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, 2020 . 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 95 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 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.
Our mission is to redefine real estate in the consumer's favor.
27
--------------------------------------------------------------------------------
Table of Contents
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
Mar. 31, 2021 Dec. 31, 2020 Sep. 30 2020 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019 Sep. 30, 2019 Jun. 30, 2019 Mar. 31, 2019
Monthly average visitors (in 46,202 44,135 49,258 42,537 35,519 30,595 35,633 36,557 31,107
thousands)
Real estate services transactions Brokerage 14,317 16,951 18,980 13,828 10,751 13,122 16,098 15,580 8,435 Partner 3,944 4,940 5,180 2,691 2,479 2,958 3,499 3,357 2,125 Total 18,261 21,891 24,160 16,519 13,230 16,080 19,597 18,937 10,560 Real estate services revenue per transaction Brokerage$ 10,927 $ 10,751 $ 10,241 $ 9,296 $ 9,520 $ 9,425 $ 9,075 $ 9,332 $ 9,640 Partner 3,084 3,123 2,988 2,417 2,535 2,369 2,295 2,218 2,153 Aggregate 9,233 9,030 8,686 8,175 8,211 8,127 7,865 8,071 8,134
Aggregate home value of real estate
$ 4,800 services transactions (in millions) U.S. market share by value 1.14 % 1.04 % 1.04 % 0.93 % 0.93 % 0.94 % 0.96 % 0.94 % 0.83 % Revenue from top-10 Redfin markets as 62 % 63 % 63 % 63 % 61 % 62 % 63 % 64 % 64 % a percentage of real estate services revenue Average number of lead agents 2,277 1,981 1,820 1,399 1,826 1,526 1,579 1,603 1,503 RedfinNow homes sold 171 83 37 162 171 212 168 80 43 Revenue per RedfinNow home sold$ 525,173 $
471,551
$ 466,939 $ 476,770 $ 498,083 $ 496,437 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. For a particular period, monthly average visitors refers to the average of the number of unique visitors to our website and mobile application for each of the months in that period. Monthly average visitors are 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 monthly visitors, which helps our growth.
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.
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
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 digital marketing campaigns, and the market effect of controlling listing inventory. To keep revenue per brokerage transaction about the same from year to year, we expect to reduce our commission refund to homebuyers if a greater portion of our brokerage transactions come from home sellers.
Aggregate Home Value of Real Estate Services Transactions
The aggregate home value of brokerage and partner real estate services transactions is an important indicator of the health of our business, because our revenue is largely based on a percentage of each home's sale price. This metric is affected chiefly by the number of customers we serve, but also by changes in home values in the markets we serve. We compute this metric by summing the sale price of each home represented in a real estate services transaction. We include the value of a single transaction twice when our lead agents or our partner agents serve both the homebuyer and home seller of the transaction. U.S. Market Share by Value Increasing our U.S. market share by value 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. We calculate the aggregate value ofU.S. home sales by multiplying the total number ofU.S. existing home sales by the mean sale price of these homes, each as reported by the National Association of REALTORS®. We calculate our market share by aggregating the home value of brokerage and partner real estate services transactions. Then, in order to account for both the sell- and buy-side components of each transaction, we divide that value by two-times the estimated aggregate value ofU.S. home sales. 29 -------------------------------------------------------------------------------- Table of Contents 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 ,Orange County ,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 a useful 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 RedfinNow's home sales, the types and sizes of homes that it had previously purchased, our pricing, and changes in the value of homes in the markets it serves. We calculate revenue per RedfinNow home sold by dividing revenue from sales of homes by RedfinNow by the number of homes sold by RedfinNow in any period.
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, and
from the sale of homes.
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.
30
--------------------------------------------------------------------------------
Table of Contents
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.
Other Revenue
Other Revenue-Other services revenue includes fees earned from mortgage origination services, 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.
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, 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. 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 (including
recruiting), 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.
31
--------------------------------------------------------------------------------
Table of Contents
Interest Income, Interest Expense, and Other Income (Expense), Net
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and investments.
Interest Expense
Interest expense consists primarily of any interest payable on our convertible senior notes and, for the three months endedMarch 31, 2021 , the amortization of debt discounts and issuance cost related to our convertible senior notes. See Note 15 to our consolidated financial statements for information regarding interest on our convertible senior notes. Interest expense also includes interest on borrowings and the amortization of debt issuance costs related to our secured revolving credit facility. See Note 15 to our consolidated financial statements for information regarding interest for the facility. Other Income (Expense), Net
Other expense, net consists primarily of realized and unrealized gains and losses on investments. See Note 3 to our consolidated financial statements for information regarding unrealized 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 March 31,
2021 2020
(in thousands)
Revenue $ 268,319 $ 190,995
Cost of revenue(1) 225,961 178,116
Gross profit 42,358 12,879
Operating expenses
Technology and development(1) 27,678 20,274
Marketing(1) 11,802
25,708
General and administrative(1) 37,391 24,327 Total operating expenses 76,871 70,309 Loss from operations (34,513) (57,430) Interest income 159 1,103 Interest expense (1,338) (2,444) Other income (expense), net (92) (1,346) Net loss$ (35,784) $ (60,117)
(1) Includes stock-based compensation as follows:
Three Months Ended March 31,
2021 2020
(in thousands)
Cost of revenue $ 2,978 $ 1,638
Technology and development 5,761 3,648
Marketing 542 375
General and administrative 3,302 1,550
Total stock-based compensation $ 12,583 $ 7,211
32--------------------------------------------------------------------------------
Table of Contents
Three Months Ended March 31,
2021 2020
(as a percentage of revenue)
Revenue 100.0 % 100.0 %
Cost of revenue(1) 84.2 93.3
Gross profit 15.8 6.7
Operating expenses
Technology and development(1) 10.3 10.6
Marketing(1) 4.4 13.5
General and administrative(1) 13.9 12.7
Total operating expenses 28.6 36.8
Loss from operations (12.9) (30.1)
Interest income 0.1 0.6
Interest expense (0.5) (1.3)
Other income (expense), net - (0.7)
Net loss (13.3) % (31.5) %
(1) Includes stock-based compensation as follows:
Three Months Ended March 31,
2021 2020
(as a percentage of revenue)
Cost of revenue 1.1 % 0.9 %
Technology and development 2.2 1.9
Marketing 0.2 0.2
General and administrative 1.2 0.8
Total 4.7 % 3.8 %
Comparison of the Three Months Ended
Revenue
Three Months Ended March 31, Change
2021 2020 Dollars Percentage
(inthousands, except percentages)
Real estate services revenue Brokerage revenue$ 156,447 $ 102,351 $ 54,096 53 % Partner revenue 12,162 6,285 5,877 94 Total real estate services 168,609 108,636 59,973 55 revenue Properties revenue 92,726 79,098 13,628 17 Other revenue 9,357 4,250 5,107 120 Intercompany elimination (2,373) (989) (1,384) 140 Total revenue$ 268,319 $ 190,995 $ 77,324 40 Percentage of revenue Real estate services revenue Brokerage 58.3 % 53.6 % Partner revenue 4.5 3.3 Total real estate services 62.8 56.9 revenue Properties revenue 34.6 41.4 Other revenue 3.5 2.2 Intercompany elimination (0.9) (0.5) Total revenue 100.0 % 100.0 % 33
-------------------------------------------------------------------------------- Table of Contents In the three months endedMarch 31, 2021 , revenue increased by$77.3 million , or 40%, as compared with the same period in 2020. This increase in revenue was primarily attributable to a$60.0 million increase in real estate services revenue, and a$13.6 million increase in properties revenue. Brokerage revenue increased by$54.1 million , and partner revenue increased by$5.9 million . Brokerage revenue increased 53% during the period, driven by a 33% increase in brokerage transactions and a 15% increase in brokerage revenue per transaction. We believe the increase in brokerage transactions was attributable to higher levels of customer awareness of Redfin and increasing customer demand, while the increase in brokerage revenue per transaction was driven primarily by increasing home values. Properties revenue increased by$13.6 million . Properties revenue increased 17%, primarily driven by a 14% increase in revenue per RedfinNow home sold and no increase in RedfinNow homes sold.
Cost of Revenue and Gross Margin
Three Months Ended March 31, Change
2021 2020 Dollars Percentage
(in thousands, except percentages)
Cost of revenue
Real estate services $ 128,216 $ 93,562 $ 34,654 37 %
Properties 91,130 79,299 11,831 15
Other 8,988 6,244 2,744 44
Intercompany elimination (2,373) (989) (1,384) 140
Total cost of revenue $ 225,961 $ 178,116 $ 47,845 27
Gross profit
Real estate services $ 40,393 $ 15,074 $ 25,319 168 %
Properties 1,596 (201) 1,797 (894)
Other 369 (1,994) 2,363 (119)
Total gross profit $ 42,358 $ 12,879 $ 29,479 229
Gross margin (percentage of
revenue)
Real estate services 24.0 % 13.9 %
Properties 1.7 (0.3)
Other 3.9 (46.9)
Total gross margin 15.8 6.7
In the three months ended March 31, 2021 , total cost of revenue increased by
$47.8 million , or 27%, as compared with the same period in 2020. This increase
in cost of revenue was primarily attributable to a $32.2 million increase in
personnel costs and transaction bonuses, due to increased headcount and
increased brokerage transactions, respectively. This was also driven by a $9.5
million increase in home-touring and field costs, and a $5.3 million increase in
home purchase costs and related capitalized improvements by our properties
business.
Total gross margin increased 910 basis point as compared with the same period in
2020, driven by improvements in real estate services, properties, and other
gross margin, and by our properties business contributing to a lesser proportion
of revenue relative to our real estate services and other businesses.
In the three months ended
In the three months endedMarch 31, 2021 , properties gross margin increased 200 basis points as compared with the same period in 2020. This was primarily attributable to a 760 basis-point decrease in home purchase costs and related capitalized improvements as a percentage of revenue. This was partially offset by a 290 basis-point increase in personnel costs and transaction bonuses as a percentage of revenue. 34
--------------------------------------------------------------------------------
Table of Contents
In the three months endedMarch 31, 2021 , other gross margin increased 5,080 basis points. This was primarily attributable to a 3,100 basis-point decrease in personnel costs and transaction bonuses, a 990 basis-point decrease in outside services costs, a 290 basis-point decrease in travel and entertainment expenses, and a 280 basis-point decrease personal technology expenses, each as a percentage of revenue. Operating Expenses Three Months Ended March 31, Change 2021 2020 Dollars Percentage (in thousands, except percentages) Technology and development$ 27,678 $ 20,274 $ 7,404 37 % Marketing 11,802 25,708 (13,906) (54) General and administrative 37,391 24,327 13,064 54 Total operating expenses$ 76,871 $ 70,309 $ 6,562 9 Percentage of revenue Technology and development 10.3 % 10.6 % Marketing 4.4 13.5 General and administrative 13.9 12.7 Total operating expenses 28.6 % 36.8 % In the three months endedMarch 31, 2021 , technology and development expenses increased by$7.4 million , or 37%, as compared with the same period in 2020. The increase was primarily attributable to a$6.7 million increase in personnel costs due to increased headcount. In the three months endedMarch 31, 2021 , marketing expenses decreased by$13.9 million , or 54%, as compared with the same period in 2020. The decrease was attributable to a$14.4 million decrease in marketing media costs as we did not run a mass-media advertising campaign as we have in prior years. In the three months endedMarch 31, 2021 , general and administrative expenses increased by$13.1 million , or 54%, as compared with the same period in 2020. The increase was primarily attributable to a$5.8 million increase in personnel costs due to increased headcount, a$5.0 million increase in advertising campaign and contractor expenses for recruiting employees and independent contractors, a$3.1 million increase in legal expenses, largely due to a rejected settlement offer we made to resolve a threatened claim, and a$2.1 million increase in transaction expenses for our acquisition ofRentPath . We had no such transaction expenses for acquisitions during the same period in 2020. This was partially offset by a$4.1 million decrease in corporate events costs, because we did not conduct an in-person, all-company event as we have in prior years due to COVID-19 restrictions. 35 -------------------------------------------------------------------------------- Table of Contents Interest Income, Interest Expense, and Other Income (Expense), Net Three Months Ended March 31, 2021 Change 2021 2020 Dollars Percentage (in thousands, except percentages) Interest income 159 1,103 (944) (86) Interest expense (1,338) (2,444) 1,106 45 Other income (expense), net (92) (1,346) 1,254 93 Interest income, interest expense, and other income (expense), net$ (1,271) $ (2,687) $ 1,416 53 Percentage of revenue Interest income 0.0 0.6 Interest expense (0.5) (1.3) Other income (expense), net 0.0 (0.7) Interest income, interest expense, and other income (expense), net (0.5) % (1.4) % In the three months endedMarch 31, 2021 , interest income, net decreased by$1.4 million as compared to the same period in 2020. Interest income decreased$0.9 million due to lower interest rates on our cash, cash equivalents, and investments. Interest expense decreased by$1.1 million due primarily to the implementation of ASU 2020-06, which eliminates the liability and equity separation models for convertible instruments. As a result, we did not incur an expense for the accretion of the equity portion of our convertible senior notes during the three months endedMarch 31, 2021 . See Note 1 to our consolidated financial statements for more information on our adoption of this accounting standard. Other income (expense), net decreased by$1.3 million , primarily due to a non-cash impairment charge we had recorded on an investment in a privately-held company during the three months endedMarch 31, 2020 , and we did not have a similar charge for the same period this year.
Liquidity and Capital Resources
As ofMarch 31, 2021 , we had cash and cash equivalents of$1,241.3 million and investments of$147.7 million , which consist primarily of operating cash on deposit with financial institutions, money market instruments,U.S. treasury securities, and agency bonds. OnApril 2, 2021 , we closed our acquisition ofRentPath and paid$608.0 million in cash in connection with the closing. This amount includes the release, to the sellers, of$60.8 million that we had previously deposited into an escrow account and reported in restricted cash as ofMarch 31, 2021 . Also as ofMarch 31, 2021 , we had$1,185.0 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. OnApril 5, 2021 , the initial purchasers of our 2027 notes exercised their option to purchase an additional$75 million aggregate principal amount of our 2027 notes. In connection with the issuance of these additional notes and also onApril 5, 2021 , we settled our purchase of additional capped call options. See Note 16 to our consolidated financial statements for our net proceeds from the issuance of additional 2027 notes and our cash outlay for our purchase of additional options. Also as ofMarch 31, 2021 , 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 . 36 -------------------------------------------------------------------------------- Table of Contents With respect to the cash outlay for our properties business, for the quarter endedMarch 31, 2021 , 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 4 to our consolidated financial statements for more information on changes to inventory related to home purchases and home sales for our properties business. See Note 15 to our consolidated financial statements for more information regarding the secured revolving credit facility. 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 and our warehouse credit facilities, will provide sufficient liquidity to meet our operational needs 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.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (50,765) $ (43,449)
Net cash used in investing activities (9,573) (3,468)
Net cash provided by financing activities 457,562
30,206
Our operating cash flows result primarily from cash generated by commissions paid to us from our real estate services business and sales of homes from our properties 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 operating activities was$50.8 million for the three months endedMarch 31, 2021 , primarily attributable to a net loss of$35.8 million , offset by$19.4 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$34.4 million . The primary sources of cash related to changes in our assets and liabilities were a$14.8 million increase in accounts payable and other accrued liabilities related to the timing of vendor payments and payroll related expenses, and a$7.3 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$48.2 million increase in inventory related to our properties business. 37 -------------------------------------------------------------------------------- Table of Contents Net cash used in operating activities was$43.4 million for the three months endedMarch 31, 2020 , primarily attributable to a net loss of$60.1 million , offset by$15.3 million of non-cash items related to stock based compensation, depreciation and amortization, amortization of debt discounts and issuance costs, lease expense related to right-of-use assets, impairment charge on our cost method investment, and other noncash items. Changes in assets and liabilities decreased cash used in operating activities by$1.4 million driven primarily by a$18.5 million increase in accrued liabilities, primarily related to timing of payments, a$4.9 million decrease in prepaid expenses. This was partially offset by an increase of$21.5 million in net loans held for sale related to our mortgage business.
Our primary investing activities include the purchase of investments and property and equipment, primarily related to capitalized software development expenses and computer equipment and software.
Net cash used in investing activities was
Net cash used in investing activities was
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, sinceJuly 2019 , our secured revolving credit facility. Net cash provided by financing activities was$457.6 million for the three months endedMarch 31, 2021 , attributable to$434.2 million in net proceeds from the issuance of our 2027 notes offering including the purchase of capped calls related to those notes, and a$24.9 million increase in net borrowings under our secured revolving credit facility. Net cash provided by financing activities was$30.2 million for the three months endedMarch 31, 2020 , primarily attributable to a$21.3 million increase in our net borrowings under warehouse credit facilities and$4.5 million in net borrowings under the secured revolving credit facility.
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.
38
--------------------------------------------------------------------------------
Table of Contents
Revenue Recognition
Our key revenue components are brokerage revenue, partner revenue, property
revenue, and other revenue. Of these, we consider the most critical of our
revenue recognition policies relate 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.
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.
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 significant adjustments were required to our home inventory during the three months endedMarch 31, 2021 , material adjustments may be required in the future due to changing market conditions, natural disasters, or other forces outside of our control.
See Note 4 to our consolidated financial statements for a summary of our inventory categories and any net realizable write-downs.
Recent Accounting Standards
For information on recent accounting standards, see Note 1 to our consolidated financial statements.
39--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
