rdfn-20220331

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 March 31, 2022

☐ 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 107,173,678 shares of common stock outstanding as of April 28, 2022.

Redfin Corporation

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents



PART I		Page

Item 1.	Financial Statements (unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive Loss	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	45
Item 4.	Controls and Procedures	46

PART II

Item 1	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 6.	Exhibits	49

	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 to Redfin Mortgage, LLC or Bay Equity LLC, as the context dictates.

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, 2021, 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)


	March 31, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	612,680	$	591,003
Restricted cash	36,047		127,278
Short-term investments	95,458		33,737
Accounts receivable, net of allowances for credit losses of $1,464 and $1,298	52,282		69,594
Inventory	245,487		358,221
Loans held for sale	23,693		35,759
Prepaid expenses	26,836		22,948
Other current assets	6,748		7,524
Total current assets	1,099,231		1,246,064
Property and equipment, net	60,836		58,671
Right-of-use assets, net	51,417		54,200
Long-term investments	56,194		54,828
Goodwill	409,382		409,382
Intangible assets, net	177,003		185,929
Other assets, noncurrent	13,090		12,898
Total assets	$	1,867,153	$	2,021,972
Liabilities, mezzanine equity, and stockholders' equity
Current liabilities
Accounts payable	$	22,693	$	12,546
Accrued and other liabilities	103,449		118,122
Warehouse credit facilities	22,285		33,043
Secured revolving credit facility	136,869		199,781
Convertible senior notes, net	—		23,280
Lease liabilities	15,070		15,040
Total current liabilities	300,366		401,812
Lease liabilities, noncurrent	51,719		55,222
Convertible senior notes, net, noncurrent	1,238,585		1,214,017

Deferred tax liabilities	981		1,201
Total liabilities	1,591,651		1,672,252
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 at March 31, 2022 and December 31, 2021, respectively	39,879		39,868
Stockholders’ equity
Common stock—par value $0.001 per share; 500,000,000 shares authorized; 107,025,691 and 106,308,767 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	107		106
Additional paid-in capital	699,225		682,084
Accumulated other comprehensive loss	(739)		(174)
Accumulated deficit	(462,970)		(372,164)
Total stockholders’ equity	235,623		309,852
Total liabilities, mezzanine equity, and stockholders’ equity	$	1,867,153	$	2,021,972

See Notes to the consolidated financial statements.

Table of Contents

Redfin Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

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


	Three Months Ended March 31,
	2022		2021
Revenue
Service	$	217,593	$	175,593
Product	379,753		92,726
Total revenue	597,346		268,319
Cost of revenue
Service	165,809		134,851
Product	358,999		91,110
Total cost of revenue	524,808		225,961
Gross profit	72,538		42,358
Operating expenses
Technology and development	49,640		27,678
Marketing	43,342		11,802
General and administrative	58,966		37,391
Restructuring and reorganization	5,710		—
Total operating expenses	157,658		76,871
Loss from operations	(85,120)		(34,513)
Interest income	220		159
Interest expense	(3,861)		(1,338)
Income tax expense	(134)		—
Other expense, net	(1,911)		(92)
Net loss	$	(90,806)	$	(35,784)
Dividends on convertible preferred stock	(793)		(2,336)

Net loss attributable to common stock—basic and diluted	$	(91,599)	$	(38,120)
Net loss per share attributable to common stock—basic and diluted	$	(0.86)	$	(0.37)
Weighted-average shares to compute net loss per share attributable to common stock—basic and diluted	106,664,140		103,427,764



Net loss	$	(90,806)	$	(35,784)
Other comprehensive income (loss)
Foreign currency translation adjustments	4		—
Unrealized gain (loss) on available-for-sale debt securities	561		(50)
Comprehensive loss	$	(90,241)	$	(35,834)

See Notes to the consolidated financial statements.

Table of Contents

Redfin Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands, unaudited)


	Three Months Ended March 31,
	2022		2021
Operating Activities
Net loss	$	(90,806)	$	(35,784)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	14,813		4,341
Stock-based compensation	16,788		12,583
Amortization of debt discount and issuance costs	1,440		855
Non-cash lease expense	3,169		2,533

Net loss (gain) on IRLCs, forward sales commitments, and loans held for sale	60		(1,052)
Other	2,290		109
Change in assets and liabilities:
Accounts receivable, net	17,312		7,303
Inventory	112,734		(48,213)
Prepaid expenses and other assets	(1,982)		(3,359)
Accounts payable	9,876		5,947
Accrued and other liabilities, deferred tax liabilities, and payroll tax liabilities, noncurrent	(14,442)		8,873
Lease liabilities	(3,642)		(2,951)
Origination of loans held for sale	(159,186)		(227,090)
Proceeds from sale of loans originated as held for sale	170,577		225,140
Net cash provided by (used in) operating activities	79,001		(50,765)
Investing activities
Purchases of property and equipment	(7,442)		(5,285)
Purchases of investments	(77,596)		(67,877)
Sales of investments	5,346		—
Maturities of investments	6,500		63,589

Net cash used in investing activities	(73,192)		(9,573)
Financing activities


Proceeds from the issuance of common stock pursuant to employee equity plans	1,887		3,411
Tax payments related to net share settlements on restricted stock units	(2,595)		(10,860)
Borrowings from warehouse credit facilities	152,386		216,382
Repayments to warehouse credit facilities	(163,144)		(214,747)
Borrowings from secured revolving credit facility	156,799		71,177
Repayments to secured revolving credit facility	(219,711)		(46,275)
Proceeds from issuance of convertible senior notes, net of issuance costs	—		488,691
Purchases of capped calls related to convertible senior notes	—		(54,480)
Payments for repurchases and conversions of convertible senior notes	—		(1,886)
Other financing payables	—		6,521
Principal payments under finance lease obligations	(217)		(67)
Cash paid for secured revolving credit facility issuance costs	(764)		(305)
Net cash (used in) provided by financing activities	(75,359)		457,562
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(4)		1
Net change in cash, cash equivalents, and restricted cash	(69,554)		397,225
Cash, cash equivalents, and restricted cash:
Beginning of period	718,281		945,820
End of period	$	648,727	$	1,343,045

Supplemental disclosure of cash flow information
Cash paid for interest	$	3,377	$	973
Non-cash transactions
Stock-based compensation capitalized in property and equipment	1,134		732
Property and equipment additions in accounts payable and accrued liabilities	326		2,348
Leasehold improvements paid directly by lessor	—		1,334

	As of March 31,
	2022		2021
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	612,680	$	1,241,255
Restricted cash	36,047		101,790
Total cash, cash equivalents, and restricted cash	$	648,727	$	1,343,045

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, December 31, 2020	40,000	$	39,823	103,000,594	$	103	$	860,556	$	(270,313)	$	211	$	590,557
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	—	—		670,050	1		3,462		—		—		3,463
Issuance of common stock pursuant to settlement of restricted stock units	—	—		360,351	—		—		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(115,030)	—		(10,860)		—		—		(10,860)
Cumulative-effect adjustment from accounting changes	—	—		—	—		(170,240)		7,762		—		(162,478)
Purchases of capped calls related to convertible senior notes	—	—		—	—		(54,480)		—		—		(54,480)
Issuance of common stock in connection with conversion of convertible senior notes	—	—		36,980	—		(52)		—		—		(52)
Stock-based compensation	—	—		—	—		13,316		—		—		13,316
Other comprehensive loss	—	—		—	—		—		—		(50)		(50)
Net loss	—	—		—	—		—		(35,784)		—		(35,784)
Balance, March 31, 2021	40,000	$	39,834	103,983,585	$	104	$	641,702	$	(298,335)	$	161	$	343,632

Balance, December 31, 2021	40,000	$	39,868	106,308,767	$	106	$	682,084	$	(372,164)	$	(174)	$	309,852
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	—	—		208,499	—		1,815		—		—		1,815
Issuance of common stock pursuant to settlement of restricted stock units	—	—		684,357	1		(1)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(206,572)	—		(2,595)		—		—		(2,595)

Stock-based compensation	—	—		—	—		17,922		—		—		17,922
Other comprehensive loss	—	—		—	—		—		—		(565)		(565)
Net loss	—	—		—	—		—		(90,806)		—		(90,806)
Balance, March 31, 2022	40,000	$	39,879	107,025,691	$	107	$	699,225	$	(462,970)	$	(739)	$	235,623

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	7
Note 3:	Segment Reporting and Revenue	8
Note 4:	Financial Instruments	9
Note 5:	Inventory	13
Note 6:	Property and Equipment	14
Note 7:	Leases	14
Note 8:	Commitments and Contingencies	15
Note 9:	Acquired Intangible Assets and Goodwill	17
Note 10:	Accrued and O ther Liabilities	18
Note 11:	Mezzanine Equity	18
Note 12:	Equity and Equity Compensation Plans	19
Note 13:	Net Loss per Share Attributable to Common Stock	22
Note 14:	Income Taxes	22
Note 15:	Debt	23
Note 16:	Subsequent Events	27

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, 2021 that is included in this quarterly report is derived from the audited consolidated financial statements and notes for the year ended December 31, 2021 included in Item 8 in our annual report for the year ended December 31, 2021. 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 March 31, 2022, our statements of comprehensive loss, and statements of changes in mezzanine equity and stockholders’ equity for the three months ended March 31, 2022 and 2021, as well as our statements of cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any interim period or for any other future year.

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, 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, estimated useful life of intangible assets, fair value of reporting units for purposes of allocating and evaluating goodwill for impairment, and current expected credit losses on certain financial assets. 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.

Restructuring and Reorganization—Restructuring and reorganization expenses primarily consist of employee termination costs (including severance, retention, benefits, and payroll taxes) for our mortgage and rentals segments due to the restructuring and reorganization activities from our acquisitions of Bay Equity LLC (“Bay Equity”) and RentPath Holdings, Inc., respectively. These expenses are included in restructuring and reorganization in our consolidated statements of comprehensive loss and in accrued and other liabilities in our consolidated balance sheets. We expect to complete the restructuring and reorganization activities by the end of 2022.

Recently Adopted Accounting Pronouncements—None applicable.

Index to Notes to Financial Statements

Recently Issued Accounting Pronouncements—On October 28, 2021, the Financial Accounting Standards Board issued ASU 2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a result of the amendments made by ASU 2021-08, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements. The amendments made by ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. We elected to early adopt this standard in the second quarter of 2022, and we do not expect any material impact on our financial statements as a result of adopting ASU 2021-08.

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 "RentPath 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 our consolidated financial statements since the date of acquisition. RentPath is reported in our rentals segment in Note 3. 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 assigned the recognized goodwill of $241,045 and $159,151 to the real estate services and rentals segments, respectively.

The following table summarizes the fair value of assets acquired and liabilities assumed as a result of the RentPath Acquisition:


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	400,196
Total assets	640,588
Accounts payable	(1,355)
Accrued and other liabilities(1)	(9,412)
Lease liabilities	(1,264)
Lease liabilities and deposits, noncurrent	(11,066)
Payroll tax liabilities, noncurrent	(1,030)
Deferred tax liabilities	(8,461)
Total liabilities	(32,588)
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.

There were no acquisition-related costs associated with the RentPath Acquisition for the three months ended March 31, 2022.

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 customer contracts existing at the acquisition date. The fair values of trade names, developed technology, and customer relationships are derived by applying the relief from royalty method, replacement cost method, and multi-period excess earnings method, respectively. Critical estimates in valuing the intangible assets include revenue growth rate, royalty rate, discount rate, and number of months to recreate the underlying application.

Unaudited Pro Forma Financial Information—The following table presents unaudited pro forma financial information for the three months ended March 31, 2022 and 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 RentPath 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 RentPath Acquisition on January 1, 2020:


	Three Months Ended March 31,
	2022		2021
Revenue	$	597,346	$	311,243
Net loss	(90,726)		(42,622)

The gross impacts of material non-recurring adjustments made in the pro forma financial information disclosed above were $150 and $71,230 for the three months ended March 31, 2022 and 2021, respectively. These adjustments primarily relate to the reorganization, bankruptcy, and other costs that would not have been incurred if we had consummated the RentPath Acquisition on January 1, 2020 and decreased expense in the periods specified. These adjustments also include an income tax benefit resulting from the RentPath Acquisition, which assumes that we had consummated the RentPath Acquisition on January 1, 2020.

Note 3: Segment Reporting and Revenue

In its operation of our 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 four reportable segments, real estate services, properties, rentals, and mortgage. 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. Our mortgage operating segment does not meet the reportable segment quantitative thresholds set forth in ASC 280, but due to our anticipated acquisition of Bay Equity (see Note 16 for details on the closing of our acquisition of Bay Equity), beginning in the fourth quarter of 2021, we moved our mortgage segment from the "other" segment and now present it as a standalone reportable segment. We have reflected this change to the earliest period presented for comparability purposes. These changes had no impact on our previously reported consolidated net revenue, loss from operations, net loss, or net loss per share.

Index to Notes to Financial Statements

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, mortgage revenue, and other revenue.

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


	Three Months Ended March 31,
	2022		2021
Revenue
Real estate services (brokerage)	$	167,872	$	156,447
Real estate services (partner)	9,615		12,162
Properties	379,753		92,726
Rentals	38,044		—
Mortgage	2,917		5,711
Other	4,368		3,646
Intercompany eliminations	(5,223)		(2,373)
Total	$	597,346	$	268,319

Cost of revenue
Real estate services	$	153,784	$	128,216
Properties	358,866		91,130
Rentals	7,193		—
Mortgage	5,517		5,869
Other	4,671		3,119
Intercompany eliminations	(5,223)		(2,373)
Total	$	524,808	$	225,961

Gross profit
Real estate services	$	23,703	$	40,393
Properties	20,887		1,596
Rentals	30,851		—
Mortgage	(2,600)		(158)
Other	(303)		527
Total	$	72,538	$	42,358

Real estate services, properties, mortgage, and other operating expenses	$	109,781	$	76,871
Rentals operating expenses	47,877		—
Loss from operations	(85,120)		(34,513)
Interest income	220		159
Interest expense	(3,861)		(1,338)
Income tax expense	(134)		—
Other expense, net	(1,911)		(92)
Net loss	$	(90,806)	$	(35,784)

Note 4: Financial Instruments

Derivatives

Our primary market exposure is to interest rate risk, specifically U.S. treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. We use forward sales commitments on whole loans and mortgage-backed securities to manage and reduce this risk. We do not have any derivative instruments designated as hedging instruments.

Index to Notes to Financial Statements

Forward Sales Commitments—We are exposed to interest rate and price risk on loans held for sale from the funding date until the date the loan is sold. Forward sales commitments on whole loans and mortgage-backed securities are used to fix the forward sales price that will be realized at the sale of each loan.

Interest Rate Lock Commitments—Interest rate lock commitments ("IRLCs") represent an agreement to extend credit to a mortgage loan applicant. We commit (subject to loan approval) to fund the loan at the specified rate, regardless of changes in market interest rates between the commitment date and the funding date. Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of commitment through the loan funding date or expiration date. Loan commitments generally range between 30 and 90 days and the borrower is not obligated to obtain the loan. Therefore, IRLCs are subject to fallout risk, which occurs when approved borrowers choose not to close on the underlying loans. We review our commitment-to-closing ratio ("pull-through rate") as part of an estimate of the number of mortgage loans that will fund according to the IRLCs.


Notional Amounts	March 31, 2022		December 31, 2021
Forward sales commitments	$	43,260	$	70,550
IRLCs	43,283		67,485

The locations and amounts of gains (losses) recognized in income related to our derivatives are as follows:


		Three Months Ended March 31,
Instrument	Classification	2022		2021
Forward sales commitments	Service revenue	$	1,503	$	1,928
IRLCs	Service revenue	(887)		166

Fair Value of Financial Instruments

In May 2020, we purchased preferred stock of Matterport, Inc. ("Matterport"), then a privately held company. In July 2021, Matterport became a publicly traded company through a business combination transaction with a special purpose acquisition vehicle. In connection with the transaction, we received Matterport's publicly traded Class A common stock in exchange for the preferred stock that we owned. We previously recorded our investment at cost because the preferred stock did not have a readily determinable fair value, but upon receipt of the publicly traded common stock, we recorded our investment at fair value. In January 2022, we sold the Class A common stock and recognized a loss relative to this previously recorded fair value in other expense, net in our consolidated statement of comprehensive loss for the three months ended March 31, 2022. This loss is also included in adjustments to reconcile net loss to net cash used in operating activities, as a component of other, in our consolidated statement of cash flows for the three months ended March 31, 2022.

Index to Notes to Financial Statements

A summary of assets and liabilities related to our financial instruments, measured at fair value on a recurring basis and as reflected in our consolidated balance sheets, is set forth below:


	Balance at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market funds	$	398,651	$	398,651	$	—	$	—

Total cash equivalents	398,651		398,651		—		—
Short-term investments
U.S. treasury securities	88,555		88,555		—		—
Agency bonds	6,903		6,903		—		—

Loans held for sale	23,693		—		23,693		—
Other current assets
Forward sales commitments	1,547		—		1,547		—
IRLCs	550		—		—		550
Total other current assets	2,097		—		1,547		550
Long-term investments
U.S. treasury securities	56,194		56,194		—		—

Total assets	$	576,093	$	550,303	$	25,240	$	550
Liabilities
Accrued liabilities
Forward sales commitments	$	—	$	—	$	—	$	—
IRLCs	307		—		—		307
Total liabilities	$	307	$	—	$	—	$	307


	Balance at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market funds	$	509,971	$	509,971	$	—	$	—

Total cash equivalents	509,971		509,971		—		—
Short-term investments
U.S. treasury securities	16,718		16,718		—		—
Agency bonds	11,906		11,906		—		—
Equity securities	5,113		5,113		—		—
Loans held for sale	35,759		—		35,759		—
Other current assets
Forward sales commitments	138		—		138		—
IRLCs	1,191		—		—		1,191
Total other current assets	1,329		—		138		1,191
Long-term investments
U.S. treasury securities	54,828		54,828		—		—
Total assets	$	635,624	$	598,536	$	35,897	$	1,191
Liabilities
Accrued liabilities
Forward sales commitments	$	93	$	—	$	93	$	—
IRLCs	60		—		—		60
Total liabilities	$	153	$	—	$	93	$	60

There were no transfers into or out of Level 3 financial instruments during the periods presented.

Index to Notes to Financial Statements

The significant unobservable input used in the fair value measurement of IRLCs is the pull-through rate. Significant changes in the input could result in a significant change in fair value measurement. The pull-through rate used to determine the fair value of IRLCs was as follows:

Key Inputs

Valuation Technique

March 31, 2022

December 31, 2021

Weighted-average pull-through rate

Market pricing

68.1%

71.1%

The following is a summary of changes in the fair value of IRLCs for the three months ended March 31, 2022:


	Three Months Ended March 31,
	2022		2021
Balance, net—beginning of period	$	1,155	$	1,771
Issuances of IRLCs	2,289		5,504
Settlements of IRLCs	(2,893)		(5,139)
Net loss recognized in earnings	(308)		(199)
Balance, net—end of period	$	243	$	1,937

The following table presents the carrying amounts and estimated fair values of our convertible senior notes that are not recorded at fair value on our consolidated balance sheets:


	March 31, 2022				December 31, 2021
Issuance	Net Carrying Amount		Estimated Fair Value		Net Carrying Amount		Estimated Fair Value
2023 notes	$	23,318	$	27,559	$	23,280	$	34,487
2025 notes	651,474		493,907		650,783		593,366
2027 notes	563,793		389,304		563,234		467,814

The difference between the principal amounts of our 2023 notes, our 2025 notes, and our 2027 notes, which were $23,512, $661,250, and $575,000, respectively, and the net carrying amounts of the notes represents the unamortized debt issuance costs. The estimated fair value of each tranche of convertible senior notes is based on the closing trading price of the notes on the last day of trading for the period, and is classified as Level 2 within the fair value hierarchy due to the limited trading activity of the notes. As of March 31, 2022, the difference between the net carrying amount of the notes and their estimated fair values represented the notes' equity conversion premium. Based on the closing price of our common stock of $18.04 on March 31, 2022, the if-converted values of all three convertible notes were less than the principal amounts, respectively. See Note 15 for additional details on our convertible senior notes.

See Note 11 for the carrying amount of our convertible preferred stock.

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property and equipment, goodwill and other intangible assets, and other assets. These assets are remeasured at fair value if determined to be impaired.

Index to Notes to Financial Statements

The cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of our cash, money market funds, restricted cash, available-for-sale investments, and equity securities were as follows:


	March 31, 2022
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	214,029	$	—	$	—	$	214,029	$	214,029	$	—	$	—
Money markets funds	398,651		—		—		398,651		398,651		—		—
Restricted cash	36,047		—		—		36,047		36,047		—		—
U.S. treasury securities	145,510		40		(801)		144,749		—		88,555		56,194
Agency bonds	6,900		3		—		6,903		—		6,903		—

Total	$	801,137	$	43