Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
 
Commission File Number: 001-38160

 
Redfin Corporation
 
 
(Exact name of registrant as specific in its charter)
 

 
Delaware
 
74-3064240
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
1099 Stewart Street, Suite 600
Seattle, WA
 
98101
 
 
(Address of principal executive offices)
 
(Zip Code)
 
 
(206) 576-8333
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
 

 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 
 
Common Stock, $0.001 par value per share
 
RDFN
 
The Nasdaq Global Select Market
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes
¨ No
 
 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
þ Yes
¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company ¨
Emerging growth company ¨
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes
þ No

As of May 1, 2019, there were 90,988,859 shares of the registrant's common stock outstanding.



Redfin Corporation

Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2019

Table of Contents

 
 
 
PART I
 
Page
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 1A.
Item 2.
Item 6.
 
 
 
 
 




As used in this Quarterly Report on Form 10-Q, the terms "Redfin," "the Company," "we," "us," and "our" refer to Redfin Corporation and its subsidiaries taken as a whole, unless otherwise noted or unless the context indicates otherwise.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this report other than statements of historical fact, including 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, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Item 1A of our Annual Report for the year ended December 31, 2018, as supplemented by Part II, Item 1A of this Quarterly Report for the quarter ended March 31, 2019. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this report or to conform these statements to actual results or revised expectations.

Note Regarding Industry and Market Data

This Quarterly Report on Form 10-Q contains information using industry publications that generally state that the information contained therein has been obtained from sources believed to be reliable, but such information may not be accurate or complete. While we are not aware of any misstatements regarding the information from these industry publications, we have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied on therein.



Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Redfin Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts, unaudited)
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
395,618

 
$
432,608

Restricted cash
10,471

 
6,446

Accrued revenue, net
16,253

 
15,363

Inventory
38,306

 
22,694

Loans held for sale
15,748

 
4,913

Prepaid expenses and other current assets
13,586

 
14,223

Total current assets
489,982

 
496,247

Property and equipment, net
30,618

 
25,187

Right of use assets, net
32,737

 

Goodwill and intangibles, net
11,870

 
11,992

Other non-current assets
9,403

 
9,395

Total assets
574,610

 
542,821

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
17,533

 
2,516

Accrued liabilities
54,064

 
30,837

Other payables
10,374

 
6,544

Warehouse credit facilities
15,193

 
4,733

Current operating lease liabilities
6,368

 

Current portion of deferred rent
68

 
1,588

Total current liabilities
103,600

 
46,218

Non-current operating lease liabilities
41,567

 

Deferred rent

 
11,079

Convertible senior notes, net
115,094

 
113,586

Total liabilities
260,261

 
170,883

Commitments and contingencies (Note 7)

 

Stockholders’ equity
 
 
 
Common stock—par value $0.001 per share; 500,000,000 shares authorized; 90,926,249 and 90,151,341 shares issued and outstanding, respectively
91

 
90

Additional paid-in capital
552,418

 
542,829

Accumulated deficit
(238,160
)
 
(170,981
)
Total stockholders’ equity
314,349

 
371,938

Total liabilities and stockholders’ equity
$
574,610

 
$
542,821


The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Table of Contents

Redfin Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts, unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Revenue
 
 
 
Service
$
88,768

 
$
76,841

Product
21,373

 
3,052

Total revenue
110,141

 
79,893

Cost of revenue
 
 
 
Service
84,395

 
70,855

Product
22,993

 
3,342

Total cost of revenue
107,388

 
74,197

Gross profit
2,753

 
5,696

Operating expenses
 
 
 
Technology and development
15,556

 
12,762

Marketing
33,201

 
13,336

General and administrative
21,448

 
16,772

Total operating expenses
70,205

 
42,870

Loss from operations
(67,452
)
 
(37,174
)
Interest income
2,316

 
577

Interest expense
(2,136
)
 

Other income, net
92

 
158

Net loss
$
(67,180
)
 
$
(36,439
)
Net loss per share - basic and diluted
$
(0.74
)
 
$
(0.44
)
Weighted average shares - basic and diluted
90,610,416

 
82,010,913

 
 
 
 
Net loss
$
(67,180
)
 
$
(36,439
)
Foreign currency translation adjustments
1

 

Total comprehensive loss
$
(67,179
)
 
$
(36,439
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Table of Contents

Redfin Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(67,180
)
 
$
(36,439
)
Adjustments to reconcile net loss to net cash used in operating activities
 
 
 
Depreciation and amortization
1,637

 
2,003

Stock-based compensation
6,406

 
4,196

Amortization of debt discount and issuance costs
1,507

 

Non-cash lease expense
1,216

 

Change in assets and liabilities
 
 
 
Accrued revenue
(890
)
 
1,241

Inventory
(15,612
)
 
(3,286
)
Other assets
1,441

 
3,374

Accounts payable
14,848

 
1,029

Accrued liabilities
21,695

 
7,248

Operating lease liabilities
(1,459
)
 

Deferred rent
69

 
(268
)
Origination of loans held for sale
(49,850
)
 
(9,477
)
Proceeds from sale of loans originated as held for sale
39,015

 
9,887

Net cash used in operating activities
(47,157
)
 
(20,492
)
Investing activities
 
 
 
Purchases of property and equipment
(3,151
)
 
(2,305
)
Net cash used in investing activities
(3,151
)
 
(2,305
)
Financing activities
 
 
 
Proceeds from the exercise of stock options
3,732

 
5,946

Tax payment related to net share settlements on restricted stock units
(818
)
 
(59
)
Borrowings from warehouse credit facilities
48,557

 
9,265

Repayments of warehouse credit facilities
(38,097
)
 
(9,924
)
Other payables - deposits held in escrow
3,968

 
6,808

Net cash provided by financing activities
17,342

 
12,036

Net change in cash, cash equivalents, and restricted cash
(32,966
)
 
(10,761
)
Cash, cash equivalents, and restricted cash
 
 
 
Beginning of period
439,055

 
212,658

End of period
$
406,089

 
$
201,897

Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
$
1,202

 
$

    Non-cash transactions
 
 
 
Stock-based compensation capitalized in property and equipment
(270
)
 
(124
)
Property and equipment additions in accounts payable and accrued liabilities
(1,370
)
 
(55
)
Leasehold improvements paid directly by lessor
1,963

 


The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

Redfin Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts, unaudited)
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total Stockholders' Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2017
81,468,891

 
$
81

 
$
364,352

 
$
(129,003
)
 
$
235,430

Issuance of common stock pursuant to exercise of stock options

1,198,732

 
2

 
6,000

 

 
6,002

Issuance of common stock pursuant to settlement of restricted stock units
7,532

 

 

 

 

Common stock surrendered for employees' tax liability upon settlement of restricted stock units
(2,563
)
 

 
(58
)
 

 
(58
)
Stock-based compensation

 

 
4,320

 

 
4,320

Net loss

 

 

 
(36,439
)
 
(36,439
)
Balance, March 31, 2018
82,672,592

 
$
83

 
$
374,614

 
$
(165,442
)
 
$
209,255

 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
90,151,341

 
$
90

 
$
542,829

 
$
(170,981
)
 
$
371,938

Issuance of common stock pursuant to exercise of stock options

679,495

 
1

 
3,731

 

 
3,732

Issuance of common stock pursuant to settlement of restricted stock units
139,889

 

 

 

 

Common stock surrendered for employees' tax liability upon settlement of restricted stock units
(44,476
)
 

 
(818
)
 

 
(818
)
Stock-based compensation

 

 
6,676

 

 
6,676

Other comprehensive income

 

 

 
1

 
1

Net loss

 

 

 
(67,180
)
 
(67,180
)
Balance, March 31, 2019
90,926,249

 
$
91

 
$
552,418

 
$
(238,160
)
 
$
314,349


The accompanying notes are an integral part of these condensed consolidated financial statements.


4

Table of Contents

Index to Notes to Condensed Consolidated Financial Statements

 
 
 
Note 1:
Note 2:
Note 3:
Note 4:
Note 5:
Note 6:
Note 7:
Note 8:
Note 9:
Note 10:
Note 11:
Note 12:
Note 13:
Note 14:
Note 15:




5

Table of Contents

Notes to Condensed Consolidated Financial Statements
(in thousands, except for shares and per share amounts, unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation—The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All amounts are presented in thousands, except share and per share data.

The financial information as of December 31, 2018 is derived from the audited consolidated financial statements and notes for the year ended December 31, 2018 included in Item 8 in the Annual Report on Form 10-K (the “2018 Annual Report”) of Redfin Corporation (the "Company" or "Redfin"). The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the notes and management’s discussion and analysis of the consolidated financial statements included in the 2018 Annual Report.

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of March 31, 2019, the statements of comprehensive loss, cash flows, and stockholders' equity for the three months ended March 31, 2019 and 2018. The results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any interim period or for any other future year.

Principles of Consolidation—The unaudited condensed consolidated interim financial statements include the accounts of Redfin and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.

Use of EstimatesThe preparation of consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the respective periods. The Company evaluates its estimates on an ongoing basis. During the three months ended March 31, 2019, the estimated useful life of capitalized software for internal use was updated from one to two years. This change in estimate was not material. In addition, with the adoption of Accounting Standards Codification Topic 842, Leases ("ASC 842" or "Topic 842"), the Company estimated its incremental borrowing rate for the determination of the present value of lease payments. Further description of the impact of this pronouncement is included in Note 6: Leases. The amounts ultimately realized from the affected assets or liabilities will depend on, among other factors, general business conditions and could differ materially in the near term from the carrying amounts reflected in the consolidated financial statements.

Recently Adopted Accounting Pronouncements—In January 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the optional alternative transition method under ASU 2018-11, Leases (Topic 842) Targeted Improvements. The optional alternative transition method applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company evaluated its portfolio of leases and determined a cumulative-effect adjustment to the opening balance of retained earnings was not needed, as the portfolio of leases contains only operating leases.

The Company elected the package of practical expedients permitted under the transition guidance within the standard, allowing the Company to carry forward the historical lease classification, carry forward the conclusions on whether current or expired contracts contain leases, and carry forward the accounting for initial direct costs for existing leases. Additionally, the Company elected the practical expedient for use of hindsight to determine the lease term for existing leases whereby it evaluated the performance of existing leases in relation to our leasing strategy and determined that most renewal options would not be reasonably certain to be exercised. This resulted in the shortening of lease terms for the existing leases.

Adoption of the standard resulted in the recording of right of use assets and corresponding lease

6


liabilities of $33,953 and $49,395, respectively, as of January 1, 2019, the difference of which is due to lease incentives. Further description of the impact of this pronouncement is included in Note 6: Leases.

In January 2019, the Company adopted the guidance in the U.S. Securities and Exchange Commission (the "SEC") final rule under SEC Release No. 33-10532, Disclosure Update and Simplification. In August 2018, the SEC issued the final rule amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed.

Recently Issued Accounting PronouncementsIn August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.

In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The ASU is effective for public entities for fiscal years beginning after December 15, 2019. The Company has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.

Note 2: Segment Reporting and Revenue

In its operation of the business, the Company's management, including its chief operating decision maker, who is also the Chief Executive Officer, evaluates the performance of the Company’s operating segments based on revenue and gross profit. The Company does not analyze discrete segment balance sheet information related to long-term assets, all of which are located in the United States. All other financial information is presented on a consolidated basis. The Company has five operating segments and two reportable segments, real estate services and properties.

Revenue is primarily generated from commissions and fees charged on each real estate services transaction completed by the Company or its partner agents, and proceeds from the sales of homes. The Company’s key revenue components are brokerage revenue, partner revenue, properties revenue, and other revenue. Revenue earned but not received is recorded as accrued revenue on the Company's consolidated balance sheets, net of an allowance for doubtful accounts. Accrued revenue, consisting of commission revenue, is known and is clearing escrow, and therefore it is not estimated.

Information on each of the reportable and other segments and reconciliation to consolidated net loss is as follows:

7


 
Three Months Ended March 31,
 
2019
 
2018
Real estate services
 
 
 
Brokerage revenue
$
81,314

 
$
70,143

Partner revenue
4,576

 
4,781

Total real estate services revenue
85,890

 
74,924

Cost of revenue
80,784

 
68,164

Gross profit
5,106

 
6,760

Properties
 
 
 
Revenue
21,373

 
3,052

Cost of revenue
22,993

 
3,342

Gross profit
(1,620
)
 
(290
)
Other
 
 
 
Revenue
3,047

 
1,917

Cost of revenue
3,780

 
2,691

Gross profit
(733
)
 
(774
)
Intercompany eliminations
 
 
 
Revenue
(169
)
 

Cost of revenue
(169
)
 

Gross profit

 

Consolidated
 
 
 
Revenue
110,141

 
79,893

Cost of revenue
107,388

 
74,197

Gross profit
2,753

 
5,696

Operating expenses
70,205

 
42,870

      Interest income
2,316

 
577

      Interest expense
(2,136
)
 

      Other income, net
92

 
158

Net loss
$
(67,180
)
 
$
(36,439
)

The following table presents the detail of accrued revenue for the periods presented:

 
Three Months Ended March 31,
 
2019
 
2018
Accrued revenue
$
16,481

 
$
12,232

Less: Allowance for doubtful accounts
(228
)
 
(139
)
Accrued revenue, net
$
16,253

 
$
12,093



The following table presents the activity in the allowance for doubtful accounts for the period presented:

 
Three Months Ended March 31,
 
2019
 
2018
Balance, beginning of period
$
166

 
$
160

Charges
74

 
(19
)
Write-offs
(12
)
 
(2
)
Balance, end of period
$
228

 
$
139


Note 3: Fair Value of Financial Instruments

A summary of assets and (liabilities) at March 31, 2019 and December 31, 2018, related to the Company's financial instruments, measured at fair value on a recurring basis, is set forth below:

8


 
 
 
 
 
 
Fair Value
Financial Instrument
 
Balance sheet location
 
Fair Value Hierarchy
 
March 31, 2019
 
December 31, 2018
Money market funds
 
Cash and cash equivalents
 
Level 1
 
$
375,259

 
$
425,776

Forward sales commitments
 
Prepaid expenses and other current assets
 
Level 2
 
16

 

Forward sales commitments
 
Accrued liabilities
 
Level 2
 
(401
)
 
(141
)
Loans held for sale
 
Prepaid expenses and other current assets
 
Level 2
 
15,748

 
4,913

Interest rate lock commitments
 
Prepaid expenses and other current assets
 
Level 3
 
715

 
254

Interest rate lock commitments
 
Accrued liabilities
 
Level 3
 
(16
)
 


The changes in the Level 3 financial instruments that are measured at fair value on a recurring basis were immaterial during the periods presented.

See Note 14: Debt for the carrying amount and estimated fair value of the Notes.

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets, cost method investments, and other assets. These assets are measured at fair value if determined to be impaired. For cost method investments, the Company did not record any significant nonrecurring fair value measurements after initial recognition for the period ended March 31, 2019.

Note 4: Inventory

 
March 31, 2019
 
December 31, 2018
Properties for sale
$
14,748

 
$
12,649

Properties not available for sale
1,920

 
2,328

Properties under improvement
21,638

 
7,717

Inventory
$
38,306

 
$
22,694

Inventory costs include direct property acquisition costs and any capitalized improvements, net of applicable lower of cost or net realizable value write-downs. As of March 31, 2019 and December 31, 2018, lower of cost or net realizable value write-downs were $100 and $190, respectively.
Properties not available for sale represent purchased properties that have been temporarily rented back to the previous homeowner, typically for less than 30 days. Both properties not available for sale and properties under improvement are expected to be sold in less than twelve months.

Note 5: Property and Equipment

A summary of property and equipment at March 31, 2019 and December 31, 2018 is as follows:
 
Useful Lives (Years)
 
March 31, 2019
 
December 31, 2018
Leasehold improvements
Shorter of lease term or economic life
 
$
23,005

 
$
19,285

Website and software development costs
2-3
 
21,766

 
19,948

Computer and office equipment
3
 
3,881

 
2,956

Software
3
 
595

 
595

Furniture
7
 
4,416

 
3,933

Property and equipment, gross
 
 
53,663

 
46,717

Accumulated depreciation and amortization
 
 
(23,045
)
 
(21,530
)
Property and equipment, net
 
 
$
30,618

 
$
25,187


Depreciation and amortization expense for property and equipment amounted to $1,515 and $1,881 for the three months ended March 31, 2019 and 2018, respectively.

9



Note 6: Leases

The extent of the Company’s lease commitments consist of operating leases for physical office locations with terms ranging from one to 11 years. The Company has accounted for the portfolio of operating leases by disaggregation based on nature and term of the lease. Generally, the leases require a fixed minimum rent with contractual minimum rent increases over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet, but rather lease expense from these leases is recognized on a straight-line basis over the lease term.

When available, the rate implicit in the lease to discount lease payments to present value would be used; however, none of the Company's significant leases as of March 31, 2019 provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate for each portfolio of leases to discount the lease payments based on information available at lease commencement.

The Company has evaluated the performance of existing leases in relation to its leasing strategy and determined that most renewal options would not be reasonably certain to be exercised.

The right of use asset and related lease liability is determined based on the lease component of the consideration in each lease contract. The Company has evaluated its lease portfolio for appropriate allocation of the consideration in the lease contracts between lease and nonlease components based on standalone prices and determined the allocation per the contracts to be appropriate.

Lease Cost
 
Classification
 
Three months ended March 31, 2019
Operating lease cost (a)
 
Cost of revenue
 
$
1,693

Operating lease cost (a)
 
G&A expenses
 
855

Total lease cost
 
 
 
$
2,548

(a) Includes lease expense of $821 for leases with initial terms of 12 months or less.
Maturity of Lease Liabilities
 
Operating Leases
2019, excluding the three months ended March 31, 2019
 
$
7,932

2020
 
11,919

2021
 
11,408

2022
 
10,635

2023
 
9,678

Thereafter
 
21,255

Total lease payments
 
$
72,827

Less: Interest
 
(24,892
)
Present value of lease liabilities
 
$
47,935


Lease Term and Discount Rate
 
March 31, 2019
Weighted average remaining operating lease term (years)
 
7.1

Weighted average discount rate for operating leases
 
4.4
%

Supplemental Cash Flow Information
 
Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
  Operating cash flows from operating leases
 
$
1,975

Right of use assets obtained in exchange for lease liabilities
 
 
  Operating leases
 
$
33,953


Note 7: Commitments and Contingencies


10


Legal ProceedingsFrom time to time, the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of its business. Such litigation and other proceedings may include, but are not limited to, actions or claims relating to employment law (including misclassification), intellectual property, privacy and consumer protection, the Real Estate Settlement Procedures Act of 1974, the Fair Housing Act of 1968 or other fair housing statutes, cybersecurity incidents, data breaches or misappropriation, and commercial or contractual disputes. They may also relate to ordinary-course brokerage disputes, including, but not limited to, failure to disclose property defects, failure to meet client legal obligations, commission disputes, personal injury or property damage claims, and vicarious liability based upon conduct of individuals or entities outside of the Company's control, including partner agents and third-party contractor agents. The Company does not believe that any of its pending litigation, claims, and other proceedings is material to its business.

Facility Leases and Other Commitments—The Company leases its office space under noncancelable operating leases with terms ranging from one to 11 years. Generally, the leases require a fixed minimum rent with contractual minimum rent increases over the lease term, and certain leases include escalation provisions. Other commitments primarily relate to homes that the Company is under contract to purchase through its properties segment but that have not closed, and network infrastructure for the Company’s data operations. Future minimum payments due under these agreements as of March 31, 2019 are as follows:
 
March 31, 2019
 
Facility Leases
 
Other Commitments
2019
$
7,932

 
$
31,821

2020
11,919

 
2,412

2021
11,408

 
701

2022
10,635

 
1,138

2023 and thereafter
30,933

 

Total minimum lease payments
$
72,827

 
$
36,072


Warehouse Credit FacilitiesIn December 2016, Redfin Mortgage entered into a Mortgage Warehouse Agreement with Texas Capital Bank, National Association (“Texas Capital”), which was amended and restated in December 2017 and further amended on March 19, 2019. The Mortgage Warehouse Agreement expires on April 21, 2019. In April 2019, Redfin Mortgage and Texas Capital extended the Warehouse Agreement, as further described in Note 15: Subsequent Events. The Mortgage Warehouse Agreement requires Redfin Mortgage to maintain certain financial covenants and to provide periodic financial and compliance reports. Redfin Mortgage failed to satisfy a financial covenant contained in the Mortgage Warehouse Agreement as of March 31, 2019, but Texas Capital has not enforced its remedies under the agreement, which principally include the rights to (i) cease purchasing participation interests in loans from Redfin Mortgage and (ii) sell all interests of Texas Capital or Redfin Mortgage in any loan subject to the agreement. As of March 31, 2019 and December 31, 2018, there were $6,819 and $3,592, respectively, outstanding under the Mortgage Warehouse Agreement.

In June 2017, Redfin Mortgage entered into a Master Repurchase Agreement with Western Alliance Bank ("Western Alliance"), which was amended in September 2018. The Master Repurchase Agreement will expire on June 15, 2019. The Master Repurchase Agreement requires Redfin Mortgage to maintain certain financial covenants and to provide periodic financial and compliance reports. Redfin Mortgage failed to satisfy a financial covenant contained in the Master Repurchase Agreement as of March 31, 2019, but Western Alliance has not enforced its remedy under the agreement of requiring Redfin Mortgage to repurchase all outstanding loans held by Western Alliance. As of March 31, 2019 and December 31, 2018, there were $8,374 and $1,141, respectively, outstanding on the Master Repurchase Agreement.

Note 8: Acquired Intangible Assets

The following table presents details of the Company's intangible assets subject to amortization as of the dates presented:

11


 
 
 
March 31, 2019
 
December 31, 2018
 
Useful
Lives
(years)
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Trade names
10
 
$
1,040

 
$
(468
)
 
$
572

 
$
1,040

 
$
(442
)
 
$
598

Developed technology
10
 
2,980

 
(1,341
)
 
1,639

 
2,980

 
(1,266
)
 
1,714

Customer relationships
10
 
860

 
(387
)
 
473

 
860

 
(366
)
 
494

 
 
 
$
4,880

 
$
(2,196
)
 
$
2,684

 
$
4,880

 
$
(2,074
)
 
$
2,806


Acquired intangible assets are amortized using the straight-line method over their estimated useful life, which approximates the expected use of these assets. Amortization expense amounted to $122 for each of the three months ended March 31, 2019 and 2018. Amortization expense of $2,440 will be recognized over the next five years, or $488 per year.

Note 9: Accrued Liabilities

The following table presents the detail of accrued liabilities as of the dates presented:
 
March 31, 2019
 
December 31, 2018
Accrued compensation and benefits
$
33,774

 
$
22,862

Miscellaneous accrued liabilities
20,290

 
7,975

Total accrued liabilities
$
54,064

 
$
30,837


The increase in miscellaneous accrued liabilities since December 31, 2018 was driven primarily by an increase in marketing activity during the quarter ended March 31, 2019, which was a result of increased marketing spend and timing of those expenses.

Note 10: Other Payables

Other payables consists primarily of customer deposits for cash held in escrow on behalf of real estate buyers using TItle Forward, the Company's wholly owned title and settlement services subsidiary. Since the Company does not have rights to the cash, the customer deposits are recorded as a liability with a corresponding asset in the same amount recorded within restricted cash. The following table presents the detail of other payables as of the dates presented:
 
March 31, 2019
 
December 31, 2018
Customer deposits
$
10,194

 
$
6,226

Miscellaneous payables
180

 
318

Total other payables
$
10,374

 
$
6,544


Note 11: Equity and Employee Stock Plans

Common Stock—At March 31, 2019 and December 31, 2018, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share.

2017 Equity Incentive PlanThe Company's 2017 Equity Incentive Plan ("2017 EIP") became effective on July 26, 2017, and provides for the issuance of incentive and nonqualified common stock options and restricted stock units to employees, directors, officers, and consultants of the Company. The number of shares of common stock initially reserved for issuance under the 2017 EIP was 7,898,159. The number of shares reserved for issuance under the 2017 EIP will increase automatically on January 1 of each calendar year beginning on January 1, 2018, and continuing through January 1, 2028, by the number of shares equal to the lesser of 5% of the total outstanding shares of the Company's common stock as of the immediately preceding December 31 or an amount determined by the board of directors.

Amended and Restated 2004 Equity Incentive Plan-The Company granted options under its 2004 Equity Incentive Plan, as amended ("2004 Plan"), until July 26, 2017, when the plan was terminated in

12


connection with the Company’s IPO. Accordingly, no shares are available for future issuance under this plan. The 2004 Plan continues to govern outstanding equity awards granted thereunder.

2017 Employee Stock Purchase Plan—The Company initially reserved 1,600,000 shares of common stock for issuance under the 2017 Employee Stock Purchase Plan (the "2017 ESPP"). The number of shares reserved for issuance under the 2017 ESPP will increase automatically on January 1 of each calendar year beginning after the first offering date and continuing through January 1, 2028, by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 or an amount determined by the board of directors.

The Company has reserved shares of common stock, on an as-converted basis, for future issuance as follows:
 
March 31, 2019
 
December 31, 2018
Equity Incentive Plans
 
 
 
Stock options outstanding
8,713,162

 
9,435,349

Restricted stock units outstanding
3,588,275

 
3,264,702

Shares available for future equity grants
9,199,286

 
5,068,013

Total
21,500,723

 
17,768,064

2017 Employee Stock Purchase Plan
 
 
 
Shares available for purchase on January 1, 2019 and 2018, respectively
2,890,973

 
2,414,688

Shares issued since January 1, 2019 and 2018, respectively

 
425,228

Total shares available for future purchases
2,890,973

 
1,989,460


Preferred StockAs of March 31, 2019 and December 31, 2018, the Company was authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001, of which no shares were issued and outstanding.

Stock Options—The following table summarizes activity for stock options for the three months ended March 31, 2019:

 

Number Of Options
 
Weighted- Average Exercise Price
 
Weighted-Average Remaining Contractual Life (years)
 

Aggregate Intrinsic Value
Outstanding at December 31, 2018
9,435,349
 
$
6.48

 
6.06
 
$
74,669

Options exercised
(679,495)
 
5.49

 
 
 
 
Options forfeited
(40,550)
 
9.15

 
 
 
 
Options canceled
(2,142)
 
8.35

 
 
 
 
Outstanding at March 31, 2019
8,713,162
 
6.55

 
6.00
 
119,575

Options exercisable at March 31, 2019
7,258,130
 
$
6.01

 
5.69
 
$
103,486


The grant date fair value of options to purchase common stock is recorded as stock-based compensation over the vesting period. As of March 31, 2019, there was $6,174 of total unrecognized compensation cost related to options to purchase common stock, which is expected to be recognized over a weighted-average period of 1.40 years.

Restricted Stock Units—The following table summarizes activity for restricted stock units for the three months ended March 31, 2019:

13


 
Restricted Stock Units
 
Weighted Average Grant-Date Fair Value
Unvested outstanding at December 31, 2018
3,264,702

 
$
19.68

Granted
569,915

 
19.61

Vested
(139,889
)
 
20.99

Forfeited or canceled
(106,453
)
 
19.48

Unvested outstanding at March 31, 2019
3,588,275

 
$
19.62


The grant date fair value of restricted stock units is recorded as stock-based compensation over the vesting period. As of March 31, 2019, there was $64,843 of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted-average period of 3.29 years.

During the three months ended March 31, 2019, the Company granted no restricted stock units subject to performance conditions. As of March 31, 2019, there were outstanding 134,602 restricted stock units subject to performance conditions (the "2018 Performance RSUs") at 100% of the target level. For the three months ended March 31, 2019, $278 of share-based compensation expense was recognized for the 2018 Performance RSUs.

Compensation Cost—The following table presents detail of stock-based compensation, net of the amount capitalized in internally developed software, included in the Company’s condensed consolidated statements of operations for the periods indicated below
 
Three Months Ended March 31,
 
2019
 
2018
Cost of revenue
$
1,465

 
$
1,300

Technology and development
2,656

 
1,473

Marketing
286

 
119

General and administrative
1,999

 
1,304

Total stock-based compensation
$
6,406

 
$
4,196


Note 12: Net Loss per Share Attributable to Common Stock

Net loss per share attributable to common stock is computed by dividing the net loss attributable to common stock by the weighted-average number of common shares outstanding. The Company has outstanding stock options, restricted stock units, options to purchase shares under its employee stock purchase plan, and convertible senior notes, which are considered in the calculation of diluted net income (loss) attributable to common stock per share whenever doing so would be dilutive.

The following table sets forth the calculation of basic and diluted net loss per share attributable to common stock during the periods presented:
 
Three Months Ended March 31,
 
2019
 
2018
Numerator
 
 
 
Net loss
$
(67,180
)
 
$
(36,439
)
Denominator
 
 
 
Weighted average shares - basic and diluted
90,610,416

 
82,010,913

Net loss per share
 
 
 
Net loss per share - basic and diluted
$
(0.74
)
 
$
(0.44
)

The following outstanding shares of common stock equivalents as of March 31, 2019 and 2018 were excluded from the computation of the diluted net loss per share attributable to common stock for the periods presented because their effect would have been anti-dilutive:

14


 
Three Months Ended March 31,
 
2019
 
2018
Stock options
8,713,162

 
11,821,024

Restricted stock units
3,588,275

 
1,152,718

Employee stock purchase plan
290,647

 
156,530

Total
12,592,084

 
13,130,272


There is no impact from the Convertible Senior Notes due 2023 (the "Notes") on its diluted net loss per share for the three months ended March 31, 2019 as the notes are accounted for based on the treasury stock method as the Company has the ability, and intent, to settle any conversions of the Notes solely in cash.

Note 13: Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2019 and 2018 was 0% as a result of the Company recording a full valuation allowance against the deferred tax assets.

In determining the realizability of the net U.S. federal and state deferred tax assets, the Company considers numerous factors including historical profitability, estimated future taxable income, prudent and feasible tax planning strategies and the industry in which it operates. Management reassesses the realization of the deferred tax assets each reporting period, which resulted in a valuation allowance against the full amount of the Company’s U.S. deferred tax assets for the three months ended March 31, 2019 and 2018. To the extent that the financial results of the U.S. operations improve in the future and the deferred tax assets become realizable, the Company will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company's ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Any such annual limitation may significantly reduce the utilization of the net operating losses before they expire. A Section 382 limitation study performed as of March 31, 2017 determined there was an ownership change in 2006 and $1,538 of the 2006 net operating loss is unavailable.

As of December 31, 2018, the Company had accumulated approximately $125,850 of federal tax losses, approximately $6,180 (tax effected) of state tax losses. Federal net operating losses are available to offset federal taxable income and begin to expire in 2025. Federal net operating loss carryforwards of $39,365 generated during 2018 are available to offset future U.S. federal taxable income over an indefinite period.

The Company’s material income tax jurisdiction is the United States (federal). As a result of net operating loss carryforwards, the Company is subject to audit for tax years 2005 and forward for federal purposes. There are tax years which remain subject to examination in various other jurisdictions that are not material to the Company’s financial statements.

Note 14: Debt

Convertible Senior NotesOn July 23, 2018, the Company issued $143,750 aggregate principal amount of Notes.The Notes are senior, unsecured obligations of Redfin, and bear interest at a fixed rate of 1.75% per year, payable semi-annually in arrears on January 15 and July 15. The Notes mature on July 15, 2023, unless earlier repurchased, redeemed or converted. As of March 31, 2019, no conversion events have occurred. Redfin will settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election. The Company has the ability, and intends, to settle any conversions solely in cash.

The Notes consisted of the following:

15


 
March 31, 2019
 
December 31, 2018
Principal
$
143,750

 
$
143,750

  Less: debt discount, net of amortization
(25,307
)
 
(26,636
)
  Less: debt issuance costs, net of amortization
(3,349
)
 
(3,528
)
    Net carrying amount of the Notes
$
115,094

 
$
113,586


The total estimated fair value of the Notes as of March 31, 2019 and December 31, 2018 was approximately $138,998 and $117,875, respectively, based on the closing trading price of the Notes on last day of trading for the period. The fair value has been classified as Level 2 within the fair value hierarchy given the limited trading activity of the Notes.

The following table sets forth total interest expense recognized related to the Notes for the period presented:
 
Three months ended March 31, 2019
Amortization of debt discount
$
1,329

Amortization of debt issuance costs
178

  Total amortization of debt issuance costs and accretion of equity portion
1,507

Contractual interest expense
629

  Total interest expense related to the Notes
$
2,136

 
 
Effective interest rate of the liability component
7.25
%

Note 15: Subsequent Events

In April 2019, Redfin Mortgage and Texas Capital extended the expiration date of their Mortgage Warehouse Agreement to May 12, 2019. On May 7, 2019, Redfin Mortgage and Texas Capital amended and restated their Mortgage Warehouse Agreement. Pursuant to the new Mortgage Warehouse Agreement, Texas Capital agrees to fund loans originated by Redfin Mortgage, in its discretion, up to $15,000 and to take a security interest in such loans. The per annum interest rate payable to Texas Capital is a fixed rate equal to the rate of interest accruing on the outstanding principal balance of the loan, minus 0.5%, or 3.5%, whichever is higher. For each loan in which Texas Capital elects to purchase a participation interest, it will acquire an undivided 99% participation interest, by paying as the purchase price an amount equal to the participation interest multiplied by the principal balance of the loan. If a loan is not sold to a correspondent lender, Texas Capital's participation interests in the loans will be repurchased in whole or in part by Redfin Mortgage. Redfin Corporation has guaranteed Redfin Mortgage’s obligations under the Mortgage Warehouse Agreement. The Mortgage Warehouse Agreement requires Redfin Mortgage to maintain certain financial covenants and to provide periodic financial and compliance reports.


16

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018. 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.

Prior to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, we had one reportable segment ("Real estate") that reflected revenue derived from commissions and fees charged on real estate services transactions closed by us or partner agents representing customers in buying and selling homes. Beginning with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, we recognized a new reportable segment ("Properties") that reflects revenue from when we sell homes that we previously bought directly from homeowners. Concurrent with our recognition of the new "Properties" segment, we changed the name of our "Real estate" segment to "Real estate services." Prior to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, we included the results from our "Properties" segment as part of our "Other" segment. We have separated our "Properties" segment results from "Other" segment results for all periods presented.

Overview

We help people buy and sell homes. Our primary business is a residential real estate brokerage, representing customers in over 90 markets throughout the United States and Canada. 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.

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.


17

Table of Contents

 
Three Months Ended
 
Mar. 31, 2019
 
Dec. 31, 2018
 
Sep. 30, 2018
 
Jun. 30, 2018
 
Mar. 31, 2018
 
Dec. 31, 2017
 
Sep. 30, 2017
 
Jun. 30, 2017
 
Mar. 31, 2017
Monthly average visitors (in thousands)
31,107

 
25,212

 
29,236

 
28,777

 
25,820

 
21,377

 
24,518

 
24,400

 
20,162

Real estate services transactions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokerage
8,435

 
9,822

 
12,876

 
12,971

 
7,285

 
8,598

 
10,527

 
10,221

 
5,692

Partner
2,125

 
2,749

 
3,333

 
3,289

 
2,237

 
2,739

 
3,101

 
2,874

 
2,041

Total
10,560

 
12,571

 
16,209

 
16,260

 
9,522

 
11,337

 
13,628

 
13,095

 
7,733

Real estate services revenue per transaction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokerage
$
9,640

 
$
9,569

 
$
9,227

 
$
9,510

 
$
9,628

 
$
9,659

 
$
9,289

 
$
9,301

 
$
9,570

Partner
2,153

 
2,232

 
2,237

 
2,281

 
2,137

 
2,056

 
1,960

 
1,945

 
1,911

Aggregate
8,134

 
7,964

 
7,790

 
8,048

 
7,869

 
7,822

 
7,621

 
7,687

 
7,548

Aggregate home value of real estate services transactions (in millions)
$
4,800

 
$
5,825

 
$
7,653

 
$
7,910

 
$
4,424

 
$
5,350

 
$
6,341

 
$
6,119

 
$
3,470

U.S. market share by value
0.83
%
 
0.81
%
 
0.85
%
 
0.83
%
 
0.73
%
 
0.71
%
 
0.71
%
 
0.64
%
 
0.58
%
Revenue from top-10 Redfin markets as a percentage of real estate services revenue
64
%
 
66
%
 
66
%
 
68
%
 
66
%
 
69
%
 
69
%
 
69
%
 
68
%
Average number of lead agents
1,503

 
1,419

 
1,397

 
1,415

 
1,327

 
1,118

 
1,028

 
1,010

 
935



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, and seasonality. 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 application for each of the months in that period, as measured by Google Analytics, a product that provides digital marketing intelligence. Visitors are tracked by Google Analytics 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 or either our iOS or Android mobile application during that month; each such unique cookie is a unique visitor. If a person accesses our mobile application using different devices within a given month, each such mobile device is counted as a separate visitor for that month. If the same person accesses our website using an anonymous browser, or clears or resets cookies on his or her device, each access with a new cookie is counted as a new unique visitor for that month. In some instances involving our mobile website, it is possible that third-party technological limitations may cause Google Analytics to count a person as a unique visitor when he or she is not.

Real Estate Services Transactions
Increasing the number of real estate services transactions in which we or our partner agents represent homebuyers and home sellers 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. We include a single transaction twice when we or our partner agents serve both the homebuyer and the home seller of a transaction.

Real Estate Services Revenue per Transaction

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Table of Contents

Real estate services revenue per transaction, together with the number of real estate services transactions, is a factor in evaluating business growth and determining pricing. 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.
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 more of our brokerage transactions come from home sellers.
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.

Aggregate Home Value of Real Estate Services Transactions
The aggregate home value of real estate services transactions completed by our lead agents and of the real estate services transactions we refer to partner agents 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 include the value of a single transaction twice when we or our partner agents serve both the homebuyer and home seller of a 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 of U.S. home sales by multiplying the total number of U.S. home sales by the mean sale price of these sales, each as reported by the National Association of Realtors. We calculate our market share by aggregating the home value of real estate services transactions conducted by our lead agents or our partner agents. 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 of U.S. home sales.

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 of Boston, Chicago, Denver (including Boulder and Colorado Springs), Los Angeles (including Santa Barbara), Maryland, Northern Virginia, Portland (including Bend), San Diego, San Francisco, and Seattle. 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.
Components of Our Results of Operations

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Table of Contents


Revenue
We generate revenue primarily from commissions and fees charged on real estate services transactions closed by our lead agents or partner agents.
Real Estate Services Revenue
Brokerage RevenueBrokerage revenue consists of commissions earned on real estate services transactions closed by our lead agents. We recognize commission-based revenue on the closing of a transaction, less the amount of any commission refund or any closing-cost reduction, commission discount, or transaction-fee adjustment. Brokerage revenue is affected by the number of real estate services transactions we close, the mix of brokerage transactions, home-sale prices, commission rates, and the amount we give to customers.
Partner RevenuePartner revenue consists of fees partner agents pay us when they close referred transactions, less the amount of any payments we make to customers. 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 give 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 is earned when we sell homes that we previously bought directly from homeowners. Properties revenue is recorded at closing on a gross basis, representing the sales price of the home. RedfinNow is our primary properties offering.
Other Revenue
Other services revenue includes fees earned from mortgage banking services, title settlement services, Walk Score data services, and advertising.

Intercompany Eliminations

Intercompany eliminations represents revenue earned from transactions between operating segments which we eliminate in consolidating our financial statements. This primarily consists 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, property costs related to our properties segment, office and occupancy expenses, and depreciation and amortization related to fixed assets and acquired intangible assets. Property costs related to our properties segment include the property purchase price, capitalized improvements, selling expenses directly attributable to the transaction, and property 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 cost of homes.

Operating Expenses

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Table of Contents

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 consist primarily of personnel costs including stock-based compensation, data-license expenses, software costs, and equipment and infrastructure costs, such as for data centers and hosted services. Technology and development expenses also include amortization of capitalized internal-use software and website and mobile application development costs.
Marketing
Marketing expenses consist primarily of media costs for online and offline advertising, as well as personnel costs including stock-based compensation. We expect to increase offline advertising media costs to approximately $35 million to $45 million in 2019, compared to around $12 million in 2018.
General and Administrative
General and administrative expenses consist primarily of personnel costs including 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.
Interest Income
Interest income consists primarily of interest earned on our cash and cash equivalents.
Interest Expense
Interest expense consists of interest payable on our convertible senior notes. Interest is payable on the notes at the rate of 1.75% semiannually in arrears on January 15 and July 15, commencing on January 15, 2019. Interest expense also includes the amortization of debt discount and issuance costs related to the notes.
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,
 
2019
 
2018
 
(in thousands)
Revenue
$
110,141

 
$
79,893

Cost of revenue(1)
107,388

 
74,197

Gross profit
2,753

 
5,696

Operating expenses
 
 
 
Technology and development(1)
15,556

 
12,762

Marketing(1)
33,201

 
13,336

General and administrative(1)
21,448

 
16,772

Total operating expenses
70,205

 
42,870

Loss from operations
(67,452
)
 
(37,174
)
Interest income
2,316

 
577

Interest expense
(2,136
)
 

Other income, net
92

 
158

Net loss
$
(67,180
)
 
$
(36,439
)

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(1) Includes stock-based compensation as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands)
Cost of revenue
$
1,465

 
$
1,300

Technology and development
2,656

 
1,473

Marketing
286

 
119

General and administrative
1,999

 
1,304

Total
$
6,406

 
$
4,196


 
Three Months Ended March 31,
 
2019
 
2018
 
(as a percentage of revenue)
Revenue
100.0
 %
 
100.0
 %
Cost of revenue(1)
97.5

 
92.9

Gross profit
2.5

 
7.1

Operating expenses
 
 
 
Technology and development(1) 
14.1

 
16.0

Marketing(1)
30.1

 
16.7

General and administrative(1) 
19.5

 
21.0

Total operating expenses
63.7

 
53.7

Loss from operations
(61.2
)
 
(46.6
)
Interest income
2.1

 
0.7

Interest expense
(1.9
)
 
0.0

Other income, net
0.1

 
0.2

Net loss
(60.9
)%
 
(45.7
)%
(1) Includes stock-based compensation as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
(as a percentage of revenue)
Cost of revenue
1.3
%
 
1.6
%
Technology and development
2.4

 
1.9

Marketing
0.3

 
0.1

General and administrative
1.8

 
1.7

Total
5.8
%
 
5.3
%

Comparison of the Three Months Ended March 31, 2019 and 2018
Revenue

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Three Months Ended March 31,
 
Change
 
2019
 
2018
 
Dollars
 
Percentage
 
(in thousands, except percentages)
Real estate services revenue
 
 
 
 
 
 
 
Brokerage revenue
$
81,314

 
$
70,143

 
$
11,171

 
16
 %
Partner revenue
4,576

 
4,781

 
(205
)
 
(4
)
Total real estate services revenue
85,890

 
74,924

 
10,966

 
15

Properties revenue
21,373

 
3,052

 
18,321

 
600

Other revenue
3,047

 
1,917

 
1,130

 
59

Intercompany elimination
(169
)
 

 
(169
)
 
N/A

Total revenue
$
110,141

 
$
79,893

 
$
30,248

 
38

Percentage of revenue
 
 
 
 
 
 
 
Real estate services revenue
 
 
 
 
 
 
 
Brokerage
73.8
 %
 
87.8
%
 
 
 
 
Partner revenue
4.2

 
6.0

 
 
 
 
Total real estate services revenue
78.0

 
93.8

 
 
 
 
Properties revenue
19.4

 
3.8

 
 
 
 
Other revenue
2.8

 
2.4

 
 
 
 
Intercompany elimination
(0.2
)
 
0.0

 
 
 
 
Total revenue
100.0
 %
 
100.0
%
 
 
 
 

In the three months ended March 31, 2019, revenue increased by $30.2 million, or 38%, as compared with the same period in 2018. Brokerage revenue represented $11.2 million, or 37%, of the increase. Brokerage revenue grew 16% during the period, driven by a 16% increase in brokerage transactions and a 0.1% increase in real estate services revenue per transaction. We believe this increase in brokerage transactions was attributable to higher levels of customer awareness of Redfin and increasing customer demand. Properties revenue grew $18.3 million, or 600% as compared with 2018, driven by a greater market presence and consumer awareness of RedfinNow, which resulted in a 438% increase in the number of properties sold.
Cost of Revenue and Gross Margin
 
Three Months Ended March 31,
 
Change
 
2019
 
2018
 
Dollars
 
Percentage
 
(in thousands, except percentages)
Cost of revenue
 
 
 
 
 
 
 
Real estate services
$
80,784

 
$
68,164

 
$
12,620

 
19
 %
Properties
22,993

 
3,342

 
19,651

 
588

Other
3,780

 
2,691

 
1,089

 
40

Intercompany elimination
$
(169
)
 
$

 
(169
)
 
N/A

Total cost of revenue
$
107,388

 
$
74,197

 
$
33,191

 
45

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
Real estate services
$
5,106

 
$
6,760

 
$
(1,654
)
 
(24
)%
Properties
(1,620
)
 
(290
)
 
(1,330
)
 
459

Other
(733
)
 
(774
)
 
41

 
5

Total gross profit
$
2,753

 
$
5,696

 
$
(2,943
)
 
(52
)
 
 
 
 
 
 
 
 
Gross margin (percentage of revenue)
 
 
 
 
 
 
 
Real estate services
5.9
 %
 
9.0
 %
 

 
 
Properties
(7.6
)
 
(9.5
)
 

 
 
Other
(24.0
)
 
(40.4
)
 

 
 
Total gross margin
2.5

 
7.1

 

 
 

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In the three months ended March 31, 2019, total cost of revenue increased by $33.2 million, or 45%, as compared with the same period in 2018. This increase in cost of revenue was primarily attributable to a $17.3 million increase in cost of properties due to selling more homes by our properties business, a $7.2 million increase in personnel costs including stock-based compensation due to increased headcount, a $2.8 million increase in home-touring and field costs from serving more brokerage customers, and a $1.8 million increase in transaction bonuses from increased brokerage transactions.
Total gross margin decreased 460 basis points for the three months ended March 31, 2019, as compared with the same period in 2018, driven primarily by a decrease in real estate services gross margin and the relative growth of our properties business compared to our real estate services business, partially offset by improvements in properties and other gross margin.
Real estate services gross margin decreased 310 basis points for the three months ended March 31, 2019, as compared with the same period in 2018. This was primarily attributable to a 110 basis-point increase in home-touring and field costs, an 80 basis-point increases in personnel costs including stock-based compensation due to increased headcount, and a 60 basis-point increase in operating expenses, each as a percentage of revenue.
Properties gross margin increased 190 basis points for the three months ended March 31, 2019, as compared with the same period in 2018. This was primarily attributable to a 420 basis-point decrease in personnel costs including bonuses and stock-based compensation, as a percentage of revenue. This was partially offset by a 230 basis-point increase in the cost of homes purchased, as a percentage of revenue.
Other gross margin increased 1,640 basis points for the three months ended March 31, 2019, as compared with the same period in 2018. This was primarily attributable to an 760 basis-point decrease in personnel costs including stock-based compensation, a 510 basis-point decrease in operating expenses, a 260 basis-point decrease in depreciation and amortization, and a 100 basis-point decrease in office and occupancy expenses, each as a percentage of revenue.
Operating Expenses
 
Three Months Ended March 31,
 
Change
 
2019
 
2018
 
Dollars
 
Percentage
 
(in thousands, except percentages)
Technology and development
$
15,556

 
$
12,762

 
$
2,794

 
22
%
Marketing
33,201

 
13,336

 
19,865

 
149

General and administrative
21,448

 
16,772

 
4,676

 
28

Total operating expenses
$
70,205

 
$
42,870

 
$
27,335

 
64

Percentage of revenue
 
 
 
 
 
 
 
Technology and development
14.1
%
 
16.0
%
 


 
 
Marketing
30.1

 
16.7

 


 
 
General and administrative
19.5

 
21.0

 


 
 
Total operating expenses
63.7
%
 
53.7
%
 
 
 
 
In the three months ended March 31, 2019, technology and development expenses increased by $2.8 million, or 22%, as compared with the same period in 2018. The increase was primarily attributable to a $2.2 million increase in personnel costs including stock-based compensation due to increased headcount.
In the three months ended March 31, 2019, marketing expenses increased by $19.9 million, or 149%, as compared with the same period in 2018. The increase was attributable to a $19.1 million increase in marketing media costs as we expanded advertising.
In the three months ended March 31, 2019, general and administrative expenses increased by $4.7 million, or 28%, as compared with the same period in 2018. The increase was primarily attributable to a $2.1

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million increase in personnel costs including stock-based compensation, largely the result of increases in headcount to support continued growth, and a $1.3 million increase in corporate events costs.
Liquidity and Capital Resources
As of March 31, 2019, we had cash and cash equivalents of $395.6 million, which consist of operating cash on deposit with financial institutions and money market funds.

As we continue to expand our RedfinNow business, we expect to incur significant additional cash outlay compared to historical periods due to costs related to the business, such as the property purchase price, capitalized improvement costs, and property maintenance expenses. For the three months ended March 31, 2019, we relied on our cash on hand to fund these purchases.

In July 2018, we issued $143,750,000 aggregate principal amount of convertible senior notes. The notes mature on July 15, 2023, unless earlier repurchased, redeemed or converted, and interest is payable in arrears on January 15 and July 15 of each year, commencing on January 15, 2019.
We believe that our existing cash and cash equivalents, together with cash to be generated from future operations, will provide sufficient liquidity to meet our operational needs and fulfill our debt obligations. 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 elect to raise additional funds at any time 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 indicated:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands)
Net cash used in operating activities
$
(47,157
)
 
$
(20,492
)
Net cash used in investing activities
(3,151
)
 
(2,305
)
Net cash provided by financing activities
$
17,342

 
$
12,036


Net Cash Used In Operating Activities
Our operating cash flows result primarily from cash received from our real estate services 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, 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 $47.2 million for the three months ended March 31, 2019, primarily attributable to a net loss of $67.2 million, offset by $10.8 million of non-cash items related to stock based compensation, depreciation and amortization , amortization of debt discounts and issuance costs, and lease expense related to right-of-use assets. Changes in assets and liabilities decreased cash used in operating activities by $9.3 million driven primarily by a $36.7 million increase in accounts payable and accrued liabilities related to timing of marketing payments. This was partially offset by an increase of $15.6 million in inventory related to our properties business and a $10.8 million increase in loans held for sale related to our mortgage business.

Net cash used in operating activities was $20.5 million for the three months ended March 31, 2018, primarily attributable to a net loss of $36.4 million, offset by $6.2 million from non-cash items related stock based compensation and depreciation and amortization expenses. Changes in assets and liabilities

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decreased cash used in operating activities by $9.7 million driven primarily by a $7.2 million increase in accrued liabilities, which is net of a $1.8 million legal settlement, a $3.9 million decrease in prepaid expenses, and a $1.0 million increase in accounts payable, all primarily due to the timing of payments, a $1.2 million decrease in accrued revenue related to timing of real estate transactions, partially offset by an increase of $3.7 million in other current assets primarily driven by a net increase in home inventory related to our properties business.

Net Cash Used In Investing Activities
Our primary investing activities include the purchase of property and equipment, primarily related to capitalized software development expenses and leasehold improvements.
Net cash used in investing activities was $3.2 million for the three months ended March 31, 2019, primarily attributable to $1.5 million of capitalized software development expenses and $1.0 million related to equipment, furnishings, and leasehold improvements for new or expansion of existing office spaces.
Net cash used in investing activities was $2.3 million for the three months ended March 31, 2018, primarily attributable to $1.3 million of capitalized software development expenses and $0.6 million of leasehold improvements for office space.
Net Cash Provided By Financing Activities
Our primary financing activities have come from our initial public offering in August 2017, our follow-on offerings of common stock and convertible senior notes in July 2018, the exercise of stock options, and the issuance of shares under our employee stock purchase plan. Additionally, our mortgage business generates a significant amount financing cash flow activity due to borrowings from and repayments to our warehouse credit facilities.
Net cash provided by financing activities was $17.3 million for the three months ended March 31, 2019, primarily attributable to $10.5 million increase in our net mortgage warehouse credit facility borrowing and $3.7 million in proceeds from the exercise of stock options.
Net cash provided by financing activities was $12.0 million for the three months ended March 31, 2018, attributable to a $6.8 million increase in customer escrow deposits, which is offset in our restricted cash balance, and $5.9 million in proceeds from the exercise of stock options.
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 U.S. generally accepted accounting principles, or 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. Our critical accounting policies and estimates are described in Note 1 of our Annual Report on Form 10-K for the year ended December 31, 2018. There has been one material change to the critical accounting policies and estimates in Note 1 of our Annual Report, which is related to the adoption of ASC 842 as described in Note 1 and Note 6 to our condensed consolidated financial statements.
Recent Accounting Standards

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See Note 1 to our condensed consolidated financial statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

Item 3. Qualitative and Quantitative Disclosures About Market Risk.

Our primary operations are within the United States and in the first quarter of 2019 we launched limited operations in Canada. We are exposed to market risks in the ordinary course of our business. These risks primarily consist of fluctuations in interest rates.

Interest Rate Risk
The principal market risk we face is interest rate risk. We had cash and cash equivalents of $395.6 million and $432.6 million at March 31, 2019 and December 31, 2018, respectively. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes. Our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of securities, including U.S. government treasury and agency issues, bank certificates of deposit that are 100% Federal Deposit Insurance Corporation insured, and SEC-registered money market funds that consist of a minimum of $1 billion in assets and meet the above requirements. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents. Declines in interest rates, however, would reduce future investment income. A 100 basis-point decline in interest rates, occurring during and sustained throughout any of the periods presented, would not have been material.

Foreign Currency Exchange Risk
As our operations in Canada have been limited, and we do not maintain a significant balance of foreign currency, we do not currently face significant risk with respect to foreign currency exchange rates.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive and principal financial officers have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level described below.

Changes in Internal Control

In connection with the evaluation required by Rule 13a-15(d) under the Securities Exchange Act of 1934, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become

27

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inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


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PART II - OTHER INFORMATION

Item 1A. Risk Factors.

Except as discussed below, there have not been any material changes from the risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. You should carefully consider the risks described below, together with all other information in this Quarterly Report on Form 10-Q, before investing in any of our securities. The occurrence of any single risk or any combination of risks could materially and adversely affect our business, operating results, financial condition, liquidity, or competitive position, and consequently, the value of our securities. The material adverse effects include, but are not limited to, not growing our revenue or market share at the pace that they have grown historically or at all, our revenue and market share fluctuating on a quarterly and annual basis, an extension of our history of losses and a failure to become profitable, not achieving the revenue and net income (loss) guidance that we provide, and harm to our reputation and brand.

We may be unable to secure intellectual property protection for all of our technology and methodologies, enforce our intellectual property rights, or protect our other proprietary business information.

Our success and ability to compete depends in part on our intellectual property and our other proprietary business information. To protect our proprietary rights, we rely on trademark, copyright, and patent law, trade-secret protection, and contractual provisions and restrictions. However, we may be unable to secure intellectual property protection for all of our technology and methodologies or the steps we take to enforce our intellectual property rights may be inadequate. Furthermore, we may also be unable to protect our proprietary business information from misappropriation.

If we are unable to secure intellectual property rights, our competitors could use our intellectual property to market offerings similar to ours and we would have no recourse to enjoin or stop their actions. Additionally, any of our intellectual property rights may be challenged by others and invalidated through administrative processes or litigation. Moreover, even if we secured our intellectual property rights, others may infringe on our intellectual property and we may be unable to successfully enforce our rights against the infringers because we may be unaware of the infringement or our legal actions may not be successful. Finally, others may misappropriate our proprietary business information, and we may be unaware of the misappropriation or unable to enforce our legal rights in a cost-effective manner. If any of these events were to occur, our ability to compete effectively would be impaired.
We process, transmit, and store personal information, and unauthorized access to, or the unintended release of, this information could result in a claim for damages, regulatory action, loss of business, or unfavorable publicity.
We process, transmit, and store personal information to provide services to our customers and as an employer. As a result, we are subject to certain contractual terms, as well as federal, state, and foreign laws and regulations designed to protect personal information. While we take measures to protect the security and privacy of this information, it is possible that our security controls over personal data and other practices we follow may not prevent the unauthorized access to, or the unintended release of, personal information. If such unauthorized access or unintended release occurred, we could suffer significant damage to our brand and reputation, customers could lose confidence in the security and reliability of our services, and we could incur significant costs to address and fix these security incidents. These incidents could also lead to lawsuits and regulatory investigations and enforcement actions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 27, 2017, the U.S. Securities and Exchange Commission declared effective the Registration Statement on Form S-1 (file number 333-219093) for our initial public offering. There has been no change to the information provided under "Use of Proceeds" in Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.


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Item 6. Exhibits.

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed below. Notwithstanding any language to the contrary, Exhibits 32.1, 32.2, and 101 shall not be deemed to be filed as part of this Quarterly Report for purposes of Section 18 of the Securities Exchange Act of 1934.

 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
File No.
 
Exhibit
 
Filing Date
 
Filed Herewith
10.1
 
 
 
 
 
 
 
 
 
 
X
31.1
 
 
 
 
 
 
 
 
 
 
X
31.2
 
 
 
 
 
 
 
 
 
 
X
32.1
 
 
 
 
 
 
 
 
 
 
X
32.2
 
 
 
 
 
 
 
 
 
 
X
101
 
Interactive Data Files
 
 
 
 
 
 
 
 
 
X


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
Redfin Corporation
 
 
 
 
(Registrant)
 
 
 
 
 
 
 
May 8, 2019
 
/s/ Glenn Kelman
 
 
(Date)
 
Glenn Kelman
President and Chief Executive Officer
(Duly Authorized Officer)
 
 
 
 
 
May 8, 2019
 
/s/ Chris Nielsen
 
 
(Date)
 
Chris Nielsen
Chief Financial Officer
(Principal Financial Officer)
 


Exhibit

REDFIN CORPORATION
2017 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD

Unless otherwise defined herein, the terms defined in the Redfin Corporation (“Redfin”) 2017 Equity Incentive Plan (the “Plan”) will have the same meanings in this Notice of Restricted Stock Unit Award and the electronic representation of this Notice of Restricted Stock Unit Award established and maintained by Redfin or a third party designated by Redfin (this “Notice”).
 
Name:
 
 
 
 
 
Address:
 

You (the “Participant”) have been granted an award of Restricted Stock Units (“RSUs”) to acquire Shares of Redfin’s Common Stock under the Plan subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement (the “Agreement”), including any applicable country-specific provisions in any appendix attached hereto (the “Appendix”), which constitutes part of the Agreement.
 
Grant Number:
 
 
 
 
 
 
 
 
 
Number of RSUs:
 
 
 
 
 
 
 
 
 
Date of Grant:
 
 
 
 
 
 
 
 
 
Vesting Commencement Date:
 
 
 
 
 
 
 
 
 
Expiration Date:
 
The earlier to occur of: (a) the date on which settlement of all RSUs granted hereunder occurs and (b) the tenth anniversary of the Date of Grant. This RSU expires earlier if Participant’s Service as an Employee or Director terminates earlier, as described in the Agreement.
 
 
 
 
 
 
 
Vesting Schedule:
 
[Insert applicable vesting schedule]
 

By accepting (whether in writing, electronically or otherwise) the RSUs, Participant acknowledges and agrees to the following:

Participant understands that Participant’s relationship with Redfin or a Parent or Subsidiary or Affiliate is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), except where otherwise prohibited by applicable law and that nothing in this Notice, the Agreement or the Plan changes the nature of that relationship. Participant acknowledges that the vesting of the RSUs pursuant to this Notice is subject to Participant’s continuing Service as an Employee or Director, unless the Committee otherwise determines. Participant acknowledges that the Vesting Schedule may change prospectively in the event that Participant’s service status changes between full- and part-time status and/or in the event Participant is on a leave of absence, in accordance with Redfin’s policies relating to work schedules and vesting or as determined by the Committee. Participant also understands that this Notice is subject to the terms and conditions of both the Agreement and the Plan, both of which are incorporated herein by reference. Participant has read both the Agreement and the Plan. By accepting the RSUs, Participant consents to electronic delivery as set forth in the Agreement.

PARTICIPANT
 
REDFIN CORPORATION
 
 
 
 
 
Signature:
 
 
By:
 
 
 
 
 
 
Print Name:
 
 
Its:
 



REDFIN CORPORATION
2017 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT

Unless otherwise defined in this Restricted Stock Unit Award Agreement (this “Agreement”), any capitalized terms used herein will have the meaning ascribed to them in the Redfin Corporation 2017 Equity Incentive Plan (the “Plan”).
Participant has been granted Restricted Stock Units (“RSUs”) to acquire Shares of Common Stock of Redfin Corporation (the “Redfin”), subject to the terms and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “Notice”) and this Agreement, including any applicable country-specific provisions in any appendix attached hereto (the “Appendix”), which constitutes part of this Agreement.
1.    Settlement. Settlement of RSUs will be made within 30 days following the applicable date of vesting under the Vesting Schedule set forth in the Notice. Settlement of RSUs will be in Shares. No fractional RSUs or rights for fractional Shares will be created pursuant to this Agreement.
2.    No Stockholder Rights. Unless and until such time as Shares are issued in settlement of vested RSUs, Participant will have no ownership of the Shares allocated to the RSUs and will have no rights to dividends or to vote such Shares.
3.    Dividend Equivalents. Dividends, if any (whether in cash or Shares), will not be credited to Participant.
4.    Non-Transferability of RSUs. The RSUs and any interest therein will not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.
5.    Termination; Leave of Absence; Change in Status. If Participant’s Service as an Employee or Director terminates for any reason, all unvested RSUs will be forfeited to Redfin immediately, and all rights of Participant to such RSUs automatically terminate without payment of any consideration to Participant, unless the Committee otherwise determines. Participant’s Service as an Employee or Director will be considered terminated as of the date Participant is no longer providing services as an Employee or Director (regardless of the reason for s