rdfn-20230930

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, 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 115,241,638 shares of common stock outstanding as of October 27, 2023.

Redfin Corporation

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 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	50
Item 4.	Controls and Procedures	51

PART II

Item 1	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 5.	Other Information	56
Item 6.	Exhibits	57

	Signatures	58

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 Bay Equity 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, 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)


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	125,803	$	232,200
Restricted cash	1,414		2,406
Short-term investments	41,752		122,259
Accounts receivable, net of allowances for credit losses of $2,529 and $2,223	55,118		46,375
Loans held for sale	137,680		199,604
Prepaid expenses	26,248		34,006
Other current assets	8,811		7,449
Current assets of discontinued operations	—		132,159
Total current assets	396,826		776,458
Property and equipment, net	48,405		54,939
Right-of-use assets, net	35,150		40,889
Mortgage servicing rights, at fair value	34,773		36,261
Long-term investments	5,474		29,480
Goodwill	461,349		461,349
Intangible assets, net	133,031		162,272
Other assets, noncurrent	10,857		11,247
Noncurrent assets of discontinued operations	—		1,309
Total assets	$	1,125,865	$	1,574,204
Liabilities, mezzanine equity, and stockholders' equity
Current liabilities
Accounts payable	$	11,996	$	11,065
Accrued and other liabilities	88,191		106,763
Warehouse credit facilities	132,320		190,509
Convertible senior notes, net	—		23,431
Lease liabilities	16,317		18,560
Current liabilities of discontinued operations	—		4,311
Total current liabilities	248,824		354,639
Lease liabilities, noncurrent	31,416		36,906
Convertible senior notes, net, noncurrent	799,665		1,078,157

Deferred tax liabilities	260		243
Noncurrent liabilities of discontinued operations	—		392
Total liabilities	1,080,165		1,470,337
Commitments and contingencies (Note 7)
Series A convertible preferred stock—par value $0.001 per share; 10,000,000 shares authorized; 40,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	39,947		39,914
Stockholders’ equity
Common stock—par value $0.001 per share; 500,000,000 shares authorized; 115,210,998 and 109,696,178 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	115		110
Additional paid-in capital	806,330		757,951
Accumulated other comprehensive loss	(257)		(801)
Accumulated deficit	(800,435)		(693,307)
Total stockholders’ equity	5,753		63,953
Total liabilities, mezzanine equity, and stockholders’ equity	$	1,125,865	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	268,956	$	305,774	$	758,595	$	877,639
Cost of revenue	170,616		215,109		501,927		624,089
Gross profit	98,340		90,665		256,668		253,550
Operating expenses
Technology and development	44,392		43,335		139,196		135,678
Marketing	24,095		33,242		97,531		131,352
General and administrative	55,380		57,976		186,584		182,640
Restructuring and reorganization	—		284		7,159		18,399
Total operating expenses	123,867		134,837		430,470		468,069
Loss from continuing operations	(25,527)		(44,172)		(173,802)		(214,519)
Interest income	2,060		1,174		8,170		1,948
Interest expense	(1,603)		(2,219)		(5,291)		(6,648)
Income tax expense	(239)		(132)		(882)		(425)
Gain on extinguishment of convertible senior notes	6,495		—		68,848		—
Other expense, net	(158)		(902)		(537)		(3,077)
Net loss from continuing operations	(18,972)		(46,251)		(103,494)		(222,721)
Net loss from discontinued operations	—		(43,994)		(3,634)		(36,476)
Net loss	$	(18,972)	$	(90,245)	$	(107,128)	$	(259,197)

Dividends on convertible preferred stock	(335)		(272)		(858)		(1,416)


Net loss from continuing operations attributable to common stock—basic and diluted	$	(19,307)	$	(46,523)	$	(104,352)	$	(224,137)
Net loss attributable to common stock—basic and diluted	$	(19,307)	$	(90,517)	$	(107,986)	$	(260,613)

Net loss from continuing operations per share attributable to common stock—basic and diluted	$	(0.17)	$	(0.43)	$	(0.93)	$	(2.08)
Net loss attributable to common stock per share—basic and diluted	$	(0.17)	$	(0.83)	$	(0.96)	$	(2.42)

Weighted-average shares to compute net loss per share attributable to common stock—basic and diluted	114,592,679		108,618,491		112,141,342		107,566,894



Net loss	$	(18,972)	$	(90,245)	$	(107,128)	$	(259,197)
Other comprehensive income
Foreign currency translation adjustments	(15)		27		(73)		65
Unrealized gain on available-for-sale debt securities	210		34		617		812
Comprehensive loss	$	(18,777)	$	(90,184)	$	(106,584)	$	(258,320)

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,
	2023		2022
Operating Activities
Net loss	$	(107,128)	$	(259,197)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	48,443		47,438
Stock-based compensation	55,382		51,672
Amortization of debt discount and issuance costs	2,873		4,358
Non-cash lease expense	12,909		11,313
Impairment costs	113		913
Net (gain) loss on IRLCs, forward sales commitments, and loans held for sale	(1,767)		4,228
Change in fair value of mortgage servicing rights, net	1,065		(1,472)
Gain on extinguishment of convertible senior notes	(68,848)		—
Other	(2,013)		3,254
Change in assets and liabilities:
Accounts receivable, net	(238)		(17,052)
Inventory	114,232		56,990
Prepaid expenses and other assets	9,696		(2,721)
Accounts payable	177		(1,875)
Accrued and other liabilities, deferred tax liabilities, and payroll tax liabilities, noncurrent	(19,346)		(24,202)
Lease liabilities	(14,864)		(12,435)
Origination of mortgage servicing rights	(699)		(2,774)
Proceeds from sale of mortgage servicing rights	1,122		1,314
Origination of loans held for sale	(2,798,337)		(3,091,099)
Proceeds from sale of loans originated as held for sale	2,858,656		3,082,858
Net cash provided by (used in) operating activities	91,428		(148,489)
Investing activities
Purchases of property and equipment	(9,235)		(17,496)
Purchases of investments	(76,866)		(145,273)
Sales of investments	124,681		12,946
Maturities of investments	59,383		66,055
Cash paid for acquisition, net of cash, cash equivalents, and restricted cash acquired	—		(97,341)
Net cash provided by (used in) investing activities	97,963		(181,109)
Financing activities


Proceeds from the issuance of common stock pursuant to employee equity plans	5,790		9,679
Tax payments related to net share settlements on restricted stock units	(15,961)		(6,650)
Borrowings from warehouse credit facilities	2,803,589		3,080,606
Repayments to warehouse credit facilities	(2,861,779)		(3,069,728)
Borrowings from secured revolving credit facility	—		552,051
Repayments to secured revolving credit facility	—		(549,416)
Cash paid for secured revolving credit facility issuance costs	—		(764)



Principal payments under finance lease obligations	(73)		(680)
Repurchases of convertible senior notes	(212,401)		—

Repayments of convertible senior notes	(23,512)		—
Net cash (used in) provided by financing activities	(304,347)		15,098
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(73)		(65)
Net change in cash, cash equivalents, and restricted cash	(115,029)		(314,565)
Cash, cash equivalents, and restricted cash:
Beginning of period(1)	242,246		718,281
End of period(2)	$	127,217	$	403,716

Supplemental disclosure of cash flow information
Cash paid for interest	$	13,540	$	12,887
Non-cash transactions
Stock-based compensation capitalized in property and equipment	3,173		2,983
Property and equipment additions in accounts payable and accrued liabilities	29		28

(1) Cash, cash equivalents, and restricted cash consisted of the following (beginning of period):


	As of December 31,
	2022		2021
Continuing operations
Cash and cash equivalents	$	232,200	$	571,384
Restricted cash	2,406		5,244
Total	234,606		576,628
Discontinued operations
Cash and cash equivalents	7,640		19,619
Restricted cash	—		122,034
Total	7,640		141,653
Total cash, cash equivalents, and restricted cash	$	242,246	$	718,281

(2) Cash, cash equivalents, and restricted cash consisted of the following (end of period):


	As of September 30,
	2023		2022
Continuing operations
Cash and cash equivalents	$	125,803	$	345,871
Restricted cash	1,414		2,562
Total	127,217		348,433
Discontinued operations
Cash and cash equivalents	—		13,852
Restricted cash	—		41,431
Total	—		55,283
Total cash, cash equivalents, and restricted cash	$	127,217	$	403,716

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, June 30, 2023	40,000	$	39,936	113,934,673	$	114	$	791,302	$	(781,463)	$	(452)	$	9,501
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	—	—		15,836	—		123		—		—		123
Issuance of common stock pursuant to settlement of restricted stock units	—	—		1,761,678	2		(2)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(531,829)	(1)		(4,862)		—		—		(4,863)


Stock-based compensation	—	—		—	—		19,769		—		—		19,769
Other comprehensive income	—	—		—	—		—		—		195		195
Net loss	—	—		—	—		—		(18,972)		—		(18,972)
Balance, September 30, 2023	40,000	$	39,947	115,210,998	$	115	$	806,330	$	(800,435)	$	(257)	$	5,753

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	—	33		—	—		—		—		—		—
Issuance of common stock as dividend on convertible preferred stock	—	—		91,920	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase program	—	—		1,150,703	1		4,214		—		—		4,215
Issuance of common stock pursuant to exercise of stock options	—	—		579,000	1		1,574		—		—		1,575
Issuance of common stock pursuant to settlement of restricted stock units	—	—		5,330,317	5		(5)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(1,637,120)	(2)		(15,959)		—		—		(15,961)

Stock-based compensation	—	—		—	—		58,555		—		—		58,555
Other comprehensive income	—	—		—	—		—		—		544		544
Net loss	—	—		—	—		—		(107,128)		—		(107,128)
Balance, September 30, 2023	40,000	$	39,947	115,210,998	$	115	$	806,330	$	(800,435)	$	(257)	$	5,753


	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, June 30, 2022	40,000	$	39,891	108,415,939	$	108	$	723,251	$	(541,116)	$	(990)	$	181,253
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	—	—		50,585	—		344		—		—		344
Issuance of common stock pursuant to settlement of restricted stock units	—	—		305,603	1		—		—		—		1
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(85,777)	—		(2,906)		—		—		(2,906)


Stock-based compensation	—	—		—	—		19,000		—		—		19,000
Other comprehensive loss	—	—		—	—		—		—		(61)		(61)
Net loss	—	—		—	—		—		(90,245)		—		(90,245)
Balance, September 30, 2022	40,000	$	39,902	108,716,990	$	109	$	739,689	$	(631,361)	$	(1,051)	$	107,386

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	—	34		—	—		—		—		—		—
Issuance of common stock as dividend on convertible preferred stock	—	—		91,920	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase program	—	—		661,054	1		4,629		—		—		4,630
Issuance of common stock pursuant to exercise of stock options	—	—		695,705	1		4,971		—		—		4,972
Issuance of common stock pursuant to settlement of restricted stock units	—	—		1,362,071	1		(1)		—		—		—
Common stock surrendered for employees' tax liability upon settlement of restricted stock units	—	—		(402,527)	—		(6,649)		—		—		(6,649)

Stock-based compensation	—	—		—	—		54,655		—		—		54,655
Other comprehensive loss	—	—		—	—		—		—		(877)		(877)
Net loss	—	—		—	—		—		(259,197)		—		(259,197)
Balance, September 30, 2022	40,000	$	39,902	108,716,990	$	109	$	739,689	$	(631,361)	$	(1,051)	$	107,386

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:	Discontinued Operations	7
Note 3:	Segment Reporting and Revenue	9
Note 4:	Financial Instruments	11
Note 5:	Property and Equipment	15
Note 6:	Leases	16
Note 7:	Commitments and Contingencies	17
Note 8:	Acquired Intangible Assets and Goodwill	18
Note 9:	Accrued and Other Liabilities	19
Note 10:	Mezzanine Equity	19
Note 11:	Equity and Equity Compensation Plans	20
Note 12:	Net Loss per Share Attributable to Common Stock	22
Note 13:	Income Taxes	23
Note 14:	Debt	24
Note 15:	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, 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 September 30, 2023, our statements of comprehensive loss, and statements of changes in mezzanine equity and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, as well as our statements of cash flows for the nine months ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 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.

We completed the wind-down of our properties segment as of June 30, 2023, at which time it met the criteria for discontinued operations in our consolidated financial statements. As a result, certain amounts presented in prior period consolidated balance sheets and statements of comprehensive loss have been reclassified to conform to the current period financial statement presentation. The changes do not affect previously reported consolidated net loss or previously reported total assets, liabilities, or stockholders’ equity on our consolidated balance sheets. See Note 2 for additional information.

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, 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.

In July 2023, we completed an assessment of the useful lives of our website and internally developed software. Due to improvements, efficiencies, and advancements in how we develop, implement, and use our website and internally developed software, we determined we should increase their estimated useful lives from 2-3 years to 3-5 years. This change in accounting estimate was effective beginning the third quarter of 2023. The effects of this change for the three months ended September 30, 2023 were as follows: (1) reduced technology and development expenses by $1,648, (2) decreased net loss by $1,648, and (3) increased basic and diluted net loss per share by $0.01.

Recently Adopted Accounting Pronouncements—None applicable.

Recently Issued Accounting Pronouncements—None applicable.

Index to Notes to Financial Statements

Note 2: Discontinued Operations

In November 2022, our management and board of directors made the decision to wind down RedfinNow. The financial results of RedfinNow have historically been included in our properties segment. Winding-down RedfinNow was a strategic decision we made in order to focus our resources on our core businesses in the face of the rising cost of capital. The wind-down of our properties segment was complete as of June 30, 2023, at which time it met the criteria for discontinued operations in our consolidated financial statements.

The major classes of assets and liabilities of our discontinued operations were as follows:


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	—	$	7,640

Accounts receivable, net	—		8,504
Inventory	—		114,232
Prepaid expenses	—		500
Other current assets	—		1,283
Total current assets of discontinued operations	—		132,159
Property and equipment, net	—		167
Right-of-use assets, net	—		1,142
Total assets of discontinued operations	$	—	$	133,468
Liabilities
Current liabilities
Accounts payable	$	—	$	754
Accrued and other liabilities	—		2,980
Lease liabilities	—		577
Total current liabilities of discontinued operations	—		4,311
Lease liabilities, noncurrent	—		392
Total liabilities of discontinued operations	$	—	$	4,703

Index to Notes to Financial Statements

The major classes of line items of the discontinued operations included in our consolidated statement of comprehensive loss were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	—	$	294,744	$	122,576	$	927,139
Cost of revenue(1)	—		327,331		124,422		932,072
Gross profit (loss)	—		(32,587)		(1,846)		(4,933)
Operating expenses
Technology and development(1)	—		4,728		552		13,531
Marketing(1)	—		506		523		2,480
General and administrative(1)	—		3,030		638		9,065
Restructuring and reorganization	—		—		75		271
Total operating expenses	—		8,264		1,788		25,347
Loss from discontinued operations	—		(40,851)		(3,634)		(30,280)

Interest expense	—		(3,140)		—		(6,192)

Other expense, net	—		(3)		—		(4)
Net loss from discontinued operations	$	—	$	(43,994)	$	(3,634)	$	(36,476)

Net loss from discontinued operations per share—basic and diluted	$	0.00	$	(0.41)	$	(0.03)	$	(0.34)

(1) Includes stock-based compensation as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Cost of revenue	$	—	$	221	$	46	$	872
Technology and development	—		1,018		86		2,806
Marketing	—		26		19		85
General and administrative	—		381		83		947
Total stock-based compensation	$	—	$	1,646	$	234	$	4,710

Significant non-cash items and capital expenditures of the discontinued operations were as follows:


	Nine Months Ended September 30,
	2023		2022
Amortization of debt discount and debt issuance costs	$	—	$	461
Stock-based compensation	234		4,710
Depreciation and amortization	89		1,780
Capital expenditures	—		1,213
Cash paid for interest	—		5,731

Index to Notes to Financial Statements

Charges specifically relating to the wind-down of our properties segment were as follows:


Cost type	Financial statement line item	Nine Months Ended September 30, 2023		Cumulative amount recognized
Employee termination costs	Restructuring and reorganization	$	539	$	8,587
Asset write-offs	Restructuring and reorganization	—		493
Other	Restructuring and reorganization	(465)		(890)
Acceleration of debt issuance costs	Interest expense	—		481
Total		$	74	$	8,671

Restructuring and reorganization charges related to our continuing operations primarily consist of employee termination costs (including severance, retention, benefits, and payroll taxes) associated with the restructuring and reorganization activities from our acquisitions of Bay Equity LLC (“Bay Equity”), our mortgage business, and Rent Group Inc. (“Rent.”), our rentals business, and from our June 2022 and April 2023 workforce reductions. These expenses are included in restructuring and reorganization in our consolidated statements of comprehensive loss and in accrued and other liabilities on our consolidated balance sheets.

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 five operating segments and three reportable segments, real estate services, rentals, and mortgage. As a result of our decision to wind-down RedfinNow operations in November 2022, we report our properties segment as a discontinued operation as we completed wind-down of the business during the three months ended June 30, 2023.

We generate revenue primarily from commissions and fees charged on each real estate services transaction closed by our lead agents or partner agents, 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, 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 net (loss) income from continuing operations 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 September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total
Revenue	$	177,750	$	47,410	$	32,923	$	10,873	$	—	$	268,956
Cost of revenue	123,684		10,824		29,629		6,479		—		170,616
Gross profit	54,066		36,586		3,294		4,394		—		98,340
Operating expenses
Technology and development	25,711		15,813		800		1,133		935		44,392
Marketing	10,785		12,245		1,088		20		(43)		24,095
General and administrative	18,418		21,838		6,670		952		7,502		55,380

Total operating expenses	54,914		49,896		8,558		2,105		8,394		123,867
(Loss) income from continuing operations	(848)		(13,310)		(5,264)		2,289		(8,394)		(25,527)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	41		42		(73)		207		6,338		6,555
Net (loss) income from continuing operations	$	(807)	$	(13,268)	$	(5,337)	$	2,496	$	(2,056)	$	(18,972)


	Three Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total
Revenue(1)	$	211,540	$	38,686	$	48,469	$	7,079	$	—	$	305,774
Cost of revenue	156,632		8,676		43,783		6,018		—		215,109
Gross profit	54,908		30,010		4,686		1,061		—		90,665
Operating expenses
Technology and development	25,709		15,385		985		751		505		43,335
Marketing	18,772		12,678		1,653		48		91		33,242
General and administrative	20,244		22,722		7,073		784		7,153		57,976
Restructuring and reorganization	—		—		—		—		284		284
Total operating expenses	64,725		50,785		9,711		1,583		8,033		134,837
Loss from continuing operations	(9,817)		(20,775)		(5,025)		(522)		(8,033)		(44,172)
Interest income, interest expense, income tax expense, and other expense, net	—		397		(129)		40		(2,387)		(2,079)
Net loss from continuing operations	$	(9,817)	$	(20,378)	$	(5,154)	$	(482)	$	(10,420)	$	(46,251)

(1) Included in revenue is $4,920 from providing services to our discontinued properties segment.

Index to Notes to Financial Statements


	Nine Months Ended September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total
Revenue(1)	$	485,687	$	135,636	$	107,838	$	29,434	$	—	$	758,595
Cost of revenue	359,625		31,016		93,108		18,178		—		501,927
Gross profit	126,062		104,620		14,730		11,256		—		256,668
Operating expenses
Technology and development	82,650		48,081		2,177		3,475		2,813		139,196
Marketing	51,849		42,509		3,122		46		5		97,531
General and administrative	58,997		73,445		20,323		3,049		30,770		186,584
Restructuring and reorganization	—		—		—		—		7,159		7,159
Total operating expenses	193,496		164,035		25,622		6,570		40,747		430,470
(Loss) income from continuing operations	(67,434)		(59,415)		(10,892)		4,686		(40,747)		(173,802)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	41		115		(224)		475		69,901		70,308
Net (loss) income from continuing operations	$	(67,393)	$	(59,300)	$	(11,116)	$	5,161	$	29,154	$	(103,494)

(1) Included in revenue is $1,244 from providing services to our discontinued properties segment.


	Nine Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total
Revenue(1)	$	640,835	$	114,979	$	104,484	$	17,341	$	—	$	877,639
Cost of revenue	488,114		23,769		95,616		16,590		—		624,089
Gross profit	152,721		91,210		8,868		751		—		253,550
Operating expenses
Technology and development	80,144		44,539		5,236		2,975		2,784		135,678
Marketing	90,380		36,806		3,525		173		468		131,352
General and administrative	67,578		68,738		18,047		2,346		25,931		182,640
Restructuring and reorganization	—		—		—		—		18,399		18,399
Total operating expenses	238,102		150,083		26,808		5,494		47,582		468,069
Loss from continuing operations	(85,381)		(58,873)		(17,940)		(4,743)		(47,582)		(214,519)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	(123)		1,098		(164)		51		(9,064)		(8,202)
Net loss from continuing operations	$	(85,504)	$	(57,775)	$	(18,104)	$	(4,692)	$	(56,646)	$	(222,721)

(1) Included in revenue is $14,883 from providing services to our discontinued properties segment.

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.

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.

Index to Notes to Financial Statements

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	September 30, 2023		December 31, 2022
Forward sales commitments	$	322,652	$	301,548
IRLCs	249,515		210,787

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


		Three Months Ended September 30,				Nine Months Ended September 30,
Instrument	Classification	2023		2022		2023		2022
Forward sales commitments	Revenue	$	335	$	11,602	$	2,367	$	1,757
IRLCs	Revenue	(1,567)		(8,462)		1,005		(4,433)

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 September 30, 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	$	91,399	$	91,399	$	—	$	—

Total cash equivalents	91,399		91,399		—		—
Short-term investments
U.S. treasury securities	8,349		8,349		—		—
Agency bonds	33,403		33,403		—		—
Total short-term investments	41,752		41,752		—		—
Loans held for sale	137,680		—		137,680		—
Other current assets
Forward sales commitments	2,190		—		2,190		—
IRLCs	3,067		—		—		3,067
Total other current assets	5,257		—		2,190		3,067
Mortgage servicing rights, at fair value	34,773		—		—		34,773
Long-term investments
U.S. treasury securities	5,474		5,474		—		—

Total long-term investments	5,474		5,474		—		—
Total assets	$	316,335	$	138,625	$	139,870	$	37,840
Liabilities
Accrued liabilities
Forward sales commitments	$	27	$	—	$	27	$	—
IRLCs	765		—		—		765
Total liabilities	$	792	$	—	$	27	$	765

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		29,480		—		—
Total assets	$	578,021	$	338,149	$	201,273	$	38,599
Liabilities
Accrued liabilities
Forward sales commitments	$	1,873	$	—	$	1,873	$	—
IRLCs	1,041		—		—		1,041
Total liabilities	$	2,914	$	—	$	1,873	$	1,041

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

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 following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs and Mortgage Servicing Rights (“MSRs”):


		September 30, 2023		December 31, 2022
Key Inputs	Valuation Technique	Range	Weighted-Average	Range	Weighted-Average
IRLCs
Pull-through rate	Market pricing	69.7% - 100.0%	93.5%	62.0% - 100.0%	91.0%
MSRs
Prepayment speed	Discounted cash flow	6.0% - 12.0%	6.5%	6.0% - 14.4%	6.6%
Default rates	Discounted cash flow	0.1% - 1.0%	0.2%	0.0% - 0.5%	0.1%
Discount rate	Discounted cash flow	10.0% - 12.8%	10.1%	9.5% - 12.4%	9.6%

Index to Notes to Financial Statements

The following is a summary of changes in the fair value of IRLCs:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Balance, net—beginning of period	$	3,870	$	9,510	$	1,297	$	1,155
IRLCs acquired in business combination	—		—		—		4,326
Issuances of IRLCs	10,638		20,440		39,769		40,740
Settlements of IRLCs	(11,650)		(23,494)		(38,241)		(40,762)
Fair value changes recognized in earnings	(556)		(5,408)		(523)		(4,411)
Balance, net—end of period	$	2,302	$	1,048	$	2,302	$	1,048

The following is a summary of changes in the fair value of MSRs:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Balance—beginning of period	$	35,503	$	35,050	$	36,261	$	—
MSRs acquired in business combination	—		—		—		33,982
MSRs originated	120		1,811		699		2,774
MSRs sales	(384)		(541)		(1,122)		(1,314)
Fair value changes recognized in earnings	(466)		594		(1,065)		1,472
Balance, net—end of period	$	34,773	$	36,914	$	34,773	$	36,914

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:


	September 30, 2023				December 31, 2022
Issuance	Net Carrying Amount		Estimated Fair Value		Net Carrying Amount		Estimated Fair Value
2023 notes	$	—	$	—	$	23,431	$	22,147
2025 notes	232,511		192,411		512,683		309,292
2027 notes	567,154		333,500		565,474		267,398

The difference between the principal amounts of our 2025 notes and our 2027 notes, which were $234,505 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. Based on the closing price of our common stock of $7.04 on September 30, 2023, the if-converted values of both convertible notes were less than the principal amounts, respectively. See Note 14 for additional details on our convertible senior notes.

See Note 10 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, and available-for-sale investments were as follows:


	September 30, 2023
	Fair Value Hierarchy	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, and Restricted Cash		Short-term Investments		Long-term Investments
Cash	N/A	$	34,404	$	—	$	—	$	34,404	$	34,404	$	—	$	—
Money markets funds	Level 1	91,399		—		—		91,399		91,399		—		—
Restricted cash	N/A	1,414		—		—		1,414		1,414		—		—
U.S. treasury securities	Level 1	13,876		6		(59)		13,823		—		8,349		5,474
Agency bonds	Level 1	33,463		—		(60)		33,403		—		33,403		—

Total		$	174,556	$	6	$	(119)	$	174,443	$	127,217	$	41,752	$	5,474


	December 31, 2022
	Fair Value Hierarchy	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, and Restricted Cash		Short-term Investments		Long-term Investments
Cash	N/A	$	53,430	$	—	$	—	$	53,430	$	45,790	$	—	$	—
Money markets funds	Level 1	186,410		—		—		186,410		186,410		—		—
Restricted cash	N/A	2,406		—		—		2,406		2,406		—		—
U.S. treasury securities	Level 1	127,130		28		(753)		126,405		—		96,925		29,480
Agency bonds	Level 1	25,339		—		(5)		25,334		—		25,334		—

Total		$	394,715	$	28	$	(758)	$	393,985	$	234,606	$	122,259	$	29,480

We have evaluated our portfolio of available-for-sale debt securities based on credit quality indicators for expected credit losses and do not believe there are any expected credit losses. Our portfolio consists of U.S. government securities, all with a high-quality credit rating issued by various credit agencies.

As of September 30, 2023 and December 31, 2022, we had accrued interest of $611 and $576, respectively, on our available-for-sale investments, of which we have recorded no expected credit losses. Accrued interest receivable is recorded in other current assets in our consolidated balance sheets.

Note 5: Property and Equipment

The components of property and equipment were as follows:


	Useful Lives (Years)	September 30, 2023		December 31, 2022
Leasehold improvements	Shorter of lease term or economic life	$	29,683	$	32,262
Website and software development costs	3 - 5	72,409		62,963
Computer and office equipment	3 - 5	19,837		19,702
Software	3	1,868		1,871
Furniture	7	7,696		7,911
Property and equipment, gross		131,493		124,709
Accumulated depreciation and amortization		(88,427)		(76,597)
Construction in progress		5,339		6,827
Property and equipment, net		$	48,405	$	54,939

Index to Notes to Financial Statements

The following table summarizes depreciation and amortization and capitalized software development costs:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Depreciation and amortization for property and equipment	$	4,550	$	5,914	$	19,113	$	17,238
Capitalized software development costs, including stock-based compensation	3,854		4,583		12,700		14,874

Depreciation and amortization declined in the three months ended September 30, 2023 due to the change in estimated useful lives of our website and internally developed software. Refer to Note 1 for further details.

Note 6: Leases

We lease office space under noncancelable operating leases with original terms ranging from one to 11 years and vehicles under noncancelable finance leases with terms of four years. Generally, the operating leases require a fixed minimum rent with contractual minimum rent increases over the lease term. The components of lease expense were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,
Lease Cost	Classification	2023		2022		2023		2022
Operating lease cost:
Operating lease cost(1)	Cost of revenue	$	2,944	$	3,479	$	9,361	$	9,443
Operating lease cost(1)	Operating expenses	1,292		1,834		6,447		4,921
Total operating lease cost		$	4,236	$	5,313	$	15,808	$	14,364

Finance lease cost:
Amortization of right-of-use assets	Cost of revenue	$	17	$	15	$	48	$	46
Interest on lease liabilities	Cost of revenue	1		2		4		6
Total finance lease cost		$	18	$	17	$	52	$	52

(1) Includes lease expense with initial terms of twelve months or less of $725 and $1,459 for the three months ended September 30, 2023 and 2022, respectively, and $2,355 and $2,882 for the nine months ended September 30, 2023 and 2022, respectively.


	Lease Liabilities				Other Leases		Total Lease Obligations
Maturity of Lease Liabilities	Operating		Financing		Operating
2023, excluding the nine months ended September 30, 2023	$	4,713	$	16	$	518	$	5,247
2024	17,086		59		632		17,777
2025	13,014		38		88		13,140
2026	10,202		17		5		10,224
2027	5,174		11		—		5,185
Thereafter	948		—		—		948
Total lease payments	$	51,137	$	141	$	1,243	$	52,521
Less: Interest(1)	3,535		10
Present value of lease liabilities	$	47,602	$	131

(1) Includes interest on operating leases of $1,708 and financing lease of $5 within the next twelve months.


Lease Term and Discount Rate	September 30, 2023		December 31, 2022
Weighted-average remaining operating lease term (years)	3.3		3.6
Weighted-average remaining finance lease term (years)	2.7		2.4
Weighted-average discount rate for operating leases	4.5	%	4.5	%
Weighted-average discount rate for finance leases	5.4	%	5.4	%

Index to Notes to Financial Statements


	Nine Months Ended September 30,
Supplemental Cash Flow Information	2023		2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	16,539	$	14,758
Operating cash flows from finance leases	4		6
Financing cash flows from finance leases	39		36
Right of use assets obtained in exchange for lease liabilities
Operating leases(1)	$	7,490	$	(2,257)
Finance leases	59		934

(1) The nine months ended September 30, 2022 include a $5,119 right-of-use asset reduction from the exercise of an early termination option in one of our operating leases.

Note 7: Commitments and Contingencies

Legal Proceedings

Below, and in Item 1. Legal Proceedings, is a discussion of our material, pending legal proceedings. We cannot estimate a range of reasonably possible losses given the preliminary stage of these proceedings and the claims and issues presented. In addition to the matters discussed below, from time to time, we are involved in litigation, claims, and other proceedings arising in the ordinary course of our business. Except for the matters discussed below and in Item 1. Legal Proceedings, we do not believe that any of our pending litigation, claims, and other proceedings are material to our business.

Lawsuit by David Eraker—On May 11, 2020, David Eraker, our co-founder and former chief executive officer who departed Redfin in 2006, filed a complaint through Appliance Computing III, Inc. (d/b/a Surefield) ("Surefield"), which is a company that Mr. Eraker founded and that we believe he controls, in the U.S. District Court for the Western District of Texas, Waco Division. The complaint alleged that we were infringing four patents claimed to be owned by Surefield without its authorization or license. Surefield sought an unspecified amount of damages and an injunction against us offering products and services that allegedly infringe the patents at issue. On May 17, 2022, the jury returned a verdict in our favor, finding that we did not infringe any of the asserted claims of the patents claimed to be owned by Surefield, and accordingly, we do not owe any damages to Surefield. The jury also found that all asserted claims of Surefield’s claimed patents were invalid. The court entered final judgment on August 15, 2022. On September 12, 2022, Surefield filed a motion for judgment as a matter of law and a motion for a new trial. In the motions, Surefield asserts that no jury could have found non-infringement based on the trial record, among other things. We filed oppositions to the motions on October 3, 2022 and Surefield filed replies on October 21, 2022.

Lawsuits Alleging Misclassification—On August 28, 2019, Devin Cook, who was one of our former independent contractor licensed sales associates, whom we call associate agents, filed a complaint against us in the Superior Court of California, County of San Francisco. The plaintiff initially pled the complaint as a class action and alleged that we misclassified her as an independent contractor instead of an employee. The plaintiff also sought unspecified penalties pursuant to representative claims under California’s Private Attorney General Act ("PAGA"). On January 30, 2020, the plaintiff filed a first amended complaint dismissing her class action claim and asserting only claims under PAGA.

On November 20, 2020, Jason Bell, who was one of our former lead agents as well as a former associate agent, filed a complaint against us in the U.S. District Court for the Southern District of California. The complaint was pled as a class action and alleges that, (1) during the time he served as an associate agent, we misclassified him as an independent contractor instead of an employee and (2) during the time he served as a lead agent, we misclassified him as an employee who was exempt from minimum wage and overtime laws. The plaintiff also asserted representative claims under PAGA. The plaintiff sought unspecified amounts of unpaid overtime wages, regular wages, meal and rest period compensation, waiting time and other penalties, injunctive and other equitable relief, and plaintiff's attorneys' fees and costs.

Index to Notes to Financial Statements

On May 23, 2022, pursuant to a combined mediation, we settled the lawsuits brought by Ms. Cook and Mr. Bell for an aggregate of $3,000. This amount is subject to adjustment if our actual number of associate agents, lead agents, or their respective workweeks differs from the number that we represented to the plaintiffs. This settlement is subject to court approval. On April 7, 2023, plaintiffs filed a motion for preliminary approval of the class settlements. The motion for preliminary approval of the class settlement was granted by the court on May 4, 2023. The hearing for final approval of the class settlement is set for November 27, 2023.

Other Commitments

Our title and settlement business and our mortgage business each hold cash in escrow at third-party financial institutions on behalf of homebuyers and home sellers. As of September 30, 2023, we held $34,980 in escrow and did not record this amount on our consolidated balance sheets. We may be held contingently liable for the disposition of the cash we hold in escrow.

Note 8: Acquired Intangible Assets and Goodwill

Acquired Intangible Assets—The following table presents the gross carrying amount and accumulated amortization of intangible assets:


		September 30, 2023						December 31, 2022
	Weighted-Average Useful Lives (Years)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trade names	9.3	$	82,690	$	(21,931)	$	60,759	$	82,690	$	(14,856)	$	67,834
Developed technology	3.3	66,340		(54,529)		11,811		66,340		(38,465)		27,875
Customer relationships	10	81,360		(20,899)		60,461		81,360		(14,797)		66,563
Total		$	230,390	$	(97,359)	$	133,031	$	230,390	$	(68,118)	$	162,272

Amortization expense amounted to $9,747 and $9,747 for the three months ended September 30, 2023 and 2022, respectively, and $29,241 and $28,420 for the nine months ended September 30, 2023 and 2022, respectively.

The following table presents our estimate of remaining amortization expense for intangible assets that existed as of September 30, 2023:


2023, excluding the nine months ended September 30, 2023	$	9,747
2024	23,741
2025	17,618
2026	17,380
2027	15,633
Thereafter	48,912
Estimated remaining amortization expense	$	133,031

Goodwill—The following table presents the carrying amount of goodwill by reportable segment:


	Real Estate Services		Rentals		Mortgage		Total


Balance as of September 30, 2023 and December 31, 2022	$	250,231	$	159,151	$	51,967	$	461,349

Index to Notes to Financial Statements

Note 9: Accrued and Other Liabilities

The components of accrued and other liabilities were as follows:


	September 30, 2023		December 31, 2022
Accrued compensation and benefits	$	57,934	$	74,079
Miscellaneous accrued liabilities	24,139		27,023

Customer contract liabilities	6,118		5,661
Total accrued and other liabilities	$	88,191	$	106,763

Note 10: Mezzanine Equity

On April 1, 2020, we issued 4,484,305 shares of our common stock, at a price of $15.61 per share, and 40,000 shares of our preferred stock, at a price of $1,000 per share, for aggregate gross proceeds of $110,000. We designated this preferred stock as Series A Convertible Preferred Stock (our "convertible preferred stock"). Our convertible preferred stock is classified as mezzanine equity in our consolidated financial statements as the substantive conversion features at the option of the holder precludes liability classification. We have determined there are no material embedded features that require recognition as a derivative asset or liability.

We allocated the gross proceeds of $110,000 to the common stock issuance and the convertible preferred stock issuance based on the standalone fair value of the issuances, resulting in a fair valuation of $40,000 for the preferred stock, which is also the value of the mandatory redemption amount.

As of September 30, 2023, the carrying value of our convertible preferred stock, net of issuance costs, is $39,947, and holders have earned unpaid stock dividends in the amount of 30,640 shares of common stock. This stock dividend was issued on October 9, 2023. These shares are included in basic and diluted net loss from continuing operations per share attributable to common stock in Note 12. As of September 30, 2023, no shares of the preferred stock have been converted, and the preferred stock was not redeemable, nor probable to become redeemable in the future as there is a more than remote chance the shares will be automatically converted prior to the mandatory redemption date. The number of shares of common stock reserved for future issuance resulting from dividends, conversion, or redemption with respect to the preferred stock was 2,622,177 as of the issuance date.

Dividends—The holders of our convertible preferred stock are entitled to dividends. Dividends accrue daily based on a 360-day fiscal year at a rate of 5.5% per annum based on the issue price and are payable quarterly in arrears on the first business day following the end of each calendar quarter. Assuming we satisfy certain conditions, we will pay dividends in shares of common stock at a rate of the dividend payable divided by $17.95. If we do not satisfy such conditions, we will pay dividends in a cash amount equal to (i) the dividend shares otherwise issuable on the dividends multiplied by (ii) the volume-weighted average closing price of our common stock for the ten trading days preceding the date the dividends are payable.

Participation Rights—Holders of our convertible preferred stock are entitled to dividends paid and distributions made to holders of our common stock to the same extent as if such preferred stockholders had converted their shares of preferred stock into common stock and held such shares on the record date for such dividends and distributions.

Conversion—Holders may convert their convertible preferred stock into common stock at any time at a rate per share of preferred stock equal to the issue price divided by $19.51 (the "conversion price"). A holder that converts will also receive any dividend shares resulting from accrued dividends.

Our convertible preferred stock may also be automatically converted to shares of our common stock. If the closing price of our common stock exceeds $27.32 per share following April 1, 2023 until 30 trading days prior to November 30, 2024, for each day of any 30 consecutive trading days, then each outstanding share of preferred stock will automatically convert into a number of shares of our common stock at a rate per share of preferred stock equal to the issue price divided by the conversion price. Upon an automatic conversion, a holder will also receive any dividend shares resulting from accrued dividends.

Index to Notes to Financial Statements

Redemption—On November 30, 2024, we will be required to redeem any outstanding shares of our convertible preferred stock, and each holder may elect to receive cash, shares of common stock, or a combination of cash and shares. If a holder elects to receive cash, we will pay, for each share of preferred stock, an amount equal to the issue price plus any accrued dividends. If a holder elects to receive shares, we will issue, for each share of preferred stock, a number of shares of common stock at a rate of the issue price divided by the conversion price plus any dividend shares resulting from accrued dividends.

A holder of our convertible preferred stock has the right to require us to redeem up to all shares of preferred stock it holds following certain events outlined in the document governing the preferred stock. If a holder redeems as the result of such events, such holder may elect to receive cash or shares of common stock, as calculated in the same manner as the mandatory redemption described above. Additionally, such holder will also receive, in cash or shares of common stock as elected by the holder, an amount equal to all scheduled dividend payments on the preferred stock for all remaining dividend periods from the date the holder gives its notice of redemption.

Liquidation Rights—Upon our liquidation, dissolution, or winding up, holders of our convertible preferred stock will be entitled to receive cash out of our assets prior to holders of the common stock.

Note 11: Equity and Equity Compensation Plans

Common Stock—As of September 30, 2023 and December 31, 2022, our amended and restated certificate of incorporation authorized us to issue 500,000,000 shares of common stock with a par value of $0.001 per share.

Preferred Stock—As of September 30, 2023 and December 31, 2022, our amended and restated certificate of incorporation authorized us to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share.

Amended and Restated 2004 Equity Incentive Plan—We granted options under our 2004 Equity Incentive Plan, as amended (our "2004 Plan"), until July 26, 2017, when we terminated it in connection with our initial public offering. Accordingly, no shares are available for future issuance under our 2004 Plan. Our 2004 Plan continues to govern outstanding equity awards granted thereunder. The term of each stock option under the plan is no more than 10 years, and each stock option generally vests over a four-year period.

2017 Equity Incentive Plan—Our 2017 Equity Incentive Plan (our "2017 EIP") became effective on July 26, 2017, and provides for the issuance of incentive and nonqualified common stock options and restricted stock units to employees, directors, and consultants. The number of shares of common stock initially reserved for issuance under our 2017 EIP was 7,898,159. The number of shares reserved for issuance under our 2017 EIP will increase automatically on January 1 of each calendar year beginning on January 1, 2018, and continuing through January 1, 2028, by the number of shares equal to the lesser of 5% of the total outstanding shares of our common stock as of the immediately preceding December 31 or an amount determined by our board of directors. The term of each stock option and restricted stock unit under the plan will not exceed 10 years, and each award generally vests between two and four years.

We have reserved shares of common stock for future issuance under our 2017 EIP as follows:


	September 30, 2023	December 31, 2022
Stock options issued and outstanding	2,653,619	3,282,789
Restricted stock units outstanding	13,643,678	15,731,632
Shares available for future equity grants	11,838,057	7,951,616
Total shares reserved for future issuance	28,135,354	26,966,037

Index to Notes to Financial Statements

2017 Employee Stock Purchase Plan—Our 2017 Employee Stock Purchase Plan (our "ESPP") was approved by our board of directors on July 27, 2017 and enables eligible employees to purchase shares of our common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. We initially reserved 1,600,000 shares of common stock for issuance under our ESPP. The number of shares reserved for issuance under our ESPP will increase automatically on January 1 of each calendar year beginning after the first offering date and continuing through January 1, 2028, by the number of shares equal to the lesser of 1% of the total outstanding shares of our common stock as of the immediately preceding December 31 or an amount determined by our board of directors. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of (i) the fair market value of our common stock on the first trading day of the offering period and (ii) the fair market value of our common stock on the purchase date.

We have reserved shares of common stock for future issuance under our ESPP as follows:


	Nine Months Ended September 30, 2023	Year Ended December 31, 2022
Shares available for issuance at beginning of period	4,695,361	5,865,467
Shares issued during the period	(1,150,703)	(1,170,106)
Total shares available for future issuance at end of period	3,544,658	4,695,361

Stock Options—Option activity for the nine months ended September 30, 2023 was as follows:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2023	3,282,789	$	9.10	2.90	$	1,145

Options exercised	(579,000)	2.70

Options expired	(50,170)	9.62
Outstanding as of September 30, 2023	2,653,619	10.48		2.65	795
Options exercisable as of September 30, 2023	2,653,619	10.48		2.65	795

The grant date fair value of our stock options was recorded as stock-based compensation over the stock options' vesting period. All outstanding options were fully vested as of September 30, 2023. We did not recognize any option-related expense during the nine months ended September 30, 2023.

Restricted Stock Units—Restricted stock unit activity for the nine months ended September 30, 2023 was as follows:


	Restricted Stock Units	Weighted-Average Grant-Date Fair Value
Outstanding as of January 1, 2023	15,731,632	$	11.53
Granted	4,996,788	9.41
Vested	(5,330,317)	12.31
Forfeited or canceled	(1,754,425)	11.52
Outstanding or deferred as of September 30, 2023(1)	13,643,678	10.45

(1) Starting with the restricted stock units granted to them in June 2019, our non-employee directors have the option to defer the issuance of common stock receivable upon vesting of such restricted stock units until 60 days following the day they are no longer providing services to us or, if earlier, upon a change in control transaction. The amount reported as vested excludes restricted stock units that have vested but whose settlement into shares has been deferred. The amount reported as outstanding or deferred as of September 30, 2023 includes these restricted stock units. As no further conditions exist to prevent the issuance of the shares of common stock underlying these restricted stock units, the shares are included in basic and diluted weighted shares outstanding used to calculate net loss per share attributable to common stock. The amount of shares whose issuance have been deferred is not considered material and is not reported separately from stock-based compensation in our consolidated statements of changes in mezzanine equity and stockholders’ equity.

The grant date fair value of restricted stock units is recorded as stock-based compensation over the vesting period. As of September 30, 2023, there was $112,042 of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted-average period of 2.20 years.

Index to Notes to Financial Statements

As of September 30, 2023, there were 2,316,061 restricted stock units subject to performance and market conditions ("PSUs") at 100% of the target level. Depending on our achievement of the performance and market conditions, the actual number of shares of common stock issuable upon vesting of PSUs will range from 0% to 200% of the target amount. For each PSU recipient, the awards will vest only if the recipient is continuing to provide service to us upon our board of directors, or its compensation committee, certifying that we have achieved the PSU's related performance or market conditions. Stock-based compensation expense for PSUs with performance conditions is recognized when it is probable that the performance conditions will be achieved. For PSUs with market conditions, the market condition is reflected in the grant-date fair value of the award and the expense is recognized over the life of the award.

Stock-based compensation expense associated with the PSUs was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
PSU expense	$	1,224	$	1,867	$	4,405	$	3,536
Expense due to reassessment of achievement related to prior periods	(588)		(815)		(780)		(815)
Total expense	$	636	$	1,052	$	3,625	$	2,721

Compensation Cost—Stock-based compensation, net of forfeitures and the amount capitalized in website and software development costs were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	3,037	$	4,165	$	10,173	$	10,771
Technology and development(1)	8,391		6,353		24,759		20,230
Marketing	1,337		1,002		3,836		2,939
General and administrative	6,035		4,904		16,380		13,022
Stock-based compensation from continuing operations	18,800		16,424		55,148		46,962
Stock-based compensation from discontinued operations(1)	—		1,646		234		4,710
Total stock-based compensation	$	18,800	$	18,070	$	55,382	$	51,672

(1) Net of $969 and $930 of stock-based compensation that was capitalized in the three months ended September 30, 2023 and 2022, respectively, and $3,173 and $2,983 for the nine months ended September 30, 2023 and 2022, respectively.

Note 12: Net Loss from Continuing Operations per Share Attributable to Common Stock

Net loss from continuing operations per share attributable to common stock is computed by dividing the net loss from continuing operations attributable to common stock by the weighted-average number of common shares outstanding. We have outstanding stock options, restricted stock units, options to purchase shares under our ESPP, convertible preferred stock, and convertible senior notes, which are considered in the calculation of diluted net loss from continuing operations per share whenever doing so would be dilutive.

We calculate basic and diluted net loss from continuing operations per share attributable to common stock in conformity with the two-class method required for companies with participating securities. We consider our convertible preferred stock to be participating securities. Under the two-class method, net loss from continuing operations attributable to common stock is not allocated to the preferred stock as its holders do not have a contractual obligation to share in losses, as discussed in Note 11.

Index to Notes to Financial Statements

The calculation of basic and diluted net loss from continuing operations per share attributable to common stock was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net loss from continuing operations	$	(18,972)	$	(46,251)	$	(103,494)	$	(222,721)
Dividends on convertible preferred stock	(335)		(272)		(858)		(1,416)

Net loss from continuing operations attributable to common stock—basic and diluted	$	(19,307)	$	(46,523)	$	(104,352)	$	(224,137)
Denominator:
Weighted-average shares—basic and diluted(1)	114,592,679		108,618,491		112,141,342		107,566,894



Net loss from continuing operations per share attributable to common stock—basic and diluted	$	(0.17)	$	(0.43)	$	(0.93)	$	(2.08)

(1) Basic and diluted weighted-average shares outstanding include (i) common stock earned but not yet issued related to share-based dividends on our convertible preferred stock, and (ii) restricted stock units that have vested but whose settlement into common stock were deferred at the option of certain non-employee directors.

The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss from continuing operations per share for the periods presented because their effect would have been anti-dilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
2023 notes as if converted	—	769,623	—	769,623
2025 notes as if converted	3,234,293	9,119,960	3,234,293	9,119,960
2027 notes as if converted	6,147,900	6,147,900	6,147,900	6,147,900
Convertible preferred stock as if converted	2,040,000	2,040,000	2,040,000	2,040,000
Stock options outstanding	2,653,619	3,309,305	2,653,619	3,309,305
Restricted stock units outstanding(1)(2)	13,605,240	11,300,717	13,605,240	11,300,717
Employee stock purchase plan	333,131	775,579	333,131	775,579
Total	28,014,183	33,463,084	28,014,183	33,463,084

(1) Excludes 2,316,061 incremental PSUs that could vest, assuming applicable performance criteria and market conditions are achieved at 200% of target, which is the maximum achievement level. See Note 11 for additional information regarding PSUs.

(2) Excludes 38,438 restricted stock units that have vested but whose settlement into common stock were deferred at the option of certain non-employee directors as of September 30, 2023.

Note 13: Income Taxes

During the nine months ended September 30, 2023, we recorded an income tax expense of $882 as a component of continuing operations, resulting in an effective tax rate of (0.85)% with respect to continuing operations, and an effective tax rate of (0.82)% with respect to our total net loss from both continuing and discontinued operations, which is primarily a result of current state income taxes. Our current income tax expense was supplemented by deferred tax expenses associated with increases to indefinite-lived deferred tax liabilities created through the Company’s April 2, 2021 acquisition of Rent., and April 1, 2022 acquisition of Bay Equity. Our September 30, 2022 effective tax rate of (0.16)% is primarily a result of current state income taxes which were partially offset by a deferred tax benefit resulting from a reduction to deferred tax liabilities originally created through our April 2, 2021 acquisition of Rent.

In determining the realizability of the net U.S. federal and state deferred tax assets, we consider numerous factors including historical profitability, estimated future taxable income, prudent and feasible tax planning strategies, and the industry in which we operate. Management reassesses the realization of the deferred tax assets each reporting period, which resulted in a valuation allowance against the full amount of our U.S. deferred tax assets for the nine months ended September 30, 2023 and 2022. To the extent that the financial results of our U.S. operations improve in the future and the deferred tax assets become realizable, we will reduce the valuation allowance through earnings.

Index to Notes to Financial Statements

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss ("NOL") and income tax credit carryforwards that could be utilized annually in the future to offset taxable income and income tax liabilities. Any such annual limitation may significantly reduce the utilization of the NOLs and income tax credits before they expire. A Section 382 limitation study performed as of March 31, 2017 determined that we experienced an ownership change in 2006 with $1,506 of the 2006 NOL and $32 of the 2006 research and development tax credit unavailable for future use. Furthermore, in connection with our acquisition of Rent., Rent. experienced an ownership change that triggered Section 382. As of September 30, 2021, Rent. completed a Section 382 limitation study and, based on this analysis, we do not expect a reduction in the availability of Rent.'s pre-change NOLs.

As of December 31, 2022, we had accumulated approximately $651,498 of federal net operating losses, approximately $34,718 (tax effected) of state net operating losses, and approximately $5,255 of foreign net operating losses. Federal net operating losses are available to offset federal taxable income and begin to expire in 2023, with net operating loss carryforwards of $413,145 generated after 2017 available to offset future U.S. federal taxable income over an indefinite period.

Net research and development credit carryforwards of $23,240 are available as of December 31, 2022 to reduce future liabilities. The research and development credit carryforwards begin to expire in 2026.

Deductible but limited federal business interest expense carryforwards of $145,296 are available as of December 31, 2022 to offset future U.S. federal taxable income over an indefinite period.

Our material income tax jurisdiction is the United States (federal) and Canada (foreign). As a result of NOL carryforwards, we are subject to audit for all tax years for federal purposes. All tax years remain subject to examination in various other jurisdictions that are not material to our consolidated financial statements.

Note 14: Debt

Warehouse Credit Facilities—To provide capital for the mortgage loans that it originates, our mortgage segment utilizes warehouse credit facilities that are classified as current liabilities in our consolidated balance sheets. Borrowings under each warehouse credit facility are secured by the related mortgage loan and rights and income associated with the loan. The following table summarizes borrowings under these facilities as of the periods presented:


	September 30, 2023						December 31, 2022
Lender	Borrowing Capacity		Outstanding Borrowings		Weighted-Average Interest Rate on Outstanding Borrowings		Borrowing Capacity		Outstanding Borrowings		Weighted-Average Interest Rate on Outstanding Borrowings
City National Bank	$	75,000	$	13,355	7.25	%	$	75,000	$	27,288	5.89	%
Comerica Bank	N/A		N/A		N/A		75,000		26,526		6.36	%
Origin Bank	75,000		15,238		7.18	%	75,000		23,739		5.98	%
M&T Bank	50,000		9,644		7.47	%	50,000		19,126		6.45	%
Prosperity Bank	100,000		50,912		7.19	%	100,000		35,856		6.18	%
Republic Bank & Trust Company	75,000		23,101		7.25	%	75,000		26,636		5.81	%
Wells Fargo Bank, N.A.	100,000		20,070		7.32	%	100,000		31,338		6.41	%
Total	$	475,000	$	132,320			$	550,000	$	190,509

Index to Notes to Financial Statements

Convertible Senior Notes—We have issued convertible senior notes with the following characteristics:


Issuance	Maturity Date	Stated Cash Interest Rate		Effective Interest Rate		First Interest Payment Date	Semi-Annual Interest Payment Dates	Conversion Rate
2025 notes	October 15, 2025	—	%	0.42	%	—	—	13.7920
2027 notes	April 1, 2027	0.50	%	0.90	%	October 1, 2021	April 1; October 1	10.6920

We issued our 2025 notes on October 20, 2020, with an aggregate principal amount of $661,250. In the three months ended September 30, 2023, we repurchased and retired approximately $36,201 in aggregate principal amount of our 2025 notes at a price of $29,382 using available cash. In connection with these repurchases, we recorded a gain on extinguishment of debt of $6,495 for the three months ended September 30, 2023. In the nine months ended September 30, 2023, we repurchased and retired approximately $284,223 in aggregate principal amount of our 2025 notes at a price of $212,402 using available cash. In connection with these repurchases, we recorded a gain on extinguishment of debt of $68,848 for the nine months ended September 30, 2023.

We issued our 2027 notes on March 25, 2021 and April 5, 2021, with an aggregate principal amount of $575,000.

The components of our convertible senior notes were as follows:


	September 30, 2023
Issuance	Aggregate Principal Amount		Unamortized Debt Issuance Costs		Net Carrying Amount
2023 notes(1)	$	—	$	—	$	—
2025 notes	234,505		1,994		232,511
2027 notes	575,000		7,846		567,154

(1) The 2023 notes were fully repaid in cash on July 15, 2023.


	December 31, 2022
Issuance	Aggregate Principal Amount		Unamortized Debt Issuance Costs		Net Carrying Amount
2023 notes	$	23,512	$	81	$	23,431
2025 notes	518,728		6,045		512,683
2027 notes	575,000		9,526		565,474

Index to Notes to Financial Statements


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
2023 notes
Contractual interest expense	$	17	$	103	$	223	$	309

Amortization of debt issuance costs	5		38		81		113
Total interest expense	$	22	$	141	$	304	$	422

2025 notes
Contractual interest expense	—		—		—		—

Amortization of debt issuance costs	590		690		4,052		2,070
Total interest expense	$	590	$	690	$	4,052	$	2,070

2027 notes
Contractual interest expense	719		719		2,156		2,156

Amortization of debt issuance costs	560		560		1,680		1,680
Total interest expense	$	1,279	$	1,279	$	3,836	$	3,836

Total
Contractual interest expense	736		822		2,379		2,465

Amortization of debt issuance costs	1,155		1,288		5,813		3,863
Total interest expense	$	1,891	$	2,110	$	8,192	$	6,328

Conversion of Our Convertible Senior Notes

Prior to the free conversion date, a holder of each tranche of our convertible senior notes may convert its notes in multiples of $1,000 principal amount only if one or more of the conditions described below is satisfied. On or after the free conversion date, a holder may convert its notes in such multiples without any conditions. The free conversion date is July 15, 2025 for our 2025 notes and January 1, 2027 for our 2027 notes.

The conditions are:

•during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the applicable notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such trading day;

•if we call any or all of the applicable notes for redemption, at any time prior to the close of business on the scheduled trading day prior to the redemption date; or

•upon the occurrence of specified corporate events.

We intend to settle any future conversions of our convertible senior notes by paying or delivering, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We apply the if-converted method to calculate diluted earnings per share when applicable. Under the if-converted method, the denominator of the diluted earnings per share calculation is adjusted to reflect the full number of common shares issuable upon conversion, while the numerator is adjusted to add back interest expense for the period.

Index to Notes to Financial Statements

Classification of Our Convertible Senior Notes

2027 Capped Calls—In 2021, and in connection with the pricing of our 2027 notes, we entered into capped call transactions with certain counterparties (the “2027 capped calls”). The 2027 capped calls have initial strike prices of $93.53 per share and initial cap prices of $138.56 per share, in each case subject to certain adjustments. Conditions that cause adjustments to the initial strike price and initial cap price of the 2027 capped calls are similar to the conditions that result in corresponding adjustments to the conversion rate for our 2027 notes. The 2027 capped calls cover, subject to anti-dilution adjustments, 6,147,900 shares of our common stock and are generally intended to reduce or offset the potential dilution to our common stock upon any conversion of the 2027 notes, with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2027 capped calls are separate transactions, and not part of the terms of our 2027 notes. As these instruments meet certain accounting criteria, the 2027 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $62,647 incurred in connection with the 2027 capped calls was recorded as a reduction to additional paid-in capital.

Note 15: Subsequent Events

Apollo Agreement and Note Repurchase

On October 20, 2023, we entered into a definitive agreement with Apollo Capital Management, L.P. and its affiliates (“Apollo”) whereby Apollo agreed to commit up to $250,000 of financing for us in the form of a first lien term loan facility (the “facility”). We borrowed half of the loan on October 20, 2023 and the remainder will be available as a delayed draw during the following 12 months.

The facility is pre-payable at par, after 12 months of call protection (during which prepayment would be at 101% of par), or with respect to prepayments made with respect to a change of control, at 101% of par, and carries a five-year term. Interest will be charged at SOFR +575 basis points for the first five full fiscal quarters after closing, with step-downs to SOFR +550 basis points and SOFR +525 basis points thereafter upon achieving agreed performance metrics. The facility includes a financial covenant, which requires the maintenance of aggregate consolidated liquidity (defined as unrestricted cash plus cash equivalents) of $75,000, tested quarterly. The negative covenants include restrictions on the incurrence of liens and indebtedness, investments, certain merger transactions, and other matters, all subject to certain exceptions.

The facility includes customary events of default that, include among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control, and certain material ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the facility.

As security for our obligations under the facility, we granted Apollo a first priority security interest on substantially all of our assets and the assets of our material subsidiaries, subject to certain exceptions.

As part of the transaction, we agreed to repurchase $5,000 principal amount of our 2025 convertible notes held by Apollo and $72,000 principal amount of 2027 convertible notes held by Apollo for an aggregate repurchase price of approximately $50,000 (the “Apollo Repurchase”) using cash on our balance sheet.

The foregoing summary and description of the provisions of the facility does not purport to be complete and is qualified in its entirety by reference to the full text of the facility, a copy of which is filed as Exhibit 10.3 to this quarterly report.

Repurchase Program Update

On October 19, 2023, our board of directors increased the amount of cash authorized for use in the existing note repurchase program from $300,000 in aggregate to $450,000 in aggregate. The repurchase program includes both our 2025 and 2027 convertible senior notes. The program has no expiration date and will continue until suspended, terminated, or modified by our board of directors.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this quarterly report and our annual report for the year ended December 31, 2022. In particular, the disclosure contained in Item 1A in our annual report, as updated by Part II, Item 1A in this quarterly report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

The following discussion contains forward-looking statements, such as statements regarding our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements. The following discussion also contains information using industry publications. Please see "Note Regarding Industry and Market Data" for more information about relying on these industry publications.

When we use the term "basis points" in the following discussion, we refer to units of one-hundredth of one percent.

Overview

We help people buy and sell homes. Representing customers in over 100 markets in the United States and Canada, we are a residential real estate brokerage. We pair our own agents with our own technology to create a service that is faster, better, and costs less. We meet customers through our listings-search website and mobile application.

We use the same combination of technology and local service to originate and service mortgage loans and offer title and settlement services. We use digital platforms to connect consumers with available apartments and houses for rent.

Our mission is to redefine real estate in the consumer’s favor.

Adverse Macroeconomic Conditions and Our Associated Actions

Beginning in the second quarter of 2022 and continuing through the third quarter of 2023, a number of economic factors adversely impacted the residential real estate market, including higher mortgage interest rates, lower consumer sentiment, increased inflation, and declining financial market conditions. This shift in the macroeconomic backdrop had an adverse impact on consumer demand for our services, as consumers weighed the financial implications of selling or purchasing a home and taking out a mortgage. Our real estate services transaction volume decreased by 18% in the third quarter of 2022, compared to the prior year. This volume decreased another 20% in the third quarter of 2023, compared to the prior year. Bay Equity also experienced significant declines in loan volumes beginning in the second quarter of 2022, particularly from refinancing prior mortgages.

In response to these macroeconomic and consumer demand developments, we took action to adjust our operations and manage our business towards longer-term profitability despite these adverse macroeconomic factors.

From April 2022, after completing the acquisition of Bay Equity, through September 2023, through involuntary reductions and attrition, we reduced our total number of employees by 38%, including a reduction in lead agents of 37%. These workforce reductions were intended to align the size of our operations with the level of consumer demand for our services at that time.

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In November of 2022, we decided to wind-down our properties segment, which included RedfinNow. This was a strategic decision we made in order to focus our resources on our core business in the face of the rising cost of capital. We completed the wind-down of our properties segment in the second quarter of 2023. Results for the properties segment are now reported in discontinued operations for all periods presented. The following discussion and analysis of our financial condition and results of operations include our continued operations for all periods presented.

Key Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, develop financial forecasts, and make strategic decisions.


	Three Months Ended
	Sep. 30, 2023			Jun. 30, 2023			Mar. 31, 2023			Dec. 31, 2022			Sep. 30, 2022			Jun. 30, 2022			Mar. 31, 2022			Dec. 31, 2021
Monthly average visitors (in thousands)	51,309			52,308			50,440			43,847			50,785			52,698			51,287			44,665
Real estate services transactions
Brokerage	13,075			13,716			10,301			12,743			18,245			20,565			15,001			19,428
Partner	4,351			3,952			3,187			2,742			3,507			3,983			3,417			4,603
Total	17,426			17,668			13,488			15,485			21,752			24,548			18,418			24,031
Real estate services revenue per transaction
Brokerage	$	12,704		$	12,376		$	11,556		$	10,914		$	11,103		$	11,692		$	11,191		$	10,900
Partner	2,677			2,756			2,592			2,611			2,556			2,851			2,814			2,819
Aggregate	10,200			10,224			9,438			9,444			9,725			10,258			9,637			9,352
U.S. market share by units(1)	0.78		%	0.75		%	0.79		%	0.76		%	0.80		%	0.83		%	0.79		%	0.78		%
Revenue from top-10 Redfin markets as a percentage of real estate services revenue	56		%	55		%	53		%	57		%	58		%	59		%	57		%	61		%
Average number of lead agents	1,744			1,792			1,876			2,022			2,293			2,640			2,750			2,485
Mortgage originations by dollars (in millions)	$	1,110		$	1,282		$	991		$	1,036		$	1,557		$	1,565		$	159		$	242
Mortgage originations by units (in ones)	2,786			3,131			2,444			2,631			3,720			3,860			414			591

(1) Prior to the second quarter of 2022, we reported our U.S. market share based on the aggregate home value of our real estate services transactions, relative to the aggregate value of all U.S. home sales, which we computed based on the mean sale price of U.S. homes provided by the National Association of REALTORS® (“NAR”). Beginning in the second quarter of 2022, NAR (1) revised its methodology of computing the mean sale price, (2) restated its previously reported mean sale price beginning from January 2020 (and indicated that previously reported mean sale price prior to January 2020 is not comparable), and (3) discontinued publication of the mean sale price as part of its primary data set. Due to these changes, as of the second quarter of 2022, we report our U.S. market share based on the number of homes sold, rather than the dollar value of homes sold. Our market share by number of homes sold has historically been lower than our market share by dollar value of homes sold. We also stopped reporting the aggregate home value of our real estate services transactions.

Monthly Average Visitors

The number of, and growth in, visitors to our website and mobile application are important leading indicators of our business activity because these channels are the primary ways we meet customers. The number of visitors is influenced by, among other things, market conditions that affect interest in buying or selling homes, the level and success of our marketing programs, seasonality, and how our website appears in search results. We believe we can continue to increase visitors, which helps our growth.

Given the lengthy process to buy or sell a home, a visitor during one month may not convert to a revenue-generating customer until many months later, if at all.

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When we refer to "monthly average visitors" for a particular period, we are referring to the average number of unique visitors to our website and our mobile applications for each of the months in that period, as measured by Google Analytics, a product that provides digital marketing intelligence. Google Analytics tracks visitors using cookies, with a unique cookie being assigned to each browser or mobile application on a device. For any given month, Google Analytics counts all of the unique cookies that visited our website and mobile applications during that month. Google Analytics considers each unique cookie as a unique visitor. Due to third-party technological limitations, user software settings, or user behavior, it is possible that Google Analytics may assign a unique cookie to different visits by the same person to our website or mobile application. In such instances, Google Analytics would count different visits by the same person as separate visits by unique visitors. Accordingly, reliance on the number of unique cookies counted by Google Analytics may overstate the actual number of unique persons who visit our website or our mobile applications for a given month.

Our monthly average visitors exclude visitors to Rent.'s websites and mobile applications.

Real Estate Services Transactions

We record a brokerage real estate services transaction when one of our lead agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home. We record a partner real estate services transaction (i) when one of our partner agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home or (ii) when a Redfin customer sold his or her home to a third-party institutional buyer following our introduction of that customer to the buyer. We include a single transaction twice when our lead agents or our partner agents serve both the homebuyer and the home seller of the transaction. Additionally, when one of our lead agents represents RedfinNow in its sale of a home, we include that transaction as a brokerage real estate services transaction. We completed the wind-down of our RedfinNow business in the second quarter of 2023.

Increasing the number of real estate services transactions is critical to increasing our revenue and, in turn, to achieving profitability. Real estate services transaction volume is influenced by, among other things, the pricing and quality of our services as well as market conditions that affect home sales, such as local inventory levels and mortgage interest rates. Real estate services transaction volume is also affected by seasonality and macroeconomic factors.

Real Estate Services Revenue per Transaction

Real estate services revenue per transaction, together with the number of real estate services transactions, is a factor in evaluating revenue growth. We also use this metric to evaluate pricing changes. Changes in real estate services revenue per transaction can be affected by, among other things, our pricing, the mix of transactions from homebuyers and home sellers, changes in the value of homes in the markets we serve, the geographic mix of our transactions, and the transactions we refer to partner agents and any third-party institutional buyer. We calculate real estate services revenue per transaction by dividing brokerage, partner, or aggregate revenue, as applicable, by the corresponding number of real estate services transactions in any period.

We generally generate more real estate services revenue per transaction from representing homebuyers than home sellers. However, we believe that representing home sellers has unique strategic value, including the marketing power of yard signs and other campaigns, and the market effect of controlling listing inventory.

Prior to July 2022, homebuyers who purchased their home using our brokerage services would receive a commission refund in a substantial majority of our markets. In July 2022, we began a pilot program in certain of those markets to eliminate our commission refund. Since this pilot was successful, we eliminated the standard commission refund we had historically provided in all markets in December 2022. The average refund per transaction for a homebuyer was $1,336 in 2022. The elimination of this commission refund has increased our real estate services revenue per transaction, although this metric is also impacted by the factors discussed above.

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U.S. Market Share by Units

Increasing our U.S. market share by units is critical to our ability to grow our business and achieve profitability over the long term. We believe there is a significant opportunity to increase our share in the markets we currently serve.

We calculate our market share by aggregating the number of brokerage and partner real estate services transactions. We then divide that number by two times the aggregate number of U.S. home sales, in order to account for both the sell- and buy-side components of each home sale. We obtain the aggregate number of U.S. home sales from the National Association of REALTORS® ("NAR"). NAR data for the most recent period is preliminary and may subsequently be updated.

Revenue from Top-10 Markets as a Percentage of Real Estate Services Revenue

Our top-10 markets by real estate services revenue are the metropolitan areas of Boston, Chicago, Denver (including Boulder and Colorado Springs), Los Angeles (including Santa Barbara), Maryland, Northern Virginia, Portland (including Bend), San Diego, San Francisco, and Seattle. This metric is an indicator of the geographic concentration of our real estate services segment. We expect our revenue from top-10 markets to decline as a percentage of our total real estate services revenue over time.

Average Number of Lead Agents

The average number of lead agents, in combination with our other key metrics such as the number of brokerage transactions, is a basis for calculating agent productivity and is one indicator of the potential future growth of our business. We systematically evaluate traffic to our website and mobile application and customer activity to anticipate changes in customer demand, helping determine when and where to hire lead agents.

We calculate the average number of lead agents by taking the average of the number of lead agents at the end of each month included in the period.

Mortgage Originations

Mortgage originations is the volume of mortgage loans originated by our mortgage business, measured by both dollar value of loans and number of loans. This volume is an indicator for the growth of our mortgage business. Mortgage originations, including refinancings, are affected by mortgage interest rates, the ability of our mortgage loan officers to close loans, and the number of our homebuyer customers who use our mortgage business for a mortgage loan, among other factors.

Prior to April 1, 2022, our mortgage business consisted solely of Redfin Mortgage, LLC. From April 1, 2022 through June 30, 2022, our mortgage business consisted of both Bay Equity LLC and Redfin Mortgage, LLC. We dissolved Redfin Mortgage, LLC on June 30, 2022, and since that time, our mortgage business has consisted solely of Bay Equity LLC.

Components of Our Results of Operations

Revenue

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Real Estate Services Revenue

Brokerage Revenue—Brokerage revenue includes our offer and listing services, where our lead agents represent homebuyers and home sellers. We recognize commission-based brokerage revenue upon closing of a brokerage transaction, less the amount of any commission refunds, closing-cost reductions, or promotional offers that may result in a material right. Brokerage revenue is affected by the number of brokerage transactions we close, the mix of brokerage transactions, home-sale prices, commission rates, and the amount we give to customers.

Partner Revenue—Partner revenue consists of fees paid to us from partner agents or under other referral agreements, less the amount of any payments we make to homebuyers and home sellers. We recognize these fees as revenue on the closing of a transaction. Partner revenue is affected by the number of partner transactions closed, home-sale prices, commission rates, and the amount we refund to customers. If the portion of customers we introduce to our own lead agents increases, we expect the portion of revenue closed by partner agents to decrease.

Rentals Revenue

Rentals Revenue—Rentals revenue is primarily composed of subscription-based product offerings for internet listing services, as well as lead management and digital marketing solutions.

Mortgage Revenue

Mortgage Revenue—Mortgage revenue includes fees from the origination and subsequent sale of loans, loan servicing income, interest income on loans held for sale, origination of IRLCs, and the changes in fair value of our IRLCs, forward sales commitments, loans held for sale, and MSRs.

Other Revenue

Other Revenue—Other services revenue includes fees earned from title settlement services, Walk Score data services, and advertising. Substantially all fees and revenue from other services are recognized when the service is provided.

Cost of Revenue and Gross Margin

Cost of revenue consists primarily of personnel costs (including base pay, benefits, and stock-based compensation), transaction bonuses, home-touring and field expenses, listing expenses, customer fulfillment costs related to our rentals segment, office and occupancy expenses, interest expense on our mortgage related warehouse facilities, and depreciation and amortization related to fixed assets and acquired intangible assets.

Gross profit is revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin has and will continue to be affected by a number of factors, but the most important are the mix of revenue from our segments, real estate services revenue per transaction, agent and support-staff productivity, and personnel costs and transaction bonuses.

Operating Expenses

Technology and Development

Our primary technology and development expenses are building software for our customers, lead agents, and support staff to work together on a transaction, and building a website and mobile application to meet customers looking to move. These expenses primarily include personnel costs (including base pay, bonuses, benefits, and stock-based compensation), data licenses, software and equipment, and infrastructure such as for data centers and hosted services. The expenses also include amortization of capitalized internal-use software and website and mobile application development costs as well as amortization of acquired intangible assets. We expense research and development costs as incurred and record them in technology and development expenses.

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Marketing

Marketing expenses consist primarily of media costs for online and offline advertising, as well as personnel costs (including base pay, benefits, and stock-based compensation).

General and Administrative

General and administrative expenses consist primarily of personnel costs (including base pay, benefits, and stock-based compensation), facilities costs and related expenses for our executive, finance, human resources, and legal organizations, depreciation related to our fixed assets, and fees for outside services. Outside services are principally composed of external legal, audit, and tax services. For our rentals business, personnel costs include employees in the sales department. These employees are responsible for attracting potential rental properties and agreeing to contract terms, but they are not responsible for delivering a service to the rental property.

Restructuring and Reorganization

Restructuring and reorganization expenses consist primarily of personnel-related costs associated with employee terminations, furloughs, or retention payments associated with wind-down activities.

Interest Income, Interest Expense, Income Tax Expense, Gain on Extinguishment of Convertible Senior Notes, and Other Expense, Net

Interest Income

Interest income consists primarily of interest earned on our cash, cash equivalents, and investments, and interest income related to originated mortgage loans.

Interest Expense

Interest expense consists primarily of any interest payable on our convertible senior notes and, for the three and nine months ended September 30, 2023, the amortization of debt discounts and issuance cost related to our convertible senior notes. See Note 14 to our consolidated financial statements for information regarding interest on our convertible senior notes.

Interest expense also includes interest on borrowings and the amortization of debt issuance costs related to our secured revolving credit facility and our warehouse credit facilities. See Note 14 to our consolidated financial statements for information regarding interest for the facility.

Income Tax Expense

Income tax expense primarily relates to current state income taxes recorded for the year, partially offset by a deferred income tax benefit generated by the reduction to a deferred tax liability created through our April 2, 2021 acquisition of Rent.

Gain on Extinguishment of Convertible Senior Notes

Gain on extinguishment of convertible senior notes relates to gains recognized on the repurchase of our convertible senior notes. See Note 14 to our consolidated financial statements for information regarding our convertible senior notes.

Other Expense, Net

Other expense, net consists primarily of realized and unrealized gains and losses on investments. See Note 4 to our consolidated financial statements for information regarding unrealized gains and losses on our investments.

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Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in thousands)

Revenue	$	268,956	$	305,774	$	758,595	$	877,639
Cost of revenue(1)	170,616		215,109		501,927		624,089
Gross profit	98,340		90,665		256,668		253,550
Operating expenses
Technology and development(1)	44,392		43,335		139,196		135,678
Marketing(1)	24,095		33,242		97,531		131,352
General and administrative(1)	55,380		57,976		186,584		182,640
Restructuring and reorganization	—		284		7,159		18,399
Total operating expenses	123,867		134,837		430,470		468,069
Loss from continuing operations	(25,527)		(44,172)		(173,802)		(214,519)
Interest income	2,060		1,174		8,170		1,948
Interest expense	(1,603)		(2,219)		(5,291)		(6,648)
Income tax expense	(239)		(132)		(882)		(425)
Gain on extinguishment of convertible notes	6,495		—		68,848		—
Other expense, net	(158)		(902)		(537)		(3,077)
Net loss from continuing operations	$	(18,972)	$	(46,251)	$	(103,494)	$	(222,721)

(1) Includes stock-based compensation as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in thousands)

Cost of revenue	$	3,037	$	4,165	$	10,173	$	10,771
Technology and development	8,391		6,353		24,759		20,230
Marketing	1,337		1,002		3,836		2,939
General and administrative	6,035		4,904		16,380		13,022
Total stock-based compensation from continuing operations	$	18,800	$	16,424	$	55,148	$	46,962


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(as a percentage of revenue)

Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue(1)	63.4		70.3		66.2		71.1
Gross profit	36.6		29.7		33.8		28.9
Operating expenses
Technology and development(1)	16.5		14.2		18.3		15.5
Marketing(1)	9.0		10.9		12.9		15.0
General and administrative(1)	20.6		19.0		24.6		20.8
Restructuring	0.0		0.1		0.9		2.1
Total operating expenses	46.1		44.2		56.7		53.4
Loss from continuing operations	(9.5)		(14.5)		(22.9)		(24.5)
Interest income	0.8		0.4		1.1		0.2
Interest expense	(0.6)		(0.7)		(0.7)		(0.8)
Income tax expense	(0.1)		0.0		(0.1)		0.0
Gain on extinguishment of convertible notes	2.4		0.0		9.1		0.0
Other expense, net	(0.1)		(0.3)		(0.1)		(0.4)
Net loss from continuing operations	(7.1)	%	(15.1)	%	(13.6)	%	(25.5)	%

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(1) Includes stock-based compensation as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(as a percentage of revenue)

Cost of revenue	1.1	%	1.4	%	1.3	%	1.2	%
Technology and development	3.1		2.1		3.3		2.3
Marketing	0.5		0.3		0.5		0.3
General and administrative	2.3		1.6		2.2		1.6
Total	7.0	%	5.4	%	7.3	%	5.4	%

Comparison of the Three Months Ended September 30, 2023 and 2022

Revenue


	Three Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Real estate services
Brokerage	$	166,104		$	202,578		$	(36,474)	(18)	%
Partner	11,646			8,962			2,684		30
Total real estate services	177,750			211,540			(33,790)		(16)
Rentals	47,410			38,686			8,724		23
Mortgage	32,923			48,469			(15,546)		(32)
Other	10,873			7,079			3,794		54
Total revenue	$	268,956		$	305,774		$	(36,818)	(12)
Percentage of revenue
Real estate services
Brokerage	61.8		%	66.3		%
Partner	4.3			2.9
Total real estate services	66.1			69.2
Rentals	17.6			12.7
Mortgage	12.2			15.9
Other	4.1			2.2
Total revenue	100.0		%	100.0		%

In the three months ended September 30, 2023, revenue decreased by $36.8 million, or 12%, as compared with the same period in 2022. This decrease in revenue was primarily attributable to a $33.8 million decrease in real estate services revenue. Brokerage revenue decreased by $36.5 million, and partner revenue increased by $2.7 million. Brokerage revenue decreased 18% during the period, driven by a 28% decrease in brokerage transactions and a 14% increase in brokerage revenue per transaction with the elimination of our homebuyer commission refund, and a 4% increase in average home prices for brokerage transactions. See Adverse Macroeconomic Conditions and Our Associated Actions within Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional drivers of these changes.

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Cost of Revenue and Gross Margin


	Three Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Cost of revenue
Real estate services	$	123,684		$	156,632		$	(32,948)	(21)	%
Rentals	10,824			8,676			2,148		25
Mortgage	29,629			43,783			(14,154)		(32)
Other	6,479			6,018			461		8
Total cost of revenue	$	170,616		$	215,109		$	(44,493)	(21)

Gross profit
Real estate services	$	54,066		$	54,908		$	(842)	(2)	%
Rentals	36,586			30,010			6,576		22
Mortgage	3,294			4,686			(1,392)		(30)
Other	4,394			1,061			3,333		314
Total gross profit	$	98,340		$	90,665		$	7,675	8

Gross margin (percentage of revenue)
Real estate services	30.4		%	26.0		%
Rentals	77.2			77.6
Mortgage	10.0			9.7
Other	40.4			15.0
Total gross margin	36.6			29.7

In the three months ended September 30, 2023, total cost of revenue decreased by $44.5 million, or 21%, as compared with the same period in 2022. This decrease in cost of revenue was primarily attributable to a $39.0 million decrease in personnel costs and transaction bonuses, due to decreased headcount and decreased brokerage transactions, respectively.

In the three months ended September 30, 2023, total gross margin increased 690 basis points as compared with the same period in 2022, driven primarily by increases in real estate services and other gross margin.

In the three months ended September 30, 2023, real estate services gross margin increased 440 basis points as compared with the same period in 2022. This was primarily attributable to a 510 basis point decrease in personnel costs and transaction bonuses, and a 160 basis point decrease in home-touring and field expenses, each as a percentage of revenue. This was partially offset by a 190 basis point increase in home improvement costs incurred on behalf of home sellers as a percentage of revenue.

In the three months ended September 30, 2023, rentals gross margin decreased 40 basis points as compared with the same period in 2022. This was primarily attributable to a 430 basis point increase in marketing expense as a percentage of revenue and due to expanded services. This was partially offset by a 180 basis point decrease in personnel costs.

In the three months ended September 30, 2023, mortgage gross margin increased 30 basis points as compared with the same period in 2022. This was primarily attributable to a 210 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue. This was partially offset by a 180 basis point increase in production costs as a percentage of revenue.

In the three months ended September 30, 2023, other gross margin increased 2,540 basis points as compared with the same period in 2022. This was primarily attributable to a 1,800 basis point decrease in personnel costs and transaction bonuses, and a 440 basis point decrease in production costs, each as a percentage of revenue.

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Operating Expenses


	Three Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Technology and development	$	44,392		$	43,335		$	1,057	2	%
Marketing	24,095			33,242			(9,147)		(28)
General and administrative	55,380			57,976			(2,596)		(4)
Restructuring	—			284			(284)		(100)
Total operating expenses	$	123,867		$	134,837		$	(10,970)	(8)
Percentage of revenue
Technology and development	16.5		%	14.2		%
Marketing	9.0			10.9
General and administrative	20.6			18.9
Restructuring and reorganization	0.0			0.1
Total operating expenses	46.1		%	44.1		%

In the three months ended September 30, 2023, technology and development expenses increased by $1.1 million, or 2%, as compared with the same period in 2022. The increase was primarily attributable to a $0.7 million increase in personnel costs. The number of technology and development employees decreased by 18%, as compared with the same period in 2022.

In the three months ended September 30, 2023, marketing expenses decreased by $9.1 million, or 28%, as compared with the same period in 2022. The decrease was primarily attributable to a $9.3 million decrease in marketing media costs as we reduced advertising.

In the three months ended September 30, 2023, general and administrative expenses decreased by $2.6 million, or 4%, as compared with the same period in 2022. The decrease was primarily attributable to a $2.5 million decrease in personnel costs.

In the three months ended September 30, 2023, restructuring and reorganization expenses decreased by $0.3 million, or 100%, as compared with the same period in 2022.

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Interest Income, Interest Expense, Income Tax Expense, Gain on Extinguishment of Convertible Senior Notes, and Other Expense, Net


	Three Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Interest income	$	2,060		$	1,174		$	886	75	%
Interest expense	(1,603)			(2,219)			616		28
Income tax expense	(239)			(132)			(107)		(81)
Gain on extinguishment of convertible senior notes	6,495			—			6,495		N/A
Other expense, net	(158)			(902)			744		82
Interest income, interest expense, income tax expense, gain on extinguishment of convertible notes, and other expense, net	$	6,555		$	(2,079)		$	8,634	415
Percentage of revenue
Interest income	0.8		%	0.4		%
Interest expense	(0.6)			(0.7)
Income tax expense	(0.1)			0.0
Gain on extinguishment of convertible senior notes	2.4			0.0
Other expense, net	(0.1)			(0.3)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible notes, and other expense, net	2.4		%	(0.6)		%

In the three months ended September 30, 2023, interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net increased by $8.6 million as compared to the same period in 2022.

Interest expense decreased by $0.6 million due primarily to the closing of our secured revolving credit facility.

Gain on extinguishment of convertible senior notes increased by $6.5 million, due to our paying down a portion of our 2025 notes at a discount, and there was no such activity in 2022. See Note 14 to our consolidated financial statements for further information on these transactions.

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Comparison of the Nine Months Ended September 30, 2023 and 2022

Revenue


	Nine Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Real estate services
Brokerage	$	454,888		$	610,904		$	(156,016)	(26)	%
Partner	30,799			29,931			868		3
Total real estate services	485,687			640,835			(155,148)		(24)
Rentals	135,636			114,979			20,657		18
Mortgage	107,838			104,484			3,354		3
Other	29,434			17,341			12,093		70
Total revenue	$	758,595		$	877,639		$	(119,044)	(14)
Percentage of revenue
Real estate services
Brokerage	60.0		%	69.6		%
Partner	4.1			3.4
Total real estate services	64.1			73.0
Rentals	17.9			13.1
Mortgage	14.2			11.9
Other	3.8			2.0
Total revenue	100.0		%	100.0		%

In the nine months ended September 30, 2023, revenue decreased by $119.0 million, or 14%, as compared with the same period in 2022. This decrease was partially offset by $107.8 million in revenue resulting from our acquisition of Bay Equity, and there were $101.8 million of such revenues in the nine months ended September 30, 2022. Excluding these revenues from Bay Equity, this decrease in revenue was primarily attributable to a $155.1 million decrease in real estate services revenue. Brokerage revenue decreased by $156.0 million, and partner revenue increased by $0.9 million. Brokerage revenue decreased 26% during the period, driven by a 31% decrease in brokerage transactions and a 8% increase in brokerage revenue per transaction with the elimination of our homebuyer commission refund more than offsetting a 3% decrease in average home prices for brokerage transactions.

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Cost of Revenue and Gross Margin


	Nine Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Cost of revenue
Real estate services	$	359,625		$	488,114		$	(128,489)	(26)	%
Rentals	31,016			23,769			7,247		30
Mortgage	93,108			95,616			(2,508)		(3)
Other	18,178			16,590			1,588		10
Total cost of revenue	$	501,927		$	624,089		$	(122,162)	(20)

Gross profit
Real estate services	$	126,062		$	152,721		$	(26,659)	(17)	%
Rentals	104,620			91,210			13,410		15
Mortgage	14,730			8,868			5,862		66
Other	11,256			751			10,505		1,399
Total gross profit	$	256,668		$	253,550		$	3,118	1

Gross margin (percentage of revenue)
Real estate services	26.0		%	23.8		%
Rentals	77.1			79.3
Mortgage	13.7			8.5
Other	38.2			4.3
Total gross margin	33.8			28.9

In the nine months ended September 30, 2023, total cost of revenue decreased by $122.2 million, or 20%, as compared with the same period in 2022. This decrease was partially offset by $92.9 million in costs resulting from our acquisition of Bay Equity, and there were $87.3 million of such costs in the nine months ended September 30, 2022. Excluding these expenses from Bay Equity, this decrease in cost of revenue was primarily attributable to a $111.4 million decrease in personnel costs and transaction bonuses, due to decreased headcount and decreased brokerage transactions, respectively.

In the nine months ended September 30, 2023, total gross margin increased 490 basis points as compared with the same period in 2022, driven primarily by increases in real estate services, mortgage, and other gross margin.

In the nine months ended September 30, 2023, real estate services gross margin increased 220 basis points as compared with the same period in 2022. This was primarily attributable to a 390 basis point decrease in personnel costs and transaction bonuses, and a 40 basis point decrease in home-touring and field expenses, each as a percentage of revenue. This was partially offset by a 100 basis point increase in home repair costs, a 60 basis point increase in costs from our annual, in-person company event, which we did not conduct in the same period in 2022, and a 40 basis point increase in listing expenses, each as a percentage of revenue.

In the nine months ended September 30, 2023, rentals gross margin decreased 220 basis points as compared with the same period in 2022. This was primarily attributable to a 490 basis point increase in marketing expense as a percentage of revenue and due to expanded services.

In the nine months ended September 30, 2023, mortgage gross margin increased 520 basis points as compared with the same period in 2022. This was primarily attributable to a 890 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue. This was partially offset by a 460 basis point increase in production costs as a percentage of revenue.

In the nine months ended September 30, 2023, other gross margin increased 3,390 basis points. This was primarily attributable to a 2,130 basis point decrease in personnel costs and transaction bonuses, and a 660 basis point decrease in production costs, each as a percentage of revenue.

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Operating Expenses


	Nine Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Technology and development	$	139,196		$	135,678		$	3,518	3	%
Marketing	97,531			131,352			(33,821)		(26)
General and administrative	186,584			182,640			3,944		2
Restructuring	7,159			18,399			(11,240)		(61)
Total operating expenses	$	430,470		$	468,069		$	(37,599)	(8)
Percentage of revenue
Technology and development	18.3		%	15.5		%
Marketing	12.9			15.0
General and administrative	24.6			20.8
Restructuring and reorganization	0.9			2.1
Total operating expenses	56.7		%	53.4		%

In the nine months ended September 30, 2023, technology and development expenses increased by $3.5 million, or 3%, as compared with the same period in 2022. Bay Equity contributed $1.3 million in costs in both the nine months ended September 30, 2023 and 2022, and therefore did not impact the overall change. Excluding these expenses from Bay Equity, the increase was primarily attributable to a $1.9 million increase in personnel costs.

In the nine months ended September 30, 2023, marketing expenses decreased by $33.8 million, or 26%, as compared with the same period in 2022. Included in the decrease was $3.1 million in costs resulting from our acquisition of Bay Equity, and there were $3.4 million of such expenses in the nine months ended September 30, 2022. Excluding these expenses from Bay Equity, the decrease was primarily attributable to a $34.5 million decrease in marketing media costs as we reduced advertising.

In the nine months ended September 30, 2023, general and administrative expenses increased by $3.9 million, or 2%, as compared with the same period in 2022. Included in the increase was $20.1 million resulting from our acquisition of Bay Equity, and there were $15.2 million of such expenses in the nine months ended September 30, 2022. Excluding these expenses from Bay Equity, general and administrative expenses decreased by $1.0 million. The decrease was primarily attributable to $4.1 million decrease in personnel costs, a $2.4 million decrease in acquisition-related expenses, and a $2.3 million decrease in legal expenses. This was partially offset by $5.9 million in costs associated with our annual, in-person company event, which we did not conduct in the same period in 2022, and a $1.7 million increase in office and occupancy expenses as we were terminating a lease.

In the nine months ended September 30, 2023, restructuring and reorganization expenses decreased by $11.2 million, or 61%, as compared with the same period in 2022. This decrease is primarily attributable to a lower volume of restructuring activities in the nine months ended September 30, 2023 as compared with the same period in 2022.

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Interest Income, Interest Expense, Income Tax Expense, Gain on Extinguishment of Convertible Senior Notes, and Other Expense, Net


	Nine Months Ended September 30,						Change
	2023			2022			Dollars		Percentage

	(in thousands, except percentages)

Interest income	$	8,170		$	1,948		$	6,222	319	%
Interest expense	(5,291)			(6,648)			1,357		20
Income tax expense	(882)			(425)			(457)		(108)
Gain on extinguishment of convertible senior notes	68,848			—			68,848		N/A
Other expense, net	(537)			(3,077)			2,540		83
Interest income, interest expense, income tax expense, gain on extinguishment of convertible notes, and other expense, net	$	70,308		$	(8,202)		$	78,510	957
Percentage of revenue
Interest income	1.1		%	0.2		%
Interest expense	(0.7)			(0.8)
Income tax expense	(0.1)			0.0
Gain on extinguishment of convertible senior notes	9.1			0.0
Other expense, net	(0.1)			(0.4)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible notes, and other expense, net	9.3		%	(1.0)		%

In the nine months ended September 30, 2023, interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net increased by $78.5 million as compared to the same period in 2022.

Interest expense decreased by $1.4 million due primarily to the closing of our secured revolving credit facility.

Gain on extinguishment of convertible senior notes increased by $68.8 million, due to our paying down a portion of our 2025 notes at a discount, and there was no such activity for the same period in 2022. See Note 14 to our consolidated financial statements for further information on these transactions.

Other expense, net decreased by $2.5 million primarily due to the sale of one of our equity investments at a loss in the nine months ended September 30, 2022, and we had no such transaction in the nine months ended September 30, 2023.

Segment Financial Information

The following tables present, for each of our reportable and other segments, financial information on a GAAP basis and adjusted EBITDA, which is a non-GAAP financial measure, for the three and nine months ended September 30, 2023 and 2022.

See Note 3 to our consolidated financial statements for more information regarding our GAAP segment reporting.

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To supplement our consolidated financial statements that are prepared and presented in accordance with GAAP, we also compute and present adjusted EBITDA, which is a non-GAAP financial measure. We believe adjusted EBITDA is useful for investors because it enhances period-to-period comparability of our financial statements on a consistent basis and provides investors with useful insight into the underlying trends of the business. The presentation of this financial measure is not intended to be considered in isolation or as a substitute of, or superior to, our financial information prepared and presented in accordance with GAAP. Our calculation of adjusted EBITDA may be different from adjusted EBITDA or similar non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Our adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022 is presented below, along with a reconciliation of adjusted EBITDA to net (loss) income from continuing operations.


	Three Months Ended September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Revenue	$	177,750	$	47,410	$	32,923	$	10,873	$	—	$	268,956
Cost of revenue	123,684		10,824		29,629		6,479		—		170,616
Gross profit	54,066		36,586		3,294		4,394		—		98,340
Operating expenses
Technology and development	25,711		15,813		800		1,133		935		44,392
Marketing	10,785		12,245		1,088		20		(43)		24,095
General and administrative	18,418		21,838		6,670		952		7,502		55,380

Total operating expenses	54,914		49,896		8,558		2,105		8,394		123,867
(Loss) income from continuing operations	(848)		(13,310)		(5,264)		2,289		(8,394)		(25,527)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	41		42		(73)		207		6,338		6,555
Net (loss) income from continuing operations	$	(807)	$	(13,268)	$	(5,337)	$	2,496	$	(2,056)	$	(18,972)


	Three Months Ended September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Net (loss) income from continuing operations	$	(807)	$	(13,268)	$	(5,337)	$	2,496	$	(2,056)	$	(18,972)
Interest income(1)	(41)		(81)		(2,886)		(207)		(1,732)		(4,947)
Interest expense(2)	—		—		3,132		—		1,598		4,730
Income tax expense	—		37		70		—		132		239
Depreciation and amortization	3,123		9,681		947		233		312		14,296
Stock-based compensation(3)	11,151		4,255		473		574		2,347		18,800



Gain on extinguishment of convertible senior notes	—		—		—		—		(6,495)		(6,495)
Adjusted EBITDA	$	13,426	$	624	$	(3,601)	$	3,096	$	(5,894)	$	7,651

(1) Interest income includes $2.9 million of interest income related to originated mortgage loans for the three months ended September 30, 2023.

(2) Interest expense includes $3.1 million of interest expense related to our warehouse credit facilities for the three months ended September 30, 2023.

(3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 11 to our consolidated financial statements for more information.

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	Three Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Revenue(1)	$	211,540	$	38,686	$	48,469	$	7,079	$	—	$	305,774
Cost of revenue	156,632		8,676		43,783		6,018		—		215,109
Gross profit	54,908		30,010		4,686		1,061		—		90,665
Operating expenses
Technology and development	25,709		15,385		985		751		505		43,335
Marketing	18,772		12,678		1,653		48		91		33,242
General and administrative	20,244		22,722		7,073		784		7,153		57,976
Restructuring and reorganization	—		—		—		—		284		284
Total operating expenses	64,725		50,785		9,711		1,583		8,033		134,837
Loss from continuing operations	(9,817)		(20,775)		(5,025)		(522)		(8,033)		(44,172)
Interest income, interest expense, income tax expense, and other expense, net	—		397		(129)		40		(2,387)		(2,079)
Net loss from continuing operations	$	(9,817)	$	(20,378)	$	(5,154)	$	(482)	$	(10,420)	$	(46,251)

(1) Included in revenue is $4.9 million from providing services to our discontinued properties segment.


	Three Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Net loss from continuing operations	$	(9,817)	$	(20,378)	$	(5,154)	$	(482)	$	(10,420)	$	(46,251)
Interest income(1)	—		—		(4,049)		(42)		(1,115)		(5,206)
Interest expense(2)	—		—		3,364		—		2,215		5,579
Income tax expense	—		(355)		141		—		346		132
Depreciation and amortization	4,388		9,683		1,053		241		291		15,656
Stock-based compensation(3)	9,834		3,632		1,209		341		1,408		16,424
Acquisition-related costs(4)	—		—		—		—		13		13
Restructuring and reorganization(5)	—		—		—		—		284		284
Impairment(6)	—		—		—		—		913		913

Adjusted EBITDA	$	4,405	$	(7,418)	$	(3,436)	$	58	$	(6,065)	$	(12,456)

(1) Interest income includes $4.0 million of interest income related to originated mortgage loans for the three months ended September 30, 2022.

(2) Interest expense includes $3.4 million of interest expense related to our warehouse credit facilities for the three months ended September 30, 2022.

(4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies.

(5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention for our rentals segment due to the restructuring and reorganization activities from our acquisition of Rent.

(6) Impairment consists of an impairment loss due to subleasing one of our operating leases.

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	Nine Months Ended September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Revenue(1)	$	485,687	$	135,636	$	107,838	$	29,434	$	—	$	758,595
Cost of revenue	359,625		31,016		93,108		18,178		—		501,927
Gross profit	126,062		104,620		14,730		11,256		—		256,668
Operating expenses
Technology and development	82,650		48,081		2,177		3,475		2,813		139,196
Marketing	51,849		42,509		3,122		46		5		97,531
General and administrative	58,997		73,445		20,323		3,049		30,770		186,584
Restructuring and reorganization	—		—		—		—		7,159		7,159
Total operating expenses	193,496		164,035		25,622		6,570		40,747		430,470
(Loss) income from continuing operations	(67,434)		(59,415)		(10,892)		4,686		(40,747)		(173,802)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net	41		115		(224)		475		69,901		70,308
Net (loss) income from continuing operations	$	(67,393)	$	(59,300)	$	(11,116)	$	5,161	$	29,154	$	(103,494)

(1) Included in revenue is $1.2 million from providing services to our discontinued properties segment.


	Nine Months Ended September 30, 2023
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Net (loss) income from continuing operations	$	(67,393)	$	(59,300)	$	(11,116)	$	5,161	$	29,154	$	(103,494)
Interest income(1)	(41)		(238)		(9,062)		(475)		(7,400)		(17,216)
Interest expense(2)	—		—		9,737		—		5,285		15,022
Income tax expense	—		123		222		—		537		882
Depreciation and amortization	12,819		30,068		2,929		756		1,745		48,317
Stock-based compensation(3)	33,041		11,580		2,554		1,696		6,277		55,148
Acquisition-related costs(4)	—		—		—		—		8		8
Restructuring and reorganization(5)	—		—		—		—		7,159		7,159
Impairment(6)	—		—		—		—		113		113
Gain on extinguishment of convertible senior notes	—		—		—		—		(68,848)		(68,848)
Adjusted EBITDA	$	(21,574)	$	(17,767)	$	(4,736)	$	7,138	$	(25,970)	$	(62,909)

(1) Interest income includes $9.0 million of interest income related to originated mortgage loans for the nine months ended September 30, 2023.

(2) Interest expense includes $9.7 million of interest expense related to our warehouse credit facilities for the nine months ended September 30, 2023.

(4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies.

(5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from our June 2022, October 2022, and March 2023 workforce reductions.

(6) Impairment consists of an impairment loss due to subleasing one of our operating leases.

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	Nine Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Revenue(1)	$	640,835	$	114,979	$	104,484	$	17,341	$	—	$	877,639
Cost of revenue	488,114		23,769		95,616		16,590		—		624,089
Gross profit	152,721		91,210		8,868		751		—		253,550
Operating expenses
Technology and development	80,144		44,539		5,236		2,975		2,784		135,678
Marketing	90,380		36,806		3,525		173		468		131,352
General and administrative	67,578		68,738		18,047		2,346		25,931		182,640
Restructuring and reorganization	—		—		—		—		18,399		18,399
Total operating expenses	238,102		150,083		26,808		5,494		47,582		468,069
Loss from operations	(85,381)		(58,873)		(17,940)		(4,743)		(47,582)		(214,519)
Interest income, interest expense, income tax expense, and other expense, net	(123)		1,098		(164)		51		(9,064)		(8,202)
Net loss from continuing operations	$	(85,504)	$	(57,775)	$	(18,104)	$	(4,692)	$	(56,646)	$	(222,721)

(1) Included in revenue is $14.9 million from providing services to our discontinued properties segment.


	Nine Months Ended September 30, 2022
	Real estate services		Rentals		Mortgage		Other		Corporate overhead		Total

	(in thousands)

Net loss from continuing operations	$	(85,504)	$	(57,775)	$	(18,104)	$	(4,692)	$	(56,646)	$	(222,721)
Interest income(1)	—		(1)		(7,296)		(55)		(1,876)		(9,228)
Interest expense(2)	—		—		5,599		—		6,642		12,241
Income tax expense	—		(789)		174		—		1,040		425
Depreciation and amortization	12,957		28,550		2,425		814		909		45,655
Stock-based compensation(3)	29,644		8,611		2,590		1,151		4,966		46,962
Acquisition-related costs(4)	—		—		—		—		2,437		2,437
Restructuring and reorganization(5)	—		—		—		—		18,399		18,399
Impairment(6)	—		—		—		—		913		913

Adjusted EBITDA	$	(42,903)	$	(21,404)	$	(14,612)	$	(2,782)	$	(23,216)	$	(104,917)

(1) Interest income includes $7.3 million of interest income related to originated mortgage loans for the nine months ended September 30, 2023.

(2) Interest expense includes $5.6 million of interest expense related to our warehouse credit facilities for the nine months ended September 30, 2023.

(4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies.

(6) Impairment consists of an impairment loss due to subleasing one of our operating leases.

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Liquidity and Capital Resources

As of September 30, 2023, we had cash and cash equivalents of $125.8 million and investments of $47.3 million, which consist primarily of operating cash on deposit with financial institutions, money market instruments, U.S. treasury securities, and agency bonds. In October 2023, we entered into a definitive agreement with Apollo Capital Management, L.P. and its affiliates to commit up to $250 million of financing in the form of a first lien term loan facility. We received the first half of the loan in October 2023 and the remainder will be available as a delayed draw during the following 12 months. See Note 15 to our consolidated financial statements for more information on the term loan facility.

As of September 30, 2023, we had $809.5 million of convertible senior notes outstanding across two issuances, maturing between October 15, 2025 and April 1, 2027. During the three months ended September 30, 2023, we repurchased and retired $36.2 million of our 2025 convertible senior notes pursuant to the repurchase program authorized by our board of directors on October 17, 2022, using $29.4 million in cash. As of September 30, 2023, we have repurchased a total of $426.7 million of our 2025 convertible senior notes, using $296.0 million in cash. As of September 30, 2023, we have $4.0 million remaining under the repurchase program for future repurchases. See Note 15 to our consolidated financial statements for increased amount added to our repurchase program on October 19, 2023. See Note 14 to our consolidated financial statements for our obligations to pay semi-annual interest and to repay any outstanding amounts at the notes' maturity. In addition, our 2023 convertible senior notes were fully repaid in cash on July 15, 2023.

As of September 30, 2023, we had 40,000 shares of convertible preferred stock outstanding. See Note 10 to our consolidated financial statements for our obligations to pay quarterly interest and to redeem any outstanding shares on November 30, 2024.

Our mortgage business has significant cash requirements due to the period of time between its origination of a mortgage loan and the sale of that loan. We have relied on warehouse credit facilities with different lenders to fund substantially the entire portion of the mortgage loans that our mortgage business originates. Once our mortgage business sells a loan in the secondary mortgage market, we use the proceeds to reduce the outstanding balance under the related facility. See Note 14 to our consolidated financial statements for more information regarding our warehouse credit facilities.

We believe that our existing cash and cash equivalents and investments, together with cash we expect to generate from future operations, and borrowings from our mortgage warehouse credit facilities, will provide sufficient liquidity to meet our operational needs and our growth, and fulfill our payment obligations with respect to our convertible senior notes and convertible preferred stock. However, our liquidity assumptions may change or prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. As a result, we may seek new sources of credit financing or elect to raise additional funds through equity, equity-linked, or debt financing arrangements. We cannot assure you that any additional financing will be available to us on acceptable terms or at all.

Our title and settlement business holds cash in escrow that we do not record on our consolidated balance sheets. See Note 7 to our consolidated financial statements for more information regarding these amounts.

Cash Flows

The following table summarizes our cash flows for the periods presented:


	Nine Months Ended September 30,
	2023		2022

	(in thousands)

Net cash provided by (used in) operating activities	$	91,428	$	(148,489)
Net cash provided by (used in) investing activities	97,963		(181,109)
Net cash (used in) provided by financing activities	(304,347)		15,098

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Net Cash Provided by (Used In) Operating Activities

Our operating cash flows result primarily from cash generated by commissions paid to us from our real estate services business, sales of homes from our properties business, and subscription-based product offerings from our rentals business. Our primary uses of cash from operating activities include payments for personnel-related costs, including employee benefits and bonus programs, marketing and advertising activities, purchases of homes for our properties business, office and occupancy costs, and outside services costs. Additionally, our mortgage business generates a significant amount operating cash flow activity from the origination and sale of loans held for sale.

Net cash provided by operating activities was $91.4 million for the nine months ended September 30, 2023, primarily attributable to changes in assets and liabilities, which increased cash provided by operating activities by $150.4 million. This increase was partially offset by our net loss of $107.1 million. In addition there was a net increase of $48.2 million from non-cash items related to stock-based compensation, depreciation and amortization, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, changes in the fair value of mortgage servicing rights, gain on extinguishment of our convertible senior notes, and other non-cash items. The primary source of cash related to changes in our assets and liabilities was a $114.2 million decrease in inventory related to our properties business.

Net cash used in operating activities was $148.5 million for the nine months ended September 30, 2022, primarily attributable to (i) our net loss of $259.2 million, (ii) $121.7 million of non-cash items related to stock-based compensation, depreciation and amortization, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, change in fair value of mortgage servicing rights, and other non-cash items. The primary uses of cash related to changes in our assets and liabilities were a $57.0 million increase in inventory related to our properties business and a $26.1 million decrease in accounts payable and accrued and other liabilities related to the timing of vendor payments and payroll related expenses.

Net Cash Provided by (Used In) Investing Activities

Our primary investing activities include the purchase, sale, and maturity of investments and purchases of property and equipment, primarily related to capitalized software development expenses and computer equipment and software.

Net cash provided by investing activities was $98.0 million for the nine months ended September 30, 2023, primarily attributable to $107.2 million in net maturities of our investments in U.S. government securities, partially offset by $9.2 million in purchases of property and equipment.

Net cash used in investing activities was $181.1 million for the nine months ended September 30, 2022, primarily attributable to the net cash paid for our acquisition of Bay Equity of $97.3 million, $66.3 million in net investments in U.S. government securities, and $13.1 million of capitalized software development expenses.

Net Cash (Used In) Provided by Financing Activities

Our primary financing activities have come from (i) our initial public offering in August 2017, (ii) sales of our common stock and 2023 notes in July 2018, our common stock and convertible preferred stock in April 2020, our 2025 notes in October 2020, and our 2027 notes in March 2021, and (iii) the sale of our common stock pursuant to stock option exercises and our ESPP. Additionally, we generate a significant amount of financing cash flow activity due to borrowings from and repayments to our warehouse credit facilities and our secured revolving credit facility.

Net cash used in financing activities was $304.3 million for the nine months ended September 30, 2023, attributable to $212.4 million used in connection with repurchases of our 2025 notes and $23.5 million used in connection with the repayment of our 2023 notes. This was partially offset by a $58.2 million decrease in net borrowings under our warehouse credit facilities.

Net cash provided by financing activities was $15.1 million for the nine months ended September 30, 2022, attributable to a $2.6 million increase in net borrowings under our secured revolving credit facility and a $10.9 million increase in net borrowings under our warehouse credit facilities.

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Critical Accounting Policies and Estimates

Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and estimates addressed below. In addition, we have other key accounting policies and estimates that are described in Note 1 to our consolidated financial statements.

Revenue Recognition

Our key revenue components are brokerage revenue, partner revenue, rentals revenue, mortgage revenue, and other revenue. Of these, we consider the most critical of our revenue recognition policies to be those related to commissions and fees charged on brokerage transactions closed by our lead agents, and from the sale of homes. We recognize commission-based brokerage revenue upon closing of a brokerage transaction, less the amount of any commission refunds, closing-cost reductions, or promotional offers that may result in a material right. We determined that brokerage revenue primarily contains a single performance obligation that is satisfied upon the closing of a transaction, at which point the entire transaction price is earned. We evaluate our brokerage contracts and promotional pricing to determine if there are any additional material rights and allocate the transaction price based on standalone selling prices.

Rentals revenue is primarily recognized on a straight-line basis over the term of the contract, which is generally less than one year. Revenue is presented net of sales allowances, which are not material.

Mortgage revenue is recognized (1) when an interest rate lock commitment is made to a customer, adjusted for a pull-through percentage, (2) for origination fees, when the purchase or refinance of a loan is complete, and (3) when the fair value of our interest rate lock commitments, forward sale commitments, and loans held for sale are recorded at current market quotes.

We have utilized the practical expedient in ASC 606, Revenue from Contracts with Customers, and elected not to capitalize contract costs for contracts with customers with durations less than one year. We do not have significant remaining performance obligations or contract balances.

Acquired Intangible Assets and Goodwill

We recognize separately identifiable intangible assets acquired in a business combination. Determining the fair value of the intangible assets acquired requires management’s judgment, often utilizes third-party valuation specialists, and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash flows, discount rates, replacement costs, and asset lives, among other estimates.

The judgments made in the determination of the estimated fair value assigned to the intangible assets acquired and the estimated useful life of each asset could significantly impact our consolidated financial statements in periods after the acquisition, such as through depreciation and amortization expense, as well as impairment charges, if applicable.

We evaluate intangible assets for impairment whenever events or circumstances indicate that they may not be recoverable. We measure recoverability by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated with such asset group.

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Goodwill represents the excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination. Goodwill is not amortized, but is subject to impairment testing. We assess the impairment of goodwill on an annual basis, during the fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. Based on our annual goodwill impairment test performed in the fourth quarter of 2022, the estimated fair values of all reporting units substantially exceeded their carrying values. No goodwill impairment charges were recorded in the third quarter of 2023 or 2022.

We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we qualitatively determine that it is not more likely than not that the fair value is less than its carrying amount, then no additional impairment steps are necessary. When utilizing a quantitative assessment, we determine fair value at the reporting unit level based on a combination of an income approach and market approach. The income approach is based on estimated future cash flows, discounted at a rate that approximates the cost of capital of a similar market participant, while the market approach is based on guideline public company multiples and adjusted for the specific size and risk profile of each reporting units.

Recent Accounting Standards

For information on recent accounting standards, see Note 1 to our consolidated financial statements.

Item 3. Qualitative and Quantitative Disclosures About Market Risk.

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

Interest Rate Risk

Our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of securities, including U.S. treasury and agency issues, bank certificates of deposit that are 100% insured by the Federal Deposit Insurance Corporation, and SEC-registered money market funds that consist of a minimum of $1 billion in assets and meet the above requirements. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes.

As of September 30, 2023, we had cash and cash equivalents of $125.8 million and investments of $47.3 million. Our investments are composed of available-for-sale securities that consist primarily of U.S. treasury securities with maturities of two years or less. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the relatively short-term nature and risk profile of our portfolio. Declines in interest rates, however, would reduce future investment income. Assuming no change in our outstanding cash, cash equivalents, and investments during the fourth quarter of 2023, a hypothetical 10% change in interest rates, occurring during and sustained throughout that quarter, would not have a material impact on our financial results for that quarter.

We are exposed to interest rate risk on our mortgage loans held for sale and IRLCs associated with our mortgage loan origination services. We manage this interest rate risk through the use of forward sales commitments on both a best effort whole loans basis and on a mandatory basis. Forward sales commitments entered into on a mandatory basis are done through the use of commitments to sell mortgage-backed securities. We do not enter into or hold derivatives for trading or speculative purposes. The fair value of our IRLCs and forward sales commitments are reflected in other current assets and accrued liabilities, as applicable, with changes in the fair value of these commitments recognized as revenue. The net fair value change for the periods presented were not material. See Note 4 to our consolidated financial statements for a summary of the fair value of our forward sales commitments and our IRLCs as of September 30, 2023.

Foreign Currency Exchange Risk

As our operations in Canada have been limited, and we do not maintain a significant balance of foreign currency, we do not currently face significant foreign currency exchange rate risk.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control

In connection with the evaluation required by Rule 13a-15(d) under the Securities Exchange Act of 1934, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

See "Legal Proceedings" under Note 7 to our consolidated financial statements for a discussion of our material, pending legal proceedings.

In addition, on October 31, 2023, a putative class action complaint (the “Class Action”) was filed in the United States District Court for the Western District of Missouri against the National Association of Realtors and certain unaffiliated real estate brokerages, including Redfin. The Class Action alleges that defendants participated in a system that resulted in sellers of residential property paying inflated buyer broker commissions in violation of federal antitrust law. Among other relief, plaintiffs seek an unspecified amount of damages, injunctive relief, and attorneys’ fees and costs. For additional information, see Item 1A. Risk Factors.

Item 1A. Risk Factors.

Except as discussed below, there have not been any material changes from the risk factors included in Item 1A of our annual report for the year ended December 31, 2022. You should carefully consider the risks described below and in our annual report for the year ended December 31, 2022, together with all other information in this quarterly report, before investing in any of our securities. The occurrence of any single risk or any combination of risks could materially and adversely affect our business, operating results, financial condition, liquidity, or competitive position, and consequently, the value of our securities. The material adverse effects include, but are not limited to, not growing our revenue or market share at the pace that they have grown historically or at all, our revenue and market share fluctuating on a quarterly and annual basis, an extension of our history of losses and a failure to become profitable, not achieving the revenue and net income (loss) guidance that we provide, and harm to our reputation and brand.

The real estate market may be severely impacted by industry changes as the result of certain class action lawsuits or government investigations.

The real estate industry faces significant pressure from private lawsuits and investigations by the Department of Justice (the “DOJ”) into antitrust issues.

In April 2019, the National Association of Realtors (“NAR”) and certain brokerages and franchisors (including Realogy Holdings Corp., HomeServices of America, Inc. RE/MAX, and Keller Williams Realty, Inc.) were named as defendants in a class action complaint alleging a conspiracy to violate federal antitrust laws by, among other things, requiring residential property sellers in Missouri to pay inflated commission fees to buyer brokers (the “NAR Class Action”). On October 31, 2023, a jury found NAR and various of its co-defendants liable and awarded plaintiffs nearly $1.8 billion in damages (an award that is subject to trebling). Class action suits raising similar claims are already pending in this and other jurisdictions and the outcome of the NAR Class Action may result in additional such actions being filed. On October 31, 2023, the same day as the NAR Class Action jury verdict, under the caption Gibson et. al. v. National Association of Realtors, et al., Redfin was named as one of several defendants in a federal class action suit as described under the caption “Class Act Complaint” above under Item 1. Legal Proceedings.

Defending against class action litigation is costly, may divert time and money away from our operations, and imposes a significant burden on management and employees. Also, the results of any such litigation or investigation cannot be predicted with certainty, and any negative outcome could result in payments of substantial monetary damages or fines, and/or undesirable changes to our operations or business practices, and accordingly, our business, financial condition, or results of operations could be materially and adversely affected.

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In addition to the NAR Class Action and various similar private actions already pending, beginning in 2018, the DOJ began investigating NAR for violations of the federal antitrust laws. The DOJ and NAR appeared to reach a resolution in November 2020, resulting in the filing of a Complaint and Proposed Consent Judgment pursuant to which NAR agreed to adopt certain rule changes, such as increased disclosure of commission offers. The DOJ has since sought to continue its investigation of NAR, and the question of whether the earlier settlement forecloses further investigation is currently being litigated. It is uncertain what effect, if any, the resumption of the DOJ’s investigation could have on the larger real estate industry, including any further settlement that may result therefrom.

Beyond monetary damages, the various class action suits seek to change real estate industry practices and, along with the DOJ investigation, have prompted state and local real estate boards or multiple listing services to discuss and consider changes to long-established rules and regulations. To the extent adopted, such amended rules and regulations may require changes to our business model, including changes to agent and broker compensation. Even if commission sharing remains the norm, it may no longer be mandated, which may lead to the introduction of hourly or a la carte services. If buyers end up having to compensate their brokers, they may be more likely to contact listing agents directly, driving down dual agent broker commissions. Home lending rules and norms do not currently allow for homebuyers to include buyer’s agent compensation in the balance of a home loan, which may impair the ability of homebuyers to pay buyers’ agent fees when purchasing a home. Such potential changes in the model for agent and broker compensation could reduce the fees we receive from our agents and, in turn, adversely affect our financial condition and results of operations.

Risks Related to Our Indebtedness

The risk factors under this heading “Risks Related to Our Indebtedness” replace those risk factors under the heading “Risks Related to Our Indebtedness” in Item 1A of our annual report for the year ended December 31, 2022.

Our term loan facility provides our lenders with a first-priority lien against substantially all of our and our subsidiaries’ assets, and contains financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

Our term loan facility restricts our ability to, among other things:

•use our accounts receivable, inventory, trademarks and most of our other assets as security in other borrowings or transactions;

•incur additional indebtedness, except for (i) indebtedness secured on a pari passu basis in an amount up to $50,000,000, (ii) indebtedness secured on a junior and subordinated basis or subordinated in right of payment to our senior lenders, and (ii) unsecured indebtedness;

•incur liens upon our property;

•dispose of certain assets;

•purchase or acquire equity interests;

•declare dividends or make certain distributions;

•enter into related party transactions; and

•undergo a merger or consolidation or other transactions.

Our term loan facility also requires that we maintain aggregate consolidated liquidity (defined as unrestricted cash plus cash equivalents) of $75.0 million, tested on a quarterly basis. Our ability to comply with these and other covenants is dependent upon several factors, some of which are beyond our control.

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Our failure to comply with the covenants or payment requirements, or the occurrence of other events specified in our term loan facility, could result in an event of default under the term loan facility, which would give our lenders the right to terminate their commitments to provide additional loans under the term loan facility and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lenders first-priority liens against substantially all of our and our subsidiaries’ assets as collateral (other than the assets of our subsidiary Bay Equity LLC). Failure to comply with the covenants or other restrictions in the term loan facility could result in a default. If the debt under our term loan facility was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results.

We may not have sufficient cash flow to make the payments required under our current indebtedness, and a failure to make payments when due may result in the entire principal amount of our indebtedness becoming due prior to maturity, which may result in our bankruptcy.

Our ability to make scheduled payments of the principal of or to pay interest on our indebtedness, including amounts payable under our 2027 notes and any borrowings under our term loan facility or other future indebtedness, depends on having sufficient cash on hand when the payments are due. Our cash availability, in turn, depends on our future performance, which is subject to the other risks described in this Item 1A and Item 1A of our annual report for the year ended December 31, 2022. If we are unable to generate sufficient cash flow to make the payments when due, then we may be required to adopt one or more alternatives, such as selling assets, refinancing the notes, or raising additional capital. However, we may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

In addition, holders of our convertible senior notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest. Furthermore, holders of our notes have the right to convert their notes upon any of the conditions described below:

•during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes on each applicable trading day;

•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the notes on each such trading day;

•if we call any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day prior to the redemption date; or

•upon the occurrence of specified corporate events.

If any of these conversion features under a tranche of our notes are triggered, then holders of such notes will be entitled to convert the notes at any time during specified periods at their option. Upon conversion, we will be required to make cash payments in respect of the notes being converted, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share).

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In addition, our term loan facility prohibits us from making any cash payments on the conversion or repurchase of our notes if an event of default exists under our term loan facility or if, after giving effect to such conversion or repurchase, we would not be in compliance with the financial covenants under our term loan facility. Our failure to make payments when due may result in an event of default under the indentures governing our convertible senior notes and cause (i) with respect to our 2025 notes, the remaining $235 million aggregate principal amount, and (ii) with respect to our 2027 notes, the entire $575 million aggregate principal amount, plus, in each case, any accrued and unpaid interest, to become due immediately and prior to the maturity date, and may further result in a default under our term loan facility. Any acceleration of the amounts outstanding under our indebtedness could result in our bankruptcy. In a bankruptcy, our term loan lender first, and the holders of our convertible senior notes second, would have a claim to our assets senior to the claims of holders of our common stock.

A substantial portion of our mortgage business’s assets are measured at fair value. If our estimates of fair value are inaccurate, we may be required to record a significant write down of our assets.

Bay Equity’s mortgage servicing rights (“MSRs”), interest rate lock commitments (“IRLCs”), and mortgage loans held for sale are recorded at fair value on our balance sheet. Fair value determinations require many assumptions and complex analyses, and we cannot control many of the underlying factors. If our estimates are incorrect, we could be required to write down the value of these assets, which could adversely affect our financial condition and results of operations.

In particular, our estimates of the fair value of Bay Equity’s MSRs are based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuate due to a number of factors, including estimated discount rate, the cost of servicing, objective portfolio characteristics, contractual service fees, default rates, prepayment rates and other market conditions that affect the number of loans that ultimately become delinquent or are repaid or refinanced. These estimates are calculated by a third party using financial models that account for a high number of variables that drive cash flows associated with MSRs and anticipate changes in those variables over the life of the MSR. The accuracy of our estimates of the fair value of our MSRs are dependent on the reasonableness of the results of such models and the variables and assumptions that are built into them. If prepayment speeds or loan delinquencies are higher than anticipated, or other factors perform worse than modeled, the recorded value of certain of our MSRs may decrease, which could adversely affect our financial condition and results of operations.

Bay Equity relies on its warehouse credit facilities to fund the mortgage loans that it originates. If one or more of those facilities were to become unavailable, Bay Equity may be unable to find replacement financing on commercially reasonable terms, or at all, and this could adversely affect its ability to originate additional mortgage loans.

Bay Equity relies on borrowings from warehouse credit facilities to fund substantially all of the mortgage loans that it originates. To grow its business, Bay Equity depends, in part, on having sufficient borrowing capacity under its current facilities or obtaining additional borrowing capacity under new facilities. A current facility may become unavailable if Bay Equity fails to comply with its ongoing obligations under the facility or if it cannot agree with the lender on terms to renew the facility. New facilities may not be available on terms acceptable to us. If Bay Equity were unable to secure sufficient borrowing capacity through its warehouse credit facilities, then it may need to rely on our cash on hand to originate mortgage loans. If this cash were unavailable, then Bay Equity may be unable to maintain or increase the amount of mortgage loans that it originates, which will adversely affect its growth.

Each warehouse credit facility contains various restrictive and financial covenants and provides that Bay Equity’s breach or failure to satisfy certain of such covenants constitutes an event of default. In part due to decreased demand in the broader mortgage industry, occasionally Bay Equity may be unable to satisfy certain of these financial covenants. While lenders may waive any breaches of the financial covenants, there is no assurance that every lender will do so. If we were unable to secure a waiver of an event of default from an applicable lender, and such lender determines to enforce is remedies under the applicable warehouse facility, then Bay Equity may lose a portion of its assets, including pledged mortgage loans, and would be unable to rely on such facility to fund its mortgage originations, which may adversely affect Bay Equity’s business. This could trigger similar cross-defaults of Bay Equity’s other warehouse facilities.

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The cross-acceleration and cross-default provisions in the agreements governing our current indebtedness may result in an immediate obligation to repay all of either our 2025 and 2027 convertible senior notes, our warehouse credit facilities, or our term loan facility.

The indentures governing our 2025 and 2027 convertible senior notes contain cross-acceleration and cross-default provisions. These provisions could have the effect of creating an event of default under the indenture for either our 2025 or 2027 convertible senior notes, despite our compliance with that agreement, due solely to an event of default or failure to pay amounts owed under the indenture for the other tranche of convertible senior notes. Accordingly, all or a significant portion of our outstanding convertible senior notes could become immediately payable due solely to our failure to comply with the terms of a single agreement governing either our 2025 or 2027 convertible senior notes. In addition, each of our warehouse credit facilities and term loan facility contain cross-acceleration and cross-default provisions. These provisions could have the effect of creating an event of default under the agreement for any such facility, despite our compliance with that agreement, due solely to an event of default or failure to pay amounts owed under the agreement for another facility. Accordingly, all or a significant portion of our outstanding warehouse indebtedness or outstanding term loan indebtedness could become immediately payable due solely to our failure to comply with the terms of a single agreement governing one of our facilities. While the cross-default provisions in our existing warehouse credit facilities do not pick up defaults under our convertible senior notes and our existing warehouse credit facilities are carved out of the cross-payment default provisions in our 2025 and 2027 senior notes given that they constitute non-recourse debt, any default under our convertible senior notes would trigger an event of default under our term loan facility and, similarly, any default under our term loan facility would trigger the cross-payment default provisions in our 2025 and 2027 senior notes.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2023, the following directors and Section 16 officers adopted contracts, instructions, or written plans for the purchase or sale of our securities. Each of these intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934 (“10b5-1 Plan”). None of our directors or Section 16 officers adopted or terminated a “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K during the covered period.

The 10b5-1 Plans included a representation from each officer to the broker administering the plan that they were not in possession of any material nonpublic information regarding the company or the securities subject to the plan. A similar representation was made to the company in connection with the adoption of the plan under the company’s insider trading policy. Those representations were made as of the date of adoption of each 10b5-1 Plan.

Name

Title

Action

Date Adopted

Expiration Date

Aggregate # of Securities to be Bought/Sold

Christian Taubman(1)

Chief Growth Officer

Adoption

August 18, 2023

August 30, 2024

34,492

Anna Stevens(2)

Chief Human Resources Officer

Adoption

August 31, 2023

August 31, 2024

96,040

(1) Christian Taubman, our Chief Growth Officer, entered into a Rule 10b5-1 Plan on August 18, 2023. Mr. Taubman’s 10b5-1 Plan provides for the potential sale of 34,492 shares of our common stock.

(2) Anna Stevens, our Chief Human Resources Officer, entered into a Rule 10b5-1 Plan on August 31, 2023. Ms. Stevens plan provides for the potential sale of up to 46,301 shares of our common stock underlying previously vested Restricted Stock Units. Ms. Stevens’ plan also provides for the potential sale of 49,739 shares of our common stock underlying future-vesting Restricted Stock Units. For purposes of calculating the Aggregate # of Securities to be Sold under Ms. Stevens’ 10b5-1 Plan, we have not removed the number of shares to be withheld for income taxes.

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Item 6. Exhibits.

The exhibits required to be filed or furnished as part of this Quarterly Report are listed below. Notwithstanding any language to the contrary, exhibits 32.1, 32.2, 101, and 104 shall not be deemed to be filed as part of this Quarterly Report for purposes of Section 18 of the Securities Exchange Act of 1934.

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Exhibit

Filing Date

Filed or Furnished Herewith

31.1

Certification of principal executive officer, pursuant to Rule 13a-14(a)

31.2

Certification of principal financial officer, pursuant to Rule 13a-14(a)

32.1

Certification of chief executive officer, pursuant to 18 U.S.C. Section 1350

32.2

Certification of chief financial officer, pursuant to 18 U.S.C. Section 1350

10.1

Separation agreement , dated August 29, 2023, between R edfin Corp oration and Adam Wiener

10.2

Advisory agreement , dated August 29, 2023, between Redfin Corporation and Adam Wiener

10.3

T erm L o an and S ecuri ty A greem ent , dated October 20, 2023, between Redfin Corporation , Apollo Administrative Agency LLC and Apollo Global Funding , LLC

10.4

F orm of Change in Control Severance Agreement

101

Interactive data files

104

Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Redfin Corporation

(Registrant)

November 2, 2023

/s/ Glenn Kelman

(Date)

Glenn Kelman

President and Chief Executive Officer

(Duly Authorized Officer)

November 2, 2023

/s/ Chris Nielsen

(Date)

Chris Nielsen

Chief Financial Officer

(Principal Financial Officer)