rdfn-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ 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 specified 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

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	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 for 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.

☒

Yes

☐

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).

☒

Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	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

☒

The registrant had 105,481,348 shares of common stock outstanding as of October 28, 2021.

Redfin Corporation

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2021

Table of Contents



PART I		Page

Item 1.	Financial Statements (unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive (Loss ) Income	2
	Consolidated Statements of Cash Flows	3
	Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity	4
	Index to Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48

PART II

Item 1	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 6.	Exhibits	53

	Signatures

As used in this quarterly report, the terms "Redfin," "we," "us," and "our" refer to Redfin Corporation and its subsidiaries taken as a whole, unless otherwise noted or unless the context indicates otherwise. However, when referencing (i) the 2023 notes, the 2025 notes, and the 2027 notes, the terms “we,” “us,” and “our” refer only to Redfin Corporation and not to Redfin Corporation and its subsidiaries taken as a whole, (ii) the secured revolving credit facility with Goldman Sachs, the terms "we," "us," and "our" refer only to RedfinNow Borrower LLC, and (iii) each warehouse credit facility, the terms "we," "us"," and "our" refer only to Redfin Mortgage, LLC.

Note Regarding Forward-Looking Statements

This quarterly report 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,” "hope," “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, 2020, as supplemented by Part II, Item 1A of this report. 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 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

Consolidated Balance Sheets

(in thousands, except share and per share amounts, unaudited)


	September 30, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	562,714	$	925,276
Restricted cash	74,532		20,544
Short-term investments	28,578		131,561
Accounts receivable, net of allowances for credit losses of $933 and $160	91,932		54,719
Inventory	435,144		49,158
Loans held for sale	42,762		42,539
Prepaid expenses	19,155		12,131
Other current assets	8,537		4,898
Total current assets	1,263,354		1,240,826
Property and equipment, net	55,535		43,988
Right-of-use assets, net	55,757		44,149
Long-term investments	53,488		11,922
Goodwill	407,228		9,186
Intangibles, net	194,856		1,830
Other assets, noncurrent	13,129		8,619
Total assets	$	2,043,347	$	1,360,520
Liabilities, mezzanine equity, and stockholders' equity
Current liabilities
Accounts payable	$	10,075	$	5,644
Accrued liabilities	102,027		69,460
Other payables	16,766		13,184
Warehouse credit facilities	39,825		39,029
Secured revolving credit facility	199,627		23,949
Convertible senior notes, net	23,243		22,482
Lease liabilities	14,793		11,973
Total current liabilities	406,356		185,721
Lease liabilities, noncurrent	57,759		49,339
Convertible senior notes, net, noncurrent	1,212,767		488,268
Payroll tax liabilities, noncurrent	7,841		6,812
Deferred tax liabilities	883		—
Total liabilities	1,685,606		730,140
Commitments and contingencies (Note 8)
Series A convertible preferred stock—par value $0.001 per share; 10,000,000 shares authorized; 40,000 shares issued and outstanding	39,857		39,823
Stockholders’ equity
Common stock—par value $0.001 per share; 500,000,000 shares authorized; 105,375,935 and 103,000,594 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	105		103
Additional paid-in capital	662,894		860,556
Accumulated other comprehensive income	47		211
Accumulated deficit	(345,162)		(270,313)
Total stockholders’ equity	317,884		590,557
Total liabilities, mezzanine equity, and stockholders’ equity	$	2,043,347	$	1,360,520

See Notes to the consolidated financial statements.

Table of Contents

Redfin Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(in thousands, except share and per share amounts, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Service	$	301,657	$	217,280	$	776,120	$	469,893
Product	238,417		19,636		503,588		171,683
Total revenue	540,074		236,916		1,279,708		641,576
Cost of revenue
Service	174,267		122,583		486,880		314,842
Product	238,505		21,261		497,032		174,744
Total cost of revenue	412,772		143,844		983,912		489,586
Gross profit	127,302		93,072		295,796		151,990
Operating expenses
Technology and development	43,658		22,452		112,824		60,687
Marketing	49,143		12,421		116,343		47,611
General and administrative	54,395		21,190		151,352		68,539
Total operating expenses	147,196		56,063		380,519		176,837
(Loss) Income from operations	(19,894)		37,009		(84,723)		(24,847)
Interest income	178		319		472		1,859
Interest expense	(3,672)		(2,522)		(7,822)		(7,631)
Income tax benefit	311		—		5,363		—
Other income (expense), net	4,128		(640)		4,099		(1,943)
Net (loss) income	$	(18,949)	$	34,166	$	(82,611)	$	(32,562)
Dividends on convertible preferred stock	(1,662)		(1,530)		(5,875)		(2,814)
Undistributed earnings attributable to participating securities	—		(653)		—		—
Net (loss) income attributable to common stock—basic and diluted	(20,611)		31,983		(88,486)		(35,376)
Net (loss) income per share attributable to common stock—basic	$	(0.20)	$	0.32	$	(0.85)	$	(0.36)
Weighted-average shares to compute net (loss) income per share attributable to common stock—basic	105,144,872		99,840,144		104,327,614		97,365,122
Net (loss) income per share attributable to common stock—diluted	$	(0.20)	$	0.30	$	(0.85)	$	(0.36)
Weighted-average shares to compute net (loss) income per share attributable to common stock—diluted	105,144,872		107,607,711		104,327,614		97,365,122

Net (loss) income	$	(18,949)	$	34,166	$	(82,611)	$	(32,562)
Other comprehensive income (loss)
Foreign currency translation adjustments	3		6		3		(16)
Unrealized gain (loss) on available-for-sale debt securities	27		(139)		161		282
Comprehensive (loss) income	$	(18,919)	$	34,033	$	(82,447)	$	(32,296)

See Notes to the consolidated financial statements.

Table of Contents

Redfin Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands, unaudited)


	Nine Months Ended September 30,
	2021		2020
Operating Activities
Net loss	$	(82,611)	$	(32,562)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	32,303		10,581
Stock-based compensation	39,438		25,764
Amortization of debt discount and issuance costs	3,583		5,254
Non-cash lease expense	8,510		6,821
Impairment costs	—		2,063
Net loss (gain) on IRLCs, forward sales commitments, and loans held for sale	342		(2,303)
Other	(3,847)		(306)
Change in assets and liabilities:
Accounts receivable, net	(29,487)		(21,862)
Inventory	(385,986)		49,597
Prepaid expenses and other assets	(9,532)		7,396
Accounts payable	616		851
Accrued liabilities, other payables, deferred tax liabilities, and payroll tax liabilities, noncurrent	23,011		28,157
Lease liabilities	(9,644)		(8,368)
Origination of loans held for sale	(745,703)		(479,153)
Proceeds from sale of loans originated as held for sale	744,886		459,605
Net cash (used in) provided by operating activities	(414,121)		51,535
Investing activities
Purchases of property and equipment	(20,575)		(10,391)
Purchases of investments	(129,277)		(135,118)
Sales of investments	98,687		6,583
Maturities of investments	96,303		82,772
Cash paid for acquisition	(608,000)		—
Net cash used in investing activities	(562,862)		(56,154)
Financing activities
Proceeds from the issuance of convertible preferred stock, net of issuance costs	—		39,801
Proceeds from the issuance of common stock, net of issuance costs	—		69,701
Proceeds from the issuance of common stock pursuant to employee equity plans	14,194		15,119
Tax payments related to net share settlements on restricted stock units	(21,088)		(10,987)
Borrowings from warehouse credit facilities	710,535		473,283
Repayments to warehouse credit facilities	(709,739)		(454,277)
Borrowings from secured revolving credit facility	431,717		57,378
Repayments to secured revolving credit facility	(256,039)		(46,899)
Proceeds from issuance of convertible senior notes, net of issuance costs	561,529		—
Purchases of capped calls related to convertible senior notes	(62,647)		—
Payments for repurchases and conversions of convertible senior notes	(2,159)		—
Other payables—deposits held in escrow	3,161		2,097
Principal payments under finance lease obligations	(567)		(59)
Cash paid for secured revolving credit facility issuance costs	(485)		(4)
Net cash provided by financing activities	668,412		145,153
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3)		(16)
Net change in cash, cash equivalents, and restricted cash	(308,574)		140,518
Cash, cash equivalents, and restricted cash:
Beginning of period	945,820		247,448
End of period	$	637,246	$	387,966

Supplemental disclosure of cash flow information
Cash paid for interest	$	5,539	$	3,001
Non-cash transactions
Stock-based compensation capitalized in property and equipment	2,745		1,714
Property and equipment additions in accounts payable and accrued liabilities	—		973
Leasehold improvements paid directly by lessor	1,334		37

See Notes to the consolidated financial statements.

Table of Contents

Redfin Corporation and Subsidiaries

Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

(in thousands, except share amounts, unaudited)


	Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance, June 30, 2021	40,000	$	39,846	104,838,095	$	105	$	651,627	$	(326,213)	$	77	$	325,596
Issuance of convertible preferred stock, net	—	11		—	—		—		—		—		—
Issuance of common stock as dividend on convertible preferred stock	—	—		30,640	—		—		—		—		—

Issuance of common stock pursuant to exercise of stock options	—	—		264,875	—		1,696		—		—		1,696
Issuance of common stock pursuant to settlement of restricted stock units	—	—		334,283	—		—		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(95,122)	—		(4,558)		—		—		(4,558)

Issuance of common stock in connection with conversion of convertible senior notes	—	—		3,164	—		(10)		—		—		(10)
Stock-based compensation	—	—		—	—		14,139		—		—		14,139
Other comprehensive loss	—	—		—	—		—		—		(30)		(30)
Net loss	—	—		—	—		—		(18,949)		—		(18,949)
Balance, September 30, 2021	40,000	$	39,857	105,375,935	$	105	$	662,894	$	(345,162)	$	47	$	317,884

Balance, December 31, 2020	40,000	$	39,823	103,000,594	$	103	$	860,556	$	(270,313)	$	211	$	590,557
Issuance of convertible preferred stock, net	—	34		—	—		—		—		—		—
Issuance of common stock as dividend on convertible preferred stock	—	—		91,920	—		—		—		—		—

Issuance of common stock pursuant to employee stock purchase program	—	—		135,426	—		7,299		—		—		7,299
Issuance of common stock pursuant to exercise of stock options	—	—		1,354,078	1		6,895		—		—		6,896
Issuance of common stock pursuant to settlement of restricted stock units	—	—		1,072,378	1		(1)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(319,229)	—		(21,088)		—		—		(21,088)
Cumulative-effect adjustment from accounting changes	—	—		—	—		(170,240)		7,762		—		(162,478)
Purchases of capped calls related to convertible senior notes	—	—		—	—		(62,647)		—		—		(62,647)
Issuance of common stock in connection with conversion of convertible senior notes	—	—		40,768	—		(63)		—		—		(63)
Stock-based compensation	—	—		—	—		42,183		—		—		42,183
Other comprehensive loss	—	—		—	—		—		—		(164)		(164)
Net loss	—	—		—	—		—		(82,611)		—		(82,611)
Balance, September 30, 2021	40,000	$	39,857	105,375,935	$	105	$	662,894	$	(345,162)	$	47	$	317,884


	Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance, June 30, 2020	40,000	$	39,801	99,394,432	$	99	$	673,234	$	(318,514)	$	441	$	355,260
Issuance of convertible preferred stock, net	—	11		—	—		—		—		—		—
Issuance of common stock, net	—	—		30,640	—		—		—		—		—

Issuance of common stock pursuant to exercise of stock options	—	—		567,854	1		3,997		—		—		3,998
Issuance of common stock pursuant to settlement of restricted stock units	—	—		353,160	—		—		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(104,670)	—		(4,922)		—		—		(4,922)
Stock-based compensation	—	—		—	—		11,910		—		—		11,910
Other comprehensive loss	—	—		—	—		—		—		(133)		(133)
Net income	—	—		—	—		—		34,166		—		34,166
Balance, September 30, 2020	40,000	$	39,812	100,241,416	$	100	$	684,219	$	(284,348)	$	308	$	400,279

Balance, December 31, 2019	—	$	—	93,001,597	$	93	$	583,097	$	(251,786)	$	42	$	331,446
Issuance of convertible preferred stock, net	40,000	39,812		—	—		—		—		—		—
Issuance of common stock as dividend on convertible preferred stock	—	—		30,640	—		—		—		—		—
Issuance of common stock, net	—	—		4,484,305	4		69,697		—		—		69,701
Issuance of common stock pursuant to employee stock purchase program	—	—		186,925	—		3,436		—		—		3,436
Issuance of common stock pursuant to exercise of stock options	—	—		1,825,684	2		11,500		—		—		11,502
Issuance of common stock pursuant to settlement of restricted stock units	—	—		1,017,675	1		(1)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(305,410)	—		(10,987)		—		—		(10,987)
Stock-based compensation	—	—		—	—		27,477		—		—		27,477
Other comprehensive income	—	—		—	—		—		—		266		266
Net loss	—	—		—	—		—		(32,562)		—		(32,562)
Balance, September 30, 2020	40,000	$	39,812	100,241,416	$	100	$	684,219	$	(284,348)	$	308	$	400,279

See Notes to the consolidated financial statements.

Table of Contents

Index to Notes to Consolidated Financial Statements


Note 1:	Summary of Accounting Policies	6
Note 2:	Business Combinations	8
Note 3:	Segment Reporting and Revenue	9
Note 4:	Financial Instruments	10
Note 5:	Inventory	14
Note 6:	Property and Equipment	15
Note 7:	Leases	15
Note 8:	Commitments and Contingencies	16
Note 9:	Acquired Intangible Assets and Goodwill	18
Note 10:	Accrued Liabilities	19
Note 11:	Other Payables	19
Note 12:	Mezzanine Equity	19
Note 13:	Equity and Equity Compensation Plans	20
Note 14:	Net (Loss) Income per Share Attributable to Common Stock	23
Note 15:	Income Taxes	24
Note 16:	Debt	25
Note 17:	Subsequent Events	28

Index to Notes to Financial Statements

Redfin Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts, unaudited)

Note 1: Summary of 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”).

The financial information as of December 31, 2020 that is included in this quarterly report is derived from the audited consolidated financial statements and notes for the year ended December 31, 2020 included in Item 8 in our annual report for the year ended December 31, 2020. Such financial information should be read in conjunction with the notes and management’s discussion and analysis of the consolidated financial statements included in our annual report.

The unaudited consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2021, our statements of comprehensive (loss) income, and statements of changes in mezzanine equity and stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, as well as our statements of cash flows for the nine months ended September 30, 2021 and 2020. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any interim period or for any other future year.

Certain amounts presented in the prior period consolidated statements of cash flows have been reclassified to conform to the current period financial statement presentation. The change in classification does not affect previously reported cash flows from operating activities, investing activities, or financing activities in the consolidated statements of cash flows.

Principles of Consolidation—The unaudited consolidated interim financial statements include the accounts of Redfin Corporation and its wholly owned subsidiaries, including those entities in which we have a variable interest and of which we are the primary beneficiary. Intercompany transactions and balances have been eliminated.

Use of Estimates—The preparation of consolidated financial statements, in conformity with GAAP, requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the respective periods. Our estimates include, but are not limited to, the valuation of deferred income taxes, stock-based compensation, net realizable value of inventory, capitalization of website and software development costs, the incremental borrowing rate for the determination of the present value of lease payments, recoverability of intangible assets with finite lives, fair value of our mortgage loans held for sale, fair value of interest rate lock commitments, and forward sales commitments, fair value of reporting units for purposes of evaluating goodwill for impairment, current expected credit losses on certain financial assets, the fair value of the convertible feature related to our convertible senior notes, and the fair value of assets acquired and liabilities assumed in connection with our acquisition of RentPath. The amounts ultimately realized from the affected assets or ultimately recognized as 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.

Convertible Senior Notes—In accounting for the issuance of our convertible senior notes, we treat the instrument wholly as a liability, in accordance with the adoption of ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06").

Issuance costs are being amortized to expense over the respective term of the convertible senior notes.

Index to Notes to Financial Statements

For conversions prior to the maturity of the notes, we will settle using cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. The carrying amount of the instrument (including unamortized debt issuance costs) is reduced by cash and other assets transferred, with the difference reflected as a reduction to additional paid-in capital. The indentures governing our convertible senior notes allow us, under certain circumstances, to irrevocably fix our method for settling conversions of the applicable notes by giving notice to the noteholders. Our election to irrevocably fix the settlement method could affect the calculation of diluted earnings per share when applicable. We have no plans to exercise our rights to fix the settlement method.

Rentals Revenue—Due to our acquisition of RentPath, we now record rentals revenue which is primarily composed of subscription-based product offerings for internet listing services, as well as lead management and digital marketing solutions. Rentals revenue is recorded as a component of service revenue in our consolidated statements of comprehensive (loss) income.

Revenue is recognized upon transfer of control of promised service to customers over time in an amount that reflects the consideration we expect to receive in exchange for those services. Revenues from subscription-based services are recognized on a straight-line basis over the term of the contract, which generally have a term of less than one year. Revenue is presented net of sales allowances, which are not material.

The transaction price for a contract is generally determined by the stated price in the contract, excluding any related sales taxes. We enter into contracts that can include various combinations of subscription services, which are capable of being distinct and accounted for as separate performance obligations. We allocate the transaction price to each performance obligation in the contract on a relative stand-alone selling price basis. Generally, the combinations of subscription services are fulfilled concurrently and are co-terminus. Our rentals contracts do not contain any refund provisions other than in the event of our non-performance or breach.

Recently Adopted Accounting Pronouncements—In August 2020, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance under ASU 2020-06.

This guidance removes the liability and equity separation models for convertible instruments with a cash conversion feature or beneficial conversion feature. As a result, companies will more likely account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account). In addition, the guidance simplifies the settlement assessment that issuers perform to determine whether a contract in their own equity qualifies for equity classification. Finally, the guidance requires entities to use the if-converted method to calculate earnings per share for all convertible instruments.

We early adopted ASU 2020-06 as of January 1, 2021 using the modified retrospective approach. The cumulative effect of initially applying the new standard was recognized as an adjustment to accumulated deficit. Upon the adoption of the new standard we recognized the following adjustments:


	Ending Balance as of December 31, 2020		ASU 2020-06 Adjustments		Beginning Balance as of January 1, 2021
Convertible senior notes, net	$	22,482	$	2,723	$	25,205
Convertible senior notes, net, noncurrent	488,268		159,755		648,023
Additional paid-in capital	860,556		(170,240)		690,316
Accumulated deficit	(270,313)		7,762		(262,551)

The $7,762 adjustment to accumulated deficit represents a reduction to non-cash interest expense related to the accretion of the debt discount under the historical separation model.

Index to Notes to Financial Statements

Note 2: Business Combinations

On April 2, 2021, we acquired, for $608,000 in cash, all of the equity interests of RentPath Holdings, Inc., as reorganized following an internal restructuring of the entity and certain of its wholly owned subsidiaries (as reorganized, "RentPath" and such acquisition, the "Acquisition"). In connection with the internal restructuring, certain assets and liabilities related to the business of providing digital media services to clients in the residential real estate business were transferred to RentPath, and the remaining assets and liabilities were transferred to a wind-down company. We acquired RentPath to enter into the real estate rentals market.

The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the consolidated financial statements since the date of acquisition. RentPath is reported in our rentals segment in Note 3. During the three and nine months ended September 30, 2021, RentPath contributed $40,406 and $82,954 to revenue, respectively. The goodwill recognized in connection with our acquisition of RentPath is primarily attributable to the anticipated synergies from future growth of the combined business and is not expected to be deductible for tax purposes. We are currently evaluating the reporting unit allocation of goodwill.

The following table summarizes the fair value of assets acquired and liabilities assumed as a result of the Acquisition. As of September 30, 2021, the amount allocated to the opening balance of deferred tax liabilities assumed in the Acquisition is provisional and subject to revision as more detailed analyses are completed and additional information about the amount of this balance becomes available:


Cash and cash equivalents(1)	$	334
Accounts receivable	7,726
Prepaid expenses	5,483
Other current assets	416
Property and equipment, net	3,103
Operating lease right-of-use assets	12,330
Intangible assets	211,000
Goodwill	398,042
Total assets	638,434
Accounts payable	(1,355)
Accrued liabilities(1)	(9,412)
Lease liabilities	(1,264)
Lease liabilities and deposits, noncurrent	(11,066)
Payroll tax liabilities, noncurrent	(1,030)
Deferred tax liabilities	(6,307)
Total liabilities	(30,434)
Total purchase consideration	$	608,000

(1) On April 2, 2021, $334 of cash and cash equivalents owed to a wind-down company remained in RentPath's primary operating account due to the timing of bank transfers and wires. The cash and cash equivalents were recorded at fair value along with an offsetting due-to liability on April 2, 2021.

Acquisition-related costs consisted of external fees for advisory, legal, and other professional services and totaled approximately $202 and $7,925 for the three and nine months ended September 30, 2021, respectively. These costs were expensed as incurred and recorded in general and administrative costs in our consolidated statements of comprehensive (loss) income.

Index to Notes to Financial Statements

Identifiable Intangible Assets—The following table provides the fair values of the RentPath intangible assets, along with their estimated useful lives:


	Estimated Fair Value		Estimated Useful Life (in years)
Trade names	$	70,000	10
Developed technology	60,500		3
Customer relationships	80,500		10
Total	211,000

The identifiable intangible assets include trade names, developed technology (an application platform), and customer relationships. Trade names primarily relate to the RentPath brand. Developed technology relates to the RentPath website and mobile application, which are the primary channels for meeting customers. Customer relationships represent existing customer contracts.

Unaudited Pro Forma Financial Information—The following table presents unaudited pro forma financial information for the three and nine months ended September 30, 2021. The pro forma financial information combines our results of operations with that of RentPath as though the companies had been combined as of January 1, 2020. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place at such time. The pro forma financial information presented below includes adjustments for bankruptcy costs, depreciation and amortization, provision for income taxes, transaction costs, and interest expense related to debt that would not have been incurred if we had consummated the Acquisition on January 1, 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	540,074	$	284,275	$	1,322,632	$	790,662
Net (loss) income	(18,792)		23,099		(94,335)		(60,918)

Material non-recurring adjustments made in the pro forma financial information disclosed above were $23 and $9,151 for the three months ended September 30, 2021 and 2020 and $76,118 and $48,224 for the nine months ended September 30, 2021 and 2020, respectively. These adjustments primarily relate to the reorganization costs that would not have been incurred if we had consummated the Acquisition on January 1, 2020 and decreased expense in the periods specified. These adjustments also include an income tax benefit resulting from the Acquisition, which assumes that we had consummated the Acquisition on January 1, 2020.

Note 3: Segment Reporting and Revenue

In operation of the business, our management, including our chief operating decision maker ("CODM"), who is also our chief executive officer, evaluates the performance of our operating segments based on revenue and gross profit. We do not analyze discrete segment balance sheet information related to long-term assets, substantially all of which are located in the United States. All other financial information is presented on a consolidated basis. We have six operating segments and three reportable segments, real estate services, properties, and rentals. As a result of our acquisition of RentPath, we added the rentals segment and determined it is a reportable segment because RentPath met the quantitative thresholds under ASC 280, Segment Reporting. Our CODM evaluates the rentals segment as a stand-alone business; accordingly, we are separately reporting the segment's operating expenses from our consolidated operating expenses.

We generate revenue primarily from commissions and fees charged on each real estate services transaction closed by our lead agents or partner agents, from the sale of homes, and from subscription-based product offerings for our rentals business. Our key revenue components are brokerage revenue, partner revenue, properties revenue, rentals revenue, and other revenue.

Index to Notes to Financial Statements

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Real estate services (brokerage)	$	243,575	$	194,375	$	637,532	$	425,269
Real estate services (partner)	14,220		15,478		41,070		28,269
Properties	238,417		19,005		503,588		170,287
Rentals	40,406		—		82,954		—
Other	8,206		8,503		26,084		19,999
Intercompany eliminations	(4,750)		(445)		(11,520)		(2,248)
Total	$	540,074	$	236,916	$	1,279,708	$	641,576

Cost of revenue
Real estate services