Company Quick10K Filing
Zillow
Price29.53 EPS-1
Shares207 P/E-30
MCap6,113 P/FCF-9
Net Debt-920 EBIT-208
TEV5,193 TEV/EBIT-25
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-05-04
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8-K 2020-11-05
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8-K 2018-02-08

Z 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Organization and Description of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Fair Value Measurements
Note 4. Cash and Cash Equivalents, Short - Term Investments and Restricted Cash
Note 5. Inventory
Note 6. Contract Balances
Note 7. Contract Cost Assets
Note 8. Property and Equipment, Net
Note 9. Equity Investment
Note 10. Intangible Assets, Net
Note 11. Debt
Note 12. Income Taxes
Note 13. Shareholders' Equity
Note 14. Share - Based Awards
Note 15. Net Income (Loss) per Share
Note 16. Commitments and Contingencies
Note 17. Employee Benefit Plan
Note 18. Segment Information and Revenue
Note 19. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 q12021form10-qex311.htm
EX-31.2 q12021form10-qex312.htm
EX-32.1 q12021form10-qex321.htm
EX-32.2 q12021form10-qex322.htm

Zillow Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02013201520172020
Assets, Equity
0.80.60.40.20.0-0.22013201520172020
Rev, G Profit, Net Income
1.30.90.50.2-0.2-0.62013201520172020
Ops, Inv, Fin

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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 March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36853
 
_____________________________________________________
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________
Washington47-1645716
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
                    
1301 Second Avenue, Floor 31,
Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
(206) 470-7000
(Registrant’s telephone number, including area code)
 _____________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareZGThe Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per shareZThe 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      No  
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      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 filerAccelerated filer
Non-accelerated filerSmaller 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      No  
As of April 27, 2021, 61,335,992 shares of Class A common stock, 6,217,447 shares of Class B common stock, and 180,104,154 shares of Class C capital stock were outstanding.



Table of Contents
ZILLOW GROUP, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2021
TABLE OF CONTENTS
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.
 
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Table of Contents
As used in this Quarterly Report on Form 10-Q, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2020, including, but not limited to:
the impact of the COVID-19 pandemic or other public health crises and any associated economic downturn on our future financial position, operations and financial performance;
the magnitude, duration and severity of the COVID-19 pandemic and the availability and widespread distribution and use of effective vaccines;
the impact of actions taken by governments, businesses and individuals in response to the COVID-19 pandemic, including changes in laws or regulations that limit our ability to operate;
the current and future health and stability of the economy, financial conditions and residential housing market, including any extended slowdown in the real estate markets as a result of the COVID-19 pandemic;
changes in laws or regulations applicable to our business, employees, products or services, including current and future laws, regulations and orders that limit our ability to operate in light of the COVID-19 pandemic;
the satisfaction of conditions precedent to the closing of Zillow Group’s proposed acquisition of ShowingTime.com, Inc., including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act;
changes in general economic and financial conditions that reduce demand for our products and services, lower our profitability or reduce our access to credit;
actual or anticipated fluctuations in our financial condition and results of operations;
changes in projected operational and financial results;
addition or loss of significant customers;
actual or anticipated changes in our growth rate relative to that of our competitors;
acquisitions, strategic partnerships, joint ventures, capital-raising activities or other corporate transactions or commitments by us or our competitors;
actual or anticipated changes in technology, products, markets or services by us or our competitors;
ability to obtain or maintain licenses and permits to support our current and future businesses;
ability to comply with MLS rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers;
ability to operate our mortgage originations business, including the ability to obtain sufficient financing;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
the impact of natural disasters and other catastrophic events;
the impact of pending or future litigation; and
issuance of new or updated research or reports by securities analysts.
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 forward-looking events and circumstances 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.
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, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
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WHERE YOU CAN FIND MORE INFORMATION
Our filings with the Securities and Exchange Commission, or SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC.
Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters and for complying with its disclosure obligations under Regulation FD:
Zillow Group Investor Relations Webpage (http://investors.zillowgroup.com)
Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)
Zillow Group Twitter Account (https://twitter.com/zillowgroup)
The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and Twitter account are as inactive textual references only.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$3,401,762 $1,703,130 
Short-term investments
1,294,051 2,218,108 
Accounts receivable, net of allowance for doubtful accounts of $3,460 and $3,427 at March 31, 2021 and December 31, 2020, respectively
82,461 69,940 
Mortgage loans held for sale274,319 330,758 
Inventory472,397 491,293 
Prepaid expenses and other current assets107,877 75,846 
Restricted cash120,713 75,805 
Total current assets5,753,580 4,964,880 
Contract cost assets50,182 50,719 
Property and equipment, net190,234 196,152 
Right of use assets180,610 187,960 
Goodwill1,984,907 1,984,907 
Intangible assets, net87,711 94,767 
Other assets8,678 7,175 
Total assets$8,255,902 $7,486,560 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$17,044 $18,974 
Accrued expenses and other current liabilities121,692 94,487 
Accrued compensation and benefits49,844 47,666 
Borrowings under credit facilities662,175 670,209 
Deferred revenue54,192 48,995 
Lease liabilities, current portion28,465 28,310 
Total current liabilities933,412 908,641 
Lease liabilities, net of current portion200,762 207,723 
Convertible senior notes1,597,205 1,613,523 
Other long-term liabilities14,485 14,857 
Total liabilities2,745,864 2,744,744 
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding
  
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 61,335,992 and 61,101,303 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
6 6 
Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding
1 1 
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 179,754,423 and 173,207,170 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
18 17 
Additional paid-in capital6,596,850 5,880,883 
Accumulated other comprehensive income454 164 
Accumulated deficit(1,087,291)(1,139,255)
Total shareholders’ equity5,510,038 4,741,816 
Total liabilities and shareholders’ equity$8,255,902 $7,486,560 
See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data, unaudited)

 Three Months Ended
March 31,
 20212020
Revenue:
Homes$704,152 $769,873 
IMT446,328 330,666 
Mortgages67,960 25,282 
Total revenue1,218,440 1,125,821 
Cost of revenue (exclusive of amortization) (1):
Homes 640,618 732,199 
IMT28,016 24,318 
Mortgages18,396 5,155 
Total cost of revenue687,030 761,672 
Sales and marketing193,593 204,648 
Technology and development148,856 134,918 
General and administrative100,551 92,285 
Impairment costs 76,800 
Acquisition-related costs817  
Total costs and expenses1,130,847 1,270,323 
Income (loss) from operations
87,593 (144,502)
Loss on extinguishment of debt(1,403) 
Other income2,439 9,593 
Interest expense(39,555)(37,592)
Income (loss) before income taxes49,074 (172,501)
Income tax benefit2,890 9,228 
Net income (loss)$51,964 $(163,273)
Net income (loss) per share:
Basic$0.21 $(0.78)
Diluted$0.20 $(0.78)
Weighted-average shares outstanding:
Basic243,234 210,674 
Diluted259,346 210,674 
 ____________________
(1) Amortization of website development costs and intangible assets included in technology and development
$20,838 $17,184 
See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)

 Three Months Ended
March 31,
 20212020
Net income (loss)$51,964 $(163,273)
Other comprehensive income:
Unrealized gains on investments261 3,602 
Reclassification adjustment for net investment gains included in net income (loss) 434 
Net unrealized gains on investments261 4,036 
Currency translation adjustments29 (90)
Total other comprehensive income290 3,946 
Comprehensive income (loss)$52,254 $(159,327)
See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data, unaudited)
Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at January 1, 2021240,525,920 $24 $5,880,883 $(1,139,255)$164 $4,741,816 
Issuance of common and capital stock upon exercise of stock options1,602,896  61,149 — — 61,149 
Vesting of restricted stock units813,471 — — — — — 
Restricted stock units withheld for tax liability(622)— (124)— — (124)
Share-based compensation expense— — 67,386 — — 67,386 
Issuance of Class C capital stock in connection with equity offering, net of issuance costs of $6,054
3,163,502 1 544,557 — — 544,558 
Conversion of convertible senior notes1,202,720 — 42,999 — — 42,999 
Unwind of capped call transactions(25)— — — — — 
Net income— — — 51,964 — 51,964 
Other comprehensive income— — — — 290 290 
Balance at March 31, 2021247,307,862 $25 $6,596,850 $(1,087,291)$454 $5,510,038 
Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at January 1, 2020209,066,855 $21 $4,412,200 $(977,140)$340 $3,435,421 
Issuance of common and capital stock upon exercise of stock options3,207,375 1 92,201 — — 92,202 
Vesting of restricted stock units638,909 — — — — — 
Share-based compensation expense— — 47,465 — — 47,465 
Net loss— — — (163,273)— (163,273)
Other comprehensive income— — — — 3,946 3,946 
Balance at March 31, 2020212,913,139 $22 $4,551,866 $(1,140,413)$4,286 $3,415,761 

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 Three Months Ended
March 31,
 20212020
Operating activities
Net income (loss)
$51,964 $(163,273)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization28,899 29,026 
Share-based compensation expense63,673 43,795 
Amortization of right of use assets7,350 6,465 
Amortization of contract cost assets10,130 8,415 
Amortization of debt discount and debt issuance costs25,271 22,547 
Loss on extinguishment of debt1,403  
Impairment costs 76,800 
Deferred income taxes(2,890)(9,228)
Loss on disposal of property and equipment and other assets4,418 1,952 
Credit loss expense128 558 
Net loss on investment securities 434 
Amortization (accretion) of bond premium (discount)4,014 (473)
Changes in operating assets and liabilities:
Accounts receivable(12,649)(5,335)
Mortgage loans held for sale56,439 (341)
Inventory18,893 302,593 
Prepaid expenses and other assets(28,643)(2,916)
Contract cost assets(9,593)(9,771)
Lease liabilities(6,806)(1,625)
Accounts payable(2,235)7,673 
Accrued expenses and other current liabilities24,889 4,588 
Accrued compensation and benefits2,178 (4,967)
Deferred revenue5,197 (4,400)
Other long-term liabilities(372)(527)
Net cash provided by operating activities241,658 301,990 
Investing activities
Proceeds from maturities of investments920,304 296,272 
Proceeds from sales of investments 53,997 
Purchases of investments (58,459)
Purchases of property and equipment(11,485)(32,966)
Purchases of intangible assets(4,485)(4,503)
Net cash provided by investing activities904,334 254,341 
Financing activities
Proceeds from issuance of Class C capital stock, net of issuance costs544,557  
Proceeds from borrowings on credit facilities126,010 34,460 
Repayments of borrowings on credit facilities(88,340)(294,150)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements(45,704)4,386 
Proceeds from exercise of stock options61,149 92,202 
Value of equity awards withheld for tax liability(124) 
Net cash provided by (used in) financing activities597,548 (163,102)
Net increase in cash, cash equivalents and restricted cash during period1,743,540 393,229 
Cash, cash equivalents and restricted cash at beginning of period1,778,935 1,230,909 
Cash, cash equivalents and restricted cash at end of period$3,522,475 $1,624,138 
Supplemental disclosures of cash flow information
Cash paid for interest$14,191 $17,038 
Noncash transactions:
Capitalized share-based compensation$3,713 $3,670 
Write-off of fully depreciated property and equipment$11,603 $4,143 
Write-off of fully amortized intangible assets$1,300 $ 
Property and equipment purchased on account$905 $9,445 
See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Description of Business
Zillow Group, Inc. is reimagining real estate to make it easier to unlock life’s next chapter. As the most visited real estate website in the United States, Zillow and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase. In September 2020, Zillow launched Zillow Homes, Inc., a licensed brokerage entity, to streamline Zillow Offers transactions.
Other consumer brands include Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions which include Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia, Inc. (“Trulia”), and upon the closing of the Trulia acquisition in February 2015, each of Zillow, Inc. and Trulia became wholly owned subsidiaries of Zillow Group, Inc.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic and the availability and widespread distribution and use of effective vaccines; rates of revenue growth; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; the satisfaction of conditions precedent to the closing of our proposed acquisition of ShowingTime.com, Inc., including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act; our ability to manage advertising inventory or pricing; engagement and usage of our products; our investment of resources to pursue strategies that may not prove effective; competition in our market; the stability of the residential real estate market and the impact of interest rate changes; changes in technology, products, markets or services by us or our competitors; addition or loss of significant customers; our ability to maintain or establish relationships with listings and data providers; our ability to obtain or maintain licenses and permits to support our current and future businesses; actual or anticipated changes to our products and services; changes in government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; management of our growth; our ability to attract and retain qualified employees and key personnel; protection of customers’ information and other privacy concerns; protection of our brand and intellectual property; and intellectual property infringement and other claims, among other things.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 12, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.
The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2021 and our results of operations, comprehensive income (loss), shareholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any interim period or for any other future year.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the accounting for certain revenue offerings, the net realizable value of inventory, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets, share-based compensation, income taxes, business combinations and the recoverability of goodwill, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The COVID-19 pandemic has introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the estimates previously listed, among others.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance which is intended to simplify the accounting for income taxes. It removes certain exceptions to the general principles and clarifies and amends existing guidance to improve consistent application. This guidance is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We adopted this guidance on January 1, 2021. The method of adoption for this guidance varies based on the amendment, however the relevant amendments have been applied on a prospective basis. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.
Recently Issued Accounting Standards Not Yet Adopted
In August 2020, the FASB issued guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, the guidance removes the liability and equity separation models for convertible instruments. Instead, entities will account for convertible debt instruments wholly as debt unless convertible instruments contain features that require bifurcation as a derivative or that result in substantial premiums accounted for as paid-in capital. The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a retrospective or modified retrospective basis. We expect to adopt this guidance on January 1, 2022. Although we continue to evaluate the method of adoption and impact of this guidance on our financial position, results of operations and cash flows, upon adoption we expect this guidance to result in a reclassification of conversion feature balances from additional paid-in capital to debt and to decrease reported interest expense for our convertible senior notes.
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We expect to apply some of the expedients and exceptions provided in this guidance to our credit facilities, warehouse line of credit and master repurchase agreements, all of which reference the one-month LIBOR in the applicable interest rate, as publication of the one-month LIBOR is expected to cease after June 30, 2023. We expect to amend our facility agreements prior to that date. As the goal of the reference rate reform transition is for it to be economically neutral to entities, we do not believe the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.
Note 3. Fair Value Measurements
We applied the following methods and assumptions in estimating our fair value measurements:
Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of other cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).
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Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means (Level 2).
Restricted cash — The carrying value of restricted cash approximates fair value due to the short period of time amounts borrowed on the credit facilities are outstanding and amounts are held in escrow (Level 1).
Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).
Interest rate lock commitments — The fair value of interest rate lock commitments (“IRLCs”) is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an interest rate lock commitment will ultimately result in a closed loan (Level 3).
The following table presents the range and weighted-average pull-through rates used in determining the fair value of IRLCs as of the dates presented:
March 31, 2021December 31, 2020
Range
50% - 100%
47% - 100%
Weighted-average81%75%
Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments are calculated by reference to quoted prices for similar assets (Level 2).
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands):
 March 31, 2021
TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$3,074,175 $3,074,175 $ $ 
Short-term investments:
U. S. government agency securities988,774  988,774  
Treasury bills298,984  298,984  
Municipal securities6,044  6,044  
Certificates of deposit249  249  
Restricted cash120,713 120,713   
Mortgage origination-related:
Mortgage loans held for sale274,319  274,319  
IRLCs5,002   5,002 
Forward contracts - other current assets4,946  4,946  
Forward contracts - other current liabilities(16) (16) 
        Total$4,773,190 $3,194,888 $1,573,300 $5,002 

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 December 31, 2020
 TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$1,486,384 $1,486,384 $ $ 
Municipal securities3,228  3,228  
Short-term investments:
Treasury bills1,163,813  1,163,813  
U. S. government agency securities1,037,577  1,037,577  
Municipal securities16,220  16,220  
Certificates of deposit498  498  
Restricted cash75,805 75,805   
Mortgage origination-related:
Mortgage loans held for sale330,758  330,758  
IRLCs12,342   12,342 
Forward contracts - other current liabilities(2,608) (2,608) 
Total$4,124,017 $1,562,189 $2,549,486 $12,342 

The following table presents the changes in our IRLCs during the three months ended March 31, 2021 (in thousands):
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Balance, beginning of the period$12,342 $937 
Issuances18,301 5,208 
Transfers(24,398)(5,349)
Fair value changes recognized in earnings(1,243)1,429 
Balance, end of period$5,002 $2,225 
At March 31, 2021, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $336.2 million and $560.0 million for our IRLCs and forward contracts, respectively. At December 31, 2020, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $378.1 million and $652.1 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our derivative positions.
See Note 11 for the carrying amount and estimated fair value of our convertible senior notes.
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Note 4. Cash and Cash Equivalents, Short-term Investments and Restricted Cash
The following tables present the amortized cost, gross unrealized gains and losses and estimated fair market value of our cash and cash equivalents, short-term investments and restricted cash as of the dates presented (in thousands):
 March 31, 2021
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Market
Value
Cash$327,587 $— $— $327,587 
Cash equivalents:
Money market funds3,074,175 — — 3,074,175 
Short-term investments:
U. S. government agency securities988,478 303 (7)988,774 
Treasury bills298,953 31  298,984 
Municipal securities6,046  (2)6,044 
Certificates of deposit249   249 
Restricted cash120,713 — — 120,713 
        Total$4,816,201 $334 $(9)$4,816,526 

 December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Market
Value
Cash$213,518 $— $— $213,518 
Cash equivalents:
Money market funds1,486,384 — — 1,486,384 
Municipal securities3,229 — (1)3,228 
Short-term investments:
Treasury bills1,163,748 65  1,163,813 
U.S. government agency securities1,037,572 57 (52)1,037,577 
Municipal securities16,226  (6)16,220 
Certificates of deposit498   498 
Restricted cash75,805 — — 75,805 
Total$3,996,980 $122 $(59)$3,997,043 
All short-term investments as of March 31, 2021 have a contractual maturity date of one year or less.
Note 5. Inventory
The following table presents the components of inventory, net of applicable lower of cost or net realizable value adjustments, as of the dates presented (in thousands):
March 31, 2021December 31, 2020
Finished goods$341,887 $339,372 
Work-in-process130,510 151,921 
Inventory$472,397 $491,293 

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Note 6. Contract Balances
Contract assets were $34.3 million and $20.8 million as of March 31, 2021 and December 31, 2020, respectively. Contract assets are recorded within prepaids and other current assets in our condensed consolidated balance sheets.
For the three months ended March 31, 2021 and 2020, we recognized revenue of $46.5 million and $36.0 million, respectively, that was included in the deferred revenue balance at the beginning of the related period.
Note 7. Contract Cost Assets
As of March 31, 2021 and December 31, 2020, we had $50.2 million and $50.7 million, respectively, of contract cost assets. During the three months ended March 31, 2021 and 2020, we did not incur any impairment losses to our contract cost assets. We recorded amortization expense related to contract cost assets of $10.1 million and $8.4 million during the three months ended March 31, 2021 and 2020, respectively.
Note 8. Property and Equipment, net
The following table presents the detail of property and equipment as of the dates presented (in thousands):
March 31, 2021December 31, 2020
Website development costs$110,971 $95,466 
Leasehold improvements102,632 110,280 
Office equipment, furniture and fixtures34,561 39,607 
Construction-in-progress32,553 44,151 
Computer equipment20,209 20,433 
Property and equipment300,926 309,937 
Less: accumulated amortization and depreciation(110,692)(113,785)
Property and equipment, net$190,234 $196,152