SEATTLE - November 9, 2017 - Redfin Corporation (NASDAQ: RDFN), the technology-powered residential real estate brokerage, today announced financial results for the third quarter ended September 30, 2017. All financial measures, unless otherwise noted, are presented on a GAAP basis and include stock-based compensation.
Revenue increased 35% year-over-year to $109.5 million during the third quarter, including $3.4 million from Redfin Now(1). Gross profit was $39.3 million, an increase of 27% from $30.9 million in the third quarter of 2016. Gross margin was 36%, compared to 38% in the third quarter of 2016. Operating expenses were $29.1 million, an increase of 15% from $25.3 million in the third quarter of 2016. Operating expenses were 27% of revenue, down from 31% in the third quarter of 2016.
Net income was $10.6 million, compared to $5.7 million in the third quarter of 2016. Stock-based compensation was $2.7 million, up from $2.2 million in the third quarter of 2016. Depreciation and amortization was $1.8 million, up from $1.6 million in the third quarter of 2016.
GAAP net loss per diluted share reflects either accretion income or expense for changes in the fair value of our redeemable convertible preferred stock, which was outstanding prior to its conversion to common stock following our initial public offering ("IPO"). GAAP net loss per diluted share of common stock was
$0.50, compared to GAAP net income per diluted share of common stock of $0.03 in the third quarter of
Adjusted net income per diluted share(2), which excludes accretion income or expense for changes in the fair value of our redeemable convertible preferred stock and assumes its conversion to common stock in connection with our IPO as of the first day of the reporting period, was $0.12 in the third quarter of 2017. This compares to $0.08 in the third quarter of 2016.
"Redfin's brokerage market-share gains accelerated again in the third quarter, with strong traffic growth and steadily increasing sales in all of our new businesses," said Redfin CEO Glenn Kelman. "We also invested in making our service better and more efficient over the coming years while delivering better- than-expected earnings in the quarter, pairing long-term thinking with financial discipline."
- Accelerated market-share gains, serving 0.71% of U.S. existing home sales by value in the third quarter of 2017, an increase of 0.14 percentage points from the same period in 2016. The year- over-year gains were 0.11 percentage points for the second quarter of 2017, and 0.10 percentage points for the first quarter.(3)
- Continued to drive strong traffic growth, with visitors to our website and mobile application increasing by 38% over the third quarter of 2016, to more than 24 million monthly average visitors. Redfin continues to be the fastest-growing top-10 real estate website.
- Saved customers more than $37 million in fees in the third quarter compared to what they would have paid with an aggregate 5% commission, while delivering a level of customer satisfaction that is significantly higher than traditional brokers', as measured by a study we commissioned in May 2017.
- Added a new level of automation to tour scheduling that confirms the availability of the home being toured, which lets Redfin instantly and completely confirm the entire tour. Previously, we automated three of the four components: the availability of the Redfin agent at the time requested by the customer, the tour's duration, and order of homes to be seen.
- Introduced new offer-writing software to Redfin agents in Washington, D.C. and Virginia, with additional markets planned in the coming months. This technology, known as Redfin Fast Offers, should make our agents more productive, and helps Redfin customers get offers in faster, which is not only convenient, but we believe can also be the difference between winning or losing in many competitive markets that Redfin serves.
- Hired two experienced executives, the first with a background in process optimization, to develop more efficient ways to activate listings, schedule tours and close sales; and a second to manage field-support personnel who respond to customer inquiries, coordinate closings and prepare paperwork; for both hires, the goal over time is to deliver better service at lower costs.
(1) Redfin Now is an experimental new service where we buy homes directly from homeowners and resell them to homebuyers. Revenue earned from selling homes previously purchased by Redfin Now is recorded at closing on a gross basis, representing the sales price of the home. For Redfin Now, cost of revenue includes the cost of homes such as the purchase price and capitalized improvements. There
was no revenue from Redfin Now in any period prior to the three months ended June 30, 2017.
(2) "Adjusted net income per diluted share" is a "non-GAAP financial measure" as defined by the Securities and Exchange Commission ("SEC"). A reconciliation of GAAP to non-GAAP financial measures is provided below in the tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures".
(3) We calculate the aggregate value of U.S. home sales by multiplying the total number of U.S. home sales by the mean sale price of these sales, each as reported by the National Association of REALTORS®. We calculate our market share by aggregating the home value of real estate transactions conducted by our lead agents or our partner agents. Then, in order to account for both the sell- and buy- side components of each transaction, we divide that value by two-times the estimated aggregate value of U.S. home sales.
Business Outlook For the fourth quarter of 2017 we expect:
The following forward-looking statements reflect Redfin's expectations as of November 9, 2017, and are subject to substantial uncertainty.
- Revenue between $89.2 million and $93.2 million, representing year-over-year growth between 34% and 40% compared to the fourth quarter of 2016. Redfin Now revenue between $2.2 million and $3.2 million is included in the guidance provided.
- Net loss between $6.0 million and $3.9 million, compared to net loss of $5.3 million in the fourth quarter of 2016. This guidance includes approximately $3.2 million of stock-based compensation and $1.7 million of depreciation and amortization. Stock-based compensation was $2.5 million and depreciation and amortization was $1.8 million in the fourth quarter of 2016.
Redfin will webcast a conference call to discuss the results at 1:30 p.m. Pacific Time today. The webcast will be open to the public at http://investors.redfin.com. The webcast will remain available on the investor relations website for approximately three months following the conference call.
This press release contains certain forward-looking statements within the meaning of federal securities laws, including statements regarding our future operating results and financial position, business strategy and plans, product, service, and technology offerings, market conditions, growth and trends, and objectives for future operations, future expansion of our Redfin Fast Offers technology, the ability of our two new executive hires to serve our goals of delivering better service at lower costs, technology driving long-term efficiency gains and service improvements, and statements under the header Business Outlook. We believe our expectations related to these forward-looking statements are reasonable, but actual results may turn out to be materially different. Please see our filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements in this press release. These risks include, among other things: that we
operate in a seasonal and cyclical industry and may be affected by industry downturns; we have a history of losses; and our business is concentrated in certain geographic markets. Moreover, we operate in a very competitive and rapidly changing environment, and new risks and uncertainties may emerge that could impact the forward-looking statements in this press release. Additional risks and uncertainties that could affect our financial results are included under the caption "Risk Factors" in our Quarterly Report on Form 10-Q for the three months ended September 30, 2017 filed with the SEC on November 9, 2017, which will be available on our Investor Relations website at http://investors.redfin.com and on the SEC website at www.sec.gov. All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we have used a non-GAAP financial measure, specifically adjusted net income per share, in this press release. The presentation of this financial measures is not intended to be considered in isolation or as a substitute of, or superior to, financial information prepared and presented in accordance with GAAP.
We use adjusted net income per share to internally evaluate and analyze financial results. We believe this non-GAAP financial measure provides investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies, many of which present similar non-GAAP financial measures.
There are limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, the adjustments to our GAAP financial measures reflect the exclusion of certain items, specifically the accretion income (expense) and the undistributed earnings to participating securities, both of which are related to our redeemable convertible preferred stock that converted into common stock upon the completion of our IPO on August 2, 2017. Included in weighted-average shares
outstanding, basic and diluted, are shares of redeemable convertible preferred stock as if all such shares were converted to common stock on the first date of each period presented. These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.
Redfin Corporation (www.redfin.com) is a technology-powered, residential real estate brokerage. Founded by software engineers, we run the country's #1 most-visited brokerage website and offer a host of online tools to consumers, including the Redfin Estimate. We represent people buying and selling homes in over 80 markets throughout the United States. Our mission is to redefine real estate in the consumer's favor. In a commission-driven industry, we put the customer first. We do this by pairing our own agents with our own technology to create a service that is faster, better, and costs less. Since our launch in 2006 through 2016, we have helped customers buy or sell more than 75,000 homes worth more than $40 billion.
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