REDFIN CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

INDEX

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Unaudited Pro Forma Combined Financial Information
(in thousands)

On April 1, 2022, we acquired all of the equity interests of Bay Equity LLC (“Bay Equity”), and Bay Equity became one of our wholly owned subsidiaries (the “Acquisition”). We acquired Bay Equity to expand our mortgage business.

The purchase price for the Acquisition is estimated to be $137,818, which represents a $72,500 premium over Bay Equity’s tangible book value as of February 28, 2022. The final purchase price, which will be determined by the end of third quarter of 2022, will be subject to adjustment based on the tangible book value of Bay Equity as of April 1, 2022, as well as certain other transaction-related adjustments.

We made the Acquisition pursuant to a merger agreement, dated as of January 10, 2022 (the “Merger Agreement”), among Redfin Corporation, Ruby Merger Sub LLC, one of our wholly owned subsidiaries (“Merger Sub”), BE Holdco, LLC, which held all of the equity interests of Bay Equity (“BE Holdco”), and Brett McGovern, as representative of the members of BE Holdco. Pursuant to the Merger Agreement, Merger Sub merged with and into BE Holdco, and BE Holdco continued as the surviving entity and became a wholly owned subsidiary of Redfin Corporation.

Our unaudited pro forma combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been achieved if the Acquisition had been completed on an earlier date, and should not be taken as representative of our future consolidated results of operations or financial condition. Preparation of our unaudited pro forma combined financial information for all periods presented required management to make certain judgments and estimates to determine the transaction accounting adjustments such as purchase accounting adjustments, which include, among others, amortization charges from acquired intangible assets. The transaction accounting adjustments are based on the information currently available and the assumptions and estimates underlying the transaction accounting adjustments are described in the accompanying notes. Actual results may differ from the assumptions used to present the accompanying unaudited pro forma combined financial information. The unaudited pro forma combined financial information also reflects reclassification adjustments to certain financial statement captions included in Bay Equity’s historical consolidated financial statements to align with the corresponding financial statement captions included in our historical presentation. The reclassifications had no impact on the historical results of operations, net (loss) income, total assets, total liabilities, or total stockholders' equity reported by us or Bay Equity.

Our unaudited pro forma combined financial information should be read in conjunction with our historical consolidated financial statements and notes thereto and other financial information included in our annual report on Form 10-K for the year ended December 31, 2021, and the audited consolidated financial statements of Bay Equity as of and for the period ended December 31, 2021 (included in exhibit 99.1).




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Unaudited Pro Forma Combined Balance Sheet
As of December 31, 2021
(in thousands)

HistoricalTransaction AccountingReclassification
RedfinBay EquityAdjustmentsAdjustmentsPro Forma
December 31, 2021(Note 3)(Note 4)Combined
Assets
Current assets
Cash and cash equivalents$591,003 $42,944 $(137,818)(a)$— $496,129 
Restricted cash127,278 2,310 — — 129,588 
Short-term investments33,737 — — — 33,737 
Escrow cash— 831 (831)(b)— — 
Accounts receivable, net69,594 12,307 — (1,433)(j)80,468 
Inventory358,221 — — — 358,221 
Loans held for sale35,759 321,684 — — 357,443 
Mortgage servicing rights— 27,658 — — 27,658 
Prepaid expenses22,948 1,768 — — 24,716 
Other current assets7,524 — 718 (c)4,788 (j)13,030 
Derivative assets— 3,355 — (3,355)(j)— 
Total current assets1,246,064 412,857 (137,931)— 1,520,990 
Property and equipment, net58,671 1,312 — — 59,983 
Right-of-use assets, net54,200 — 6,579 (d)— 60,779 
Long-term investments54,828 — — — 54,828 
Intangible assets, net185,929 — 14,510 (e)— 200,439 
Goodwill409,382 — 60,758 (e)— 470,140 
Other assets, noncurrent12,898 — — 256 (j)13,154 
Deposits— 256 — (256)(j)— 
Total assets$2,021,972 $414,425 $(56,084)$— $2,380,313 
Liabilities, mezzanine equity, and stockholders’ equity
Current liabilities
Accounts payable$12,546 $5,626 $— $(3,255)(j)$14,917 
Accrued and other liabilities118,122— 10,832 (c), (f), (g)44,380 (j)173,334 
Accrued payroll expenses—32,890 — (32,890)(j)— 
Escrow payable—798 (798)(b)— — 
Warehouse credit facilities33,043 304,293 — — 337,336 
Secured revolving credit facility199,781 — — — 199,781 
Convertible senior notes, net23,280 — — — 23,280 
Lease liabilities15,040 — 3,881 (d)— 18,921 
Total current liabilities401,812 343,607 13,915 8,235 767,569 
Lease liabilities, noncurrent55,222 — 2,698 (d)— 57,920 
Reserve for loan loss— 8,235 — (8,235)(j)— 
Convertible senior notes, net, noncurrent1,214,017 — — — 1,214,017 
Deferred tax liabilities1,201 — — — 1,201 
Total liabilities1,672,252 351,842 16,613 — 2,040,707 
Series A convertible preferred stock—par value $0.001 per share; 10,000,000 shares authorized; 40,000 shares issued and outstanding39,868 — — — 39,868 
Stockholders’ equity
Common stock106 — — — 106 
Additional paid-in capital682,084 — — — 682,084 
Accumulated other comprehensive loss(174)— — — (174)
Accumulated deficit(372,164)— (10,114)(f), (g)— (382,278)
Members’ equity— 62,583 (62,583)(h)— — 
Total stockholders’ equity309,852 62,583 (72,697)— 299,738 
Total liabilities, mezzanine equity, and stockholders’ equity$2,021,972 $414,425 $(56,084)$— $2,380,313 
See Notes to the unaudited pro forma combined financial information.







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Unaudited Pro Forma Combined Statement of Comprehensive Loss
For the Year Ended December 31, 2021
(in thousands, except share and per share amounts)

Historical
RedfinBay EquityTransaction AccountingReclassification
Twelve Months EndedAdjustmentsAdjustmentsPro Forma
December 31, 2021(Note 3)(Note 4)Combined
Revenue
Service$1,042,112 $— $— $350,122 (k), (m)$1,392,234 
Product880,653 — — — 880,653 
Loan origination fees— 211,370 — (211,370)(k)— 
Gain on sale of mortgage loans— 131,952 — (131,952)(k)— 
Servicing fee income— 6,478 — (6,478)(k)— 
Interest income— 14,005 — (14,005)(k)— 
Total revenue1,922,765 363,805 — (13,683)2,272,887 
Cost of revenue
Service648,660 — — 224,483 (l)873,143 
Product870,285 — — — 870,285 
Total cost of revenue1,518,945 — — 224,483 1,743,428 
Gross profit403,820 363,805 — (238,166)529,459 
Operating expenses
Technology and development156,718 — 953 (i)1,471 (l)159,142 
Marketing138,740 — — 8,432 (l)147,172 
General and administrative218,315 15,378 4,726 (f), (i)34,449 (l)272,868 
Restructuring and reorganization— — 7,718 (g)— 7,718 
Labor— 238,882 — (238,882)(l)— 
Occupancy— 14,111 — (14,111)(l)— 
Interest expense— 13,683 — (13,683)(m)— 
Advertising— 6,830 — (6,830)(l)— 
Legal and professional— 8,394 — (8,394)(l)— 
Depreciation— 618 — (618)(l)— 
Total operating expenses513,773 297,896 13,397 (238,166)586,900 
Loss from operations(109,953)65,909 (13,397)— (57,441)
Interest income635 — — — 635 
Interest expense(11,762)— — — (11,762)
Other income, net5,360 — — — 5,360 
Income tax benefit (expense)6,107 (781)— — 5,326 
Net loss$(109,613)$65,128 $(13,397)$— $(57,882)
Dividends on convertible preferred stock(7,269)— — — (7,269)
Net loss attributable to common stock—basic and diluted$(116,882)$65,128 $(13,397)$— $(65,151)
Net loss per share attributable to common stock—basic and diluted$(1.12)$— $— $— $(0.62)
Weighted average shares to compute net loss per share attributable to common stock—basic and diluted104,683,460 — — — 104,683,460 
Net loss$(109,613)$65,128 $(13,397)$— $(57,882)
Other comprehensive income
Foreign currency translation adjustments6 — — — 6 
Unrealized gain on available-for-sale securities379 — — — 379 
Total other comprehensive income385 — — — 385 
Comprehensive loss$(109,228)$65,128 $(13,397)$— $(57,497)
See Notes to the unaudited pro forma combined financial information.
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Redfin Corporation
Notes to the Unaudited Pro Forma Combined Financial Information
(in thousands)

Note 1: Basis of Presentation

On April 1, 2022, we completed our acquisition of Bay Equity whereby we acquired Bay Equity in a transaction accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Under this method of accounting, the total purchase price of $137,818 was made up of all cash consideration.

The unaudited pro forma combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been achieved if the Acquisition had been completed on an earlier date, and should not be taken as representative of our future consolidated results of operations or financial condition. Preparation of the unaudited pro forma combined financial information for all periods presented required management to make certain judgments and estimates to determine the transaction accounting adjustments, such as purchase accounting adjustments, which include, among others, amortization charges from acquired intangible assets. This information has been prepared in accordance with Article 11 of Regulation S-X, and is for informational purposes only and is subject to a number of uncertainties and assumptions as described in the accompanying notes.

The unaudited pro forma combined balance sheet as of December 31, 2021 is based on the historical balance sheets of us and Bay Equity and have been prepared to reflect the Acquisition and related adjustments as if the Acquisition had been consummated on December 31, 2021. The unaudited pro forma combined consolidated statements of comprehensive income (loss) for the year ended December 31, 2021 combines ours and Bay Equity’s historical consolidated statements of comprehensive income (loss) as if the Acquisition had been consummated on January 1, 2021. The unaudited pro forma combined financial statements noted above are also presented under FASB ASC Topic 606, Revenues from Contracts with Customers, and FASB ASC Topic 842, Leases, for both us and Bay Equity.

Note 2: Calculation of Purchase Price Consideration and Purchase Price Allocation

Calculation of Purchase Price Consideration—The purchase price for the Acquisition is estimated to be $137,818, which represents a $72,500 premium over Bay Equity’s tangible book value as of February 28, 2022. The final cash purchase price is subject to adjustments based on the tangible book value of Bay Equity as of April 1, 2022, as well as certain other transaction-related adjustments, and will be determined by the end of third quarter of 2022.

Preliminary Purchase Price Allocation—The total purchase price has been allocated to Bay Equity’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at April 1, 2022. The preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and statement of comprehensive (loss) income. The final purchase price allocation will be determined when we have completed the detailed valuations and necessary calculations. The final allocation is expected to be completed when we file our report on Form 10-Q for the quarter ending March 31, 2023 and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment; (2) changes in allocations to intangible assets, such as trade names and developed technology, as well as goodwill; and (3) other changes to assets and liabilities.

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The following table sets forth a preliminary allocation of the purchase price to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Bay Equity using Bay Equity’s audited balance sheet as of December 31, 2021, with the excess recorded to goodwill:

Assets acquired
Cash and cash equivalents$42,944 
Restricted cash2,310 
Accounts receivable10,874 
Prepaid expenses1,768 
Loans held for sale321,684 
Mortgage servicing rights27,658 
Other current assets5,506 
Property and equipment, net1,312 
Right of use assets, net6,579 
Intangible assets14,510 
Goodwill60,758 
Other assets, noncurrent256 
Total assets acquired496,159 
Liabilities assumed
Accounts payable(2,371)
Accrued and other liabilities(45,098)
Warehouse credit facilities(304,293)
Lease liabilities(3,881)
Lease liabilities, noncurrent(2,698)
Total liabilities assumed(358,341)
Net assets acquired$137,818 

Identifiable intangible assets—The identifiable intangible assets include trade names and developed technology. Trade names primarily relate to the Bay Equity brand. Developed technology primarily relates to website functionality around data consolidation and optimization which helps drive efficiencies in loan origination and processing.

Goodwill—Approximately $60,758 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. In accordance with FASB ASC 350, Intangibles - Goodwill and Other, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that we determine the value of goodwill has become impaired, we will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

Note 3. Transaction Accounting Adjustments

The transaction accounting adjustments included in the unaudited pro forma combined financial statements are as follows:

a. Adjustment to reflect the cash purchase price of $137,818.

b. Adjustment to remove escrow cash and escrow payable from the balance sheet which are not included on the balance sheet in accordance with our accounting policy.
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c. Adjustment to current assets and liabilities to adjust Bay Equity’s accounting to be consistent with ours as it relates to pair-off settlements due from brokers/dealers used for hedging transactions. Bay Equity historically recognized the net asset or liability amount arising from derivative positions, while we recognize the gross asset and liability associated with each position.

d. Adjustment to reflect the implementation of FASB ASC Topic 842, Leases, by Bay Equity to conform to the adoption date as a public business entity and our associated accounting policy. Bay Equity adopted the accounting standard on January 1, 2022.

e. Adjustment to record the fair value of acquired intangible assets of $14,510 and goodwill of $60,758.

f. Adjustment for transaction costs incurred by us or Bay Equity after December 31, 2021, which have not yet been included in historical financial statements.

Balance SheetIncome Statement
As of December 31, 2021Year Ended
December 31, 2021
Transaction costs incurred by Bay Equity$385 $385 
Transaction costs incurred by Redfin2,011 2,011 
Total transaction costs$2,396 $2,396 

We expensed certain transaction costs for book purposes in conjunction with the Acquisition which may be capitalized for tax purposes and would become deductible in the future. As such, we would recognize a deferred tax asset from this arrangement in the amount of $422 which equals the transaction cost adjustment of $2,011 multiplied by the statutory rate of 21%. However, we recognize a full valuation allowance on the Company’s deferred tax assets. As a result, the net impact is $0, and therefore is not shown as a transaction accounting adjustment.

g. Adjustment for restructuring and reorganization costs related to the Acquisition incurred by us after December 31, 2021, and not included in the historical financial statements, which consist of severance costs and retention costs in relation to Bay Equity employees.

Balance SheetIncome Statement
As of December 31, 2021Year Ended
December 31, 2021
Severance costs incurred by Redfin$4,164 $4,164 
Retention costs incurred by Redfin3,554 3,554 
Total restructuring and reorganization costs$7,718 $7,718 

h. Adjustment to eliminate Bay Equity’s historical equity balances.

i. Adjustment to record amortization of intangible assets recorded as a result of the measurement of Bay Equity’s assets and liabilities at fair value as a result of the Acquisition. The adjustment recorded $3,283 of intangible amortization, $953 of which relates to developed technology and was recorded in technology and development and $2,330 which relates to trade names and was recorded in general and administrative. The estimated useful lives of the intangible assets are as follows:

Estimated useful lives
(in years)
Trade names5 
Developed technology3 
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Note 4: Reclassification Adjustments

Certain reclassification adjustments have been made to the unaudited pro forma combined financial statements to conform Bay Equity’s historical financial statement presentation to our financial statement presentation. The unaudited proforma combined balance sheet is presented as of December 31, 2021 and the unaudited pro forma combined consolidated statement of comprehensive (loss) income is presented for the year ended December 31, 2021. The reclassification adjustments did not impact total assets, total liabilities, total stockholders’ equity, or net (loss) income. The following reclassification adjustments were made to the unaudited pro forma combined financial statements to conform Bay Equity’s presentation to our presentation:

j. Adjustment to reclassify Bay Equity line items to conform to the presentation used on our balance sheet. This consists of a reclassification of all derivative assets and certain amounts that Bay Equity had previously classified as accounts receivable into the other current assets line item. In addition, we reclassified all deposits into the other current assets line item. Lastly, we reclassified accrued payroll expenses, the reserve for loan losses, and certain amounts into accrued and other liabilities.

k. Adjustment to reclassify Bay Equity revenue line items to conform to our presentation. All of Bay Equity's revenue line items were reclassified into the service revenue line item.

l. Adjustments to reclassify Bay Equity’s expenses to conform to our income statement presentation. Bay Equity historically presented costs and expenses based on their nature rather than function. The following is a breakout of the reclassifications made:

Year Ended
December 31, 2021
Labor to cost of revenue$206,202 
Occupancy to cost of revenue8,114 
General and administrative to cost of revenue9,525 
Legal and professional to cost of revenue642 
Net change to service cost of revenue$224,483 

Year Ended
December 31, 2021
Legal and professional to technology and development$957 
Labor to technology and development511 
Occupancy expenses to technology and development2 
General and administrative to technology and development1 
Net change to technology and development$1,471 

Year Ended
December 31, 2021
Advertising to marketing$6,830 
Labor to marketing1,378 
General and administrative to marketing214 
Occupancy expenses to marketing7 
Legal and professional expenses to marketing3 
Net change to marketing$8,432 

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Year Ended
December 31, 2021
Labor to general and administrative$30,791 
Legal and professional expenses to general and administrative6,792 
Occupancy expenses to general and administrative5,988 
Depreciation to general and administrative618 
General and administrative reclassified out to other captions(9,740)
Net change to general and administrative$34,449 

m. Adjustment to reclassify interest expense associated with warehouse credit line which was reclassified to be presented net of interest income earned on mortgages and included within the Redfin's service revenue line item.
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