REDFIN CORPORATION The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this quarterly report and our annual report for the year endedDecember 31, 2021 . In particular, the disclosure contained in Item 1A in our annual report, as updated by Part II, Item 1A in this quarterly report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. The following discussion contains forward-looking statements, such as statements regarding our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements. The following discussion also contains information using industry publications. Please see "Note Regarding Industry and Market Data" for more information about relying on these industry publications.
When we use the term "basis points" in the following discussion, we refer to units of one-hundredth of one percent.
Overview
We help people buy and sell homes. Representing customers in over 100 markets inthe United States andCanada , we are a residential real estate brokerage. We pair our own agents with our own technology to create a service that is faster, better, and costs less. We meet customers through our listings-search website and mobile application. We use the same combination of technology and local service to originate and service mortgage loans and offer title and settlement services. We also buy homes directly from homeowners who want an immediate sale, taking responsibility for selling the home while the original owner moves on. Beginning inApril 2021 , we started using digital platforms to connect consumers with available apartments and houses for rent.
Our mission is to redefine real estate in the consumer's favor.
Adverse Macroeconomic Conditions and Our Associated Actions
Since the beginning of the second quarter of 2022, a number of economic factors began to adversely impact the residential real estate market, including higher mortgage interest rates, lower consumer sentiment, increased inflation, and declining financial market conditions. This shift in the macroeconomic backdrop has had an adverse impact on consumer demand for our services, as consumers weighed the financial implications of selling or purchasing a home and taking out a mortgage. Our real estate services transaction volume declined by four percent in the second quarter of 2022 compared to the prior year. Our newly acquired mortgage business, Bay Equity, also experienced significant declines in loan volumes, particularly from refinancing prior mortgages. In response to these macroeconomic and consumer demand developments, we have taken, and intend to take, action to adjust our operations accordingly and manage our business towards longer-term profitability. Recent and anticipated future actions include:
•In June, we laid off approximately 470 employees, which represented approximately six percent of total employees. This workforce reduction was intended to align the size of our brokerage operations and headquarters support with the level of consumer demand for our services.
•Since our June layoff, we continued to reduce our headcount through voluntary
employee attrition and have refrained from backfilling most roles. This has
resulted in a net reduction of more than 210 employees through the end of July,
which represented approximately three percent of total employees.
•In July, we laid off approximately 26 Bay Equity employees to align headcount
with projected loan volume. Bay Equity employees were not part of our June
workforce reduction. Bay Equity continues to invest in tools and technology to
automate operations and continue reducing the cost to originate a loan.
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•With respect to our properties business, we expect to significantly reduce the number of home purchases during the third quarter of 2022, compared to the same period last year. Additionally, the purchase prices we offer to sellers will reflect our reduced expectations for home price appreciation during our anticipated holding period for homes. Furthermore, we intend to sell existing and future inventory more rapidly by listing homes at more competitive prices.
Key Business Metrics
In addition to the measures presented in our consolidated financial statements,
we use the following key metrics to evaluate our business, develop financial
forecasts, and make strategic decisions.
Three Months Ended
Jun. 30, 2022 Mar. 31, 2022
51,287 44,665 49,147 48,437 46,202 44,135 49,258 42,537
(in thousands)
Real estate services
transactions
Brokerage 20,565 15,001 19,428 21,929 21,006 14,317 16,951 18,980 13,828
Partner 3,983 3,417 4,603 4,755 4,597 3,944 4,940 5,180 2,691
Total 24,548 18,418 24,031 26,684 25,603 18,261 21,891 24,160 16,519
Real estate services
revenue per transaction
Brokerage $ 11,692 $ 11,191 $ 10,900 $ 11,107 $ 11,307 $ 10,927 $ 10,751 $ 10,241 $ 9,296
Partner 2,851 2,814 2,819 2,990 3,195 3,084 3,123 2,988 2,417
Aggregate 10,258 9,637 9,352 9,661 9,850 9,233 9,030 8,686 8,175
U.S. market share by 0.82 % 0.79 % 0.78 % 0.78 % 0.77 % 0.75 % 0.68 % 0.70 % 0.66 %
units(1)
Revenue from top-10
Redfin markets as a 59 % 57 % 61 % 62 % 64 % 62 % 63 % 63 % 63 %
percentage of real estate
services revenue
Average number of lead 2,640 2,750 2,485 2,370 2,456 2,277 1,981 1,820 1,399
agents
RedfinNow homes sold 423 617 600 388 292 171 83 37 162
Revenue per RedfinNow
622,519$ 599,963 $ 571,670 $ 525,765 $ 471,895 $ 504,730 $ 444,757 home sold (in ones) Mortgage originations by$ 1,565 $ 159 $ 242 $ 258 $ 261 $ 227 $ 206$ 185 $161 dollars (in millions) Mortgage originations by 3,860 414 591 671 749 632 570 539 475 units (in ones) (1) Prior to the second quarter of 2022, we reported our U.S. market share based on the aggregate home value of our real estate services transactions, relative to the aggregate value of allU.S. home sales, which we computed based on the mean sale price ofU.S. homes provided by the National Association of REALTORS® ("NAR"). Beginning in the second quarter of 2022, NAR (1) revised its methodology of computing the mean sale price, (2) restated its previously reported mean sale price beginning fromJanuary 2020 (and indicated that previously reported mean sale price prior toJanuary 2020 is not comparable), and (3) discontinued publication of the mean sale price as part of its primary data set. Due to these changes, we are now reporting our U.S. market share based on the number of homes sold, rather than the dollar value of homes sold. Our market share by number of homes sold has historically been lower than our market share by dollar value of homes sold. We also stopped reporting the aggregate home value of our real estate services transactions.
Monthly Average Visitors
The number of, and growth in, visitors to our website and mobile application are important leading indicators of our business activity because these channels are the primary ways we meet customers. The number of visitors is influenced by, among other things, market conditions that affect interest in buying or selling homes, the level and success of our marketing programs, seasonality, and how our website appears in search results. We believe we can continue to increase visitors, which helps our growth, including through adding rental properties to our website and mobile application.
Given the lengthy process to buy or sell a home, a visitor during one month may not convert to a revenue-generating customer until many months later, if at all.
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When we refer to "monthly average visitors" for a particular period, we are
referring to the average number of unique visitors to our website and our mobile
applications for each of the months in that period, as measured by Google
Analytics, a product that provides digital marketing intelligence. Google
Analytics tracks visitors using cookies, with a unique cookie being assigned to
each browser or mobile application on a device. For any given month, Google
Analytics counts all of the unique cookies that visited our website and mobile
applications during that month. Google Analytics considers each unique cookie as
a unique visitor. Due to third-party technological limitations, user software
settings, or user behavior, it is possible that Google Analytics may assign a
unique cookie to different visits by the same person to our website or mobile
application. In such instances, Google Analytics would count different visits by
the same person as separate visits by unique visitors. Accordingly, reliance on
the number of unique cookies counted by Google Analytics may overstate the
actual number of unique persons who visit our website or our mobile applications
for a given month.
Our monthly average visitors exclude visitors to the websites and mobile applications of Bay Equity, our mortgage business, and Rent., our rental business.
Real Estate Services Transactions
We record a brokerage real estate services transaction when one of our lead agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home. We record a partner real estate services transaction (i) when one of our partner agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home or (ii) when a Redfin customer sold his or her home to a third-party institutional buyer following our introduction of that customer to the buyer. We include a single transaction twice when our lead agents or our partner agents serve both the homebuyer and the home seller of the transaction. Additionally, when one of our lead agents represents RedfinNow in its sale of a home, we include that transaction as a brokerage real estate services transaction. Increasing the number of real estate services transactions is critical to increasing our revenue and, in turn, to achieving profitability. Real estate services transaction volume is influenced by, among other things, the pricing and quality of our services as well as market conditions that affect home sales, such as local inventory levels and mortgage interest rates. Real estate services transaction volume is also affected by seasonality and macroeconomic factors.
Real Estate Services Revenue per Transaction
Real estate services revenue per transaction, together with the number of real estate services transactions, is a factor in evaluating revenue growth. We also use this metric to evaluate pricing changes. Changes in real estate services revenue per transaction can be affected by, among other things, our pricing, the mix of transactions from homebuyers and home sellers, changes in the value of homes in the markets we serve, the geographic mix of our transactions, and the transactions we refer to partner agents and any third-party institutional buyer. We calculate real estate services revenue per transaction by dividing brokerage, partner, or aggregate revenue, as applicable, by the corresponding number of real estate services transactions in any period. We generally generate more real estate services revenue per transaction from representing homebuyers than home sellers. However, we believe that representing home sellers has unique strategic value, including the marketing power of yard signs and other campaigns, and the market effect of controlling listing inventory. Prior toJuly 2022 , homebuyers who purchased their home using our brokerage services would receive a commission refund in a substantial majority of our markets. InJuly 2022 , we began a pilot program in certain of those markets to eliminate our commission refund. If this pilot is successful, we intend to eliminate our commission refund in all markets as early asJanuary 2023 . We expect that elimination of our commission refund in all markets will increase our real estate services revenue per transaction.
U.S. Market Share by Units
Increasing our U.S. market share by units is critical to our ability to grow our
business and achieve profitability over the long term. We believe there is a
significant opportunity to increase our share in the markets we currently serve.
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We calculate our market share by aggregating the number of brokerage and partner
real estate services transactions. We then divide that number by two times the
aggregate number of U.S. home sales, in order to account for both the sell- and
buy-side components of each home sale. We obtain the aggregate number of U.S.
home sales from the National Association of REALTORS® ("NAR"). NAR data for the
most recent period is preliminary and may subsequently be updated by NAR.
Revenue from Top-10 Markets as a Percentage of Real Estate Services Revenue
Our top-10 markets by real estate services revenue are the metropolitan areas ofBoston ,Chicago ,Denver (includingBoulder andColorado Springs ),Los Angeles (includingSanta Barbara ),Maryland ,Northern Virginia ,Portland (including Bend),San Diego ,San Francisco , andSeattle . This metric is an indicator of the geographic concentration of our real estate services segment. We expect our revenue from top-10 markets to decline as a percentage of our total real estate services revenue over time.
Average Number of Lead Agents
The average number of lead agents, in combination with our other key metrics such as the number of brokerage transactions, is a basis for calculating agent productivity and is one indicator of the potential future growth of our business. We systematically evaluate traffic to our website and mobile application and customer activity to anticipate changes in customer demand, helping determine when and where to hire lead agents.
We calculate the average number of lead agents by taking the average of the number of lead agents at the end of each month included in the period.
RedfinNow Homes Sold
The number of homes sold by RedfinNow is an indicator for investors to understand the underlying transaction volume growth of our RedfinNow business. This number is influenced by, among other things, the level and quality of our homes available for sale inventory and market conditions that affect home sales, such as local inventory levels and mortgage interest rates.
Revenue per RedfinNow Home Sold
Revenue per RedfinNow home sold, together with the number of RedfinNow homes sold, is a factor in evaluating revenue growth. Changes in revenue per RedfinNow home sold can be affected by, among other things, the geographic mix of home sales, the types and sizes of homes that it had previously purchased, pricing of homes listed for sale, and changes in the value of homes in the markets it serves. For any period, we calculate revenue per RedfinNow home sold by dividing revenue from sales of homes by RedfinNow, including any revenue from leasebacks, by the number of homes sold by RedfinNow during that period.
Mortgage Originations
Mortgage originations is the volume of mortgage loans originated by our mortgage business, measured by both dollar value of loans and number of loans. This volume is an indicator for the growth of our mortgage business. Mortgage originations is affected by mortgage interest rates, the ability of our mortgage loan officers to close loans, and the number of our homebuyer customers who use our mortgage business for a mortgage loan, among other factors. Prior toApril 1, 2022 , our mortgage business consisted solely ofRedfin Mortgage, LLC . FromApril 1, 2022 throughJune 30, 2022 , our mortgage business consisted of bothBay Equity LLC andRedfin Mortgage, LLC . We dissolvedRedfin Mortgage, LLC onJune 30, 2022 , and since that time, our mortgage business has consisted solely ofBay Equity LLC . 33 -------------------------------------------------------------------------------- Table of Contents Components of Our Results of Operations
Revenue
We generate revenue primarily from commissions and fees charged on each real estate services transaction closed by our lead agents or partner agents, from the sale of RedfinNow homes, from subscription-based product offerings for our rentals business, and from the origination, sales, and servicing of mortgages.
Real Estate Services Revenue
Brokerage Revenue-Brokerage revenue includes our offer and listing services, where our lead agents represent homebuyers and home sellers. We recognize commission-based brokerage revenue upon closing of a brokerage transaction, less the amount of any commission refunds, closing-cost reductions, or promotional offers that may result in a material right. Brokerage revenue is affected by the number of brokerage transactions we close, the mix of brokerage transactions, home-sale prices, commission rates, and the amount we give to customers. Partner Revenue-Partner revenue consists of fees paid to us from partner agents or under other referral agreements, less the amount of any payments we make to homebuyers and home sellers. We recognize these fees as revenue on the closing of a transaction. Partner revenue is affected by the number of partner transactions closed, home-sale prices, commission rates, and the amount we refund to customers. If the portion of customers we introduce to our own lead agents increases, we expect the portion of revenue closed by partner agents to decrease. Properties Revenue Properties Revenue-Properties revenue consists of revenues earned when we sell homes that we previously bought directly from homeowners and when we perform maintenance on customers' homes. Properties revenue is recorded at closing on a gross basis, representing the sales price of the home or maintenance performed.
Rentals Revenue
Rentals Revenue-Rentals revenue is primarily composed of subscription-based product offerings for internet listing services, as well as lead management and digital marketing solutions.
Mortgage Revenue
Mortgage Revenue-Mortgage revenue includes fees from the origination and subsequent sale of loans, loan servicing income, interest income on loans held for sale, origination of IRLCs, and the changes in fair value of our IRLCs, forward sales commitments, loans held for sale, and MSRs.
Other Revenue
Other Revenue-Other services revenue includes fees earned from title settlement services, Walk Score data services, and advertising. Substantially all fees and revenue from other services are recognized when the service is provided.
Intercompany Eliminations
Intercompany Eliminations-Revenue earned from transactions between operating
segments are eliminated in consolidating our financial statements. Intercompany
transactions primarily consist of services performed from our real estate
services segment for our properties segment.
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Cost of Revenue and Gross Margin
Cost of revenue consists primarily of personnel costs (including base pay,
benefits, and stock-based compensation), transaction bonuses, home-touring and
field expenses, listing expenses, home costs related to our properties segment,
customer fulfillment costs related to our rentals segment, office and occupancy
expenses, and depreciation and amortization related to fixed assets and acquired
intangible assets. Home costs related to our properties segment include home
purchase costs, capitalized improvements, selling expenses directly attributable
to the transaction, and home maintenance expenses.
Gross profit is revenue less cost of revenue. Gross margin is gross profit
expressed as a percentage of revenue. Our gross margin has and will continue to
be affected by a number of factors, but the most important are the mix of
revenue from our relatively higher-gross-margin real estate services segment and
our relatively lower-gross-margin properties segment, real estate services
revenue per transaction, agent and support-staff productivity, personnel costs
and transaction bonuses, and, for properties, the home purchase costs.
Operating Expenses
Technology and Development
Our primary technology and development expenses are building software for our customers, lead agents, and support staff to work together on a transaction, and building a website and mobile application to meet customers looking to move. These expenses primarily include personnel costs (including base pay, bonuses, benefits, and stock-based compensation), data licenses, software and equipment, and infrastructure such as for data centers and hosted services. The expenses also include amortization of capitalized internal-use software and website and mobile application development costs as well as amortization of acquired intangible assets. We expense research and development costs as incurred and record them in technology and development expenses.
Marketing
Marketing expenses consist primarily of media costs for online and offline advertising, as well as personnel costs (including base pay, benefits, and stock-based compensation).
General and Administrative
General and administrative expenses consist primarily of personnel costs (including base pay, benefits, and stock-based compensation), facilities costs and related expenses for our executive, finance, human resources, and legal organizations, depreciation related to our fixed assets, and fees for outside services. Outside services are principally comprised of external legal, audit, and tax services. For our rentals business, personnel costs include employees in the sales department. These employees are responsible for attracting potential rental properties and agreeing to contract terms, but they are not responsible for delivering a service to the rental property.
Restructuring and Reorganization
Restructuring and reorganization expenses primarily consist of employee
termination costs (including severance, retention, benefits, and payroll taxes)
associated with the restructuring and reorganization activities from our
acquisitions of Bay Equity and Rent. and from our
Interest Income, Interest Expense, Income Tax Expense, and Other Expense, Net
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and investments, and interest income related to originated mortgage loans.
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Interest Expense
Interest expense consists primarily of any interest payable on our convertible
senior notes and, for the three and six months ended
Interest expense also includes interest on borrowings and the amortization of debt issuance costs related to our secured revolving credit facility and our warehouse credit facilities. See Note 15 to our consolidated financial statements for information regarding interest for the facility.
Income Tax (Expense) Benefit
Income tax (expense) benefit relates to the partial release of our valuation allowance as a result of the intangible assets we acquired in connection with acquiring Rent. and certain state income taxes.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of realized and unrealized gains and losses on investments. See Note 4 to our consolidated financial statements for information regarding unrealized gains and losses on our investments.
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 606,915 $ 471,315 $ 1,204,261 $ 739,634
Cost of revenue(1) 488,912 345,179 1,013,721 571,140
Gross profit 118,003 126,136 190,540 168,494
Operating expenses
Technology and development(1) 51,506 41,488 101,146 69,166
Marketing(1) 56,743 55,398 100,085 67,200
General and administrative(1) 71,733 59,567 130,699 96,957
Restructuring and reorganization 12,677 - 18,386 -
Total operating expenses 192,659 156,453 350,316 233,323
Loss from operations (74,656) (30,317) (159,776) (64,829)
Interest income 554 135 774 293
Interest expense (3,620) (2,813) (7,481) (4,151)
Income tax (expense) benefit (159) 5,052 (293) 5,052
Other (expense) income, net (265) 65 (2,176) (27)
Net loss $ (78,146) $ (27,878) $ (168,952) $ (63,662) (1) Includes stock-based compensation as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 3,879 $ 3,758 $ 7,257 $ 6,736
Technology and development 7,700 5,771 15,665 11,532
Marketing 924 535 1,996 1,078
General and administrative 4,310 3,679 8,683 6,981
Total stock-based compensation $ 16,813 $ 13,743 $ 33,601 $ 26,327
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(as a percentage of revenue)
Revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenue(1) 80.6 73.2 84.2 77.2 Gross profit 19.4 26.8 15.8 22.8 Operating expenses Technology and development(1) 8.5 8.8 8.4 9.4 Marketing(1) 9.3 11.8 8.3 9.1 General and administrative(1) 11.8 12.6 10.9 13.1 Restructuring and reorganization 2.1 0.0 1.5 0.0 Total operating expenses 31.7 33.2 29.1 31.5 Loss from operations (12.3) (6.4) (13.3) (8.8) Interest income 0.1 0.0 0.1 0.0 Interest expense (0.6) (0.6) (0.6) (0.6) Income tax (expense) benefit 0.0 1.1 0.0 0.7 Other expense, net 0.0 0.0 (0.2) 0.0 Net loss (12.9) % (5.9) % (14.0) % (8.6) %
(1) Includes stock-based compensation as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(as a percentage of revenue)
Cost of revenue 0.6 % 0.8 % 0.6 % 0.9 %
Technology and development 1.3 1.2 1.3 1.7
Marketing 0.2 0.1 0.2 0.1
General and administrative 0.7 0.8 0.7 0.9
Total 2.8 % 2.9 % 2.8 % 3.6 %
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Comparison of the Three Months Ended
Revenue
Three Months Ended June 30, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Real estate services
Brokerage $ 240,454 $ 237,511 $ 2,943 1 %
Partner 11,355 14,688 (3,333) (23)
Total real estate services 251,809 252,199 (390) 0
Properties 262,606 172,445 90,161 52
Rentals 38,248 42,548 (4,300) (10)
Mortgage 53,098 5,099 47,999 941
Other 5,894 3,422 2,472 72
Intercompany elimination (4,740) (4,398) (342) 8
Total revenue $ 606,915 $ 471,315 $ 135,600 29
Percentage of revenue
Real estate services
Brokerage 39.6 % 50.4 %
Partner 1.9 3.1
Total real estate services 41.5 53.5
Properties 43.3 36.6
Rentals 6.3 9.0
Mortgage 8.7 1.1
Other 1.0 0.7
Intercompany elimination (0.8) (0.9)
Total revenue 100.0 % 100.0 %
In the three months ended June 30, 2022 , revenue increased by $135.6 million , or
29%, as compared with the same period in 2021. Included in the increase was
$53.4 million resulting from our acquisition of Bay Equity, and there were no
such revenues in the three months ended June 30, 2021 . Excluding these revenues
from Bay Equity, this increase in revenue was primarily attributable to a $90.2
million increase in properties revenue. Properties revenue increased 52%,
primarily driven by an 45% increase in RedfinNow homes sold and a 6% increase in
revenue per RedfinNow home sold. These increases are largely due to our
properties business's expansion, and greater customer awareness of that
business. Brokerage revenue increased by $2.9 million , and partner revenue
decreased by $3.3 million . Brokerage revenue increased 1% during the period,
driven by a 3% increase in brokerage revenue per transaction and a 2% decrease
in brokerage transactions.
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Cost of Revenue and Gross Margin
Three Months Ended June 30, Change
2022 2021 Dollars Percentage
(inthousands, except percentages)
Cost of revenue Real estate services$ 177,698 $ 164,125 $ 13,573 8 % Properties 255,839 167,420 88,419 53 Rentals 7,901 7,570 331 4 Mortgage 46,316 6,832 39,484 578 Other 5,898 3,630 2,268 62 Intercompany elimination (4,740) (4,398) (342) 8 Total cost of revenue$ 488,912 $ 345,179 $ 143,733 42 Gross profit Real estate services$ 74,111 $ 88,074 $ (13,963) (16) % Properties 6,767 5,025 1,742 35 Rentals 30,347 34,978 (4,631) (13) Mortgage 6,782 (1,733) 8,515 (491) Other (4) (208) 204 (98) Total gross profit$ 118,003 $ 126,136 $ (8,133) (6) Gross margin (percentage of revenue) Real estate services 29.4 % 34.9 % Properties 2.6 2.9 Rentals 79.3 82.2 Mortgage 12.8 (34.0) Other (0.1) (6.1) Total gross margin 19.4 26.8 In the three months endedJune 30, 2022 , total cost of revenue increased by$143.7 million , or 42%, as compared with the same period in 2021. Included in the increase was$44.1 million resulting from our acquisition of Bay Equity, and there were no such expenses in the three months endedJune 30, 2021 . Excluding these expenses from Bay Equity, this increase in cost of revenue was primarily attributable to (1) an$80.2 million increase in home purchase costs and related capitalized improvements by our properties business, due to more RedfinNow homes being sold, and (2) a$17.5 million increase in personnel costs and transaction bonuses, due to increased headcount and increased brokerage transactions, respectively. In the three months endedJune 30, 2022 , total gross margin decreased 740 basis points as compared with the same period in 2021, driven primarily by the relative growth of our properties business compared to our real estate services and other businesses, and a decrease in real estate services gross margin. This was partially offset by the increases in mortgage and other gross margin. In the three months endedJune 30, 2022 , real estate services gross margin decreased 550 basis points as compared with the same period in 2021. This was primarily attributable to a 670 basis point increase in personnel costs and transaction bonuses as a percentage of revenue. This was partially offset by a 210 basis point decrease in home-touring and field expenses. In the three months endedJune 30, 2022 , properties gross margin decreased 30 basis points as compared with the same period in 2021. This was primarily attributable to an 80 basis point increase in home purchase and related capitalized improvements as a percentage of revenue. This was partially offset by a 50 basis point decrease in personnel costs and transaction bonuses. 39 -------------------------------------------------------------------------------- Table of Contents In the three months endedJune 30, 2022 , rentals gross margin decreased 290 basis points as compared with the same period in 2021. This was primarily attributable to a 180 basis point increase in personnel costs and transaction bonuses as a percentage of revenue due to expanded services. In the three months endedJune 30, 2022 , mortgage gross margin increased 4,680 basis points as compared with the same period in 2021. This was primarily attributable to a 3,780 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue, driven by the performance of Bay Equity as compared to our prior mortgage business. In the three months endedJune 30, 2022 , other gross margin increased 600 basis points. This was primarily attributable to a 190 basis point decrease in office and occupancy expenses, a 160 basis point decrease in outside services, and a 140 basis point decrease in personnel costs and transaction bonuses, each as a percentage of revenue. Operating Expenses Three Months Ended June 30, Change 2022 2021 Dollars Percentage (in
thousands, except percentages)
Technology and development$ 51,506 $ 41,488 $ 10,018 24 % Marketing 56,743 55,398 1,345 2 General and administrative 71,733 59,567 12,166 20 Restructuring and reorganization 12,677 - 12,677 n/a Total operating expenses$ 192,659 $ 156,453 $ 36,206 23 Percentage of revenue Technology and development 8.5 % 8.8 % Marketing 9.3 11.8 General and administrative 11.8 12.6 Restructuring and reorganization 2.1 - Total operating expenses 31.7 % 33.2 % In the three months endedJune 30, 2022 , technology and development expenses increased by$10.0 million , or 24%, as compared with the same period in 2021. Included in the increase was$0.7 million resulting from our acquisition of Bay Equity, and there were no such expenses in the three months endedJune 30, 2021 . Excluding these expenses from Bay Equity, the increase was primarily attributable to an$8.7 million increase in personnel costs due to increased headcount. In the three months endedJune 30, 2022 , marketing expenses increased by$1.3 million , or 2.4%, as compared with the same period in 2021. Included in the increase was$1.8 million resulting from our acquisition of Bay Equity, and there were no such expenses in the three months endedJune 30, 2021 . Excluding these expenses from Bay Equity, the decrease was primarily attributable to a$1.9 million decrease in outside services for marketing production. This was partially offset by a$1.5 million increase in personnel costs. In the three months endedJune 30, 2022 , general and administrative expenses increased by$12.2 million , or 20%, as compared with the same period in 2021. Included in the increase was$8.4 million resulting from our acquisition of Bay Equity, and there were no such expenses in the three months endedJune 30, 2021 . Excluding these expenses from Bay Equity, the increase was primarily attributable to a$3.2 million increase in legal expenses, largely due to a settlement offer, and a$3.1 million increase in personnel costs due to increased headcount. This was partially offset by a$4.2 million decrease in acquisition-related expenses. In the three months endedJune 30, 2022 , restructuring and reorganization expenses increased by$12.7 million , and there were no such expenses in the three months endedJune 30, 2021 . These expenses were attributable to$10.3 million in severance and other costs associated with ourJune 2022 workforce reduction, and$2.4 million in severance and other costs associated with our mortgage restructuring. See Note 1 to our consolidated financial statements for more information on our restructuring and reorganization costs. 40
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Interest Income, Interest Expense, Income Tax (Expense) Benefit, and Other
(Expense) Income, Net
Three Months Ended June 30, Change
2022 2021 Dollars Percentage
(inthousands, except percentages)
Interest income $ 554$ 135 $ 419 310 % Interest expense (3,620) (2,813) (807) 29 Income tax (expense) benefit (159) 5,052 (5,211) (103) Other (expense) income, net (265) 65 (330) (508) Interest income, interest expense, income tax (expense) benefit, and other$ (3,490) $ 2,439 $ (5,929) (243) (expense) income, net Percentage of revenue Interest income 0.1 % 0.0 % Interest expense (0.6) (0.6) Income tax (expense) benefit 0.0 1.1 Other (expense) income, net 0.0 0.0 Interest income, interest expense, income tax (expense) benefit, and other (0.5) % 0.5 % (expense) income, net
In the three months ended
Interest expense increased by$0.8 million due primarily to use of our secured revolving credit facility and interest on our 2027 convertible senior notes. See Note 15 to our consolidated financial statements for more information.
In the three months ended
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Comparison of the Six Months Ended June 30, 2022 and 2021
Revenue
Six Months Ended June 30, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Real estate services
Brokerage $ 408,326 $ 393,957 $ 14,369 4 %
Partner 20,969 26,851 (5,882) (22)
Total real estate services 429,295 420,808 8,487 2
Properties 642,359 265,171 377,188 142
Rentals 76,292 42,548 33,744 79
Mortgage 56,015 10,810 45,205 418
Other 10,263 7,068 3,195 45
Intercompany elimination (9,963) (6,771) (3,192) 47
Total revenue $ 1,204,261 $ 739,634 $ 464,627 63
Percentage of revenue
Real estate services
Brokerage 33.9 % 53.3 %
Partner 1.7 3.6
Total real estate services 35.6 56.9
Properties 53.3 35.9
Rentals 6.3 5.8
Mortgage 4.7 1.5
Other 0.9 0.8
Intercompany elimination (0.8) (0.9)
Total revenue 100.0 % 100.0 %
In the six months ended June 30, 2022 , revenue increased by $464.6 million , or
63%, as compared with the same period in 2021. Included in the increase was
$76.3 million resulting from our acquisition of Rent., and there was $42.5
million of such revenue in the six months ended June 30, 2021 . Also included in
the increase was $53.4 million resulting from our acquisition of Bay Equity, and
there were no such revenues in the six months ended June 30, 2021 . Excluding
these revenues from Rent. and Bay Equity, this increase in revenue was primarily
attributable to a $377.2 million increase in properties revenue. Properties
revenue increased 142%, primarily driven by a 125% increase in RedfinNow homes
sold and an 11% increase in revenue per RedfinNow home sold. These increases are
largely due to our properties business's expansion, and greater customer
awareness of that business. Brokerage revenue increased by $14.4 million , and
partner revenue decreased by $5.9 million . Brokerage revenue increased 4% during
the period, driven by a 3% increase in brokerage revenue per transaction and a
1% increase in brokerage transactions.
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Cost of Revenue and Gross Margin
Six Months Ended June 30, Change
2022 2021 Dollars Percentage
(inthousands, except percentages)
Cost of revenue Real estate services$ 331,482 $ 292,342 $ 39,140 13 % Properties 614,704 258,551 356,153 138 Rentals 15,094 7,570 7,524 99 Mortgage 51,834 12,701 39,133 308 Other 10,570 6,747 3,823 57 Intercompany elimination (9,963) (6,771) (3,192) 47 Total cost of revenue$ 1,013,721 $ 571,140 $ 442,581 77 Gross profit Real estate services$ 97,813 $ 128,466 $ (30,653) (24) % Properties 27,655 6,620 21,035 318 Rentals 61,198 34,978 26,220 75 Mortgage 4,181 (1,891) 6,072 (321) Other (307) 321 (628) (196) Total gross profit$ 190,540 $ 168,494 $ 22,046 13 Gross margin (percentage of revenue) Real estate services 22.8 % 30.5 % Properties 4.3 2.5 Rentals 80.2 82.2 Mortgage 7.5 (17.5) Other (3.0) 4.5 Total gross margin 15.7 22.8 In the six months endedJune 30, 2022 , total cost of revenue increased by$442.6 million , or 77%, as compared with the same period in 2021. Included in the increase was$15.1 million resulting from our acquisition of Rent., and there were$7.6 million such expenses in the six months endedJune 30, 2021 . Also included in the increase was$44.1 million from our acquisition of Bay Equity, and there were no such expenses in the six months endedJune 30, 2021 . Excluding these expenses from Rent. and Bay Equity, this increase in cost of revenue was primarily attributable to (1) a$327.4 million increase in home purchase costs and related capitalized improvements by our properties business, due to more RedfinNow homes being sold, and (2) a$46.3 million increase in personnel costs and transaction bonuses, due to increased headcount and increased brokerage transactions, respectively. In the six months endedJune 30, 2022 , total gross margin decreased 710 basis points as compared with the same period in 2021, driven primarily by the relative growth of our properties business compared to our real estate services and other businesses, and decreases in real estate services and other gross margin. This was partially offset by the increase in properties and mortgage gross margin. In the six months endedJune 30, 2022 , real estate services gross margin decreased 770 basis points as compared with the same period in 2021. This was primarily attributable to a 830 basis point increase in personnel costs and transaction bonuses as a percentage of revenue. This was partially offset by a 160 basis point decrease in home-touring and field expenses. In the six months endedJune 30, 2022 , properties gross margin increased 180 basis points as compared with the same period in 2021. This was primarily attributable to a 170 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue. 43 -------------------------------------------------------------------------------- Table of Contents In the six months endedJune 30, 2022 , rentals gross margin decreased 200 basis points as compared with the same period in 2021. This was primarily attributable to a 170 basis point increase in personnel costs as a percentage of revenue due to expanded services. In the six months endedJune 30, 2022 , mortgage gross margin increased 2,500 basis points as compared with the same period in 2021. This was primarily attributable to a 1,940 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue, driven by the performance of Bay Equity as compared to our prior mortgage business.
In the six months ended
Operating Expenses
Six Months Ended June 30, Change
2022 2021 Dollars Percentage
(inthousands, except percentages)
Technology and development$ 101,146 $ 69,166 $ 31,980 46 % Marketing 100,085 67,200 32,885 49 General and administrative 130,699 96,957 33,742 35 Restructuring and reorganization 18,386 - 18,386 n/a Total operating expenses$ 350,316 $ 233,323 $ 116,993 50 Percentage of revenue Technology and development 8.4 % 9.4 % Marketing 8.3 9.1 General and administrative 10.9 13.1 Restructuring and reorganization 1.5 - Total operating expenses 29.1 % 31.6 % In the six months endedJune 30, 2022 , technology and development expenses increased by$32.0 million , or 46%, as compared with the same period in 2021. Included in the increase was$25.7 million resulting from our acquisition of Rent., and there were$13.0 million such expenses in the six months endedJune 30, 2021 . Also included in the increase was$0.7 million resulting from our acquisition of Bay Equity, and there were no such expenses in the six months endedJune 30, 2021 . Excluding these expenses from Rent. and Bay Equity, the increase was primarily attributable to a$14.5 million increase in personnel costs due to increased headcount. In the six months endedJune 30, 2022 , marketing expenses increased by$32.9 million , or 49%, as compared with the same period in 2021. Included in the increase was$24.1 million resulting from our acquisition of Rent., and there were$12.6 million such expenses in the six months endedJune 30, 2021 . Also included in the increase was$1.8 million resulting from our acquisition of Bay Equity, and there were no such expenses in the six months endedJune 30, 2021 . Excluding these expenses from Rent. and Bay Equity, the increase was primarily attributable to a$16.0 million increase in marketing media costs as we expanded advertising. In the six months endedJune 30, 2022 , general and administrative expenses increased by$33.7 million , or 35%, as compared with the same period in 2021. Included in the increase was$45.8 million resulting from our acquisition of Rent., and there were$23.0 million such expenses in the six months endedJune 30, 2021 . Also included in the increase was$8.4 million resulting from our acquisition of Bay Equity, and there were no such expenses in the six months endedJune 30, 2021 . Excluding these expenses from Rent. and Bay Equity, the increase was primarily attributable to a$10.2 million increase in personnel costs due to increased headcount, and a$3.4 million increase in Internet-based software services. This was partially offset by a$6.1 million decrease in advertising campaign and contractor expenses for recruiting employees, and a$5.3 million decrease in acquisition transaction expenses. 44 -------------------------------------------------------------------------------- Table of Contents In the six months endedJune 30, 2022 , restructuring and reorganization expenses increased by$18.4 million , and there were no such expenses in the six months endedJune 30, 2021 . These expenses were attributable to$10.3 million in severance and other costs associated with ourJune 2022 workforce reduction, and$6.5 million in severance and other costs associated with our mortgage restructuring, and$1.5 million in severance costs associated with our rentals restructuring. See Note 1 to our consolidated financial statements for more information on our restructuring and reorganization costs Interest Income, Interest Expense, Income Tax (Expense) Benefit, and Other Expense, Net Six Months Ended June 30, Change 2022 2021 Dollars Percentage (in
thousands, except percentages)
Interest income $ 774$ 293 $ 481 164 % Interest expense (7,481) (4,151) (3,330) 80 Income tax (expense) benefit (293) 5,052 (5,345) (106) Other expense, net (2,176) (27) (2,149) 7,959 Interest income, interest expense, income tax (expense) benefit, and$ (9,176) $ 1,167 $ (10,343) (886) other expense, net Percentage of revenue Interest income 0.1 % 0.0 % Interest expense (0.6) (0.6) Income tax (expense) benefit 0.0 0.7 Other expense, net (0.2) 0.0 Interest income, interest expense, income tax (expense) benefit, and (0.7) % 0.2 %
other expense, net
In the six months ended
Interest expense increased by$3.3 million due primarily to use of our secured revolving credit facility and interest on our 2027 convertible senior notes. See Note 15 to our consolidated financial statements for more information on these. In the six months endedJune 30, 2022 , we had an income tax expense rather than benefit, with a net decrease of$5.3 million . See Note 14 to our consolidated financials statements for more information.
Segment Financial Information
The tables below present, for each of our reportable and other segments,
financial information on a GAAP basis and adjusted EBITDA, which is a non-GAAP
financial measure, for the three and six months ended
See Note 3 to our consolidated financial statements for more information regarding our GAAP segment reporting.
To supplement our consolidated financial statements that are prepared and presented in accordance with GAAP, we also compute and present adjusted EBITDA, which is a non-GAAP financial measure. We believe adjusted EBITDA is useful for investors because it enhances period-to-period comparability of our financial statements on a consistent basis and provides investors with useful insight into the underlying trends of the business. The presentation of this financial measure is not intended to be considered in isolation or as a substitute of, or superior to, our financial information prepared and presented in accordance with GAAP. Our calculation of adjusted EBITDA may be different from adjusted EBITDA or similar non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Our adjusted EBITDA for the three and six months endedJune 30, 2022 and 2021 is presented below, along with a reconciliation of adjusted EBITDA to net loss. 45
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Three Months Ended
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 251,809 $ 262,606 $ 38,248 $ 53,098 $ 5,894 $ (4,740) $ 606,915
Cost of revenue 177,698 255,839 7,901 46,316 5,898 (4,740) 488,912
Gross profit 74,111 6,767 30,347 6,782 (4) - 118,003
Operating expenses
Technology and
development 27,696 4,684 14,871 1,904 1,189 1,162 51,506
Marketing 40,765 821 13,086 1,843 71 157 56,743
General and
administrative 24,341 3,210 21,824 9,450 850 12,058 71,733
Restructuring and
reorganization - - - - - 12,677 12,677
Total operating
expenses 92,802 8,715 49,781 13,197 2,110 26,054 192,659
Loss from operations (18,691) (1,948) (19,434) (6,415) (2,114) (26,054) (74,656)
Interest income,
interest expense,
income tax expense,
and other expense, net (123) (1,245) 232 (35) 11 (2,330) (3,490)
Net loss $ (18,814) $ (3,193) $ (19,202) $ (6,450) $ (2,103) $ (28,384) $ (78,146)
Three Months Ended June 30, 2022
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net loss $ (18,814) $ (3,193) $ (19,202) $ (6,450) $ (2,103) $ (28,384) $ (78,146)
Interest income(1) - (159) (1) (2,929) (12) (381) (3,482)
Interest expense(2) - 1,403 - 1,958 - 2,214 5,575
Income tax expense - - (230) 33 - 356 159
Depreciation and
amortization 4,551 603 9,511 1,070 318 274 16,327
Stock-based compensation(3) 9,670 1,527 2,739 780 441 1,656 16,813
Acquisition-related costs(4) - - - - - 1,507 1,507 Restructuring and reorganization(5) - - - - - 12,677 12,677 Adjusted EBITDA$ (4,593) $ 181 $ (7,183) $ (5,538) $ (1,356) $ (10,081)$ (28,570) (1) Interest income includes$2.9 million of interest income related to originated mortgage loans for the three months endedJune 30, 2022 . (2) Interest expense includes$2.0 million of interest expense related to our warehouse credit facilities for the three months endedJune 30, 2022 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies. (5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from ourJune 2022 workforce reduction. 46
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Three Months Ended
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 252,199 $ 172,445 $ 42,548 $ 5,099 $ 3,422 $ (4,398) $ 471,315
Cost of revenue 164,125 167,420 7,570 6,832 3,630 (4,398) 345,179
Gross profit 88,074 5,025 34,978 (1,733) (208) - 126,136
Operating expenses
Technology and
development 20,010 3,080 13,568 2,536 479 1,815 41,488
Marketing 41,746 572 12,607 130 30 313 55,398
General and
administrative 18,498 2,078 23,116 1,927 416 13,532 59,567
Total operating
expenses 80,254 5,730 49,291 4,593 925 15,660 156,453
Income (loss) from
operations 7,820 (705) (14,313) (6,326) (1,133) (15,660) (30,317)
Interest income,
interest expense,
income tax expense,
and other expense, net (3) (662) 212 1 1 2,890 2,439
Net income (loss) $ 7,817 $ (1,367) $ (14,101) $ (6,325) $ (1,132) $ (12,770) $ (27,878)
Three Months Ended June 30, 2021
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net income (loss) $ 7,817 $ (1,367) $ (14,101) $ (6,325) $ (1,132) $ (12,770) $ (27,878)
Interest income(1) - (2) - (414) (1) (131) (548)
Interest expense(2) - 664 - 407 - 2,149 3,220
Income tax expense - - (212) - - (4,840) (5,052)
Depreciation and amortization 3,180 412 9,110 313 167 495 13,677
Stock-based compensation(3) 9,042 1,239 113 770 191 2,388
13,743
Acquisition-related costs(4) - - - - - 5,616 5,616 Restructuring and reorganization(5) - - - - - - - Adjusted EBITDA$ 20,039 $ 946 $ (5,090) $ (5,249) $ (775) $ (7,093)$ 2,778 (1) Interest income includes$0.4 million of interest income related to originated mortgage loans for the three months endedJune 30, 2021 . (2) Interest expense includes$0.4 million of interest expense related to our warehouse credit facilities for the three months endedJune 30, 2021 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies. (5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from ourJune 2022 workforce reduction. 47
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Six Months Ended
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 429,295 $ 642,359 $ 76,292 $ 56,015 $ 10,263 $ (9,963) $ 1,204,261
Cost of revenue 331,482 614,704 15,094 51,834 10,570 (9,963) 1,013,721
Gross profit 97,813 27,655 61,198 4,181 (307) - 190,540
Operating expenses
Technology and
development 54,435 8,803 29,154 4,251 2,225 2,278 101,146
Marketing 71,608 1,974 24,128 1,871 125 379 100,085
General and
administrative 47,333 6,035 46,015 10,974 1,562 18,780 130,699
Restructuring and
reorganization - - - - - 18,386 18,386
Total operating
expenses 173,376 16,812 99,297 17,096 3,912 39,823 350,316
(Loss) income from
operations (75,563) 10,843 (38,099) (12,915) (4,219) (39,823) (159,776)
Interest income,
interest expense,
income tax expense,
and other expense, net (123) (2,869) 701 (35) 12 (6,862) (9,176)
Net (loss) income $ (75,686) $ 7,974 $ (37,398) $ (12,950) $ (4,207) $ (46,685) $ (168,952)
Six Months Ended June 30, 2022
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net (loss) income $ (75,686) $ 7,974 $ (37,398) $ (12,950) $ (4,207) $ (46,685) $ (168,952)
Interest income(1) - (184) (1) (3,247) (13) (575) (4,020)
Interest expense(2) - 3,052 - 2,235 - 4,427 9,714
Income tax expense - - (434) 33 - 694 293
Depreciation and amortization 8,569 1,141 18,867 1,372 573 618 31,140
Stock-based compensation(3) 19,810 3,064 4,979 1,381 810 3,557
33,601
Acquisition-related costs(4) - - - - - 2,424 2,424 Restructuring and reorganization(5) - - - - - 18,386 18,386 Adjusted EBITDA$ (47,307) $ 15,047 $
(13,987)
(1) Interest income includes$3.2 million of interest income related to originated mortgage loans for the six months endedJune 30, 2022 . (2) Interest expense includes$2.2 million of interest expense related to our warehouse credit facilities for the six months endedJune 30, 2022 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies. (5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from ourJune 2022 workforce reduction. 48
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Six Months Ended
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 420,808 $ 265,171 $ 42,548 $ 10,810 $ 7,068 $ (6,771) $ 739,634
Cost of revenue 292,342 258,551 7,570 12,701 6,747 (6,771) 571,140
Gross profit 128,466 6,620 34,978 (1,891) 321 - 168,494
Operating expenses
Technology and
development 40,130 5,910 13,767 4,904 952 3,503 69,166
Marketing 52,928 779 12,611 264 63 555 67,200
General and
administrative 42,429 4,507 23,149 3,352 933 22,587 96,957
Total operating
expenses 135,487 11,196 49,527 8,520 1,948 26,645 233,323
Loss from operations (7,021) (4,576) (14,549) (10,411) (1,627) (26,645) (64,829)
Interest income,
interest expense,
income tax expense,
and other expense, net (31) (1,082) 212 2 1 2,065 1,167
Net loss $ (7,052) $ (5,658) $ (14,337) $ (10,409) $ (1,626) $ (24,580) $ (63,662)
Six Months Ended June 30, 2021
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net loss $ (7,052) $ (5,658) $ (14,337) $ (10,409) $ (1,626) $ (24,580) $ (63,662) Interest income(1) - (7) - (771) (1) (284) (1,063) Interest expense(2) - 1,089 - 835 - 3,063 4,987 Income tax expense - - (212) - - (4,840) (5,052) Depreciation and amortization 6,230 803 9,111 591 334 949 18,018 Stock-based compensation(3) 17,560 2,373 174 1,444 341 4,435
26,327
Acquisition-related costs(4) - - - - - 7,723 7,723 Restructuring and reorganization(5) - - - - - - - Adjusted EBITDA$ 16,738 $ (1,400) $ (5,264) $ (8,310) $ (952) $ (13,534)$ (12,722) (1) Interest income includes$0.8 million of interest income related to originated mortgage loans for the six months endedJune 30, 2021 . (2) Interest expense includes$0.8 million of interest expense related to our warehouse credit facilities for the six months endedJune 30, 2021 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies. (5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from ourJune 2022 workforce reduction.
Liquidity and Capital Resources
As of
Also as ofJune 30, 2022 , we had$1,259.8 million aggregate principal amount of convertible senior notes outstanding across three issuances maturing betweenJuly 15, 2023 andApril 1, 2027 . See Note 15 to our consolidated financial statements for our obligations to pay semi-annual interest and to repay any outstanding amounts at the notes' maturity. 49 -------------------------------------------------------------------------------- Table of Contents Also as ofJune 30, 2022 , we had 40,000 shares of convertible preferred stock outstanding. See Note 11 to our consolidated financial statements for our obligations to pay quarterly interest and to redeem any outstanding shares onNovember 30, 2024 . With respect to the cash outlay for our properties business, for the quarter endedJune 30, 2022 , we relied on (i) a combination of our cash on hand and borrowings from a secured revolving credit facility to fund home purchase prices and (ii) solely on our cash on hand to fund capitalized improvement costs and home maintenance expenses. See Note 5 to our consolidated financial statements for more information on our home purchases during the quarter endedJune 30, 2022 and our home purchase commitments as ofJune 30, 2022 . See Note 15 to our consolidated financial statements for more information regarding the secured revolving credit facility. Also see "Risk Factors" for a discussion of our (1) potential inability to comply with one or more of the facility's financial covenants with respect to the third quarter of 2022, (2) resulting obligation to repay all outstanding borrowings upon our potential termination of the facility, and (3) need to fund home purchases solely through cash, if we are unable to secure alternative sources of financing. Our mortgage business has significant cash requirements due to the period of time between its origination of a mortgage loan and the sale of that loan. We have relied on warehouse credit facilities with different lenders to fund substantially the entire portion of the mortgage loans that our mortgage business originates. Once our mortgage business sells a loan in the secondary mortgage market, we use the proceeds to reduce the outstanding balance under the related facility. See Note 15 to our consolidated financial statements for more information regarding our warehouse credit facilities. We believe that our existing cash and cash equivalents and investments, together with cash we expect to generate from future operations, and borrowings from our secured revolving credit facility (if available) and our warehouse credit facilities, will provide sufficient liquidity to meet our operational needs, repay all outstanding borrowings under our secured revolving credit facility in the event of a termination, satisfy commitments by our properties business to purchase homes, and fulfill our payment obligations with respect to our convertible senior notes and convertible preferred stock. However, our liquidity assumptions may change or prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. As a result, we may seek new sources of credit financing or elect to raise additional funds through equity, equity-linked, or debt financing arrangements. We cannot assure you that any additional financing will be available to us on acceptable terms or at all. Our title and settlement business and our mortgage business each holds cash in escrow that we do not record on our consolidated balance sheets. See Note 8 to our consolidated financial statements for more information regarding these amounts.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,
2022 2021
(in thousands)
Net cash used in operating activities
(159,285) (544,078)
Net cash provided by financing activities 17,747 599,578
50-------------------------------------------------------------------------------- Table of ContentsNet Cash Used In Operating Activities Our operating cash flows result primarily from cash generated by commissions paid to us from our real estate services business, sales of homes from our properties business, and subscription-based product offerings from our rentals business. Our primary uses of cash from operating activities include payments for personnel-related costs, including employee benefits and bonus programs, marketing and advertising activities, purchases of homes for our properties business, office and occupancy costs, and outside services costs. Additionally, our mortgage business generates a significant amount operating cash flow activity from the origination and sale of loans held for sale. Net cash used in operating activities was$168.5 million for the six months endedJune 30, 2022 , primarily attributable to (i) our net loss of$169.0 million , (ii) changes in assets and liabilities, which decreased cash provided by operating activities by$80.2 million , and (iii)$80.6 million of non-cash items related to stock-based compensation, depreciation and amortization, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, and other non-cash items. The primary uses of cash related to changes in our assets and liabilities were a$19.3 million increase in inventory related to our properties business and a net increase of origination of loans held for sale of$53.6 million . Net cash used in operating activities was$213.6 million for the six months endedJune 30, 2021 , primarily attributable to a net loss of$63.7 million , offset by$52.4 million of non-cash items related to stock-based compensation, depreciation and amortization, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, and other non-cash items. Changes in assets and liabilities decreased cash provided by operating activities by$202.4 million . The primary sources of cash related to changes in our assets and liabilities were a$42.7 million increase in accounts payable and other accrued liabilities related to the timing of vendor payments and payroll related expenses, and a$22.3 million decrease in accounts receivable related to the timing of escrow payments in-transit. The primary use of cash related to changes in our assets and liabilities was a$199.8 million increase in inventory related to our properties business.
Our primary investing activities include the purchase, sale, and maturity of investments and purchases of property and equipment, primarily related to capitalized software development expenses and computer equipment and software.
Net cash used in investing activities was$159.3 million for the six months endedJune 30, 2022 , primarily attributable to the net cash paid for our acquisition of Bay Equity of$97.3 million ,$49.8 million in net investments inU.S. government securities, and$9.0 million of capitalized software development expenses. Net cash used in investing activities was$544.1 million for the six months endedJune 30, 2021 , primarily attributable to cash paid for our acquisition of Rent. of$608.0 million ,$77.5 million in net investments inU.S. government securities, and$3.3 million of capitalized software development expenses.
Net Cash Provided By Financing Activities
Our primary financing activities have come from (i) our initial public offering inAugust 2017 , (ii) sales of our common stock and 2023 notes inJuly 2018 , our common stock and convertible preferred stock inApril 2020 , our 2025 notes inOctober 2020 , and our 2027 notes inMarch 2021 , and (iii) the sale of our common stock pursuant to stock option exercises and our ESPP. Additionally, we generate a significant amount of financing cash flow activity due to borrowings from and repayments to our warehouse credit facilities and our secured revolving credit facility. Net cash provided by financing activities was$17.7 million for the six months endedJune 30, 2022 , attributable to a$43.2 million decrease in net borrowings under our secured revolving credit facility and a$56.7 million increase in net borrowings under our warehouse credit facilities. Net cash provided by financing activities was$599.6 million for the six months endedJune 30, 2021 , primarily attributable to$498.9 million in net proceeds from the issuance of our 2027 notes offering including the purchase of capped calls related to those notes, and a$99.8 million increase in net borrowings under our secured revolving credit facility. 51
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Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and estimates addressed below. In addition, we have other key accounting policies and estimates that are described in Note 1 to our consolidated financial statements.
Revenue Recognition
Our key revenue components are brokerage revenue, partner revenue, properties revenue, rentals revenue, mortgage revenue, and other revenue. Of these, we consider the most critical of our revenue recognition policies to be those related to commissions and fees charged on brokerage transactions closed by our lead agents, and from the sale of homes. We recognize commission-based brokerage revenue upon closing of a brokerage transaction, less the amount of any commission refunds, closing-cost reductions, or promotional offers that may result in a material right. We determined that brokerage revenue primarily contains a single performance obligation that is satisfied upon the closing of a transaction, at which point the entire transaction price is earned. We evaluate our brokerage contracts and promotional pricing to determine if there are any additional material rights and allocate the transaction price based on standalone selling prices. Properties revenue is earned when we sell homes that were previously bought directly from homeowners. Our contracts with customers contain a single performance obligation that is satisfied upon a transaction closing. Properties revenue is recorded at closing on a gross basis, representing the sales price of the home. Rentals revenue is primarily recognized on a straight-line basis over the term of the contract, which is generally less than one year. Revenue is presented net of sales allowances, which are not material. Mortgage revenue is recognized (1) when an interest rate lock commitment is made to a customer, adjusted for a pull-through percentage, (2) for origination fees, when the purchase or refinance of a loan is complete, and (3) when the fair value of our interest rate lock commitments, forward sale commitments, and loans held for sale are recorded at current market quotes.
We have utilized the practical expedient in ASC 606, Revenue from Contracts with Customers, and elected not to capitalize contract costs for contracts with customers with durations less than one year. We do not have significant remaining performance obligations or contract balances.
See Note 1 to our consolidated financial statements for further discussion of our revenue recognition policy.
Acquired Intangible Assets and
We recognize separately identifiable intangible assets acquired in a business
combination. Determining the fair value of the intangible assets acquired
requires management's judgment, often utilizes third-party valuation
specialists, and involves the use of significant estimates and assumptions with
respect to the timing and amounts of future cash flows, discount rates,
replacement costs, and asset lives, among other estimates.
The judgments made in the determination of the estimated fair value assigned to
the intangible assets acquired and the estimated useful life of each asset could
significantly impact our consolidated financial statements in periods after the
acquisition, such as through depreciation and amortization expense.
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We evaluate intangible assets for impairment whenever events or circumstances indicate that they may not be recoverable. We measure recoverability by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated.Goodwill represents the excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination.Goodwill is not amortized, but is subject to impairment testing. We assess the impairment of goodwill on an annual basis, during the fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we qualitatively determine that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then no additional impairment steps are necessary.
See Note 2 to our consolidated financial statements for a summary of our valuation of the Bay Equity intangible assets, along with their estimated useful lives.
Inventory Our inventory represents homes purchased with the intent of resale and are accounted for under the specific identification method. Direct home acquisition and improvement costs are capitalized and tracked directly with each specific home. Homes are stated in inventory at cost and are reviewed on a home by home basis. When evidence exists that the net realizable value of a home is lower than its cost, we recognize the difference as a loss in the period in which it occurs. In determining net realizable value, management must use judgment and estimates, including assessment of readily available market value indicators such as the Redfin Estimate and other third-party home value indicators, assessment of a current listing or pending offer price if either are available, and the value of any improvements made to the home. If a home's estimated market value is less than the inventory cost then the home is written down to net realizable value. While no material adjustments were required to our home inventory during the three months endedJune 30, 2022 , material adjustments may be required in the future due to changing market conditions, natural disasters, or other forces outside of our control.
See Note 5 to our consolidated financial statements for a summary of our inventory categories and any write-downs.
Business Combinations
The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of acquisition. We record assets and liabilities of an acquired business at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. The purchase price allocation process requires our management to make significant estimates and assumptions. Although we believe the assumptions and estimates made are reasonable, they are inherently uncertain and based in part on experience, market conditions, projections of future performance, and information obtained from legacy management of acquired companies. Critical estimates include but are not limited to:
•future revenue, cost of revenue and operating margin projections,
•discount rates,
•terminal growth rate; and
•market data of comparable guideline companies.
See Note 2 to our consolidated financial statements for a summary of our business combinations activities.
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Recent Accounting Standards
For information on recent accounting standards, see Note 1 to our consolidated financial statements.
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