REDFIN CORPORATION (Exact Name of Registrant As Specified in Its Charter)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2017 or ☐ 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 (I.R.S. Employer (State of Incorporation) Identification No.) 1099 Stewart Street, Suite 600 Seattle, Washington 98101 (Address of Principal Executive Offices) (Zip Code) (206) 576-8333 (Registrant’s Telephone Number, Including Area Code) 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 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 ☐ No ☒ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ (Do not check if a smaller Smaller reporting Non-accelerated filer ☒ reporting company) 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 ☐ No ☒ As of October 31, 2017, there were 81,427,697 shares of the registrant’s common stock outstanding. Redfin Corporation Quarterly Report on Form 10-Q For the Three Months Ended September 30, 2017 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Condensed Financial Statements (unaudited) 1 Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statement of Operations 2 Condensed Consolidated Statement of Cash Flows 3 Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity/(Deficit) 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30 Item 4. Controls and Procedures 31 PART II - OTHER INFORMATION Item 1. Legal Proceedings 32 Item 1A. Risk Factors 33 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 58 Item 6. Exhibits 59 Signatures Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, 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,” “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 Part II. Item 1A. “Risk Factors.” 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 prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward- looking statements may not be achieved or occur. 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 prospectus or to conform these statements to actual results or revised expectations. Table of Contents PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited) Redfin Corporation and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts, unaudited) December 31, September 30, 2016 2017 Assets: Current assets: Cash and cash equivalents $ 64,030 $ 212,436 Restricted cash 3,815 10,101 Short-term investments 1,749 1,258 Prepaid expenses 4,388 4,472 Accrued revenue, net of allowance for doubtful accounts of $150 and $147 at December 31, 2016 and September 30, 2017, respectively 10,625 13,336 Other current assets 8,781 5,623 Loans held for sale — 726 Total current assets 93,388 247,952 Property and equipment, net 19,226 21,600 Intangible assets, net 3,782 3,416 Goodwill 9,186 9,186 Deferred offering costs 720 — Other assets 7,175 6,931 Total assets: $ 133,477 $ 289,085 Liabilities, redeemable convertible preferred stock and stockholders' equity/(deficit): Current liabilities: Accounts payable $ 5,385 $ 3,343 Accrued liabilities 22,253 30,202 Other payables 3,793 9,858 Loan facility — 705 Current portion of deferred rent 1,512 1,104 Total current liabilities 32,943 45,212 Deferred rent, net of current portion 8,852 10,365 Total liabilities 41,795 55,577 Commitments and contingencies (Note 10) Redeemable convertible preferred stock—par value $0.001 per share; As of December 31, 2016: 166,266,114 shares authorized; 55,422,002 issued and outstanding; and aggregate liquidation preference of $167,488. As of September 30, 2017: no shares authorized, issued, and outstanding. 655,416 — Stockholders’ equity/(deficit): Common stock—par value $0.001 per share; 290,081,638 and 500,000,000 shares authorized, respectively; 14,687,024 and 81,385,310 shares issued and outstanding, respectively 15 81 Preferred stock—par value $0.001 per share; As of December 31, 2016: no shares authorized, issued and outstanding. As of September 30, 2017: 10,000,000 shares authorized and no shares issued and outstanding. — — Additional paid-in capital — 360,631 Accumulated deficit (563,749) (127,204) Total stockholders’ equity/(deficit) (563,734) 233,508 Total liabilities, redeemable convertible preferred stock and stockholders’ equity/(deficit): $ 133,477 $ 289,085 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents Redfin Corporation and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts, unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2016 2017 2016 2017 Revenue $ 81,064 $ 109,479 $ 200,414 $ 274,282 Cost of revenue 50,147 70,166 138,955 191,633 Gross profit 30,917 39,313 61,459 82,649 Operating expenses: Technology and development 9,781 11,483 25,739 31,245 Marketing 5,436 5,588 23,133 26,179 General and administrative 10,037 11,995 29,948 38,828 Total operating expenses 25,254 29,066 78,820 96,252 Income (loss) from operations 5,663 10,247 (17,361) (13,603) Interest income and other income, net: Interest income 37 311 133 387 Other income, net — — 37 13 Total interest income and other income, net 37 311 170 400 Net income (loss) $ 5,700 $ 10,558 $ (17,191) $ (13,203) Accretion of redeemable convertible preferred stock (3,050) (40,224) 56,819 (175,915) Undistributed earnings attributable to participating securities (2,105) — (31,483) — Net income (loss) attributable to common stock—basic $ 545 $ (29,666) $ 8,145 $ (189,118) Net income (loss) attributable to common stock—diluted $ 545 $ (29,666) $ (17,191) $ (189,118) Net income (loss) per share attributable to common stock—basic $ 0.04 $ (0.50) $ 0.57 $ (6.37) Net income (loss) per share attributable to common stock—diluted $ 0.03 $ (0.50) $ (0.25) $ (6.37)