rdfn-20230331

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, 2023

☐ 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 110,805,182 shares of common stock outstanding as of May 1, 2023.

Redfin Corporation

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2023

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	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46

PART II

Item 1	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 6.	Exhibits	49

	Signatures	50

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, and (ii) 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, 2022, 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, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	149,940	$	239,840
Restricted cash	2,416		2,406
Short-term investments	140,531		122,259
Accounts receivable, net of allowances for credit losses of $2,277 and $2,019	48,142		54,880
Inventory	10,685		114,273
Loans held for sale	192,622		199,604
Prepaid expenses	33,784		34,506
Other current assets	14,918		8,690
Total current assets	593,038		776,458
Property and equipment, net	52,551		55,105
Right-of-use assets, net	38,932		42,032
Mortgage servicing rights, at fair value	35,061		36,261
Long-term investments	9,572		29,480
Goodwill	461,349		461,349
Intangible assets, net	152,525		162,272
Other assets, noncurrent	11,413		11,247
Total assets	$	1,354,441	$	1,574,204
Liabilities, mezzanine equity, and stockholders' equity
Current liabilities
Accounts payable	$	10,154	$	11,819
Accrued and other liabilities	92,275		109,743
Warehouse credit facilities	185,283		190,509
Convertible senior notes, net	23,468		23,431
Lease liabilities	18,015		19,137
Total current liabilities	329,195		354,639
Lease liabilities, noncurrent	35,757		37,298
Convertible senior notes, net, noncurrent	928,651		1,078,157

Deferred tax liabilities	249		243
Total liabilities	1,293,852		1,470,337
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, 2023 and December 31, 2022, respectively	39,925		39,914
Stockholders’ equity
Common stock—par value $0.001 per share; 500,000,000 shares authorized; 110,526,884 and 109,696,178 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	110		110
Additional paid-in capital	775,094		757,951
Accumulated other comprehensive loss	(435)		(801)
Accumulated deficit	(754,105)		(693,307)
Total stockholders’ equity	20,664		63,953
Total liabilities, mezzanine equity, and stockholders’ equity	$	1,354,441	$	1,574,204

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,
	2023		2022
Revenue
Service	$	212,934	$	217,593
Product	112,727		379,753
Total revenue	325,661		597,346
Cost of revenue
Service	154,796		165,809
Product	114,658		358,999
Total cost of revenue	269,454		524,808
Gross profit	56,207		72,538
Operating expenses
Technology and development	48,192		49,640
Marketing	40,908		43,342
General and administrative	69,962		58,966
Restructuring and reorganization	1,053		5,710
Total operating expenses	160,115		157,658
Loss from operations	(103,908)		(85,120)
Interest income	3,406		220
Interest expense	(1,922)		(3,861)
Income tax expense	(410)		(134)
Gain on extinguishment of convertible senior notes	42,270		—
Other expense, net	(234)		(1,911)
Net loss	$	(60,798)	$	(90,806)
Dividends on convertible preferred stock	(226)		(793)

Net loss attributable to common stock—basic and diluted	$	(61,024)	$	(91,599)
Net loss per share attributable to common stock—basic and diluted	$	(0.55)	$	(0.86)
Weighted-average shares to compute net loss per share attributable to common stock—basic and diluted	110,103,598		106,664,140



Net loss	$	(60,798)	$	(90,806)
Other comprehensive (loss) income
Foreign currency translation adjustments	58		4
Unrealized (loss) gain on available-for-sale debt securities	(424)		561
Comprehensive loss	$	(61,164)	$	(90,241)

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,
	2023		2022
Operating Activities
Net loss	$	(60,798)	$	(90,806)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	17,013		14,813
Stock-based compensation	19,028		16,788
Amortization of debt discount and issuance costs	1,087		1,440
Non-cash lease expense	4,816		3,169
Impairment costs	113		—
Net (gain) loss on IRLCs, forward sales commitments, and loans held for sale	(8,326)		60
Change in fair value of mortgage servicing rights, net	1,208		—
Gain on extinguishment of convertible senior notes	(42,270)		—
Other	(1,174)		2,290
Change in assets and liabilities:
Accounts receivable, net	6,738		17,312
Inventory	103,588		112,734
Prepaid expenses and other assets	1,110		(1,982)
Accounts payable	(1,675)		9,876
Accrued and other liabilities, deferred tax liabilities, and payroll tax liabilities, noncurrent	(16,813)		(14,442)
Lease liabilities	(4,619)		(3,642)
Origination of mortgage servicing rights	(347)		—
Proceeds from sale of mortgage servicing rights	339		—
Origination of loans held for sale	(854,085)		(159,186)
Proceeds from sale of loans originated as held for sale	861,771		170,577
Net cash provided by operating activities	26,704		79,001
Investing activities
Purchases of property and equipment	(2,919)		(7,442)
Purchases of investments	(57,556)		(77,596)
Sales of investments	12,014		5,346
Maturities of investments	48,483		6,500

Net cash provided by (used in) investing activities	22		(73,192)
Financing activities


Proceeds from the issuance of common stock pursuant to employee equity plans	143		1,887
Tax payments related to net share settlements on restricted stock units	(3,161)		(2,595)
Borrowings from warehouse credit facilities	852,988		152,386
Repayments to warehouse credit facilities	(858,214)		(163,144)
Borrowings from secured revolving credit facility	—		156,799
Repayments to secured revolving credit facility	—		(219,711)
Cash paid for secured revolving credit facility issuance costs	—		(764)



Principal payments under finance lease obligations	(40)		(217)
Repurchases of convertible senior notes	(108,274)		—


Net cash used in financing activities	(116,558)		(75,359)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(58)		(4)
Net change in cash, cash equivalents, and restricted cash	(89,890)		(69,554)
Cash, cash equivalents, and restricted cash:
Beginning of period	242,246		718,281
End of period	$	152,356	$	648,727

Supplemental disclosure of cash flow information
Cash paid for interest	$	4,609	$	3,377
Non-cash transactions
Stock-based compensation capitalized in property and equipment	1,134		1,134
Property and equipment additions in accounts payable and accrued liabilities	32		326


	As of March 31,
	2023		2022
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	149,940	$	612,680
Restricted cash	2,416		36,047
Total cash, cash equivalents, and restricted cash	$	152,356	$	648,727

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 Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
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

Balance, December 31, 2022	40,000	$	39,914	109,696,178	$	110	$	757,951	$	(693,307)	$	(801)	$	63,953
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	—	—		18,037	—		143		—		—		143
Issuance of common stock pursuant to settlement of restricted stock units	—	—		1,155,826	1		(1)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(373,797)	(1)		(3,161)		—		—		(3,162)

Stock-based compensation	—	—		—	—		20,162		—		—		20,162
Other comprehensive income	—	—		—	—		—		—		366		366
Net loss	—	—		—	—		—		(60,798)		—		(60,798)
Balance, March 31, 2023	40,000	$	39,925	110,526,884	$	110	$	775,094	$	(754,105)	$	(435)	$	20,664

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	6
Note 3:	Segment Reporting and Revenue	8
Note 4:	Financial Instruments	9
Note 5:	Inventory	15
Note 6:	Property and Equipment	15
Note 7:	Leases	16
Note 8:	Commitments and Contingencies	17
Note 9:	Acquired Intangible Assets and Goodwill	18
Note 10:	Accrued and Other Liabilities	19
Note 11:	Mezzanine Equity	19
Note 12:	Equity and Equity Compensation Plans	20
Note 13:	Net Loss per Share Attributable to Common Stock	22
Note 14:	Income Taxes	23
Note 15:	Debt	24

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, 2022 that is included in this quarterly report is derived from the audited consolidated financial statements and notes for the year ended December 31, 2022 included in Item 8 in our annual report for the year ended December 31, 2022. 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, 2023, our statements of comprehensive loss, and statements of changes in mezzanine equity and stockholders’ equity for the three months ended March 31, 2023 and 2022, as well as our statements of cash flows for the three months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 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 (“LHFS”) and mortgage servicing rights, 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.

Recently Adopted Accounting Pronouncements—None applicable.

Recently Issued Accounting Pronouncements—None applicable.

Note 2: Business Combinations

On April 1, 2022, we acquired, for $139,671 in cash, all of the equity interests of Bay Equity, and Bay Equity became one of our wholly owned subsidiaries. We acquired Bay Equity to expand our mortgage business.

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. The revenue from Bay Equity is reported in our mortgage segment in Note 3. The goodwill recognized in connection with our acquisition of Bay Equity 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 $51,967 to the mortgage segment.

Index to Notes to Financial Statements

The following table summarizes the fair value of assets acquired and liabilities assumed as a result of the Bay Equity acquisition:


Cash and cash equivalents	$	39,963
Restricted cash	2,367
Accounts receivable	9,697
Prepaid expenses	1,222
Other current assets	19,262
Property and equipment, net	897
Operating lease right-of-use assets	4,995
Loans held for sale	213,891
Mortgage servicing rights, at fair value	33,982
Other assets, noncurrent	294
Intangible assets	14,510
Goodwill	51,967
Total assets acquired	393,047
Accounts payable	1,747
Accrued and other liabilities	38,026
Lease liabilities	2,848
Lease liabilities and deposits, noncurrent	2,147
Warehouse credit facilities	208,608
Total liabilities assumed	253,376
Total purchase consideration	$	139,671

There were $0 and $917 acquisition-related costs associated with the Bay Equity Acquisition for the three months ended March 31, 2023 and 2022, respectively.

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


	Estimated Fair Value		Estimated Useful Life (in years)
Trade names	$	11,650	5
Developed technology	2,860		3
Total	14,510

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. The fair values of trade names and developed technology are derived by applying the relief from royalty method and replacement cost 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.

Index to Notes to Financial Statements

Unaudited Pro Forma Financial Information—The following table presents unaudited pro forma financial information for the three months ended March 31, 2023 and 2022. The pro forma financial information combines our results of operations with that of Bay Equity as though the companies had been combined as of January 1, 2021. 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 Bay Equity acquisition had taken place at such time.


	Three Months Ended March 31,
	2023		2022
Revenue	$	325,661	$	653,214
Net loss	(60,798)		(86,594)

There were no material non-recurring adjustments made in the pro forma financial information disclosed above.

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. We have six operating segments and four reportable segments, real estate services, properties, rentals, and mortgage. As a result of our decision to wind-down RedfinNow operations in November 2022, we plan to report our properties segment as a discontinued operation beginning with the period during which we complete wind-down of the business.

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, from subscription-based product offerings for our rentals business, and from the origination, sales, and servicing of mortgages. Our key revenue components are brokerage revenue, partner revenue, properties revenue, rentals revenue, mortgage revenue, and other revenue.

Index to Notes to Financial Statements

Information on each of our reportable and other segments and reconciliation to consolidated net loss is presented in the tables below. We have assigned certain previously reported expenses to each segment to conform to the way we internally manage and monitor our business. We allocated indirect costs to each segment based on a reasonable allocation methodology, when such costs are significant to the performance measures of the segments.


	Three Months Ended March 31, 2023
	Real estate services		Properties		Rentals		Mortgage		Other		Corporate Overhead and Intercompany Eliminations		Total
Revenue	$	127,296	$	112,727	$	42,870	$	36,489	$	7,428	$	(1,149)	$	325,661
Cost of revenue	111,494		114,658		9,765		29,213		5,473		(1,149)		269,454
Gross profit	15,802		(1,931)		33,105		7,276		1,955		—		56,207
Operating expenses
Technology and development	28,895		529		15,964		643		1,224		937		48,192
Marketing	25,060		505		14,326		980		10		27		40,908
General and administrative	19,618		523		26,302		6,929		1,053		15,537		69,962
Restructuring and reorganization	—		—		—		—		—		1,053		1,053
Total operating expenses	73,573		1,557		56,592		8,552		2,287		17,554		160,115
Loss from operations	(57,771)		(3,488)		(23,487)		(1,276)		(332)		(17,554)		(103,908)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	—		814		45		(60)		115		42,196		43,110
Net loss	$	(57,771)	$	(2,674)	$	(23,442)	$	(1,336)	$	(217)	$	24,642	$	(60,798)


	Three Months Ended March 31, 2022
	Real estate services		Properties		Rentals		Mortgage		Other		Corporate Overhead and Intercompany Eliminations		Total
Revenue	$	177,487	$	379,753	$	38,044	$	2,917	$	4,368	$	(5,223)	$	597,346
Cost of revenue	153,784		358,866		7,193		5,517		4,671		(5,223)		524,808
Gross profit	23,703		20,887		30,851		(2,600)		(303)		—		72,538
Operating expenses
Technology and development	26,739		4,119		14,282		2,347		1,036		1,117		49,640
Marketing	30,844		1,153		11,042		28		53		222		43,342
General and administrative	22,992		2,825		24,192		1,524		712		6,721		58,966
Restructuring and reorganization	—		—		—		—		—		5,710		5,710
Total operating expenses	80,575		8,097		49,516		3,899		1,801		13,770		157,658
Income (loss) from operations	(56,872)		12,790		(18,665)		(6,499)		(2,104)		(13,770)		(85,120)
Interest income, interest expense, income tax expense, and other expense, net	—		(1,624)		469		1		1		(4,533)		(5,686)
Net (loss) income	$	(56,872)	$	11,166	$	(18,196)	$	(6,498)	$	(2,103)	$	(18,303)	$	(90,806)

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, 2023		December 31, 2022
Forward sales commitments	$	416,648	$	301,548
IRLCs	384,007		210,787

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


		Three Months Ended March 31,
Instrument	Classification	2023		2022
Forward sales commitments	Service revenue	$	(253)	$	1,503
IRLCs	Service revenue	7,874		(887)

Index to Notes to Financial Statements

Fair Value of Financial Instruments

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, 2023		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	$	123,762	$	123,762	$	—	$	—

Total cash equivalents	123,762		123,762		—		—
Short-term investments
U.S. treasury securities	108,326		108,326		—		—
Agency bonds	32,205		32,205		—		—
Total short-term investments	140,531		140,531		—		—
Loans held for sale	192,622		—		192,622		—
Other current assets
Forward sales commitments	1,840		—		1,840		—
IRLCs	9,213		—		—		9,213
Total other current assets	11,053		—		1,840		9,213
Mortgage servicing rights, at fair value	35,061		—		—		35,061
Long-term investments
U.S. treasury securities	4,939		4,939		—		—
Agency bonds	4,633		4,633		—		—
Total long-term investments	9,572		9,572		—		—
Total assets	$	512,601	$	273,865	$	194,462	$	44,274
Liabilities
Accrued liabilities
Forward sales commitments	$	2,297	$	—	$	2,297	$	—
IRLCs	43		—		—		43
Total liabilities	$	2,340	$	—	$	2,297	$	43

Index to Notes to Financial Statements


	Balance at December 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	$	186,410	$	186,410	$	—	$	—

Total cash equivalents	186,410		186,410		—		—
Short-term investments
U.S. treasury securities	96,925		96,925		—		—
Agency bonds	25,334		25,334		—		—

Total short-term investments	122,259		122,259		—		—
Loans held for sale	199,604		—		199,604		—
Other current assets
Forward sales commitments	1,669		—		1,669		—
IRLCs	2,338		—		—		2,338
Total other current assets	4,007		—		1,669		2,338
Mortgage servicing rights, at fair value	36,261		—		—		36,261
Long-term investments
U.S. treasury securities	29,480