctuations and the strategies employed to manage these risks across its financial instruments - Redfin is exposed to interest rate risk through its cash equivalents and investments, mortgage loans held for sale, interest rate lock commitments (IRLCs), and borrowings under its secured revolving credit facility[246][248][249] - The company manages interest rate risk on mortgage-related assets and commitments using forward sales commitments on whole loans and mortgage-backed securities[248] - A hypothetical 10% change in interest rates is not expected to have a material impact on financial results for the third quarter of 2021, given the short-term nature of investments and current debt structures[247][249] Foreign Currency Exchange Risk This section assesses Redfin's exposure to foreign currency exchange rate fluctuations, noting its limited impact due to minimal international operations - Redfin does not currently face significant foreign currency exchange rate risk due to limited operations in Canada and insignificant foreign currency balances[250] Item 4. Controls and Procedures This section confirms the effectiveness of Redfin's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter, while also acknowledging the inherent limitations of any control system Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of Redfin's disclosure controls and procedures - Management, including the principal executive and financial officers, concluded that Redfin's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2021[252] Changes in Internal Control This section addresses any material changes in Redfin's internal control over financial reporting during the reporting period - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, Redfin's internal control over financial reporting[253] Inherent Limitations on Effectiveness of Controls This section acknowledges the inherent limitations of any control system, emphasizing that absolute assurance against errors or fraud is not possible - Management acknowledges that control systems provide only reasonable, not absolute, assurance and may not prevent or detect all errors and fraud due to inherent limitations[254] PART II - OTHER INFORMATION This section contains additional information not covered in Part I, including risk factors and a list of exhibits Item 1A. Risk Factors This section outlines key risks that could materially and adversely affect Redfin's business, operating results, and financial condition. These risks include geographic concentration, challenges in customer acquisition, integration and performance risks related to the RentPath acquisition, and financing dependencies for its mortgage business Risks Related to Our Business and Industry This section details specific risks inherent to Redfin's business model and the real estate industry, including market concentration and acquisition integration challenges - Redfin's business is concentrated in certain major metropolitan areas (top-10 markets), making it vulnerable to downturns or shifts in demand/prices in these specific regions[258][259][260] - The company's success depends on cost-effectively attracting homebuyers and sellers to its website and mobile application, which is influenced by search engine rankings, mobile app store visibility, and marketing effectiveness[261][263][264] - The acquisition of RentPath may not yield anticipated benefits, could incur substantial integration costs, and RentPath's growth is dependent on attracting property managers' advertising spending, which is sensitive to technology changes and renter lead quality[265][266] - Redfin Mortgage relies on uncommitted warehouse credit facilities for funding; an inability to secure sufficient borrowing capacity or a lender's decision not to extend a loan could adversely affect its growth[267][268][269] Item 6. Exhibits This section lists all exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including various certifications and interactive data files List of Exhibits | Exhibit Number | Exhibit Description | | :------------- | :----------------------------------------------------------------- | | 31.1 | Certification of principal executive officer, pursuant to Rule 13a-14(a) | | 31.2 | Certification of principal financial officer, pursuant to Rule 13a-14(a) | | 32.1 | Certification of chief executive officer, pursuant to 18 U.S.C. Section 1350 | | 32.2 | Certification of chief financial officer, pursuant to 18 U.S.C. Section 1350 | | 101 | Interactive data files | | 104 | Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101) | Signatures This section contains the official signatures of Redfin Corporation's authorized officers, certifying the submission of the Quarterly Report on Form 10-Q - The report was signed by Glenn Kelman, President and Chief Executive Officer, and Chris Nielsen, Chief Financial Officer, on August 5, 2021[274]