Enhanced Investments - Financial Portal

Published: 2021-08-05 00:00:00 ET

HTTP/1.1 200 OK HTTP/1.1 200 OK X-Crawlera-Slave: 181.215.86.192:3128 X-Crawlera-Version: 1.60.1 accept-ranges: bytes content-type: text/html last-modified: Thu, 05 Aug 2021 20:10:42 GMT server: AmazonS3 x-amz-id-2: hnU3v2lClTu22Cv84aCgWF4idGhZrBKnBcyt3h2VdBXyWgdknztmJSwACXgYGoTDm9L8SxOTOaM= x-amz-meta-mode: 33188 x-amz-meta-s3cmd-attrs: uid:504/gname:fitrprnt/uname:fitrprnt/gid:504/mode:33184/mtime:1628194230/atime:1628194230/md5:327289d065382e53c8a3b7eb348c8c31/ctime:1628194235 x-amz-replication-status: COMPLETED x-amz-request-id: HRFGAZBC92K2VC5P x-amz-version-id: .L1oeXIsaj_ovcC57fmeyVoBbLC5vuio x-content-type-options: nosniff x-frame-options: SAMEORIGIN x-xss-protection: 1; mode=block x-akamai-transformed: 9 28569 0 pmb=mTOE,2 expires: Fri, 07 Apr 2023 07:42:42 GMT cache-control: max-age=0, no-cache, no-store pragma: no-cache date: Fri, 07 Apr 2023 07:42:42 GMT vary: Accept-Encoding akamai-x-true-ttl: -1 strict-transport-security: max-age=31536000 ; includeSubDomains ; preload set-cookie: ak_bmsc=C7C6BEAEE205762E1A4945DC63F1C6DB~000000000000000000000000000000~YAAQx6g4F+Ek9FWHAQAAtuWqWhMXLnnu1k+NZSkg2ICCUHrck4L7R2wAN//pwgaO6yZshVyyiIya+3GMRYKUVxf2U2SnKb7ChnhGtAgjrkn6kkMoHPjBLJ0giekKRdNlMZAS4ggikF9xgHYqLzckQgDvKQiAwh+pptnoGoNQAGJgthnQwRCtTp+040t2oSvP+BRQ1P21FXxbo6CW1LN58jsH/NhoUyKGO1wavzmrjQoYrjre5BQlfZDt2ipSFC7vQIXLs+pIXH4oVFKYipJPLVCyYgsRyBy/uiMdzpQ0OU2FiLfJvjhurHHDYAVPOpcumbfvxs9ohg5oR6z3+hC1xAXqa4tvcHijWe+WColGriA/RqL2lMZ7xZ9aqoSL0/qGwWQ+sCy71zE=; Domain=.sec.gov; Path=/; Expires=Fri, 07 Apr 2023 09:42:41 GMT; Max-Age=7199; HttpOnly set-cookie: bm_mi=6E8FE1D2FE4E0048F190F32DD772398A~YAAQx6g4F+Ik9FWHAQAAtuWqWhNrWI05BpFXFPsibaGOxZwa2+q38CSOBXoHnA+h9OorGo3IDX4w+1NHKj6JVJnGNtDFPkQP0Pag4RfKNQDT3isyeWQNoZ8p7loeqPaM0SeyUCMFIo68t8qvvhJgaSCgH5YCyV4biQqaqQYxBvhBbI0aJylw8F/GrwxZh9VPSwfcJTwqbzmDrwfYzcHyIDTfHBfVjP8MdapozJ9psWRQP1NwoC3BCpk7oEJoZzBW2UjdV2USyva0H3i8hxUBmPmsPiVGIOdG7yTrIAMJHQ9qtAGUGdIKcJbdRALj8DaxBQ/pmIQ10kLjdYDhO/itDna+p1gmFtXnk3c61cY2NNg9dy+vKIdOdYAkoblyGEpmji+E/rlZRg==~1; Domain=.sec.gov; Path=/; Expires=Fri, 07 Apr 2023 07:42:42 GMT; Max-Age=0; Secure Transfer-Encoding: chunked Proxy-Connection: close Connection: close EX-99.2 3 q22021992.htm EX-99.2 Document

Exhibit 99.2

Reported Consolidated Results

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	3,713,156	$	1,703,130
Short-term investments	880,875		2,218,108
Accounts receivable, net	101,927		69,940
Mortgage loans held for sale	171,450		330,758
Inventory	1,169,601		491,293
Prepaid expenses and other current assets	107,687		75,846
Restricted cash	141,024		75,805
Total current assets	6,285,720		4,964,880
Contract cost assets	47,938		50,719
Property and equipment, net	189,950		196,152
Right of use assets	175,058		187,960
Goodwill	1,984,907		1,984,907
Intangible assets, net	81,362		94,767
Other assets	10,486		7,175
Total assets	$	8,775,421	$	7,486,560
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	15,640	$	18,974
Accrued expenses and other current liabilities	175,876		94,487
Accrued compensation and benefits	55,564		47,666
Borrowings under credit facilities	987,832		670,209
Deferred revenue	53,547		48,995
Lease liabilities, current portion	27,963		28,310
Convertible senior notes, current portion	330,095		—
Total current liabilities	1,646,517		908,641
Lease liabilities, net of current portion	193,891		207,723
Convertible senior notes, net of current portion	1,276,487		1,613,523
Other long-term liabilities	14,411		14,857
Total liabilities	3,131,306		2,744,744
Shareholders’ equity:
Class A common stock	6		6
Class B common stock	1		1
Class C capital stock	18		17
Additional paid-in capital	6,721,435		5,880,883
Accumulated other comprehensive income	305		164
Accumulated deficit	(1,077,650)		(1,139,255)
Total shareholders’ equity	5,644,115		4,741,816
Total liabilities and shareholders’ equity	$	8,775,421	$	7,486,560

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue:
Homes	$	777,145	$	454,252	$	1,481,297	$	1,224,125
IMT	476,090		280,339		922,418		611,005
Mortgages	56,745		33,761		124,705		59,043
Total revenue	1,309,980		768,352		2,528,420		1,894,173
Cost of revenue (1):
Homes	707,522		434,900		1,352,125		1,170,659
IMT	43,444		45,354		90,481		95,407
Mortgages	20,619		7,229		40,299		13,815
Total cost of revenue	771,585		487,483		1,482,905		1,279,881
Gross profit	538,395		280,869		1,045,515		614,292
Operating expenses:
Sales and marketing (1)	229,434		160,667		427,389		369,111
Technology and development (1)	128,463		97,507		248,764		197,988
General and administrative (1)	115,102		85,380		215,556		177,580
Impairment costs	—		—		—		76,800
Acquisition-related costs	3,671		—		4,488		—
Total operating expenses	476,670		343,554		896,197		821,479
Income (loss) from operations	61,725		(62,685)		149,318		(207,187)
Gain (loss) on extinguishment of debt	(931)		6,391		(2,334)		6,391
Other income	1,587		10,115		4,026		19,708
Interest expense	(39,430)		(37,590)		(78,985)		(75,182)
Income (loss) before income taxes	22,951		(83,769)		72,025		(256,270)
Income tax benefit (expense)	(13,310)		(679)		(10,420)		8,549
Net income (loss)	$	9,641	$	(84,448)	$	61,605	$	(247,721)
Net income (loss) per share:
Basic	$	0.04	$	(0.38)	$	0.25	$	(1.15)
Diluted	$	0.04	$	(0.38)	$	0.24	$	(1.15)
Weighted-average shares outstanding:
Basic	248,152		219,467		245,763		215,070
Diluted	261,496		219,467		260,484		215,070
(1) Includes share-based compensation expense as follows:
Cost of revenue	$	2,972	$	1,364	$	5,660	$	2,766
Sales and marketing	13,350		9,116		23,237		16,109
Technology and development	34,951		21,421		61,042		40,109
General and administrative	37,122		20,450		62,129		37,162
Total	$	88,395	$	52,351	$	152,068	$	96,146
Other Financial Data:
Income (loss) before income taxes:
Homes segment	$	(59,346)	$	(80,058)	$	(117,820)	$	(178,016)
IMT segment	133,573		19,166		277,148		(22,341)
Mortgages segment	(17,685)		(240)		(19,505)		(13,385)
Corporate items (2)	(33,591)		(22,637)		(67,798)		(42,528)
Total income (loss) before income taxes	$	22,951	$	(83,769)	$	72,025	$	(256,270)
Adjusted EBITDA: (3):
Homes segment	$	(29,092)	$	(60,908)	$	(63,040)	$	(135,903)
IMT segment	217,763		71,862		426,346		157,579
Mortgages segment	(5,897)		4,885		450		(718)
Total Adjusted EBITDA	$	182,774	$	15,839	$	363,756	$	20,958
(2) Certain corporate items are not directly attributable to any of our segments, including the gain (loss) on extinguishment of debt, interest income earned on our short-term investments included in other income and interest costs on our convertible senior notes included in interest expense. (3) Adjusted EBITDA is a non-GAAP financial measure; it is not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP. See Exhibit 99.1 for more information regarding our presentation of Adjusted EBITDA and for a reconciliation of Adjusted EBITDA to net income (loss) on a consolidated basis and income (loss) before income taxes for each segment, the most directly comparable GAAP financial measures, for each of the periods presented.

ZILLOW GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2021		2020
Operating activities
Net income (loss)	$	61,605	$	(247,721)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	57,882		55,199
Share-based compensation	152,068		96,146
Amortization of right of use assets	12,902		12,731
Amortization of contract cost assets	20,188		17,070
Amortization of debt discount and debt issuance costs	50,372		47,746
Loss (gain) on extinguishment of debt	2,334		(6,391)
Impairment costs	—		76,800
Deferred income taxes	—		(8,549)
Other adjustments to reconcile net income (loss) to cash provided by (used in) operating activities	8,271		(975)
Changes in operating assets and liabilities:
Accounts receivable	(32,811)		(1,487)
Mortgage loans held for sale	159,308		(38,514)
Inventory	(677,746)		701,145
Prepaid expenses and other assets	(35,788)		(771)
Contract cost assets	(17,407)		(19,608)
Lease liabilities	(14,179)		(495)
Accounts payable	2,676		7,504
Accrued expenses and other current liabilities	80,819		(8,741)
Accrued compensation and benefits	7,898		(3,285)
Deferred revenue	4,552		4,767
Other long-term liabilities	(446)		10,049
Net cash provided by (used in) operating activities	(157,502)		692,620
Investing activities
Proceeds from maturities of investments	1,329,552		701,266
Proceeds from sales of investments	—		116,394
Purchases of investments	—		(1,026,233)
Purchases of property and equipment	(24,137)		(54,653)
Purchases of intangible assets	(10,407)		(11,408)
Proceeds from sale of equity investment	—		10,000
Net cash provided by (used in) investing activities	1,295,008		(264,634)
Financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs	—		553,282
Proceeds from issuance of Class C capital stock, net of issuance costs	544,557		411,522
Proceeds from borrowings on credit facilities	610,118		43,200
Repayments of borrowings on credit facilities	(146,839)		(617,506)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements	(145,656)		39,387
Repurchase of convertible senior notes	—		(194,670)
Proceeds from exercise of stock options	75,685		184,984
Value of equity awards withheld for tax liability	(126)		—
Net cash provided by financing activities	937,739		420,199
Net increase in cash, cash equivalents and restricted cash during period	2,075,245		848,185
Cash, cash equivalents and restricted cash at beginning of period	1,778,935		1,230,909
Cash, cash equivalents and restricted cash at end of period	$	3,854,180	$	2,079,094
Supplemental disclosures of cash flow information
Cash paid for interest	$	27,773	$	29,201
Noncash transactions:
Capitalized share-based compensation	$	8,665	$	8,490
Write-off of fully depreciated property and equipment	$	24,345	$	6,942
Write-off of fully amortized intangible assets	$	3,782	$	—
Property and equipment purchased on account	$	1,352	$	5,305

Non-GAAP Net Income (Loss) per Share

Our presentation of non-GAAP net income (loss) per share excludes the impact of share-based compensation expense, impairment costs, acquisition-related costs, the gain (loss) on extinguishment of debt and income taxes. This measure is not a key metric used by our management and board of directors to measure operating performance or otherwise manage the business. However, we provide non-GAAP net income (loss) per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, impairment costs, acquisition-related costs, the gain (loss) on extinguishment of debt and income taxes facilitates investors’ operating performance comparisons on a period-to-period basis. You should not consider non-GAAP net income (loss) per share in isolation or as a substitute for analysis of our results as reported under GAAP.

The following table sets forth a reconciliation of non-GAAP net income (loss), adjusted, to net income (loss), as reported on a GAAP basis, and the calculation of non-GAAP net income (loss) per share - basic and diluted, for each of the periods presented (in thousands, except per share data, unaudited):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss), as reported	$	9,641	$	(84,448)	$	61,605	$	(247,721)
Share-based compensation	88,395		52,351		152,068		96,146
Impairment costs	—		—		—		76,800
Acquisition-related costs	3,671		—		4,488		—
Loss (gain) on extinguishment of debt	931		(6,391)		2,334		(6,391)
Income taxes	13,310		679		10,420		(8,549)
Net income (loss), adjusted	$	115,948	$	(37,809)	$	230,915	$	(89,715)
Non-GAAP net income (loss) per share:
Basic	$	0.47	$	(0.17)	$	0.94	$	(0.42)
Diluted	$	0.44	$	(0.17)	$	0.89	$	(0.42)
Weighted-average shares outstanding:
Basic	248,152		219,467		245,763		215,070
Diluted	261,496		219,467		260,484		215,070

Diluted non-GAAP net income (loss) per share for the periods presented is calculated using diluted weighted-average shares outstanding, which includes potential shares of Class A common stock and Class C capital stock for the periods in which their effect would have been dilutive. The potential shares of Class A common stock and Class C capital stock were excluded from the calculation of non-GAAP net income (loss) per share for certain periods presented if their effect would have been antidilutive. The following table reconciles the denominators used in the basic and diluted non-GAAP net income (loss) per share calculations (in thousands, unaudited):


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Denominator for basic calculation	248,152	219,467	245,763	215,070
Effect of dilutive securities:
Option awards	10,472	—	11,450	—
Unvested restricted stock units	2,872	—	3,271	—
Denominator for dilutive calculation	261,496	219,467	260,484	215,070

Segment Results of Operations

The following tables present our segment results for the periods presented (in thousands, unaudited):


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Homes		IMT		Mortgages		Homes		IMT		Mortgages
Revenue	$	777,145	$	476,090	$	56,745	$	454,252	$	280,339	$	33,761
Cost of revenue	707,522		43,444		20,619		434,900		45,354		7,229
Gross profit	69,623		432,646		36,126		19,352		234,985		26,532
Operating expenses:
Sales and marketing	65,791		136,620		27,023		47,539		101,458		11,670
Technology and development	30,328		89,838		8,297		26,155		65,890		5,462
General and administrative	27,824		68,944		18,334		21,891		53,771		9,718
Acquisition-related costs	—		3,671		—		—		—		—
Total operating expenses	123,943		299,073		53,654		95,585		221,119		26,850
Income (loss) from operations	(54,320)		133,573		(17,528)		(76,233)		13,866		(318)
Segment other income	—		—		1,006		—		5,300		385
Segment interest expense	(5,026)		—		(1,163)		(3,825)		—		(307)
Income (loss) before income taxes (1)	$	(59,346)	$	133,573	$	(17,685)	$	(80,058)	$	19,166	$	(240)


	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Homes		IMT		Mortgages		Homes		IMT		Mortgages
Revenue	$	1,481,297	$	922,418	$	124,705	$	1,224,125	$	611,005	$	59,043
Cost of revenue	1,352,125		90,481		40,299		1,170,659		95,407		13,815
Gross profit	129,172		831,937		84,406		53,466		515,598		45,228
Operating expenses:
Sales and marketing	120,810		254,227		52,352		119,457		225,019		24,635
Technology and development	63,497		168,482		16,785		54,815		131,865		11,308
General and administrative	53,347		127,592		34,617		45,301		112,455		19,824
Impairment costs	—		—		—		—		73,900		2,900
Acquisition-related costs	—		4,488		—		—		—		—
Total operating expenses	237,654		554,789		103,754		219,573		543,239		58,667
Income (loss) from operations	(108,482)		277,148		(19,348)		(166,107)		(27,641)		(13,439)
Segment other income	—		—		2,738		—		5,300		587
Segment interest expense	(9,338)		—		(2,895)		(11,909)		—		(533)
Income (loss) before income taxes (1)	$	(117,820)	$	277,148	$	(19,505)	$	(178,016)	$	(22,341)	$	(13,385)

(1) The following table presents the reconciliation of total segment income (loss) before income taxes to consolidated income (loss) before income taxes for the periods presented (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Total segment income (loss) before income taxes	$	56,542	$	(61,132)	$	139,823	$	(213,742)
Corporate interest expense	(33,241)		(33,458)		(66,752)		(62,740)
Corporate other income	581		4,430		1,288		13,821
Gain (loss) on extinguishment of debt	(931)		6,391		(2,334)		6,391
Consolidated income (loss) before income taxes	$	22,951	$	(83,769)	$	72,025	$	(256,270)

Certain corporate items are not directly attributable to any of our segments, including the gain (loss) on extinguishment of debt, interest income earned on our short-term investments included in other income and interest costs on our convertible senior notes included in interest expense.

Key Metrics

The following table presents our visits and average monthly unique users for each of the periods presented (in millions):


	Three Months Ended June 30,		2020 to 2021 % Change
	2021	2020
Visits (1)	2,750.2	2,491.1	10	%
Average monthly unique users (2)	228.8	218.1	5	%

(1)Visits includes visits to the Zillow, Trulia and StreetEasy mobile apps and websites. We measure Zillow and StreetEasy visits with Google Analytics and Trulia visits with Adobe Analytics.

(2)Zillow, StreetEasy and HotPads measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.

The following table presents the number of homes sold through Zillow Offers for the periods presented:


	Three Months Ended June 30,		2020 to 2021 % Change
	2021	2020
Number of homes sold	2,086	1,437	45	%

The following table presents loan origination volume by purpose and in total for Zillow Home Loans for the periods presented (in thousands):


	Three Months Ended June 30,				2020 to 2021 % Change
	2021		2020
Purchase loan origination volume	$	230,012	$	120,831	90	%
Refinance loan origination volume	657,928		147,475		346	%
Total loan origination volume	$	887,940	$	268,306	231	%

Non-GAAP Average Return on Homes Sold After Interest Expense

To provide investors with additional information regarding our Zillow Offers financial results, this Exhibit includes a calculation of Average Return on Homes Sold After Interest Expense, which is a non-GAAP financial measure. We have provided a reconciliation of Average Return on Homes Sold After Interest Expense to the most directly comparable GAAP financial measure, which is average gross profit per home for the Zillow Offers business.

We believe that Average Return on Homes Sold After Interest Expense is a useful financial measure to investors as it is one of the primary measures used by management in making investment decisions, measuring unit level economics and evaluating operating performance for the Zillow Offers business. The measure is intended to convey the unit level economics of homes sold during the period by presenting the average revenue and associated expenses directly attributed to the homes sold. We believe this average per unit measure facilitates meaningful period over period comparisons notwithstanding variability in the number of homes sold during a period and indicates ability to generate average returns on assets sold after considering home purchase costs, renovation costs, holding costs and selling costs.

We calculate the Average Return on Homes Sold After Interest Expense as revenue associated with homes sold during the period less direct costs attributable to those homes divided by the number of homes sold during the period. Specifically, direct costs include, with respect to each home sold during the period (1) home acquisition and renovation costs, which in turn include certain labor costs directly associated with these activities; (2) holding and selling costs; and (3) interest costs incurred.

Included in direct holding and interest expense amounts for the periods presented are holding and interest costs recorded as period expenses in prior periods associated with homes sold in the presented period, which are not calculated in accordance with, or as an alternative for, GAAP and should not be considered in isolation or as a substitute for results reported under GAAP. Excluded from certain of these direct cost amounts are costs recorded in the presented period related to homes that remain in inventory at the end of the period, as shown in the tables below. We make these period adjustments because we believe presenting Average Return on Homes Sold After Interest Expense in this manner provides a focused view on a subset of our assets - homes sold during the period - and reflecting costs associated with those homes sold from the time we acquire to the time we sell the home, which may be useful to investors.

Average Return on Homes Sold After Interest Expense is intended to illustrate the performance of homes sold during the period and is not intended to be a segment or company performance metric. Average Return on Homes Sold After Interest Expense is a supplemental measure of operating performance for a subset of assets and has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Average Return on Homes Sold After Interest Expense does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements;

•Average Return on Homes Sold After Interest Expense does not consider the potentially dilutive impact of share-based compensation;

•Average Return on Homes Sold After Interest Expense does not include period costs that were not eligible for inventory capitalization associated with homes held in inventory at the end of the period;

•Average Return on Homes Sold After Interest Expense does not reflect indirect expenses included in cost of revenue, sales and marketing, technology and development, or general and administrative expenses, some of which are recurring cash expenditures necessary to operate the business; and

•Average Return on Homes Sold After Interest Expense does not reflect income taxes.

On a GAAP basis, Zillow Offers average gross profit per home was $33,849 and $14,409 for three months ended June 30, 2021 and 2020, respectively.

The following table presents the total return on homes sold after interest expense and the Average Return on Homes Sold After Interest Expense for the periods presented (unaudited):


	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
	Total		Average Per Home		Total		Average Per Home
Homes sold	2,086				1,437
Zillow Offers revenue	$	772,030,000	$	370,101	$	453,816,000	$	315,808
Operating costs:
Home acquisition costs (1)	672,592,000		322,432		409,509,000		284,975
Renovation costs (1)	20,862,000		10,001		22,773,000		15,848
Holding costs (1)(2)	4,527,000		2,170		5,987,000		4,166
Selling costs	29,544,000		14,163		19,570,000		13,619
Total operating costs	727,525,000		348,766		457,839,000		318,608
Interest expense (1)(2)	3,545,000		1,699		5,948,000		4,139
Return on homes sold after interest expense	$	40,960,000	$	19,636	$	(9,971,000)	$	(6,939)
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period. (2) Holding costs and interest expense include $1.7 million and $1.3 million, respectively, of costs incurred in prior periods associated with homes sold in the second quarter of 2021 and $3.9 million and $3.8 million, respectively, of costs incurred in prior periods associated with homes sold in the second quarter of 2020.

The calculation of Average Return on Homes Sold After Interest Expense includes only those expenses directly attributed to the homes sold during the period. To arrive at return on homes sold after interest expense, the Company deducts from Zillow Offers gross profit (1) holding costs incurred in the presented period and prior periods for homes sold during the presented period that are included in sales and marketing expense, (2) selling costs incurred in the presented period for homes sold during the presented period that are included in sales and marketing expense and (3) interest expense incurred in the presented period and prior periods for homes sold during the presented period. The Company adds to Zillow Offers gross profit (1) inventory valuation adjustments recorded during the presented period associated with homes that remain in inventory at period end, net of inventory valuation adjustments recorded in prior periods related to homes sold in the presented period, and indirect expenses included in cost of revenue and (2) share-based compensation expense and depreciation and amortization expense included in cost of revenue. The following table presents the calculation of Zillow Offers average gross profit per home and Average Return on Homes Sold After Interest Expense and a reconciliation of return on homes sold after interest expense to Zillow Offers gross profit for the periods presented (unaudited):


	Three Months Ended June 30,
Calculation of Average Gross Profit per Home	2021		2020
Zillow Offers revenue	$	772,030,000	$	453,816,000
Zillow Offers cost of revenue	701,420,000		433,110,000
Zillow Offers gross profit	$	70,610,000	$	20,706,000
Homes sold	2,086		1,437
Average Zillow Offers gross profit per home	$	33,849	$	14,409
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure
Zillow Offers gross profit	$	70,610,000	$	20,706,000
Holding costs included in sales and marketing (1)	(3,841,000)		(5,987,000)
Selling costs included in sales and marketing (2)	(29,544,000)		(19,570,000)
Interest expense (3)	(3,545,000)		(5,948,000)
Direct and indirect expenses included in cost of revenue (4)	3,953,000		(890,000)
Share-based compensation and depreciation and amortization included in cost of revenue	3,327,000		1,718,000
Return on homes sold after interest expense	$	40,960,000	$	(9,971,000)
Homes sold	2,086		1,437
Average return on homes sold after interest expense	$	19,636	$	(6,939)
(1) Amount represents holding costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period and prior periods. These costs primarily include homeowners association dues, property taxes, insurance, utilities, and cleaning and maintenance costs incurred during the time a home is held for sale after the renovation period is complete. On a GAAP basis, the Company incurred a total of $5.3 million and $2.6 million of holding costs included in sales and marketing expense for the three months ended June 30, 2021 and 2020, respectively. (2) Amount represents selling costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period. These costs primarily include agent commissions paid upon the sale of a home. (3) Amount represents interest expense incurred related to homes sold in the presented period that was not eligible for inventory capitalization and was therefore expensed as a period cost in the presented period and prior periods. (4) Amount includes inventory valuation adjustments recorded during the period associated with homes that remain in inventory at period end, net of inventory valuation adjustments recorded in prior periods related to homes sold in the presented period, holding costs incurred in the renovation period that are eligible for inventory capitalization and are expensed in the period presented when the associated home is sold, as well as corporate costs allocated to Zillow Offers such as headcount expenses and hosting-related costs related to the operation of our website.

On a GAAP basis, Zillow Offers average gross profit per home was $32,296 and $14,579 for six months ended June 30, 2021 and 2020, respectively.

The following table presents the total return on homes sold after interest expense and the Average Return on Homes Sold After Interest Expense for the periods presented (unaudited):


	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
	Total		Average Per Home		Total		Average Per Home
Homes sold	4,051				3,831
Zillow Offers revenue	$	1,473,004,000	$	363,615	$	1,222,928,000	$	319,219
Operating costs:
Home acquisition costs (1)	1,282,786,000		316,659		1,099,163,000		286,913
Renovation costs (1)	41,684,000		10,290		59,364,000		15,496
Holding costs (1)(2)	9,079,000		2,241		15,605,000		4,073
Selling costs	56,455,000		13,936		52,483,000		13,699
Total operating costs	1,390,004,000		343,126		1,226,615,000		320,181
Interest expense (1)(2)	7,390,000		1,824		17,004,000		4,439
Return on homes sold after interest expense	$	75,610,000	$	18,665	$	(20,691,000)	$	(5,401)
(1) Amount excludes expenses incurred during the period that are not related to homes sold during the period. (2) Holding costs and interest expense include $1.2 million and $1.6 million, respectively, of costs incurred in prior periods associated with homes sold in the six months ended June 30, 2021 and $6.4 million and $8.1 million, respectively, of costs incurred in prior periods associated with homes sold in the six months ended June 30, 2020.


	Six Months Ended June 30,
Calculation of Average Gross Profit per Home	2021		2020
Zillow Offers revenue	$	1,473,004,000	$	1,222,928,000
Zillow Offers cost of revenue	1,342,172,000		1,167,076,000
Zillow Offers gross profit	$	130,832,000	$	55,852,000
Homes sold	4,051		3,831
Average Zillow Offers gross profit per home	$	32,296	$	14,579
Reconciliation of Non-GAAP Measure to Nearest GAAP Measure
Zillow Offers gross profit	$	130,832,000	$	55,852,000
Holding costs included in sales and marketing (1)	(7,718,000)		(15,605,000)
Selling costs included in sales and marketing (2)	(56,455,000)		(52,483,000)
Interest expense (3)	(7,390,000)		(17,004,000)
Direct and indirect expenses included in cost of revenue (4)	10,370,000		4,544,000
Share-based compensation and depreciation and amortization included in cost of revenue	5,971,000		4,005,000
Return on homes sold after interest expense	$	75,610,000	$	(20,691,000)
Homes sold	4,051		3,831
Average return on homes sold after interest expense	$	18,665	$	(5,401)
(1) Amount represents holding costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period and prior periods. These costs primarily include homeowners association dues, property taxes, insurance, utilities, and cleaning and maintenance costs incurred during the time a home is held for sale after the renovation period is complete. On a GAAP basis, the Company incurred a total of $9.2 million and $7.9 million of holding costs included in sales and marketing expense for the six months ended June 30, 2021 and 2020, respectively. (2) Amount represents selling costs incurred related to homes sold in the presented period that were not eligible for inventory capitalization and were therefore expensed as period costs in the presented period. These costs primarily include agent commissions paid upon the sale of a home. (3) Amount represents interest expense incurred related to homes sold in the presented period that was not eligible for inventory capitalization and was therefore expensed as a period cost in the presented period and prior periods. (4) Amount includes inventory valuation adjustments recorded during the period associated with homes that remain in inventory at period end, net of inventory valuation adjustments recorded in prior periods related to homes sold in the presented period, holding costs incurred in the renovation period that are eligible for inventory capitalization and are expensed in the period presented when the associated home is sold, as well as corporate costs allocated to Zillow Offers such as headcount expenses and hosting-related costs related to the operation of our website.

Zillow Offers Supplemental Information

The weighted average days held for homes in inventory as of June 30, 2021 was 29 days. The weighted average days held for homes sold during the three and six month periods ended June 30, 2021 was 66 days and 70 days, respectively.

The following table presents information on the geographic concentration of homes by state for each state where the value of homes in inventory exceeds 10% of our total inventory as of the date presented (in thousands, except number of homes and percentage of inventory, unaudited):


June 30, 2021
Geography	Number of Homes	Inventory Balance		% of Total Inventory
California	447	$	270,366	23	%
Texas	588	180,933		15
Florida	606	179,439		15
Georgia	390	118,617		10
All other states	1,111	420,246		37
Total	3,142	$	1,169,601	100	%

Selected Historical Data

Beginning with the three and six month periods ended June 30, 2021, we present a gross profit subtotal in our condensed consolidated statements of operations, which requires certain depreciation expense and amortization expense to be included within cost of revenue. To effect the presentation of gross profit, certain reclassifications have been made in the condensed consolidated statements of operations to conform data for prior periods to the current format.

The following tables set forth selected recast statements of operations information for the periods presented (in thousands, unaudited):


	Three Months Ended March 31, 2021
	Homes		IMT		Mortgages		Consolidated
Revenue	$	704,152	$	446,328	$	67,960	$	1,218,440
Cost of revenue	644,603		47,037		19,680		711,320
Gross profit	59,549		399,291		48,280		507,120
Operating expenses:
Sales and marketing	55,019		117,607		25,329		197,955
Technology and development	33,169		78,644		8,488		120,301
General and administrative	25,523		58,648		16,283		100,454
Acquisition-related costs	—		817		—		817
Total operating expenses	$	113,711	$	255,716	$	50,100	$	419,527


	Three Months Ended
	December 31, 2020								September 30, 2020								June 30, 2020								March 31, 2020
	Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated
Revenue	$	304,145	$	423,838	$	60,969	$	788,952	$	187,105	$	415,389	$	54,198	$	656,692	$	454,252	$	280,339	$	33,761	$	768,352	$	769,873	$	330,666	$	25,282	$	1,125,821
Cost of revenue	281,040		47,698		14,000		342,738		183,056		49,992		10,725		243,773		434,900		45,354		7,229		487,483		735,759		50,053		6,586		792,398
Gross profit	23,105		376,140		46,969		446,214		4,049		365,397		43,473		412,919		19,352		234,985		26,532		280,869		34,114		280,613		18,696		333,423
Operating expenses:
Sales and marketing	38,647		107,598		19,869		166,114		32,714		107,900		15,280		155,894		47,539		101,458		11,670		160,667		71,918		123,561		12,965		208,444
Technology and development	26,375		64,337		6,698		97,410		25,028		64,075		5,671		94,774		26,155		65,890		5,462		97,507		28,660		65,975		5,846		100,481
General and administrative	21,406		58,836		13,096		93,338		20,327		53,466		12,011		85,804		21,891		53,771		9,718		85,380		23,410		58,684		10,106		92,200
Impairment costs	—		—		—		—		—		—		—		—		—		—		—		—		—		73,900		2,900		76,800
Total operating expenses	$	86,428	$	230,771	$	39,663	$	356,862	$	78,069	$	225,441	$	32,962	$	336,472	$	95,585	$	221,119	$	26,850	$	343,554	$	123,988	$	322,120	$	31,817	$	477,925


	Three Months Ended
	December 31, 2019								September 30, 2019								June 30, 2019								March 31, 2019
	Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated
Revenue	$	603,228	$	319,665	$	21,054	$	943,947	$	384,626	$	335,290	$	25,292	$	745,208	$	248,924	$	323,669	$	26,985	$	599,578	$	128,472	$	298,272	$	27,360	$	454,104
Cost of revenue	585,143		47,554		6,174		638,871		373,029		50,093		6,601		429,723		242,861		49,277		6,394		298,532		123,431		46,961		6,581		176,973
Gross profit	18,085		272,111		14,880		305,076		11,597		285,197		18,691		315,485		6,063		274,392		20,591		301,046		5,041		251,311		20,779		277,131
Operating expenses:
Sales and marketing	64,176		112,411		11,283		187,870		49,186		121,896		13,646		184,728		37,255		139,154		14,407		190,816		20,954		130,012		14,251		165,217
Technology and development	24,136		61,176		6,681		91,993		18,423		65,532		6,791		90,746		16,225		67,342		6,086		89,653		11,178		61,914		5,439		78,531
General and administrative	27,052		62,303		9,632		98,987		22,169		55,716		10,567		88,452		17,806		54,658		10,358		82,822		14,356		70,837		10,565		95,758
Integration costs	—		—		—		—		—		—		5		5		—		—		293		293		—		—		352		352
Total operating expenses	$	115,364	$	235,890	$	27,596	$	378,850	$	89,778	$	243,144	$	31,009	$	363,931	$	71,286	$	261,154	$	31,144	$	363,584	$	46,488	$	262,763	$	30,607	$	339,858


	Three Months Ended
	December 31, 2018								September 30, 2018								June 30, 2018								March 31, 2018
	Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated		Homes		IMT		Mortgages		Consolidated
Revenue	$	41,347	$	300,708	$	23,280	$	365,335	$	11,018	$	313,638	$	18,438	$	343,094	$	—	$	305,941	$	19,305	$	325,246	$	—	$	280,856	$	19,023	$	299,879
Cost of revenue	39,540		47,696		7,606		94,842		10,369		52,150		2,718		65,237		32		51,510		2,863		54,405		140		51,785		3,168		55,093
Gross profit	1,807		253,012		15,674		270,493		649		261,488		15,720		277,857		(32)		254,431		16,442		270,841		(140)		229,071		15,855		244,786
Operating expenses:
Sales and marketing	10,099		121,948		10,226		142,273		4,649		121,287		6,562		132,498		2,095		142,043		7,663		151,801		290		132,969		8,246		141,505
Technology and development	8,736		66,288		5,412		80,436		5,986		63,207		3,799		72,992		3,759		59,840		3,826		67,425		2,176		52,530		3,861		58,567
General and administrative	10,039		57,230		7,474		74,743		6,010		60,672		4,054		70,736		4,175		52,438		3,965		60,578		1,784		50,161		4,106		56,051
Impairment costs	—		65,000		4,000		69,000		—		10,000		—		10,000		—		—		—		—		—		—		—		—
Acquisition-related costs	—		—		268		268		—		—		1,405		1,405		—		—		632		632		—		27		—		27
Integration costs	—		—		1,492		1,492		—		—		523		523		—		—		—		—		—		—		—		—
Total operating expenses	$	28,874	$	310,466	$	28,872	$	368,212	$	16,645	$	255,166	$	16,343	$	288,154	$	10,029	$	254,321	$	16,086	$	280,436	$	4,250	$	235,687	$	16,213	$	256,150